<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CORINTHIAN COLLEGES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 824 33-0717312
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION
NUMBER)
6 HUTTON CENTRE DRIVE, SUITE 400
SANTA ANA, CALIFORNIA 92707-5765
(714) 427-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DAVID G. MOORE
CORINTHIAN COLLEGES, INC.
6 HUTTON CENTRE DRIVE, SUITE 400
SANTA ANA, CALIFORNIA 92707-5765
(714) 427-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID A. KRINSKY JONATHAN LAYNE
O'MELVENY & MYERS LLP GIBSON, DUNN & CRUTCHER LLP
610 NEWPORT CENTER DRIVE, SUITE 1700 333 SOUTH GRAND AVENUE, 46TH FLOOR
NEWPORT BEACH, CALIFORNIA 92660 LOS ANGELES, CALIFORNIA 90071
(714) 760-9600 (213) 229-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) (2) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $0.0001 par value........ 3,450,000 $51,750,000 $15,267
</TABLE>
===============================================================================
(1) Includes 450,000 shares that may be purchased at the option of the
Underwriters solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 21, 1998
PROSPECTUS
3,000,000 SHARES
[LOGO OF CORINTHIAN COLLEGES, INC.]
COMMON STOCK
--------
All of the 3,000,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Corinthian Colleges, Inc. ("CCi" or the "Company"). Prior to
the Offering, there has not been a public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price of
the Common Stock will be between $ and $ per share. See
"Underwriting" for a discussion of factors to be considered in determining the
initial public offering price. Application has been made to have the Common
Stock approved for quotation on the Nasdaq Stock Market's National Market under
the symbol "COCO."
--------
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------
Total(3) $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $2,000,000, all of which is
payable by the Company.
(3) Certain stockholders of the Company have granted the Underwriters a 30-
day option to purchase up to 450,000 additional shares of Common Stock,
solely to cover over-allotments, if any. See "Underwriting." If such
options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that the certificates for the
shares of Common Stock offered hereby will be available for delivery on or
about , 1998, at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
--------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
PIPER JAFFRAY INC.
, 1998
<PAGE>
[ARTWORK TO COME]
The Company intends to furnish its stockholders annual reports containing
audited financial statements and, upon request, will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING BY OVER-ALLOTMENT, ENTERING INTO STABILIZING BIDS,
EFFECTING SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, including "Risk Factors" and
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus (i) reflects the consummation of the Transactions, including a
44.094522 for 1 stock split of the Common Stock (as defined in "The
Transactions") and (ii) assumes that the Underwriters' over-allotment options
are not exercised. Throughout this Prospectus, except where the context
otherwise requires, the term "Company" refers collectively to Corinthian
Colleges, Inc. and its subsidiaries, including all of their schools and
campuses; the terms "school," "college" or "campus" refer to a single location.
The Company's fiscal year ends on June 30.
THE COMPANY
The Company is one of the largest proprietary post-secondary education
companies in the United States, with more than 14,000 students as of March 31,
1998. The Company operates 35 colleges in 16 states, including nine in
California and eight in Florida, and services the large and growing segment of
the population seeking to acquire career-oriented education to become qualified
and marketable in today's increasingly demanding workplace environment. The
Company's schools generally enjoy long operating histories and strong franchise
value in their local markets. The median operating history for the Company's
colleges is 43 years, including nine colleges with operating histories over 100
years. For the nine months ended March 31, 1998, the Company had net revenues
of $78.6 million.
The Company offers a variety of master's, bachelor's and associate's degrees
and diploma programs through two operating divisions. The Company's Corinthian
Schools division ("CSi") operates diploma-granting schools in the allied
healthcare and electronics technology fields and seeks to provide its students
a solid base of training for a variety of entry-level positions. The Company's
Rhodes Colleges division ("RCi") operates degree-granting schools principally
in the business area and provides its students with professional education to
succeed in today's increasingly competitive workplace. Both divisions receive
strategic direction and operational support from senior management and
headquarters staff.
The Company's management team is led by David Moore, Paul St. Pierre, Frank
McCord, Lloyd Holland and Dennis Devereux, who together have more than 60 years
of experience in post-secondary education. Since its founding in 1995, the
Company has grown rapidly and improved enrollments and profitability. In order
to effectively leverage management's extensive industry experience, the Company
has implemented a regional management structure supported by the Company's
proprietary management information system (the Schools Automation System, or
"SAS"). SAS provides regional managers with real time access to key information
from any location and links all the colleges and regional offices to corporate
headquarters, providing senior management with daily access to marketing
reports, lead tracking, academic records, grades, transcripts and placement
information. Due to the Company's effective management of leads and other
marketing resources, the Company's colleges have experienced a combined
enrollment growth of 20% since their respective acquisitions by the Company.
THE PROPRIETARY POST-SECONDARY EDUCATION INDUSTRY
The market for post-secondary education is large and growing, exceeding $220
billion and 14 million students in the 1996-97 school year. The Company
believes that the demand for career-oriented post-secondary education will
increase during the next several years as a result of certain demographic,
economic and social trends, including: (i) an increased demand for skilled
labor, with an expected 36 million jobs requiring skilled labor projected to be
created between 1991 and 2000; (ii) a projected 17% growth in the annual number
of high school graduates from 1995 to 2005 (from 2.5 million to 3.0 million);
(iii) an expanded number of adults
1
<PAGE>
(persons aged 25 and older) enrolling in post-secondary education, with a
projected increase to 6.4 million by 2007; (iv) the significant and measurable
income premium attributable to post-secondary education; and (v) budgetary
constraints at traditional colleges and universities.
OPERATING STRATEGY
The Company has improved the enrollment and profitability of its schools
through the application of its operating strategy developed through
management's extensive industry experience. The Company believes that its
ability to continue to effectively and professionally manage its schools
provides it with an important competitive advantage. Key elements of the
Company's strategy include:
FOCUS ON ATTRACTIVE MARKETS. The Company selects its schools and designs its
educational programs to exploit favorable demographic and economic trends. The
Company offers programs in the rapidly growing fields of healthcare, business
and technology and seeks to locate its colleges to achieve operating
efficiencies and strong competitive positions in attractive and growing local
markets.
CENTRALIZATION OF KEY FUNCTIONS. In order to leverage the experience of its
senior management, the Company has established a regional management
organization to divide responsibilities among school administrators, regional
administrators and senior management. Local school administrators are
responsible for day-to-day management, while the corporate team centrally
provides certain key services which the Company believes enable it to achieve
significant operating efficiencies.
EMPHASIZING STUDENT OUTCOMES. The Company believes that strong student
outcomes are a critical driver of its long term success. The Company devotes
substantial resources to maintaining and improving its retention and placement
rates, including implementing a variety of student services such as tutoring,
counselling and extensive placement assistance. As a result of the Company's
efforts, 83% of the Company's graduates who were available for placement in
fiscal 1997 were placed in jobs within six months of their graduation date.
CREATING A SUPPORTIVE AND FRIENDLY ENVIRONMENT. The Company views its
students as customers and seeks to provide a supportive and convenient learning
environment. The Company operates its colleges year-round, offers flexible
scheduling, and encourages personal interaction between faculty and students.
GROWTH STRATEGY
The Company intends to strengthen its position as a leading provider of
proprietary career-oriented post-secondary education in the United States. To
accomplish this objective, the Company will pursue the following
growth strategies:
ENHANCE GROWTH AT EXISTING CAMPUSES. The Company intends to enhance growth at
existing campuses by (i) continuing to develop and expand its curriculum based
on market research and the recommendations of its faculty, employees and
industry advisory board members, (ii) employing an integrated marketing program
utilizing an extensive direct response advertising campaign delivered through
television, radio, newspaper, direct mail and the Internet, and (iii)
continuing to systematically relocate selected colleges that are capacity
constrained to larger, enhanced facilities upon lease expiration.
ESTABLISH ADDITIONAL LOCATIONS. The Company anticipates creating "Additional
Locations" of its existing institutions to enter new geographic markets and to
create additional capacity in existing markets. The Company seeks markets with
a high enrollment potential and significant placement opportunities that will
enable it to effectively leverage its existing curriculum, management and
marketing infrastructure.
EXPAND SERVICE AREAS AND DELIVERY MODELS. The Company seeks to expand its
presence in the government and corporate training market and to pursue distance
learning opportunities.
2
<PAGE>
SELECTIVELY ACQUIRE ACCREDITED PROPRIETARY COLLEGES. The Company is
selectively seeking to acquire additional institutions that can benefit from
its operational expertise. The Company will generally seek to acquire schools
that possess: (i) complementary or attractive new curricula, (ii) locations in
or near metropolitan areas, and (iii) strong franchise value (name recognition
or marketability).
COMPANY HISTORY
The Company was founded in February 1995 by David Moore, Paul St. Pierre,
Frank McCord, Dennis Devereux and Lloyd Holland, the five senior managers of
what was then National Education Centers, Inc., ("NECI"), a subsidiary of
National Education Corporation ("NEC"), to capitalize on opportunities in
career- oriented post-secondary education. Between June and December 1995, the
Company acquired 16 of NECI's colleges, each of which was a diploma granting
school with a focus in healthcare (the "NEC Acquisition"). In July and
September 1996, the Company completed two single campus acquisitions of
additional diploma granting schools. These 18 colleges (one of which has since
been closed) today comprise the Company's CSi division.
In October of 1996, the Company completed its second multi-campus acquisition
through the purchase of 18 campuses from Phillips Colleges, Inc. (the "Phillips
Acquisition"). Each of these colleges is a degree granting school with a
primary focus on degrees in business. These colleges currently comprise the
Company's RCi division.
The Company's principal executive offices are located at 6 Hutton Centre
Drive, Suite 400, Santa Ana, California 92707 and its telephone number is (714)
427-3000.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company..... 3,000,000 shares
Common stock to be outstanding after the
Offering............................... 10,645,627 shares
Use of proceeds......................... Repayment of certain indebtedness of
approximately $32.8 million;
redemption of outstanding preferred
stock of approximately $2.4 million;
and cash of approximately $4.7
million for general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.. "COCO"
Risk factors............................ See "Risk Factors" for a discussion
of certain factors which should be
considered in evaluating an
investment in the Common Stock
offered by this Prospectus.
</TABLE>
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Company's Consolidated Financial Statements and notes
thereto and other financial information included elsewhere in this Prospectus.
See "Selected Historical Consolidated Financial and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------- --------------------
1996 1997 1997 1998
---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1)................. $ 31,498 $ 77,201 $ 54,331 $ 78,627
Operating expenses:
Educational services........... 18,594 50,568 34,574 48,271
General and administrative..... 3,298 8,101 5,206 8,092
Marketing and advertising...... 7,562 19,000 13,217 18,286
---------- ---------- --------- ---------
Total operating expenses....... 29,454 77,669 52,997 74,649
---------- ---------- --------- ---------
Income (loss) from operations... 2,044 (467) 1,334 3,978
Interest expense, net........... 274 2,525 1,730 2,479
---------- ---------- --------- ---------
Income (loss) before income
taxes.......................... 1,770 (2,992) (396) 1,499
Provision (benefit) for income
taxes.......................... 722 (1,107) (160) 600
---------- ---------- --------- ---------
Net income (loss)............... $ 1,048 $ (1,885) $ (236) $ 899
========== ========== ========= =========
Income (loss) attributable to
common stockholders:
Net income (loss).............. $ 1,048 $ (1,885) $ (236) $ 899
Accrued dividends on preferred
stock......................... (111) (118) (89) (233)
---------- ---------- --------- ---------
Income (loss) attributable to
common stockholders......... $ 937 $ (2,003) $ (325) $ 666
========== ========== ========= =========
Net income (loss) per common
share:
Basic ......................... $ 0.15 $ (0.32) $ (0.05) $ 0.10
========== ========== ========= =========
Diluted........................ $ 0.15 $ (0.32) $ (0.05) $ 0.09
========== ========== ========= =========
Weighted average number of
common shares outstanding:
Basic.......................... 6,062,997 6,273,655 6,252,089 6,338,588
========== ========== ========= =========
Diluted........................ 6,338,588 6,273,655 6,252,089 7,066,703
========== ========== ========= =========
OTHER DATA:
EBITDA(2)....................... $ 2,726 $ 1,602 $ 2,495 $ 6,236
Cash flow provided by (used in):
Operating activities........... 997 995 700 (4,024)
Investing activities........... (4,295) (30,973) (30,472) (1,457)
Financing activities........... 3,903 30,975 29,181 2,660
Capital expenditures, net(3).... 1,046 5,936 5,435 1,707
Number of colleges at end of
period......................... 16 36 36 35
Student population at end of
period......................... 5,030 12,820 13,281 14,398
Starts during the period(4)..... 8,106 13,077 11,131 13,847
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash(5).......... $ 760 $ 5,535
Working capital........................................ 680 8,095
Total assets........................................... 55,464 59,439
Long-term debt, net of current maturities.............. 31,569 3,569
Redeemable Preferred Stock............................. 2,135 --
Convertible Preferred Stock............................ 4,934 --
Total stockholders' equity............................. 787 43,711
</TABLE>
- --------
(1) Represents student tuition and fees and book store sales, net of refunds.
Year ended June 30, 1996 includes a non-recurring management fee of
approximately $2.1 million earned by the Company for managing certain
colleges owned by NECI during the first six months of that year.
(2) EBITDA equals earnings before interest expense, taxes, depreciation and
amortization (including amortization of deferred financing costs). EBITDA
is presented because the Company believes it allows for a more complete
analysis of the Company's results of operations. EBITDA should not be
considered as an alternative to, nor is there any implication that it is
more meaningful than, any measure of performance or liquidity as
promulgated under GAAP.
(3) Year ended June 30, 1997 and nine months ended March 31, 1997 each include
approximately $3.4 million for real estate acquired in connection with the
Phillips Acquisition.
(4) Represents the new students starting school during the periods presented.
(5) Includes $760,000 of restricted cash at March 31, 1998.
(6) Pro forma as adjusted gives effect to the Transactions, the Offering and
the application of the net proceeds thereof, prepayment penalties of
approximately $1,380,000 and the write-off of deferred financing costs of
approximately $480,000, net of income tax benefit of approximately
$1,240,000.
5
<PAGE>
RISK FACTORS
Investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the following risk
factors in evaluating the Company and its business before purchasing any
Common Stock offered hereby. This Prospectus contains certain forward-looking
statements that are based on the beliefs of, as well as assumptions made by
and current information available to, the Company's management. Words such as
"believe," "anticipate," "intend," "estimate," "expect" and other similar
expressions are intended to identify such forward-looking statements, but are
not the exclusive means of identifying such statements. The cautionary
statements made in this Prospectus should be read as being applicable to
related forward-looking statements whenever they appear on this Prospectus.
The Company's results could differ materially from those discussed here should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove to be incorrect. Factors that could cause or
contribute to such differences include those discussed below as well as those
discussed elsewhere herein.
SUBSTANTIAL DEPENDENCE ON STUDENT FINANCIAL AID; POTENTIAL ADVERSE EFFECTS OF
GOVERNMENTAL REGULATION
Students attending the Company's schools finance their education through a
combination of family contributions, individual resources (including earnings
from full or part-time employment) and government-sponsored financial aid. The
Company estimates that approximately 78% of its students, as of March 31,
1998, received some federal Title IV financial aid (as defined herein). For
fiscal 1997, approximately 75% of the Company's revenue (on a cash basis) was
derived from federal Title IV Programs (as defined herein).
In connection with the receipt by its students of government-sponsored
financial aid, the Company is subject to extensive regulation by governmental
agencies and licensing and accrediting bodies. In particular, the Higher
Education Act of 1965, as amended (the "HEA"), and the regulations issued
thereunder by the United States Department of Education (the "DOE"), subject
the Company to significant regulatory scrutiny in the form of numerous
standards that schools must satisfy in order to participate in the various
federal student financial aid programs under Title IV of the HEA (the "Title
IV Programs"). Under the HEA, regulatory authority is divided among each of
the following three components: (i) the federal government, which acts through
the DOE; (ii) the accrediting agencies recognized by the DOE; and (iii) state
higher education regulatory bodies. Among other things, the HEA and its
implementing regulations require the Company's institutions to: (i) maintain a
rate of default by its students on federally guaranteed or funded student
loans that is below a specified rate, (ii) limit the proportion of its revenue
derived from the Title IV Programs, (iii) establish certain financial
responsibility and administrative capability standards, (iv) prohibit the
payment of certain incentives to personnel engaged in student recruiting and
admissions activities and (v) achieve stringent completion and placement
outcomes for short-term programs.
Certain of the foregoing standards must be complied with on an institutional
basis. For purposes of those standards, the regulations define an institution
as a main campus and its additional locations, if any. Under this definition,
each of the Company's campuses is a separate institution with the following
exceptions: Bryman College in New Orleans, Louisiana is an additional location
of Bryman College (South) in San Jose, California; the Florida Metropolitan
University ("FMU") Campuses in Melbourne, Florida and Orlando, Florida (South)
are additional locations of FMU, Orlando (North); FMU in Brandon, Florida is
an additional location of FMU in Tampa, Florida; FMU in Lakeland, Florida is
an additional location of FMU in Pinellas, Florida; Parks College (South) in
Denver, Colorado is an additional location of Parks College (North) in Denver;
and Western Business College in Vancouver, Washington is an additional
location of Western Business College in Portland, Oregon (the Western Business
College, Vancouver campus, albeit an additional location, is not accounted for
separately from the main campus in Portland; unique to the Vancouver campus,
all students must complete part of their course of study at the main campus in
Portland).
The regulations, standards and policies of the regulatory agencies
frequently change, and changes in, or new interpretations of, applicable laws,
regulations or standards could have a material adverse effect on the
6
<PAGE>
Company's accreditation, authorization to operate in various states,
permissible activities, receipt of funds under Title IV Programs and/or costs
of doing business. The Company's failure to maintain or renew any required
regulatory approvals, accreditations or authorizations would have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Financial Aid and Regulations--Federal Oversight of the Title
IV Programs."
Certain significant regulatory factors that could adversely affect the
Company are discussed below:
Student Loan Defaults. Under the HEA, an institution may lose its
eligibility to participate in some or all Title IV Programs if its current or
former students default on the repayment of their federally guaranteed student
loans (known as "Cohort Default Rates" or "CDR") at a rate exceeding certain
levels. Under the Federal Family Education Loan (the "FFEL," formerly the
Guaranteed Student Loan) program, any institution that has Cohort Default
Rates of 25% or greater for three consecutive fiscal years will no longer be
eligible to participate in the FFEL program or the William D. Ford Federal
Direct Loan Program (the "FDL") for the remainder of the federal fiscal year
in which the determination of ineligibility is made and for the two subsequent
federal fiscal years. In addition, if an institution's default rate for loans
under the FFEL program is 25% or greater in any fiscal year or exceeds 15% for
the Federal Perkins Loan ("Perkins") program for any federal award year, the
DOE may determine that the institution lacks administrative capability and
place the institution on provisional certification status for up to three
years. See "Financial Aid and Regulations--Federal Oversight of the Title IV
Programs--Cohort Default Rates" and "--Regulatory Consequences of a Change in
Ownership Resulting in a Change of Control."
At the time the Company purchased the CSi schools from NEC in 1995, 11
schools (one of which was closed by the Company after acquisition) had Cohort
Default Rates exceeding 25% for three consecutive years. Subsequent to the
publication of the fiscal 1994 CDR's, three of the eleven schools received
1994 rates below 25% as a result of the Company's appeals and default
management efforts. Those schools never lost eligibility for FFEL funding. As
a result of the Cohort Default Rate at the remaining schools, the DOE
terminated FFEL funding for six of those schools in 1997 (a seventh college,
Skadron College in San Bernardino, California, had lost eligibility to
participate in FFEL in June 1994). Pursuant to extended negotiations with the
DOE regarding reinstatement of eligibility for these campuses, the Company
received notice in June 1998 that the DOE proposed to reinstate three of the
seven colleges provided that the Company agree not to pursue remedies for
reinstatement for the remaining four campuses. The Company has agreed to the
terms of the proposal and the DOE has reinstated eligibility to participate in
the FFEL program for the three campuses. Of the remaining four campuses, NIT
in Wyoming, Michigan will be eligible for reinstatement in 1999 and the other
three campuses (Skadron College in San Bernardino, California; Bryman College
in New Orleans, Louisiana; and Bryman College in San Jose (South), California)
will be eligible for reinstatement in 2000, based on published rates for
fiscal 1995 and prepublished rates for fiscal 1996, respectively. As soon as
the six schools were terminated from the FFEL program in 1997, the Company
expanded its internal loan program to fund internally (through installment
tuition contracts) part of the tuition of students at those schools. During
the 1997-98 award year (the most recent year in which default rates have been
pre-published), only one of the Company's institutions (and none of the four
remaining suspended schools) had a Cohort Default Rate in excess of 25%.
Including the fiscal 1996 pre-published rate, only one of the Company's
colleges (Gardena) has a Cohort Default Rate in excess of 25% for each of the
last two reporting years. Although the Company has instituted a default
management strategy, there can be no guarantee that the Company or its
institutions will be able to maintain their Cohort Default Rates at, or below,
their current level, or that the Cohort Default Rates will never exceed 25%.
Should a material number of the Company's schools lose FFEL funds due to their
Cohort Default Rate, it would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Financial Aid
and Regulations--Federal Oversight of Title IV Schools Program."
Significant School Revenues From Title IV Programs. Under what is commonly
referred to as the "85/15 Rule," an institution would be disqualified from
participation in Title IV Programs if more than 85% of its revenues in any
year was derived from Title IV Programs. For fiscal 1997, 11 of the Company's
current institutions derived more than 80% of their revenue from Title IV
Programs, but no school's revenue from
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Title IV Program was more than 85% of its total revenue. Since the DOE adopted
the 85/15 Rule in 1994, none of the Company's individual institutions have
exceeded the 85% threshold. Should any material number of the Company's
institutions be deemed ineligible to participate in Title IV Programs because
their revenues from such programs exceed 85%, it would have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Financial Aid and Regulations--Federal Oversight of Title IV
Program."
Failure to Demonstrate Administrative Capability. DOE regulations specify
extensive criteria an institution must satisfy to establish that it has the
requisite "administrative capability" to participate in Title IV Programs.
These criteria require, among other things, that the institution comply with
all applicable Title IV Program regulations, have capable and sufficient
personnel to administer the Title IV Programs, have acceptable methods of
defining and measuring the satisfactory academic progress of its students,
provide financial aid counselling to its students, and timely submit all
reports and financial statements required by the regulations. The failure by
an institution to satisfy any of these criteria may lead the DOE to determine
that the institution lacks administrative capability and, therefore, (i)
require the repayment of Title IV Program funds, (ii) transfer the institution
from the "advance" system of payment of Title IV Program funds to the
"reimbursement" system of payment or cash monitoring; (iii) place the
institution on provisional certification status; or (iv) commence a proceeding
to impose a fine or to limit, suspend or terminate the participation of the
institution in Title IV Programs. Should any material number of the Company's
institutions be limited in their access to, or lose, Title IV Program funds
due to their failure to demonstrate administrative capability, it would have a
material adverse effect on the Company's business and its financial condition.
See "Financial Aid and Regulations--Federal Oversight of Title IV Program."
Potential Loss of Student Financial Aid Due to Failure to Meet Financial
Responsibility Standards. The HEA and its implementing regulations establish
specific standards of financial responsibility that must be satisfied in order
to participate in the Title IV Programs. Under such standards, an institution
must: (i) satisfy an acid test ratio (defined as the ratio of cash, cash
equivalents and current accounts receivable to current liabilities) of at
least 1:1 at the end of each fiscal year, (ii) have a positive tangible net
worth at the end of each fiscal year, and (iii) not have a cumulative net
operating loss during its two most recent fiscal years that results in a
decline of more than 10% of the institution's tangible net worth at the
beginning of that two-year period. In order to make this determination, the
DOE requires an institution to annually submit audited financial statements.
An institution that is determined by the DOE not to meet any one of the
standards of financial responsibility is nonetheless entitled to participate
in the Title IV Programs if it can demonstrate that it is financially
responsible on an alternative basis (including by posting a surety or an
irrevocable letter of credit). See "Financial Aid and Regulations--Federal
Oversight of the Title IV Programs--Financial Responsibility Standards."
In reviewing the Company's two major acquisitions, the DOE has measured
financial responsibility differently for each acquisition. In the NEC
Acquisition in 1995, the DOE reviewed the financial statements of the acquired
institutions only, while in the Phillips Acquisition in 1996, the DOE reviewed
the financial statements of both the acquired institutions and the Company. At
the time of the NEC Acquisition, and subsequently, at the time of the
acquisitions of Repose, Inc. (the "Repose Acquisition") and Concorde Career
Colleges, Inc. (the "Concorde Acquisition"), all of the CSi colleges met the
financial responsibility requirements set forth by the DOE. At the time of the
Phillips Acquisition, the DOE elected to review the financial statements of
both the institutions and the Company and, as a result of the intangibles
associated with the purchase of the colleges, determined that the Company did
not meet the tangible net worth requirement. As a result of negotiations with
the DOE prior to the Phillips Acquisition, the DOE and the Company agreed to
the posting of an irrevocable letter of credit in favor of the DOE in the
amount of $1.0 million. In addition, the 18 colleges would remain on the
reimbursement program (they had been placed on reimbursement under prior
ownership). The need for and sufficiency of the letter of credit are scheduled
to be reviewed annually in connection with the Company's submission to the DOE
of its annual audited financial statements. Subsequent to the submission of
the Company's 1997 annual audited financial statements, the letter of credit
was increased to $1.5 million.
Although the above letter of credit is the only outstanding alternative
financial responsibility requirement currently in effect, the DOE has not yet
responded to the annual audited financial statements submitted by the
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Company for fiscal 1997. Based on these audits, eight of the Company's
colleges fail to meet one or more of the financial responsibility tests. Three
of the colleges fail to meet the acid test ratio (Blair College in Colorado
Springs, Colorado; FMU in Melbourne, Florida; and FMU in Fort Lauderdale,
Florida) and five of the colleges fail to meet the profitability test (Bryman
College in Seatac, Washington; NIT in Wyoming, Michigan; Bryman College
(North) in San Jose, California; Parks College in Aurora, Colorado; and
Springfield College in Springfield, Missouri). In addition, the Company, on a
consolidated basis, fails to meet the financial responsibility tests. However,
at the CSi operating company level, and at the RCi operating company level,
all financial responsibility tests were met. There can be no assurance at this
time that the DOE, upon review of fiscal 1997 audited financial statements,
will not require that the Company post additional letters of credit in
accordance with its regulations. Since RCi is already on reimbursement, and
since the Company has posted a letter of credit as required by the
regulations, by definition the Company believes that it currently meets
financial responsibility standards as set forth by the DOE. There is no
assurance, however, that the DOE will not impose additional requirements for
letters of credit based upon its review of the Company's fiscal 1997 financial
statements. Such actions, or other similar actions, could have a material
adverse effect on the Company's business, results of operations and financial
condition, and on its ability to generate sufficient liquidity to continue to
fund growth in its operations and purchase other institutions. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources").
In accordance with applicable law, the DOE will be required to rescind the
letter of credit and any related requirements if the Company and its colleges
demonstrate that they satisfy the standards of financial responsibility, using
accounting treatments acceptable to the DOE. Further, the Company believes
that in the conduct of its next review of the financial responsibility of the
Company and its colleges, the DOE will consider the financial information
reflecting the results of this Offering, as well as the 1998 fiscal year
audited financial statements of each entity. The Company expects to receive
net proceeds from the Offering of approximately $39.9 million (at an assumed
Offering price of $15.00 per share). (See "Use of Proceeds".) Management
believes that the Company's post-Offering financial position will enable the
Company to satisfy the DOE's standards of financial responsibility on a
Company-wide basis. However, there can be no assurance that all of the
Company's colleges will meet each financial responsibility test in the future
or that the DOE would not require the Company to post a letter of credit or
take other similar action with respect to an individual college which did not
meet those tests.
In November 1997, the DOE published new regulations regarding financial
responsibility that are scheduled to take effect on July 1, 1998. The
regulations provide a transition year alternative which will permit
institutions to have their financial responsibility for the 1998 fiscal year
measured on the basis of either the new regulations or the current
regulations, whichever are more favorable to the Company. Under the new
regulations, the DOE will calculate three financial ratios for an institution,
each of which will be scored separately and which will then be combined to
determine the institution's financial responsibility. If an institution's
composite score is below the minimum requirement for unconditional approval
but above a designated threshold level (the "Intermediate Zone"), such
institution may take advantage of an alternative that allows it to continue to
participate in the Title IV Programs for up to three years under additional
monitoring and reporting procedures. If an institution's composite score falls
below this threshold level or is in the Intermediate Zone for more than three
consecutive years, the institution will be required to post a letter of credit
in favor of the DOE.
The Company believes that the DOE will consider the new financial
responsibility regulations or the current regulations, whichever are more
favorable to the Company, for audited financial statements filed with the DOE
subsequent to publication of the new regulations in November 1997. The Company
filed its 1997 audited financial statements with the DOE in December 1997 and
thus believes the DOE will apply such new regulations to the Company if they
prove more favorable. Under the new regulations, only one of the Company's
schools (FMU--Ft. Lauderdale) would not be considered to be financially
responsible based on the new required calculations. However, this college
would nevertheless be considered financially responsible by virtue of being on
the reimbursement program and being covered by the existing letter of credit
for RCi. Two of the Company's schools (Blair College in Aurora, Colorado and
NIT in Wyoming, Michigan) are in the Intermediate Zone and thus meet financial
responsibility tests under additional monitoring and reporting procedures for
up to three years.
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The Company's two operating divisions both meet the financial responsibility
criteria under the new regulations, but the Company, on a consolidated basis,
does not. The Company expects to meet such new standards on a consolidated
basis after giving effect to the Offering and currently meets such standards
in any event by having previously posted a letter of credit.
Under a separate standard of financial responsibility, if an institution has
made late refunds to students in its prior two years, the institution is
required to post a letter of credit in favor of the DOE in an amount equal to
25% of the total Title IV Program refunds paid by the institution in its prior
fiscal year. As of July 1, 1997, this standard has been modified to exempt an
institution if it has not been found to make late refunds to 5% or more of its
students in either of the two most recent fiscal years and has not been cited
for a reportable condition or material weakness in its internal controls
related to late refunds in either of its two most recent fiscal years. Based
on this standard, the Company currently has two outstanding letters of credit
on behalf of CSi institutions in the amounts of $12,000 and $18,000. Seven
additional RCi colleges have been cited for late refunds in their annual
audits. The Company believes that the existing $1.5 million letter of credit
issued in favor of the DOE on behalf of the RCi colleges satisfies this
standard of financial responsibility. The DOE, however, may require additional
letters of credit for these institutions in accordance with the regulation.
(See "Business--Title IV Regulation".)
Regulatory Consequences of a Change in Ownership Resulting in a Change of
Control. Upon a "change of ownership" of an institution resulting in a "change
in control," as defined in the HEA and applicable regulations, that
institution becomes ineligible to participate in Title IV Programs. In such
event, an institution may receive and disburse only previously committed Title
IV Program funds to its students until it has applied for and received
recertification from the DOE to participate under such institution's new
ownership. Approval of an application for recertification must be based upon a
determination by the DOE that the institution under its new ownership is in
compliance with the requirements for institutional eligibility. The time
required to act on such an application can vary substantially and may take
several months. As a result of the change in ownership at the time of the NEC
Acquisition and the Phillips Acquisition, all of the Company's schools are
currently under provisional certification status pursuant to standard DOE
procedure when an institution undergoes a change of control. Provisional
certification does not limit an institution's access to Title IV Program
funds, but does subject the institution to closer review by the DOE and may
subject the institution to summary adverse action if it violates other Title
IV Program requirements.
Under the HEA and its implementing regulations, a change of ownership
resulting in a change in control would occur upon the transfer of a
controlling interest in the voting stock of an institution or such
institution's parent corporation. If a corporation, such as the Company, is
neither publicly traded nor closely held, the regulations provide that a
change in ownership resulting in a change of control occurs when a person's
legal or beneficial ownership either rises above or falls below 25% of the
voting stock of the corporation and the person loses or gains the ability to
direct the management and policies of the institutions. With respect to a
publicly traded corporation, which the Company will be following consummation
of the Offering, a change of ownership resulting in a change in control occurs
when there is an event that would obligate that corporation to file a Current
Report on Form 8-K with the Securities and Exchange Commission (the "SEC")
disclosing a change of control. A change of ownership and control also could
require an institution to reaffirm its state authorization and accreditation.
The requirements of state and accrediting agencies with jurisdiction over the
Company's schools vary widely in this regard. Based upon its review of the HEA
and applicable federal regulations, the Company does not believe the Offering
will constitute a change of ownership resulting in a change in control under
federal law.
Once the Company is deemed to be publicly traded, the potential adverse
implications of a change of ownership resulting in a change in control could
influence future decisions by the Company and its stockholders regarding the
sale, purchase, transfer, issuance or redemption of the Company's capital
stock. However, the Company believes that any such future transaction having
an adverse effect on state authorization, accreditation or participation in
Title IV Programs of any of the Company's schools is not likely to occur
without the consent of the Company's Board of Directors (the "Board of
Directors"). See "--Certain Anti-Takeover Provisions," "--Control by Certain
Stockholders," "Description of Capital Stock" and "Business--Accreditation."
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Loss of State Authorization and Accreditation. The Company is dependent on
the authorization of the applicable agency of each state where the Company is
offering educational programs to allow it to operate and to grant degrees or
diplomas. State authorization and accreditation by an accrediting agency
recognized by the DOE is also required in order for an institution to become
and remain eligible to participate in Title IV Programs. The loss of
accreditation would, among other things, render that institution ineligible to
participate in Title IV Programs and would have a material adverse effect on
the Company's business, results of operation and financial condition if one or
more material institutions lost accreditation. Similarly, the loss of state
authorization by the Company or an existing campus would, among other things,
render the Company ineligible to participate in Title IV Programs for students
in that state or at that location and would have a material adverse effect on
the Company's business, results of operations and financial condition.
Two of the Company's colleges were visited by their accrediting agencies in
1998 for regularly scheduled reaccreditation visits. Blair College in Colorado
Springs, Colorado and Kee Business College in Norfolk, Virginia were visited
by the Accrediting Commission for Independent Colleges and Schools ("ACICS").
In both cases, exit interviews and written Team Summary Reports indicated
favorable reviews with no material findings or citations of non-compliance
with accrediting standards. Reaccreditation for these campuses will be voted
on at the next regularly scheduled meetings of ACICS in August 1998. The
Company believes that both colleges will receive new grants of accreditation.
Five of the Company's FMU campuses, (Tampa, Brandon, Orlando North, Orlando
South and Melbourne) were considered for new grants of accreditation at the
December 1997 ACICS meeting. The Commission noted certain concerns regarding
record keeping and some academic policy issues and voted to extend the current
grant of accreditation until August 1998 in order to allow time for the
colleges to address the specific areas of concern. The colleges were revisited
in May 1998 and received favorable comments from the review team in both the
exit interviews and in the follow-up Team Summary Reports. The reports
indicated that the colleges had satisfied the Commission's concerns and that
the colleges demonstrated compliance with all accreditation criteria.
Reaccreditation for the colleges will be considered and voted on at the next
regularly scheduled ACICS meeting beginning on August 8, 1998. The Company
believes that the five colleges will receive new grants of accreditation.
However, there can be no assurances that accreditation for any of the colleges
will be renewed. Loss of accreditation at these colleges would have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Accreditation."
Possible Investigations or Claims by Regulatory Agencies or Third
Parties. Because the Company operates in a highly regulated industry, it, like
other industry participants, may be subject from time to time to
investigations, claims of non-compliance, or lawsuits by governmental agencies
or third parties which allege statutory violations, regulatory infractions or
common law causes of action. The Company believes that it has taken effective
steps to monitor compliance with governmental regulations and other legal
requirements. However, there can be no assurance that regulatory agencies or
third parties will not undertake investigations or make claims against the
Company, or that such claims, if made, will not have a material adverse effect
on the Company's business, results of operations or financial condition.
RISK THAT LEGISLATIVE ACTION WILL REDUCE FINANCIAL AID FUNDING OR INCREASE
REGULATORY BURDEN
The Title IV Programs are subject to significant political and budgetary
pressures. The process of reauthorizing the student financial assistance
programs of the HEA by the U.S. Congress, which takes place approximately
every five years, has begun and is expected to be completed in 1998. It is not
possible to predict the outcome of the reauthorization process. Although
Congress has not declined to reauthorize the Title IV Programs, there can be
no assurance that government funding for the Title IV Programs will continue
to be available or maintained at current levels. A reduction in government
funding levels could lead to lower enrollments at the Company's schools and
require the Company to seek alternative sources of financial aid for students
enrolled in its schools. Given the significant percentage of the Company's
revenue that is derived from the Title IV Programs, the loss of or reduction
in Title IV Program funds available to students at the Company's schools would
have a material adverse effect on the Company's business, results of
operations and financial condition.
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In addition, there can be no assurance that the current requirements for
student and institutional participation in the Title IV Programs will not
change or that one or more of the present Title IV Programs will not be
replaced with other programs with materially different student or
institutional eligibility requirements. The DOE and other parties have
proposed numerous changes to the HEA. Thus, the reauthorization process could
result in revisions to the HEA that increase the compliance burden on the
Company's institutions. If the Company cannot comply with the provisions of
the HEA, as revised during the reauthorization process, or if the cost of such
compliance is excessive, the Company's business, results of operations and
financial condition would be materially adversely affected. The DOE has also
circulated proposals concerning guaranty agencies and lenders which could
impact the access of the Company's institutions and their students to FFEL
program loans. There can be no assurance that any legislation will not include
statutory language that is different from, or in addition to, that which is
currently being proposed by the DOE or that in the future there will not be
enacted other different legislation amending the HEA or otherwise impacting
institutions, guaranty agencies or lenders. The DOE may also impose additional
regulations based on its interpretation of HEA.
RISKS RELATING TO INTERNAL LOAN PROGRAM
In 1997, the Company expanded its internal loan program to assist students
in those colleges which lost access to FFEL loans during that year. The
internal loans to these students essentially replace the loss of the FFEL
loans, and thus are generally for greater amounts (averaging $3,200) and
longer periods of time (ranging typically from 6-84 months) than the normal
installment payment plans routinely afforded to many of the Company's students
to supplement their financial aid. Therefore, the risk of loss is also
greater. While the Company believes it has adequate reserves against these
loan balances, there can be no assurance that losses will not exceed reserves.
Losses in excess of reserves could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Loan Program."
RELIANCE ON AND RISKS OF ACQUISITION STRATEGY, INCLUDING LACK OF AVAILABLE
FINANCING
The Company expects to continue to rely on acquisitions as a component of
its strategy for growth. The Company regularly engages in evaluations of
possible acquisition candidates, including evaluations relating to
acquisitions that may be material in size and/or scope. However, the Company
currently has no agreements or commitments with respect to any acquisitions.
There can be no assurance that the Company will continue to be able to
identify educational institutions that provide suitable acquisition
opportunities or to acquire any such institutions on favorable terms.
Furthermore, there can be no assurance that any acquired institutions can be
successfully integrated into the Company's operations or be operated
profitably. Acquisitions involve a number of special risks and challenges,
including the diversion of management's attention, assimilation of the
operations and personnel of acquired companies, adverse short-term effects on
reported operating results, possible loss of key employees and difficulty of
presenting a unified corporate image. Continued growth through acquisition may
also subject the Company to unanticipated business or regulatory uncertainties
or liabilities. No assurance can be given that the Company will be able to
obtain adequate funding to complete any potential acquisition or that such an
acquisition will succeed in enhancing the Company's business and will not
ultimately have a material adverse effect on the Company's business, results
of operations and financial condition. See "Business--Growth Strategy."
The Company's acquisition of a school would constitute a change in
ownership, resulting in a change of control with respect to such school for
purposes of eligibility to participate in the Title IV Programs. Generally,
the Company intends to acquire schools subject to the condition that they be
recertified promptly for such eligibility by the DOE. The failure of the
Company to manage its acquisition program effectively could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Potential Adverse Regulatory Consequences of a Change of
Ownership or Control," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Financial Aid and Regulations--
Federal Oversight of the Title IV Programs--Restrictions on Acquiring or
Opening Additional Schools and Adding Educational Programs."
The Company anticipates that it may need additional debt or equity
financing, in addition to the proceeds of this Offering, in order to finance
any future acquisitions. The amount and timing of financing which the Company
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may need will vary principally depending on the timing and size of
acquisitions and the sellers' or other lenders' willingness to provide
financing. To the extent that the Company requires additional financing in the
future and is unable to obtain such additional financing, it may not be able
to fully implement its growth strategy. The Company has received a bank loan
commitment for $ million in revolving and term loans (the "Proposed Bank
Line of Credit") from Union Bank of California. The Company believes this
Proposed Bank Line of Credit will provide adequate financing for at least the
next months. However, the commitment is subject to the completion of
this Offering and the negotiation and execution of definitive agreements
thereafter. There can be no assurance that such agreements will be entered
into. If the Proposed Bank Line of Credit is not available, there can be no
assurance that any necessary additional financing, whether debt or equity,
will be obtainable on terms favorable to, or affordable to, the Company. See
"Management's Discuss and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH EXPANSION PLANS
Although to date the Company has added new schools only through
acquisitions, in the future the Company expects to develop, open and operate
new schools, most likely as additional locations of existing schools.
Establishing additional locations would pose unique challenges and require the
Company to make investments in management, capital expenditures, marketing
expenses and other resources. Because the Company has not yet established any
new additional locations, there can be no certainty as to the Company's
ability to be successful in any such endeavor. Additionally, while the Company
expects that its career-oriented school business will continue to provide the
substantial majority of its revenue in the near term, the Company plans to
expand its contract training business, currently only offered to a limited
extent by one of the Company's schools, and may also decide to provide other
education-related services, such as distance learning. There can be no
assurance as to the Company's ability to succeed in markets beyond its current
career-oriented school business. Any failure of the Company to effectively
manage the operations of newly established schools or service areas could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Growth Strategy" and "Financial Aid and
Regulations--Federal Oversight of the Title IV Programs--Restrictions on
Acquiring or Opening Additional Schools and Adding Educational Programs."
LIMITED HISTORY OF OPERATIONS
While the Company's colleges generally have been in operation for many years
and the Company's management has extensive industry experience, the Company
itself did not commence operations until 1995. Since that time, the Company
has periodically acquired and integrated several colleges, and, accordingly,
the Company in its present structure has a relatively limited history of
operations on which to base an evaluation of its business and prospects.
Included in this operating history are periods of operating losses. The
limited operating history of the Company makes any prediction of future
operating results difficult, and there can be no assurance that the Company
will maintain profitability.
YEAR 2000 COMPLIANCE
In the next year and a half, most large companies will face a potentially
serious information systems problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the Year 2000. This problem could force information systems
to either shut down or provide incorrect data or information. The Company
began the process of identifying the necessary changes to its computer
programs and hardware as well as assessing the progress of its significant
vendors in their remediation efforts in 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
While the Company's major financial reporting system has already been
upgraded to be Year 2000 compliant, the Company's major student data base
system (the Schools Automation System or "SAS") compliance effort has not yet
been completed. The assessment of the necessary remedial work to be done has
been completed and a plan of action has been developed to complete that work.
The Company is in the process
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of assembling the resources needed to complete the compliance work and expects
to have SAS in compliance by mid-year 1999. To date, the Company has expensed
approximately $150,000 on the assessment and evaluation phase of the project
and estimates that it will expense approximately $750,000 in fiscal 1999 to
complete the Year 2000 compliance efforts. Failure of the Company to complete
these efforts in a timely manner could have a material adverse effect on the
Company's operations.
Even though the Company believes that it is taking all appropriate steps to
assure Year 2000 compliance, it is dependent on vendor compliance to some
extent. The Company believes, based on its prior assessment, that the vendor
that supplies the majority of the Company's data processing is already Year
2000 compliant. While it is not possible to quantify the aggregate cost to the
Company of other vendor non-compliance, the Company does not anticipate it
will have a material adverse effect on its business.
The Company is highly dependent on student funding provided through Title IV
Programs. Processing of student applications for this funding is accomplished
by the DOE's computer systems. According to the DOE, their systems should be
brought into certifiable compliance in early 1999. However, the Company is not
able to reliably assess their progress to date, and any problems in the DOE's
systems could result in interruption of funding for the Company's students. If
any such interruption were prolonged, it could have a material adverse effect
on the Company's business, results of operations and financial condition.
DEPENDENCE ON A LIMITED NUMBER OF KEY PERSONNEL
The Company's success to date has depended in large part on the skills and
efforts of David G. Moore (President and Chief Executive Officer), Paul R. St.
Pierre (Executive Vice President of Marketing), Frank J. McCord (Executive
Vice President and Chief Financial Officer), Dennis L. Devereux (Executive
Vice President of Human Resources), Lloyd W. Holland (Executive Vice President
of Business Analysis and Financial Aid) and the Company's other key personnel.
Additionally, the Company's success depends, in large part, upon its ability
to attract and retain highly qualified faculty, school presidents and
administrators and corporate management. Due to the nature of the Company's
business, it may be difficult to locate and hire qualified personnel, and to
retain such personnel once hired. None of the Company's employees is subject
to an employment or noncompetition agreement. The Company maintains key man
life insurance on Mr. Moore and Mr. St. Pierre. The loss of the services of
any of the foregoing individuals or any of the Company's other key personnel,
or the failure of the Company to attract and retain other qualified and
experienced personnel on acceptable terms, could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Management--Directors, Executive Officers and Key Employees."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation (the "Certificate of
Incorporation") and its Bylaws (the "Bylaws") as well as Delaware corporate
law, contain certain provisions that could delay, defer or prevent a takeover
attempt that may be in the best interest of stockholders. Certain of such
provisions impose various procedural and other requirements that could make it
more difficult for stockholders to effect certain corporate actions. See
"Description of Capital Stock."
CONTROL BY CERTAIN STOCKHOLDERS
Upon completion of the Offering, the existing stockholders of the Company
will beneficially own an aggregate of approximately 71.8% of the outstanding
shares of common stock (approximately 67.6% assuming the exercise of the
Underwriters' over-allotment options in full). Accordingly, such persons, if
they were to act in concert, would have majority control of the Company, with
the ability to approve certain fundamental corporate transactions (including
mergers, consolidations and sales of assets) and to elect all members of the
Board of Directors. See "Beneficial Ownership of Securities and Selling
Stockholders" and "Management--Board of Directors."
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HIGHLY COMPETITIVE MARKET
The post-secondary education market is highly competitive. The Company's
schools compete for students and faculty with traditional public and private
two-year and four-year colleges and universities and other proprietary
schools, many of which have greater financial resources than the Company.
Certain public and private colleges and universities, as well as other private
career-oriented schools, may offer programs similar to those of the Company's
schools, as well as programs not currently offered by the Company. Although
tuition at private nonprofit institutions is, on average, higher than tuition
at the Company's schools, most public institutions are able to charge lower
tuition than the Company's schools, due in part to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to proprietary schools. See "Business--
Competition."
ABSENCE OF PUBLIC MARKET
There is currently no trading market for the Common Stock and there can be
no assurance that an active trading market for the Common Stock will develop.
Although an application has been made for the Common Stock for quotation on
Nasdaq, there can be no assurance that an active public trading market for the
Common Stock will develop after the Offering or that, if developed, it will be
sustained. The public offering price of the Common Stock offered hereby was
determined by negotiations between the Company and the Underwriters and may
not be indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting." Consequently, there can be no assurance that the
market price for the Common Stock will not fall below the public offering
price. After consummation of the Offering, the market price of the Common
Stock will be subject to fluctuations in response to a variety of factors,
including quarterly variations in the Company's operating results,
announcements of acquisitions by the Company or its competitors, new
regulations or interpretations of regulations applicable to the Company's
schools, changes in accounting treatments or principles and changes in
earnings estimates by securities analysts, as well as general political,
economic and market conditions. The market price for the Common Stock may also
be affected by the Company's ability to meet or exceed analysts' earnings
expectations, and any failure to meet such expectations, even if minor, could
have a material adverse effect on the market price of the Common Stock. In
addition, the stock market has, from time to time, experienced significant
price and volume fluctuations which could adversely affect the market price of
the Common Stock without regard to the financial performance of the Company.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Any such litigation initiated against the
Company could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. Upon consummation of the Offering, the
Company will have a total of 10,645,627 shares of Common Stock and Nonvoting
Common Stock outstanding, of which the 3,000,000 shares offered hereby will be
eligible for immediate sale in the public market without restriction unless
such shares are held by "affiliates" of the Company within the meaning of Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"). The
remaining 7,645,627 shares of Common Stock and Nonvoting Common Stock
outstanding upon completion of the Offering will be "restricted securities"
within the meaning of Rule 144 under the Securities Act (the "Restricted
Shares"), all of which Restricted Shares will be subject to lock-up agreements
(the "Lock-Up Agreements") under which the holders of such shares agree that
they will not, directly or indirectly, sell or otherwise dispose of any shares
of Common Stock, or securities or other rights convertible into or
exchangeable or exercisable for any shares of Common Stock, for 180 days after
the date of the Offering without the prior written consent of Smith Barney
Inc. An additional 121,039 shares of Common Stock are issuable at various
dates upon exercise of options heretofore granted to certain employees,
officers and directors of the Company pursuant to stock option agreements.
Upon expiration of the Lock-Up Agreements, all of the currently outstanding
Restricted Shares will be eligible for sale under Rule 144, subject to volume
and other limitations (other than the holding period requirement) of such
rule.
15
<PAGE>
Subject to the Lock-Up Agreements, the holders of all of such Restricted
Shares of common stock also have been accorded registration rights under the
Securities Act. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sales, will
have on the market price of the common stock prevailing from time to time or
on the Company's ability to raise capital through an offering of its equity
securities. See "Description of Capital Stock" and "Underwriting."
SEASONALITY
The Company's revenues normally fluctuate as a result of seasonal variations
in its business, principally in its total student population. Student
population varies as a result of new student enrollments and student
attrition. Historically, the Company's colleges have had lower student
populations in the first fiscal quarter than in the remainder of the year. The
Company's expenses, however, do not vary as significantly as student
population and revenue. The Company expects quarterly fluctuations in
operating results to continue as a result of seasonal enrollment patterns.
Such patterns may change, however, as a result of acquisitions, new school
openings, new program introductions and increased high school enrollments and
there can be no assurances that such changes may not have a material adverse
effect on the Company. The operating results for any quarter are not
necessarily indicative of the results for any future period.
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of common stock. Investors purchasing shares of
Common Stock in the Offering will be subject to immediate dilution of $12.80
per share in net tangible book value (assuming an initial offering price of
$15.00 per share). See "Dilution."
ABSENCE OF DIVIDENDS
The Company does not anticipate declaring or paying any cash dividends on
the common stock following the Offering. Future dividend policy will depend on
the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors. See "Dividend Policy"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operation--Liquidity and Capital Resources."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The matters set forth
under "Risk Factors" constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to differ materially
from those in such forward-looking statements.
16
<PAGE>
THE TRANSACTIONS
Prior to the consummation of the Offering, the Company will undertake a
series of transactions that will result in the Company having 6,469,066 shares
of Common Stock, 1,176,561 shares of Nonvoting Common Stock and 18,125 shares
of Redeemable Preferred Stock outstanding prior to the Offering; the
Redeemable Preferred will be redeemed with the proceeds of the Offering. The
Company's outstanding capital stock currently consists of (i) Common Stock,
$0.0001 par value (the "Common Stock"), (ii) Nonvoting Common Stock, $0.0001
par value (the "Nonvoting Common Stock") (the Common Stock and Nonvoting
Common Stock are collectively referred to as the "Existing Common Stock"); and
(iii) one class of Preferred Stock consisting of three series: Class A Series
1 Preferred Stock, $1.00 par value (the "Redeemable Preferred"); Class A
Series 2 Preferred Stock, $1.00 par value (the "Series 2 Convertible
Preferred"); and Class A Series 3 Preferred Stock, $1.00 par value (the
"Series 3 Convertible Preferred") (the Redeemable Preferred, Series 2
Convertible Preferred and Series 3 Convertible Preferred are collectively
referred to as the "Existing Preferred Stock" and the Series 2 Preferred and
Series 3 Preferred are collectively referred to as the "Convertible
Preferred").
Prior to the consummation of the Offering, the Second Restated Certificate
of Incorporation of the Company (the "Existing Certificate") will be amended
(the "Certificate Amendment") to provide for, among other things, (i) an
increase in the authorized capital stock of the Company to 40,000,000 shares,
(ii) a 44.094522 for 1 split of all shares of Existing Common Stock, and (iii)
change in par value for Common Stock and Nonvoting Common Stock to $0.0001 per
share. The Company will then cause the conversion of all Existing Series 2
Convertible Preferred (after payment of accrued dividends thereon) into
388,334 shares of Nonvoting Common Stock and all Existing Series 3 Convertible
Preferred (after payment of accrued dividends thereon) into 388,334 shares of
Common Stock (the "Preferred Stock Conversion"). The Company has been informed
by the holders of 826,773 shares of Nonvoting Common Stock that, pursuant to
contractual obligations of the Company to such holders, they will exercise
their rights to exchange all such shares of Nonvoting Common Stock for an
equal number of shares of Common Stock in connection with the Offering (the
"Nonvoting Exchange"). The Company has been informed by the holders of all
currently outstanding exercisable warrants to purchase Common Stock and
Nonvoting Common Stock (excluding certain warrants which will terminate prior
to becoming exercisable) (collectively, the "Warrants") that they will
exercise such warrants (the "Warrant Exercise" and, together with the
Certificate Amendment, the Preferred Stock Conversion and the Nonvoting
Exchange, the "Transactions") for an aggregate of 330,366 shares of Common
Stock and 200,005 shares of Nonvoting Common Stock. The consummation of the
Offering and the Transactions are conditioned upon one another. See "Certain
Relationships and Transactions" and "Description of Capital Stock."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby (after deducting the estimated underwriting discounts and
expenses payable by the Company) are estimated to be $39.9 million, assuming
an initial public offering price of $15.00 per share. The Company intends to
apply the net proceeds from the Offering in the following manner: (i)
repayment of senior indebtedness of approximately $24.8 million, including
prepayment penalties of approximately $2.3 million; (ii) repayment of
subordinated indebtedness of $5.0 million; (iii) repayment of outstanding
revolving credit facility borrowings of approximately $3.0 million; (iv)
redemption of the Company's redeemable preferred stock in the approximate
amount of $2.2 million, including payment of cumulative dividends thereon; (v)
payment of cumulative dividends on the Company's convertible preferred stock
in the approximate amount of $0.2 million; and (vi) the remaining approximate
$4.7 million for working capital and general corporate purposes. Until the
time that such proceeds are utilized, the net proceeds will be invested in
high quality, short-term investment instruments such as short-term corporate
investment grade or United States Government interest-bearing securities.
The outstanding senior indebtedness was incurred by the Company in
connection with the Phillips Acquisition, bears interest at a rate of 11.02%
per annum and matures on October 17, 2004. The subordinated indebtedness was
incurred by the Company in connection with both the NEC Acquisition and the
Phillips Acquisition, bears interest at a rate of 12.0% per annum and matures
on October 17, 2005. The outstanding borrowings under the revolving credit
facility were incurred by the Company for working capital needs, bear interest
at LIBOR plus 3.5% (9.34% at March 31, 1998) and mature on October 17, 2000.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
18
<PAGE>
DILUTION
As of March 31, 1998, the Company had a net tangible book value of
$(16,461,735), or $(2.15) per share of common stock. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities, excluding the liquidation value
of Preferred Stock) by the number of shares of common stock outstanding as of
March 31, 1998. After giving effect to the sale by the Company of the shares
of Common Stock offered hereby, assuming an initial public offering price per
share of $15.00 and after deducting the estimated underwriting discounts and
expenses payable by the Company, the Company's net tangible book value as of
March 31, 1998 would have been $23,388,265, or $2.20 per share of common
stock. This represents an immediate increase in net tangible book value of
$4.35 per share to existing stockholders and an immediate dilution of $12.80
per share to new investors purchasing shares in the Offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Pro forma net tangible book value per share before the
Offering................................................... $(2.15)
Increase per share attributable to new investors............ 4.35
------
Pro forma net tangible book value per share after the
Offering..................................................... 2.20
------
Dilution per share to new investors(1)........................ $12.80
======
</TABLE>
The following table sets forth on a pro forma basis, as adjusted, as of
March 31, 1998, the relative investments of all existing stockholders and new
investors purchasing shares of Common Stock from the Company in the Offering.
The calculations are based on an assumed initial public offering price of
$15.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 7,645,627(1) 71.8% $ 6,375,480 12.4% $ 0.83
New investors........... 3,000,000 28.2% 45,000,000 87.6% $15.00
---------- ----- ----------- -----
Total................. 10,645,627 100.0% $51,375,480 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Includes: (i) certain warrants to purchase 530,371 shares of common stock
which are expected to be exercised prior to the Offering, and (ii) 776,668
shares of common stock issuable upon the conversion of Convertible
Preferred Stock. Excludes 121,039 shares of Common Stock issuable upon the
exercise of unvested Common Stock options granted June 30, 1998. See "The
Transactions."
19
<PAGE>
CAPITALIZATION
The following table sets forth the Company's cash, cash equivalents and
restricted cash, current portion of long-term debt and capitalization (long-
term debt, preferred stock and stockholders' equity) (i) as of March 31, 1998,
(ii) pro forma to reflect the Transactions and (iii) pro forma as adjusted to
reflect the Transactions and the completion of the Offering, assuming an
initial public offering price of $15.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company, the write-off of deferred financing costs, and the application of the
net proceeds therefrom to repay certain indebtedness, prepayment penalties and
redeemable preferred stock as described under "Use of Proceeds." The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and restricted cash...... $ 760 $ 760 $ 5,535
======= ======= =======
Current portion of long-term debt............... $ 2,631 $ 2,631 $ 131
======= ======= =======
Long-term debt, net of current maturities....... $31,569 $31,569 $ 3,569
------- ------- -------
Preferred Stock, $1.00 par value, 500,000 shares
authorized:
Redeemable Preferred Stock, 18,125 shares
outstanding, at redemption value, including
$322,532 of accumulated dividends, actual and
pro forma; none outstanding, pro forma as
adjusted..................................... 2,135 2,135 --
------- ------- -------
Convertible Preferred Stock, 50,000 shares
issued and outstanding, including
25,000 shares of Series 2 Convertible
Preferred and 25,000 shares of Series 3
Convertible Preferred, actual; none
outstanding, pro forma and pro forma as
adjusted..................................... 4,934 -- --
------- ------- -------
Stockholders' equity:
Common Stock and Nonvoting Common Stock,
$0.0001 par value, 40,000,000 shares of
Common Stock and 2,500,000 shares of
Nonvoting Common Stock authorized; 6,338,588
shares issued and outstanding, including
4,923,594 shares of Common Stock and
1,414,994 shares of Nonvoting Common Stock,
actual; 7,645,627 shares issued and
outstanding, including 6,469,066 shares of
Common Stock and 1,176,561 shares of
Nonvoting Common Stock, pro forma; and
10,645,627 shares issued and outstanding,
including 9,469,067 shares of Common Stock
and 1,176,560 shares of Nonvoting Common
Stock, pro forma as adjusted................. -- 1 1
Additional paid-in capital.................... 1,375 6,308 46,158
Notes receivable for stock.................... (187) (187) (187)
Accumulated deficit........................... (401) (401) (2,261)
------- ------- -------
Total stockholders' equity ................. 787 5,721 43,711
------- ------- -------
Total capitalization........................ $39,425 $39,425 $47,280
======= ======= =======
</TABLE>
20
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected historical consolidated financial and other data are
qualified by reference to, and should be read in conjunction with, the
Company's consolidated financial statements and the related notes thereto
appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
statement of operations data set forth below for the Company for the years
ended June 30, 1996 and 1997 and the balance sheet data as of June 30, 1996
and 1997 are derived from the audited consolidated financial statements of the
Company included elsewhere in this Prospectus. The selected statement of
operations data for the Company set forth below for the nine months ended
March 31, 1997 and 1998 and the balance sheet data as of March 31, 1997 and
1998 are derived from unaudited consolidated financial statements of the
Company included elsewhere in this Prospectus. The unaudited statements of the
Company include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
condition and results of operations for those periods and, in the opinion of
management, have been prepared on the same basis as the audited financial
statements. These historical results are not necessarily indicative of the
results that may be expected in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------- --------------------
1996 1997 1997 1998
---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1)................. $ 31,498 $ 77,201 $ 54,331 $ 78,627
Operating expenses:
Educational services.......... 18,594 50,568 34,574 48,271
General and administrative.... 3,298 8,101 5,206 8,092
Marketing and advertising..... 7,562 19,000 13,217 18,286
---------- ---------- --------- ---------
Total operating expenses...... 29,454 77,669 52,997 74,649
---------- ---------- --------- ---------
Income (loss) from operations... 2,044 (467) 1,334 3,978
Interest expense, net........... 274 2,525 1,730 2,479
---------- ---------- --------- ---------
Income (loss) before income
taxes.......................... 1,770 (2,992) (396) 1,499
Provision (benefit) for income
taxes.......................... 722 (1,107) (160) 600
---------- ---------- --------- ---------
Net income (loss)............... $ 1,048 $ (1,885) $ (236) $ 899
========== ========== ========= =========
Income (loss) attributable to
common stockholders:
Net income (loss)............. $ 1,048 $ (1,885) $ (236) $ 899
Accrued dividends on preferred
stock........................ (111) (118) (89) (233)
---------- ---------- --------- ---------
Income (loss) attributable
to common stockholders..... $ 937 $ (2,003) $ (325) $ 666
========== ========== ========= =========
Net income (loss) per common
share:
Basic ........................ $ 0.15 $ (0.32) $ (0.05) $ 0.10
========== ========== ========= =========
Diluted....................... $ 0.15 $ (0.32) $ (0.05) $ 0.09
========== ========== ========= =========
Weighted average number of
common shares outstanding:
Basic......................... 6,062,997 6,273,655 6,252,089 6,338,588
========== ========== ========= =========
Diluted....................... 6,338,588 6,273,655 6,252,089 7,066,703
========== ========== ========= =========
OTHER DATA:
EBITDA(2)....................... $ 2,726 $ 1,602 $ 2,495 $ 6,236
Cash flow provided by (used in):
Operating activities.......... 997 995 700 (4,024)
Investing activities.......... (4,295) (30,973) (30,472) (1,457)
Financing activities.......... 3,903 30,975 29,181 2,660
Capital expenditures, net(3).... 1,046 5,936 5,435 1,707
Number of colleges at end of
period......................... 16 36 36 35
Student population at end of
period......................... 5,030 12,820 13,281 14,398
Starts during the period(4)..... 8,106 13,077 11,131 13,847
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
--------------- ----------------
1996 1997 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted
cash(5).................................... $ 2,024 $ 3,831 $ 2,171 $ 760
Working capital............................. 2,306 1,844 (1,044) 680
Total assets................................ 13,487 53,809 54,455 55,464
Long-term debt, net of current maturities... 2,537 36,168 32,424 31,569
Redeemable preferred stock.................. 1,924 2,042 2,013 2,135
Convertible preferred stock................. -- -- -- 4,934
Total stockholders' equity.................. 2,124 121 1,765 787
</TABLE>
- --------
(1) Represents student tuition and fees and book store sales, net of refunds.
Year ended June 30, 1996 includes a non-recurring management fee of
approximately $2.1 million earned by the Company for managing certain
colleges owned by NECI during the first six months of that year.
(2) EBITDA equals earnings before interest expense, taxes, depreciation and
amortization (including amortization of deferred financing costs). EBITDA
is presented because the Company believes it allows for a more complete
analysis of the Company's results of operations. EBITDA should not be
considered as an alternative to, nor is there any implication that it is
more meaningful than, any measure of performance or liquidity as
promulgated under GAAP.
(3) Year ended June 30, 1997 and nine months ended March 31, 1997 each include
approximately $3.4 million for real estate acquired in connection with the
Phillips Acquisition.
(4) Represents the new students starting school during the periods presented.
(5) Includes $200,000 and approximately $1.0 million of restricted cash at
June 30, 1996 and 1997, respectively, and $1.0 million and $760,000 of
restricted cash at March 31, 1997 and 1998, respectively.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Selected Historical Consolidated Financial and Other Data and the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
BACKGROUND AND OVERVIEW
The Company is one of the largest proprietary post-secondary education
companies in the United States, with more than 14,000 students as of March 31,
1998. The Company operates 35 colleges in 16 states, including nine in
California and eight in Florida. For the nine months ended March 31, 1998, the
Company had net revenues of $78.6 million.
The Company's revenue consists principally of student tuition, enrollment
fees and bookstore sales, and is presented as net revenue after deducting
refunds. Net revenue increased 145% to $77.2 million in 1997 from $31.5
million in 1996 mainly as a result of incorporating results from all 16
colleges from the NEC Acquisition for the full year in 1997 and 20 additional
colleges acquired during 1997 (18 acquired in the Phillips Acquisition, one
acquired from Concorde Career Colleges, Inc., and one acquired from Repose,
Inc.).
Tuition revenue, which represented 93.5% of fiscal 1997 total net revenue,
fluctuates with the aggregate enrolled student population and the average
program or credit hour charge. The student population varies depending on,
among other factors, the number of (i) continuing students at the beginning of
a fiscal period, (ii) new student enrollments during the fiscal period, (iii)
students who have previously withdrawn but who reenter during the fiscal
period, and (iv) graduations and withdrawals during the fiscal period. New
student starts occur on a monthly basis in the CSi colleges. In the RCi
colleges, the majority of new student starts occur in the first month of each
calendar quarter with an additional "mini-start" in the second month of each
quarter in most colleges. The tuition charges vary by college depending on the
local market, the program level (i.e., diploma, or associate's, bachelor's or
master degree) and the specific curriculum.
The majority of students at the Company's colleges rely on funds received
under various government sponsored student financial programs, especially
Title IV Programs, to pay a substantial portion of their tuition and other
education-related expenses. In fiscal 1997, approximately 75% of the Company's
net revenue (on a cash basis) was indirectly derived from Title IV Programs.
The Company categorizes its expenses as educational services, general and
administrative, and marketing and advertising. Educational services expense is
primarily comprised of those costs incurred to deliver and administer the
education programs at the colleges, including faculty and college
administration compensation; education materials and supplies; college
facility rent and other occupancy costs; bad debt expense; depreciation and
amortization of college property, equipment and goodwill; and default
management and financial aid processing costs.
General and administrative expense consists principally of those costs
incurred at the corporate and regional level in support of college operations,
except for marketing and advertising related costs. Included in general and
administrative costs are Company executive management, corporate staff and
regional operations management compensation; rent and other occupancy costs
for corporate headquarters; depreciation and amortization of corporate
property, equipment and intangibles; and other expenses incurred at corporate
headquarters.
Marketing and advertising expense includes compensation for college
admissions staff, regional admissions directors, corporate marketing and
advertising executive management, and staff and all advertising and production
costs.
23
<PAGE>
ACQUISITIONS
Since its inception, the Company has completed the following acquisitions,
each of which was accounted for as an asset purchase using purchase
accounting:
On June 30, 1995, the Company acquired five colleges from National Education
Centers, Inc. ("NECI"). As part of the same transaction, the Company
subsequently acquired from NECI a second group of five colleges on September
30, 1995 and an additional six colleges on December 31, 1995. The adjusted
purchase price for all 16 colleges was approximately $4.7 million.
On July 1, 1996, the Company acquired one college from Repose, Inc. (the
"Repose Acquisition") for a purchase price of $0.3 million.
On August 31, 1996, the Company acquired one college from Concorde Career
Colleges, Inc. (the "Concorde Acquisition") for a purchase price of $0.4
million.
On October 17, 1996, the Company acquired 18 colleges from Phillips
Colleges, Inc. ("Phillips") for an adjusted purchase price of approximately
$23.6 million.
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results as a
percentage of net revenue for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
------------ -------------
1996 1997 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................................. 100.0% 100.0 % 100.0 % 100.0%
Operating expenses:
Educational services....................... 59.0 65.5 63.6 61.4
General and administrative................. 10.5 10.5 9.6 10.3
Marketing and advertising.................. 24.0 24.6 24.3 23.2
----- ----- ----- -----
Total operating expenses................. 93.5 100.6 97.5 94.9
----- ----- ----- -----
Income (loss) from operations................ 6.5 (0.6) 2.5 5.1
Interest expense, net........................ 0.9 3.2 3.2 3.2
----- ----- ----- -----
Income (loss) before income taxes............ 5.6 (3.8) (0.7) 1.9
Provision (benefit) for income taxes......... 2.3 (1.4) (0.3) 0.8
----- ----- ----- -----
Net income (loss)............................ 3.3% (2.4)% (0.4)% 1.1%
===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Net Revenue. Net revenue increased $24.3 million, or 45%, from $54.3 million
in the nine months ended March 31, 1997 to $78.6 million in the nine months
ended March 31, 1998. The increase was due primarily to the inclusion of
operating results related to the Phillips Acquisition for the entire nine
month period ending March 31, 1998 compared to approximately five and one half
months for the nine month period ending March 31, 1997. The schools acquired
in the Phillips Acquisition contributed revenues of $44.2 million in the nine
months ended March 31, 1998 compared to $21.7 million in the prior period.
Also contributing to the increase was an 8% increase in the student population
from 13,281 at March 31, 1997 to 14,398 at March 31, 1998, and the
implementation of tuition increases averaging 3% to 7% in most of the colleges
during the period ending March 31, 1998.
24
<PAGE>
Educational Services. Educational services expense increased $13.7 million,
or 40%, from $34.6 million in the nine months ended March 31, 1997 to $48.3
million in the nine months ended March 31, 1998. The increase was primarily
due to the inclusion of the operating results related to the Phillips
Acquisition for the entire nine month period ended March 31, 1998, versus only
five and one half months for the corresponding period in 1997. The schools
acquired in the Phillips Acquisition contributed educational services costs of
$27.1 million in the nine months ended March 31, 1998 compared to $14.2
million in the prior period. A portion of the increase also resulted from the
increase in the average student population and wage increases for employees.
As a percentage of net revenue, educational services expense decreased from
63.6% to 61.4%.
General and Administrative. General and administrative expense increased
$2.9 million, or 55%, from $5.2 million in the nine months ended March 31,
1997 to $8.1 million in the nine months ended March 31, 1998, due principally
to the increased headquarters and regional operations staff and infrastructure
necessary to support the colleges acquired in the Phillips Acquisition. As a
percentage of net revenue, general and administrative expense increased from
9.6% to 10.3%.
Marketing and Advertising. Marketing and advertising expense increased $5.1
million, or 38%, from $13.2 million in the nine months ended March 31, 1997 to
$18.3 million in the nine months ended March 31, 1998. The increase was due
primarily to the inclusion of the operating results related to the Phillips
Acquisition for the entire period ended March 31, 1998, versus five and one
half months for the corresponding period in 1997. The schools acquired in the
Phillips Acquisition contributed marketing and advertising costs of $8.2
million in the nine months ended March 31, 1998 compared to $4.3 million in
the prior period. Also contributing to the increase was additional spending on
the production of updated television commercials and printed advertising
materials. As a percentage of net revenues, marketing and advertising expense
decreased from 24.3% to 23.2%.
Interest Expense, net. Interest expense increased $0.8 million or 43%, from
$1.7 million in the nine months ended March 31, 1997 to $2.5 million in the
nine months ended March 31, 1998, primarily due to interest expense on
increased borrowings used to finance the Phillips Acquisition in October 1996.
Provision (Benefit) for Income Taxes. The provision for income taxes
increased $0.8 million from a benefit of $0.2 million in the nine months ended
March 31, 1997 to a provision of $0.6 million in the nine months ended March
31, 1998.
Net Income (Loss). Net income increased $1.1 million from a loss of $0.2
million in the nine months ended March 31, 1997 to income of $0.9 million in
the nine months ended March 31, 1998.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
Net Revenue. Net revenue increased $45.7 million, or 145%, from $31.5
million in fiscal 1996 to $77.2 million in fiscal 1997, primarily due to $35.9
million generated from acquisitions made in fiscal 1997 and $11.8 million
generated from having all acquisitions made in fiscal 1996 for the entire
year. Student population increased more than 7.0%, from 11,977 students at the
beginning of fiscal year 1997 (or on the acquisition date of a particular
college, if later) to 12,820 students at the end of the fiscal year and
tuition increases were implemented averaging over 4.5% at most of the CSi
division colleges. The revenue increase was partially offset by a non-
recurring management fee of $2.1 million in 1996 for managing several of
NECI's schools during the first half of that year. Revenue was also negatively
impacted during 1997 due to the DOE's change in admissions testing
requirements for non-high school graduates in late December 1996 (See
"Financial Aid and Regulations--Ability to Benefit Regulations"). In the 12
month period immediately following this change, the Company's 12 colleges
which accept non-high school graduates started 1,105 such students, compared
to 1,795 started in the 12 month period immediately preceding the change.
Education Services. Education services expense increased $32.0 million, or
172%, from $18.6 million in fiscal 1996 to $50.6 million in fiscal 1997. Of
this increase, $24.4 million was attributable to acquisitions made
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in fiscal 1997 and $7.0 million was due to having all acquisitions made in
fiscal year 1996 for the entire year. The remainder of the increase was due
primarily to wage increases and additional headquarters curriculum development
costs. As a percentage of net revenue, educational services expense increased
from 59.0% to 65.5%.
General and Administrative. General and administrative expense increased
$4.8 million, or 146%, from $3.3 million in fiscal year 1996 to $8.1 million
in 1997, primarily as a result of (i) increased headquarters and regional
management staffing and infrastructure necessary to support the increased
number of colleges of $4.1 million, and (ii) increased amortization expense
due to intangibles (curriculum and trade names) resulting from the Phillips
Acquisitions of $0.7 million. The headquarters staff and related expenses
benefited during the first six months of fiscal year 1996 from a favorable
services agreement negotiated by the Company with NEC as part of the NEC
Acquisition. Under this agreement, NEC provided accounting, payroll, office
services, human resources services, office space, MIS services, etc. at a
nominal charge for several months. As a percentage of net revenue, general and
administrative expense remained constant at 10.5%.
Marketing and Advertising. Marketing and advertising expense increased $11.4
million, or 151%, from $7.6 million in fiscal year 1996 to $19.0 million in
fiscal year 1997. The acquisitions made in fiscal 1997 accounted for $7.2
million of this increase; having all the acquisitions made in fiscal 1996 for
the entire year accounted for $3.1 million; and advertising cost and wage
inflation, new advertising development, and the additional regional management
staff supporting acquisitions accounted for $1.1 million. As a percentage of
net revenue, marketing and advertising expense increased from 24.0% to 24.6%.
Interest Expense, net. Interest expense increased $2.2 million, or 821% from
$0.3 million in fiscal 1996 to $2.5 million in fiscal 1997 due primarily to
interest expense on increased borrowings to finance the acquisitions made in
fiscal 1997.
Provision (Benefit) for Income Taxes. The income tax provision of $0.7
million in fiscal year 1996 decreased $1.8 million to a benefit of $1.1
million in fiscal year 1997 due to the loss before income taxes in fiscal year
1997.
Net Income (Loss). Net income of $1.0 million in fiscal year 1996 decreased
$2.9 million, or 280% to a net loss of $1.9 million in fiscal year 1997. The
decrease was due to the decrease in operating income and the increase in
interest expense year to year.
SEASONALITY
The Company's revenues normally fluctuate as a result of seasonal variations
in its business, principally in its total student population. Student
population varies as a result of new student enrollments and student
attrition. Historically, the Company's colleges have had lower student
populations in the first fiscal quarter than in the remainder of the year. The
Company's expenses, however, do not vary as significantly as student
population and revenue. the Company expects quarterly fluctuations in
operating results to continue as a result of seasonal enrollment patterns.
Such patterns may change, however, as a result of acquisitions, new school
openings, new program introductions and increased high school enrollments. The
operating results for any quarter are not necessarily indicative of the
results for any future period.
LIQUIDITY AND CAPITAL RESOURCES
During the last two fiscal years, the Company financed its operating
activities and routine capital expenditures (not including acquisitions and
real estate) principally from cash provided by operating activities. In the
nine month period ended March 31, 1998, the Company received an equity
investment of approximately $5.0 million in the form of convertible preferred
stock. The convertible preferred stock was issued in anticipation of the
increased working capital requirements to fund the Company's internal loan
program and other operating needs. Cash provided by (used in) operating
activities for fiscal 1996 and 1997 was $1.0 million and $1.0 million,
respectively, and for the nine months ended March 31, 1997 and 1998 was $0.7
million and ($4.0 million), respectively.
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The Company had $1.8 million of working capital as of June 30, 1997,
compared to $2.3 million as of June 30, 1996. The decrease in working capital
was due primarily to an increase in routine capital expenditures from period
to period. Working capital as of March 31, 1997 was a deficit of $1.0 million,
compared to $0.7 million surplus as of March 31, 1998. The increase in working
capital from period to period was due primarily to the increase in cash
resulting from the sale of Convertible Preferred Stock in November 1997, which
was significantly offset by the increased use of working capital to internally
fund longer term student loans due to the loss of Title IV loans in seven of
the Corinthian schools. The Company closed one of those seven schools in
December 1997. The use of working capital to fund these longer term loans
amounted to approximately $5.0 million from inception in May 1997 until March
31, 1998. With the reinstatement of three of the seven schools (representing
over 50% of the combined total student population in all seven schools) to the
Title IV Loan Program, the Company expects the working capital needed to fund
these internal loans to decrease significantly in the future. Included in
working capital at June 30, 1997 is $1.0 million of restricted cash, which
secures a letter of credit to the DOE. See "Financial Aid and Regulations--
Federal Oversight of the Title IV Programs--Financial Responsibility
Standards." Included in working capital at March 31, 1998 is $760,000 of
restricted cash, of which $750,000 secures a letter of credit to the DOE.
Routine capital expenditures increased from $1.0 million in 1996 to $2.5
million in 1997 and decreased from $2.0 million in the nine month period ended
March 31, 1997 to $1.7 million in the nine month period ended March 31, 1998.
The year to year increase was primarily due to accelerated investments in
upgrading computers and other equipment in the classrooms and upgrading the
Company's administrative computers and networking capability to accommodate
the Phillips Acquisition. The decrease in the nine month period ended March
31, 1998, from the previous year's nine month period was the result of a
return to a more normal rate of capital improvement versus the accelerated
spending pace needed to upgrade the colleges acquired in October 1996. In
addition to the routine capital expenditures during 1997, the Company also
purchased the real estate associated with five of the colleges acquired in the
Phillips Acquisition for a purchase price of $3.4 million.
The Company's capital assets, other than the real estate mentioned above,
consist primarily of classroom and laboratory equipment (such as computers,
medical and dental devices, and film and video equipment), classroom and
office furniture, and leasehold improvements. Capital expenditures are
expected to increase as the Company continues to upgrade and expand current
equipment and facilities along with the anticipated growth in student
population and campuses. The Company expects to be able to fund these routine
capital expenditures with cash generated from operations.
In addition to the capital expenditures mentioned above, the Company's
investment activity over the past two fiscal years has primarily consisted of
acquisitions of colleges. Purchases of colleges, including goodwill and other
intangibles, in 1996 and 1997 totaled approximately $3.0 million and $24.2
million, respectively.
The Company currently has a revolving credit facility with Prudential
Insurance Company of America ("Prudential") under which it can borrow up to
$5.0 million. The revolving credit facility matures on October 17, 2000;
however, under terms of the credit facility, availability under this facility
will be reduced to $3.0 million on October 17, 1998. At March 31, 1998, the
Company had outstanding borrowings of $3.0 million under this revolving credit
facility. Borrowings under the revolving credit facility bear interest at
LIBOR plus 3.5%. The Company also has a $22.5 million term note with
Prudential which matures on October 17, 2004, with interest at 11.02% payable
quarterly in January, April, July, and October. The Prudential term note
requires a $2.5 million and a $5.0 million principal payment on October 17,
1998 and October 17, 1999, respectively. After these two principal payments,
the remaining $15.0 million due on the note is amortized quarterly over the
next five years. The Company has an aggregate of $5.0 million in subordinated
term notes with Primus Capital Fund III Limited Partnership ("Primus") and
Banc One Capital Partners II, LLC ("Banc One") which mature on October 17,
2005. These subordinated notes bear interest at 12%, payable quarterly, and
the unpaid principal is due and payable in quarterly installments of $281,250
beginning October 17, 2001 until the maturity date, at which time any
remaining outstanding balance is due and payable. A mortgage note secured by
the real estate of five colleges in the amount of approximately $3.7 million
matures in April 2007. The mortgage note bears interest at 10.95% and is being
amortized monthly. These note agreements contain various financial and non-
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financial covenants. At June 30, 1997, the Company was not in compliance with
certain covenant requirements of these notes. However, on November 7, 1997,
the Company entered into agreements amending the terms of these note
agreements. Among other things, the amended agreements waived all covenant
violations through September 30, 1997, extended the principal payment dates,
adjusted certain interest rates and reset the financial ratios to be
consistent with the Company's current operating plan. As of March 31, 1998 the
Company was in compliance with all the covenant requirements of these note
agreements.
The Company plans to use approximately $32.8 million of the net proceeds
from this Offering to repay all the outstanding indebtedness under the
revolving credit facility and notes mentioned above, except for the real
estate mortgages which will remain outstanding after the Offering. As a
result, the Company expects its interest expense in the period following the
Offering, assuming no material acquisitions during this period, will be
significantly lower and have a lesser impact on the Company's net income, as
compared to the period prior to the Offering. In addition, the early
extinguishment of indebtedness will include a prepayment penalty of
approximately $2.3 million and will cause the Company to write off
approximately $0.8 million of associated deferred loan fees. In connection
with this debt extinguishment and associated write-off, the Company expects to
record a one-time extraordinary loss, net of tax benefit, of approximately
$1.9 million in the period immediately following the Offering.
In order to ensure adequate working capital and availability of funds for
capital expenditures and growth plans, the Company has negotiated the Proposed
Bank Line of Credit with Union Bank of California which will go into effect
concurrent with this Offering. This line of credit . Borrowings
under this line of credit will be secured by substantially all assets of the
Company. The Company believes that the cash flow from operations, supplemented
by borrowings under the line of credit, will provide adequate funds for
ongoing operations, planned capital expenditures, and planned expansion to new
locations in the near future.
Cash flow from operations on a long-term basis is highly dependent on the
receipt of funds from Title IV Programs. Title IV regulations require that
institutions meet certain "financial responsibility" tests to be eligible to
participate in Title IV Programs (See "Risk Factors"). If an institution fails
to meet one or more of these tests, it can still be considered financially
responsible by posting a letter of credit or going into the "reimbursement"
program and posting a smaller letter of credit. As a result of acquiring the
former Phillips colleges through debt financing and the large amount of
intangibles associated with the purchase, the Company did not meet the
tangible net worth financial responsibility test and was required to continue
the 18 colleges acquired on the reimbursement program (which they were already
on) and to post a letter of credit (now totaling $1.5 million). By doing so,
the Company was deemed financially responsible under the regulations. As a
result of, and subsequent to, this Offering, the Company expects to meet the
tangible net worth test and plans to immediately petition the DOE for release
from the reimbursement program and the letter of credit requirement.
YEAR 2000 COMPLIANCE EXPENSES
In fiscal 1998, the Company has expensed approximately $150,000 for Year
2000 compliance efforts and expects to expense approximately $750,000 in
fiscal 1999 to complete the project. No additional expenses are expected for
Year 2000 Compliance project beyond fiscal year 1999. See "Risk Factors--Year
2000 Compliance."
INFLATION
The Company does not believe its operations have been materially affected by
inflation.
NEW ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
include Statement of Financial Accounting Standards ("SFAS") No. 133
"Accounting for Derivatives Instruments and for Hedging Activities" SFAS No.
132, "Employers' Disclosures about Pension and Other Post Retirement
Benefits", SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", SFAS No. 130,
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"Reporting Comprehensive Income", SFAS No. 129, "Disclosure of Information
about Capital Structure" ("SFAS No. 129"), and SFAS No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS Nos. 129 and 128 specify guidelines as to the
method of computation of, as well as presentation and disclosure requirements
for, earnings per share. The Company adopted SFAS No. 128 for all periods
presented in this Registration Statement. The other Statements discussed above
are effective for fiscal years beginning after December 15, 1997 and earlier
application is not permitted. The adoption of the Statements is not expected
to have a material effect on the Company's consolidated financial position or
results of operations. The impact of these pronouncements on the disclosures
in the financial statements has not been determined.
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BUSINESS
OVERVIEW
The Company is one of the largest proprietary post-secondary education
companies in the United States, with more than 14,000 students as of March 31,
1998. The Company operates 35 colleges in 16 states, including nine in
California and eight in Florida, and services the large and growing segment of
the population seeking to acquire career-oriented education to become more
qualified and marketable in today's increasingly demanding workplace
environment. The Company's schools generally enjoy long operating histories
and strong franchise value in their local markets. The median operating
history for the Company's colleges is 43 years, including nine colleges with
operating histories over 100 years. For the nine months ended March 31, 1998,
the Company had net revenues of $78.6 million.
The Company offers a variety of master's, bachelor's and associate's degree
and diploma programs through two operating divisions. The Company's CSi
division operates diploma-granting schools in the allied healthcare and
electronics technology fields and seeks to provide its students a solid base
of training for a variety of entry-level positions. The Company's RCi division
operates degree-granting schools principally in the business area and provides
its students with professional education to succeed in today's increasingly
competitive workplace. Both divisions receive strategic direction and
operational support from senior management and headquarters staff.
The Company's management team is led by David Moore, Paul St. Pierre, Frank
McCord, Lloyd Holland and Dennis Devereux, who together have more than 60
years of experience in post-secondary education. Since its founding in 1995,
the Company has grown rapidly and has improved enrollments and profitability.
In order to effectively leverage management's extensive industry experience,
the Company has implemented a regional management structure supported by the
Company's proprietary management information system (the Schools Automation
System, or "SAS"). SAS provides regional managers with real time access to key
information from any location and links all the colleges and regional offices
to corporate headquarters, providing senior management with daily access to
marketing reports, lead tracking, academic records, grades, transcripts and
placement information. Due to the Company's effective management of leads and
other marketing resources, the Company's colleges have experienced a combined
enrollment growth of 20% since their respective acquisitions by the Company.
INDUSTRY BACKGROUND
The market for post-secondary education is large and growing, exceeding $220
billion and 14 million students in the 1996-97 school year. The proprietary
post-secondary education industry is highly fragmented. Of the approximately
6,000 post-secondary institutions that are eligible to participate in Federal
Financial Aid programs, approximately one-third are proprietary institutions.
The Company believes that the growing demand for skilled labor, positive
demographic trends, the economic value of post-secondary education to students
and budgetary constraints at public colleges will combine to broaden the
market for the Company's services over the next decade.
GROWING DEMAND FOR SKILLED LABOR. According to the U.S. Department of Labor,
demand for skilled labor in the United States continues to grow. The
percentage of jobs requiring skilled labor grew from 20% in 1954 to 45% in
1991, and is projected to grow to approximately 65% by the year 2000. The
total number of jobs requiring skilled labor in the year 2000 is projected to
equal approximately 92.3 million, an increase of approximately 36 million jobs
from 1991. Growth in certain sectors of the economy is expected to be
particularly high. The Department of Labor projects that job growth in the
healthcare and technology fields will significantly outpace the growth of the
overall labor market over the next several years. The demand for entry level
Medical Assistants, for instance, is expected to grow at an annual rate of 60%
during that period. The Company believes the economy is also generating
increased demand for business professionals with computer and analytical
skills necessary to become effective employees and business managers.
According to the Bureau of Labor Statistics, after the year 2000, 90% of all
jobs will require some knowledge of computers.
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POSITIVE DEMOGRAPHIC TRENDS. Favorable demographic shifts are expected to
occur over the next decade as children of "baby boomers" reach adulthood and
seek post-secondary education. For the first time in more than 25 years, the
number of new high school graduates is increasing. The DOE projects a 17%
increase in annual high school graduates by the year 2005 (from 2.5 million in
1995 to 3.0 million in 2005) and high school graduates are pursuing post-
secondary education at higher rates. In 1996, 65% of new high school graduates
pursued post-secondary education, compared with 54% in 1986. The number of
young adults that do not graduate high school is also growing and these non-
high school graduates can also benefit from career oriented education,
including training for entry level skilled positions in healthcare and other
growing industries. According to the DOE's National Center for Educational
Statistics ("NCES"), the number of adult enrollments (persons aged 25 and
older) is also expected to grow, reaching 6.4 million by 2007.
ECONOMIC VALUE OF POST-SECONDARY EDUCATION. Post-secondary education leads
to significant and measurable improvements in a person's financial prospects
and the Company believes that the public is increasingly aware of this
relationship. On average, a person with an associate's degree earns 37% more
than a high school graduate, while a person with a bachelor's degree earns 54%
more than a high school graduate. Independent research studies have
demonstrated that prospective students consider these benefits in making their
education decisions.
BUDGETARY CONSTRAINTS AT PUBLIC COLLEGES. Limited recent growth in federal,
state and local budgets for post-secondary education has caused budgetary
constraints among traditional colleges and made additional facility expansion
difficult. At the same time, the number of proprietary post-secondary
institutions has remained relatively constant over the last three years. The
Company believes that these factors, combined with significant barriers to
entry for new proprietary education companies, create significant
opportunities for well-capitalized, proprietary institutions.
OPERATING STRATEGY
The Company has improved enrollment and profitability through the
application of its operating strategy which management developed through its
extensive industry experience. The Company believes that its ability to
continue to effectively and professionally manage its schools provides it with
an important competitive advantage. Key elements of the Company's operating
strategy include:
FOCUS ON ATTRACTIVE MARKETS. The Company selects its schools and designs its
educational programs to exploit favorable demographic and economic trends. The
Company's CSi division provides diploma programs in healthcare and technology
related fields, allowing the Company to capitalize on the growth in entry-
level positions in these industries which is expected to significantly outpace
the growth of the overall labor market over the next several years. The RCi
division's degree programs, with their business focus and the modern equipment
and resources of their facilities, also seek to provide students with specific
knowledge and skills necessary to advance in business and industry. The
Company's geographic strategy is to build a strong competitive position in
attractive and growing local markets where the Company can take advantage of
operating efficiencies and benefit from demographic shifts. For example, the
Company is well positioned, with nine schools in California and eight schools
in Florida, to benefit from the population growth in these states which is
expected to significantly exceed the national average over the next several
years.
CENTRALIZATION OF KEY FUNCTIONS. In order to leverage the experience of its
senior management, the Company has established a regional management
organization to divide responsibilities among school administrators, regional
administrators and senior management. Local school administrators retain
control of, and accountability for, the day-to-day academic, operational and
financial performance of their individual schools and receive appropriate
financial incentives. The corporate management team controls key operational
functions such as financial aid management, marketing, curriculum development,
staff training, human resources and centralized purchasing, which the Company
believes enable it to achieve significant operating efficiencies. For example,
the Company controls the advertising function at the corporate level by
utilizing its SAS system to
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analyze the effectiveness of its marketing efforts and make timely and
efficient decisions regarding the allocation of marketing resources at
individual colleges.
EMPHASIZING STUDENT OUTCOMES. The Company believes that strong student
outcomes are a critical driver of its long-term success and devotes
substantial resources to maintaining and improving its retention and placement
rates. Modest increases in student retention can have a significant impact on
the Company's profitability and high graduation and placement rates enhance a
school's reputation and marketability, increase referrals and improve cohort
default rates. The Company has studied attrition patterns and implemented a
variety of programs including tutoring, counseling, ride-sharing and referral
programs, all of which are designed to improve student retention. The Company
utilizes a curriculum development team and advisory boards comprised of local
business professionals to help maintain its current, market driven curricula
that provide the foundation of its placement effort. The Company additionally
maintains dedicated, full-time placement personnel at each school that
undertake extensive placement efforts, including recruiting prospective
employers, helping students prepare resumes, conducting practice interviews,
establishing internship programs and tracking students' placement success on a
monthly basis. As a result of the Company's efforts in this area, 83% of its
graduates in 1997 who were searching for employment were placed in a job for
which they had trained within six months after graduation.
CREATING A SUPPORTIVE LEARNING ENVIRONMENT. The Company views its students
as customers and seeks to provide a supportive and convenient learning
environment where student satisfaction is achieved. The Company offers a
flexible schedule of classes, providing its students with the opportunity to
attend classes throughout the day, as well as nights and weekends. Schools
operate year-round, permitting students to complete their course of study more
quickly. The Company limits class sizes and focuses the efforts of its faculty
on teaching students rather than research. Personal interaction between
students and faculty is encouraged and the Company offers several support
programs, such as on-campus counseling and tutoring, which are designed to
help students successfully complete their course of study. The Company also
maintains a toll-free student hotline to address and help resolve student
concerns. The Company believes these efforts help attract new students,
enhance students' probability of success and significantly increase retention
rates.
GROWTH STRATEGY
The Company intends to strengthen its position as a leading provider of
career-oriented proprietary post-secondary education in the United States. To
accomplish this objective, the Company will pursue the following growth
strategies:
ENHANCE GROWTH AT EXISTING CAMPUSES. The Company intends to enhance growth
at existing campuses through the following measures:
Curriculum Expansion and Development. The Company intends to continue
developing and expanding its curricula based on market research and the
recommendations of its faculty, employees, industry advisory board members
and a dedicated curriculum development team. The Company believes
considerable opportunities exist for curriculum expansion in both operating
divisions and expects to continue developing and adding new curricula and
selectively replicating existing programs at new locations, including
introducing its longer-term programs more broadly. In fiscal 1998, the
Company replicated existing programs at five new locations and initiated
new programs at three locations. For example, the RCi division launched a
master's of science in criminal justice and an executive MBA program in
1997 and is developing additional new programs such as healthcare
administration.
Integrated and Centralized Marketing Program. The Company believes that
it can increase student enrollment at its existing and newly opened or
acquired schools by employing an integrated marketing program utilizing an
extensive direct response advertising campaign delivered through
television, radio, newspaper, direct mail and the internet. In addition,
the Company has recently begun a significant sales and marketing effort
directed at high school guidance counselors and has also begun to directly
target potential government and corporate clients. A professional marketing
staff at the Company's headquarters coordinates
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marketing efforts through an in-bound call center and the sophisticated
real-time leads tracking capability of its SAS system.
Facilities Enhancement and Expansion. Due to increased enrollments, the
Company has faced temporary physical plant limitations at a number of its
colleges, particularly the CSi campuses. In order to expand capacity, as
well as to improve the location and appearance of its facilities, the
Company has relocated, and will continue to systematically relocate,
selected colleges within their respective markets to larger, enhanced
facilities upon lease expiration. Eight colleges have been relocated since
1995 and several additional colleges are scheduled for relocation during
fiscal 1999. Since the Company acquired its various colleges, it has
increased the total square footage of leased space by approximately 26,000
square feet over that existing at the time the various schools were
acquired.
ESTABLISH ADDITIONAL LOCATIONS. The Company anticipates creating "Additional
Locations" of its existing institutions to enter new geographic markets and to
create additional capacity in existing markets. Opening additional locations
will enable the Company to effectively leverage its infrastructure and
curriculum library. Establishing additional locations rather than opening new
colleges also allows the Company to become eligible for Title IV funding and
accreditation more expeditiously. The Company has considerable experience in
operating Additional Locations of its existing colleges and is currently
considering opening additional locations in several markets. The Company has
already identified several cities for potential additional locations and is
reviewing market and demographic data in order to determine site selection and
curriculum focus. The Company expects to continue to evaluate other cities as
potential sites for additional locations.
EXPAND SERVICE AREAS AND DELIVERY MODELS. The Company seeks to enhance its
growth by more aggressively pursuing contract training and distance learning
opportunities.
Contract Training. The Company seeks to expand its presence in the
government and corporate training markets. The Company's CSi division
employs a full-time contracts administrator and actively pursues training
opportunities through the Job Training Partnership Act (the "JTPA") and
other state and federal programs. To date, nine of the Company's schools
have obtained contracts under these programs. The Company believes that
corporate training is an attractive market and that its curriculum and
national market presence address the needs of a variety of employers.
Distance Learning. The Company anticipates that distance learning will
become an increasingly important component of the higher education market.
The Company is actively pursuing relationships with technology providers
which will allow the Company's colleges to capitalize on distance learning
opportunities.
SELECTIVELY ACQUIRE ACCREDITED PROPRIETARY COLLEGES. Since its formation the
Company has completed and integrated several acquisitions, including two
multicampus acquisitions, and is selectively seeking to acquire additional
institutions that can benefit from its operational expertise. The Company will
seek to acquire schools that generally possess: (i) complimentary or
attractive new curricula, (ii) locations in or near metropolitan areas, and
(iii) strong franchise value (name recognition or marketability).
PROGRAMS OF STUDY
The Company's diploma programs are intended to provide students with the
requisite knowledge and job skills for entry-level positions in their chosen
career field. The Company's degree programs are primarily designed to help
career-oriented adults advance in business and industry. The Company's
curriculum development team has responsibility for maintaining high quality,
market driven curricula. Each college also utilizes advisory boards to help
evaluate and improve the curriculum for each program offered. These advisory
boards meet at least twice a year and are comprised of local industry and
business professionals. Board members provide valuable input regarding changes
in the discipline, new technologies and any other factors that require
curriculum adjustments. The Company believes its advisory boards give it the
ability to adapt quickly to market changes and provide a distinct competitive
advantage for the Company. For this reason, the Company is committed to
maintaining its strong and proactive advisory boards.
33
<PAGE>
Among the CSi colleges, the curriculum principally includes medical
assisting, dental assisting, medical office management, ophthalmic technician,
business operation, medical administrative assistant, respiratory therapy
technician, and electronics and computer technology. Medical assisting is the
most popular program of study, often accounting for 60% or more of the student
body at any given CSi campus. The four National Institute of Technology
("NIT") colleges within the CSi division also offer electronics technology. At
these colleges, the student population is generally split between electronics
and medical assisting. The RCi curriculum includes accounting, business
administration, computer information technology, hospitality management,
marketing, criminal justice, medical assisting, paralegal, commercial art,
court reporting, film and video and travel and tourism. Most programs lead to
an associate's degree, while at the Florida Metropolitan University campuses
most programs also lead to a bachelor's degree. Master's degrees are also
offered at FMU in business administration and criminal justice.
Diploma programs generally have a duration of 8-15 months,however, the
electronics and computer technology programs last 13-19 months. Associate's
degree programs have a duration of 18-24 months, bachelor's degree programs
last 36-48 months and master's degree programs have a duration of 24 months
(except for the executive MBA, which is 12 months). As of June 19, 1998, 6,160
students were enrolled in associate's programs, 1,588 were enrolled in
bachelor's programs, 482 were enrolled in master's programs and 5,796 were
enrolled in diploma programs.
34
<PAGE>
The following chart reflects the general courses of study at the Company's
colleges, along with the number of locations that offer those courses and the
student population for each, as of June 19, 1998.
STUDENT POPULATION BY AREAS OF STUDY
<TABLE>
<CAPTION>
NUMBER OF STUDENT
LOCATIONS POPULATION
--------- ----------
<S> <C> <C>
DIPLOMA PROGRAMS
Business Operations....................................... 4 566
Electronics & Computer Technology......................... 4 389
Dental Assisting.......................................... 8 615
Medical Assisting......................................... 17 3,414
Medical Office Management................................. 9 634
Ophthalmic Technician..................................... 3 62
Respiratory Therapy Technology............................ 1 56
General................................................... 18 60
------
TOTAL................................................... 5,796
ASSOCIATE'S DEGREE PROGRAMS
Business Administration (includes criminal justice and
paralegal)............................................... 16 2,658
Court Reporting........................................... 3 176
Commercial Art............................................ 2 171
Computer Information Systems.............................. 13 841
Film & Video.............................................. 2 129
Hotel/Restaurant Management............................... 4 34
Medical Assisting......................................... 11 1,059
Secretarial/Legal Assistant............................... 7 426
Travel & Tourism.......................................... 6 215
Electronics............................................... 1 146
General................................................... 17 305
------
TOTAL................................................... 6,160
BACHELOR'S DEGREE PROGRAMS
Business Administration (includes criminal justice and
paralegal)............................................... 8 1,266
Computer Information Science/Programming.................. 7 304
Hospitality Management.................................... 1 18
------
TOTAL................................................... 1,588
MASTER'S DEGREE PROGRAMS
Business Administration (MBA)............................. 8 472
Criminal Justice.......................................... 1 10
------
TOTAL................................................... 482
COMPANY TOTAL........................................... 14,026
======
</TABLE>
35
<PAGE>
MARKETING AND RECRUITMENT
The Company employs a variety of methods to attract qualified applicants who
will benefit from the Company's programs and achieve success in their chosen
career fields. The Company believes that one of the principal attractions for
prospective students is the excellent reputation which the Company's schools
enjoy in their respective communities, where nine have been operating for more
than 100 years and all but two have been operating for more than 15 years. The
Company believes that the franchise value of these schools enhances their
marketability within their respective communities. This franchise value, along
with the quality of the programs offered, has enabled the Company to generate
significant new student enrollments from referrals. For the 11 months ended
May 31, 1998, the Company generated approximately 31% of its new student
enrollments from referrals.
The Company also employs a variety of direct response advertising techniques
to generate leads on candidates for its schools. The Company's advertising
department generates approximately 200,000 leads per year through television,
direct mail, newspaper, and yellow pages. The effectiveness of this
advertising campaign is dependent on timely and accurate lead tracking. To
that end, the Company operates a Call Center at its headquarters, staffed by a
team of operators who receive incoming lead calls generated by all television
and newspaper media sources. These trained operators enter data on each
prospect into the SAS computer system during the call and immediately transmit
the lead to the appropriate college. The college admissions department
receives the lead instantaneously and the local admissions representative
phones the prospect to begin the admissions process.
This leads tracking capability allows the Company to identify leads
generated by specific commercials and spot time. The Company's three
advertising agencies are networked into the Company's SAS data base and are
provided with real time information on the effectiveness of individual
commercials as well as the effectiveness of the media "buy." The agencies
consult with the Company's advertising department to adjust schedules for ads
depending on the Company's needs and the effectiveness of particular ads.
Since nearly 78% of the Company's advertising budget is spent on television
and newspaper ads, the availability of timely and accurate lead information is
critical to management of the leads generation process. For the eleven months
ended May 31, 1998, 49% of the Company's new student enrollments were
generated through television, newspaper and yellow pages advertising, 31% were
generated through referrals, 8% were generated through direct mail, and 12%
were generated through a variety of other methods. Television and referrals
combined generate approximately two thirds of all the Company's new student
enrollments. The Company has recently initiated a significant marketing effort
directed at the high school market.
ADMISSIONS
The Company employs approximately 170 admissions representatives who work
directly with prospective students to facilitate the enrollment process. These
representatives interview and advise students interested in specific careers
to determine the likelihood of their success and are a key component of the
Company's effort to generate interest in its educational services. In
satisfaction surveys conducted quarterly, students have consistently given
high marks to the Company's admissions personnel for helpfulness, courtesy and
accuracy of information. Because the Company's success is highly dependent on
the efficiency and effectiveness of its admissions process, the Company spends
considerable time and energy training its representatives to improve their
product knowledge and customer service. The Company also employs various
supervisory and monitoring efforts (including a survey of students to solicit
their views of the "truthfulness" of the admissions process) to help ensure
compliance by its staff with government regulations and Company policy.
The Company seeks to identify students that have appropriate qualifications
to succeed in its schools. All candidates for admission to colleges in the
Company's RCi division must have a high school diploma or a GED and must pass
a standardized admissions test. Students with these credentials can also
attend colleges in the Company's CSi division. In addition, thirteen colleges
in the CSi division accept non-high school graduates that can demonstrate an
ability to benefit ("ATB") from the program by passing certain tests required
by the DOE.
36
<PAGE>
The Company believes that ATB students can successfully complete many of its
diploma programs and the Company's colleges have demonstrated success in
graduating and placing these students over the years. As of March 31, 1998,
ATB students accounted for approximately 4.6% of total enrollments in the
Company's schools. See "Financial Aid and Regulation--Federal Oversight of the
Title IV Programs--Ability to Benefit Regulations."
PLACEMENT
One of the primary reasons students decide to attend a particular college is
its placement success, which is critical to a college's reputation and its
ability to continue successfully recruiting new students. The Company
maintains a dedicated placement department at each college and, in the
aggregate, employs approximately 60 professionals in this capacity. Placement
staff work with students from the time they begin their courses of study to
prepare them for the job search they will conduct at the end of their
programs. The Company views its placement departments as essentially in-house
employment agencies, assisting students with resumes, conducting practice
interview sessions, and recruiting prospective employers for the colleges'
graduates.
The efforts devoted by the Company's colleges to place their students have
achieved excellent results, with most colleges achieving and maintaining high
placement rates for their graduates. Based on information received from
graduating students and employers for fiscal year 1997, 83% of the Company's
graduates who were "available for placement" were placed within six months
after their graduation date. In accordance with industry practice, the term
"available for placement" includes all graduates except those who are
continuing their education, are in active military service or are deceased or
disabled, and foreign students who are ineligible to work in the United States
after graduation.
TUITION
Typical tuition for the Company's diploma programs range from $4,700 to
$13,000, depending upon the nature and length of the program. Tuition for
degree programs is charged on a credit hour basis and varies by college,
ranging from $158 to $189 per undergraduate credit hour, depending upon the
program of study and the number of courses taken per quarter. Tuition for
graduate programs is $263 per credit hour (except for the executive MBA
program, which is $457 per credit hour.). On average, an undergraduate degree
candidate can expect tuition of approximately $6,000 per academic year, while
a master's degree candidate can expect tuition of approximately $6,300 per
academic year. In addition to tuition, students at the Company's schools must
also typically purchase textbooks and other supplies as part of their
educational programs. The Company anticipates increasing tuition based on the
market conditions prevailing at its individual colleges. Over the last three
years the Company has initiated tuition increases typically ranging from 3% to
7% per year on an individual college basis. The Company's tuition ranges are
competitive with similar institutions, but like many proprietary institutions,
are somewhat higher than public institutions such as community colleges and
state universities. See "Business--Competition."
Under DOE regulations, if a student fails to complete the initial period of
enrollment (i.e., quarter, trimester, semester, academic year, or program, as
applicable), the institution must pay the largest refund under the federal pro
rata refund policy (calculated through 60% of the period of enrollment), state
refund policy (in California, a pro rata refund may be required for the
duration of the program), or the accrediting agency refund policy. If the
student terminates after the initial period, the institution must pay the
refund for such subsequent period under the state refund policy or, if no such
policy applies, the larger of the amount required by additional federal refund
policy requirements or the institution's own policy.
FACULTY
Faculty at all of the Company's colleges are expected to be industry
professionals and hold appropriate credentials in their respective
disciplines. The Company chooses faculty carefully and provides support for
these professionals to pursue professional development activities. The Company
believes the skill and dedication of its
37
<PAGE>
faculty have the single greatest impact on the placement and success of its
students following their graduation. As of March 31, 1998, the Company
employed 1,043 faculty, 263 of whom were full time employees. Faculty
represent 53% of all employees in the Company.
CAMPUS ADMINISTRATION
The Company sets policy for all of the schools and implements these policies
through the coordination of two Regional Operations Directors in each
division. The college presidents, in consultation with their respective
management teams, have the responsibility for the day-to-day operation of the
schools. Each college employs the following management personnel which report
to the College President: (i) an academic dean or education director, (ii) an
admissions director, (iii) a placement director and (iv) a finance or business
director. Corporate personnel at headquarters manage several key functions,
including financial aid, MIS, finance, marketing and advertising, purchasing,
human resources, payroll, curriculum development, leads management, staff
training and development, and internal compliance audit. Among the principal
oversight functions performed by the Company, in cooperation with regional and
college managers, is the annual budget process. The budget process establishes
goals for each college and sets performance incentives for achieving targeted
results. The Company's senior management have daily access to operational data
through its SAS system and conduct weekly conference calls with the school
presidents to review results of operations and set or reorder priorities for
the coming week.
MANAGEMENT AND EMPLOYEES
The Company's management is led by David Moore, Paul St. Pierre, Frank
McCord, Lloyd Holland and Dennis Devereux, each of whom has significant
experience in the proprietary post-secondary education industry, and who
together have over 60 years experience in the industry. See "Management." The
Company believes the extensive experience of its executives is a significant
factor in the rapid growth of the Company.
Beyond the senior management level, the Company structure includes four
regional operations directors and four regional admissions directors.
Currently, the Company has approximately 2,000 employees, of whom
approximately 85 are employed at the Company's headquarters. Neither the
Company nor any of its colleges has any collective bargaining agreements with
its employees. All regular full-time employees who are scheduled to work at
least 30 hours per week (20 hours for instructors) are eligible to participate
in the Company's benefit programs so long as they have satisfied the
eligibility waiting period. The Company's benefits include comprehensive
healthcare (which is a co-pay program), life insurance, disability insurance
and a 401(k) program. The Company considers its relations with its employees
to be good.
LOAN PROGRAM
In 1997, the Company expanded its internal loan program to assist eligible
students in those seven colleges that lost eligibility to participate in the
FFEL program due to Cohort Default Rates in excess of 25% for three
consecutive years prior to their acquisition by the Company. The Company
extends loans to these students based on the same qualifying criteria as the
FFEL Program. The loans generally have maturities ranging from 6 to 84 months
after graduation and bear interest at a fixed rate that is competitive with
rates under Title IV Programs. Monthly loan payments begin the first month
after the loan date and generally vary between $60 and $150, including loan
principal as well as interest. Student borrowers are required to make payments
while still enrolled, thereby reducing the debt they otherwise would assume
upon completion of their studies. The aggregate amount of loans outstanding to
students at these schools as of March 31, 1998, was approximately $5.2
million, with an average individual loan balance of approximately $3,200.
Loans under the Company's internal financing program are unsecured.
TECHNOLOGY
The Company is committed to providing its students with access to the
technology necessary for developing the skills required to succeed in their
chosen career. In order to ensure that programs of study remain current and
38
<PAGE>
effective, classrooms and laboratories must be properly equipped with modern
equipment appropriate to the course of study. To that end, the Company has
established a purchasing department which manages the capital expenditure
requests of all of its colleges and establishes national contracts for cost
effective acquisition of equipment. Computers, medical laboratory equipment,
dental laboratory equipment, optical laboratory equipment, software and all
related instructional materials are coordinated with, and purchased by, the
Company's Purchasing Manager. This national purchasing power has enabled the
Company to furnish its computer labs with modern computers at reasonable
prices. Purchasing decisions are prioritized among and within colleges through
the annual budget preparation process. Based on recent experience, the Company
plans annual routine capital expenditures of approximately 2% of revenue.
COMPETITION
The post-secondary education market, consisting of approximately 6,000
accredited institutions, is highly fragmented and competitive, with no
institution having a significant market share. Many of the programs offered by
the Company's colleges are also offered by public and private non-profit
institutions, as well as by many of the approximately 2,000 proprietary
colleges and schools. Typically, the tuition charged by public institutions is
less than tuition charged by the Company for comparable programs because
public institutions receive state tax subsidies, donations, and government
grants that are not available to the Company's colleges. However, tuition at
private non-profit institutions is typically higher than that at the Company's
colleges. In either case, the Company believes its colleges compete
effectively with other education alternatives for several reasons: (i) the
Company's colleges provide instruction that immediately prepares students to
enter careers; (ii) many of the Company's programs are not offered at public
institutions and are the only way students can train for particular careers,
(iii) the Company's educational programs are designed to promote on-schedule
completion, allowing students to move from the classroom to the workplace
within a finite period; (iv) more flexible schedules and greater availability
of required courses, resulting in shorter completion time and higher
completion rates and (v) placement services offered by the Company are
generally superior to those offered by private and public non-profit colleges
and universities.
The Company competes in most markets with other proprietary institutions
offering similar programs. The Company believes that the strong franchise
value of its colleges, the qualifications of its faculty, its facilities, and
its emphasis on student services allow the Company to compete effectively. In
addition, most of the Company's colleges have been operating in their markets
for 43 or more years, which has led to a substantial number of graduates who
are working in the market and validating the quality of the colleges'
programs. For example, the Bryman Colleges have been a commanding presence in
the healthcare education field in California for over 35 years. Many
physicians and dentists in California have hired Bryman graduates and continue
to view Bryman as a source of qualified Medical and Dental Assistants.
39
<PAGE>
FACILITIES
The Company's 35 colleges are located in metropolitan and suburban areas in
16 states. Facilities among the colleges vary considerably in both size and
type. The Company's headquarters and 30 of its schools are located in leased
facilities; five of the Company's schools are located in facilities owned by
the Company. As lease expirations approach in its various facilities, the
Company assesses the existing space in terms of current needs, prospects for
future growth, condition of the facility, desirability of the location and
financial terms. Based on the above criteria, the Company decides whether or
not to relocate its schools. Since acquiring the colleges, the Company has
relocated eight colleges and anticipates relocating several additional
colleges prior to the end of calendar 1998. Square footage of the Company's
colleges varies significantly based upon the type of programs offered and the
market being served. The following table reflects square footage by location
as of April 30, 1998:
<TABLE>
<CAPTION>
APPROX
SQUARE
COLLEGE FOOTAGE
------- -------
<S> <C>
RCI DIVISION
Blair College, Colorado Springs,
CO*............................. 22,300
Duff's, Pittsburgh, PA........... 40,000
FMU, Brandon, FL ................ 35,250
FMU, Ft. Lauderdale, FL ......... 34,500
FMU, Lakeland, FL................ 23,717
FMU, Melbourne, FL*.............. 16,500
FMU, Orlando, FL North .......... 39,424
FMU, Orlando, FL South........... 31,680
FMU, Pinellas, FL................ 30,344
FMU, Tampa, FL*.................. 30,000
Las Vegas College, Las Vegas, NV. 17,863
Mountain West College, Salt Lake
City, UT........................ 19,620
Parks College, Thornton, CO
North*.......................... 24,000
Parks College, Aurora, CO South*. 30,000
RBI, Rochester, NY............... 29,300
Springfield College, Springfield,
MO.............................. 23,012
Western Business College,
Vancouver, WA................... 6,930
Western Business College,
Portland OR..................... 26,800
Corporate Offices
Santa Ana, CA................... 21,957
Gulfport, MS.................... 1,580
</TABLE>
<TABLE>
<CAPTION>
APPROX
SQUARE
COLLEGE FOOTAGE
------- -------
<S> <C>
CSI DIVISION
Bryman, Brookline, MA............ 6,700
Bryman, El Monte, CA............. 16,943
Bryman, Gardena, CA.............. 14,356
Bryman, Los Angeles, CA.......... 13,824
Bryman, New Orleans, LA.......... 14,443
Bryman, Orange, CA............... 11,081
Bryman, San Francisco, CA........ 17,458
Bryman, San Jose, CA North....... 14,624
Bryman, San Jose, CA South....... 3,054
Bryman, Winnetka, CA............. 8,220
Bryman, Sea Tac, WA.............. 12,239
Kee Business College, Newport
News, VA........................ 16,126
NIT, Cross Lanes, WV............. 18,000
NIT, San Antonio, TX............. 29,500
NIT, Southfield, MT.............. 22,260
NIT, Wyoming, MI................. 24,000
Skadron College, San Bernardino,
CA.............................. 21,600
</TABLE>
- --------
*Indicates owned property.
40
<PAGE>
COMPANY HISTORY
The Company was founded in February of 1995 by David Moore, Paul St. Pierre,
Frank McCord, Dennis Devereux and Lloyd Holland, the five senior managers of
what was then NECI, a subsidiary of NEC, to capitalize on opportunities in
career oriented post-secondary education. Between June and December of 1995,
the Company acquired 16 of NECI's colleges, each of which was a diploma
granting school with a focus in healthcare. In July and September of 1996, the
Company completed two single campus acquisitions of additional diploma
granting schools. These 18 colleges (one of which has since been closed) today
comprise the Company's CSi division.
In October of 1996, the Company completed its second multi-campus
acquisition through the purchase of 18 campuses from Phillips Colleges, Inc.
Each of these colleges are degree granting schools with a primary focus on
degrees in business. These colleges comprise the Company's RCi division. Since
this most recent acquisition, the Company has focused on improving the
operations and profitability of its schools.
LEGAL PROCEEDINGS
From time to time, the Company has been involved in legal proceedings
arising in the ordinary course of business. None of the matters in which the
Company is currently involved is expected to have a material adverse effect on
the Company's business or financial condition.
41
<PAGE>
FINANCIAL AID AND REGULATIONS
ACCREDITATION
Accreditation is a voluntary non-governmental process by which institutions
submit themselves to qualitative review by an organization of peer
institutions. There are three types of accrediting agencies: (i) national
accrediting agencies, which accredit institutions on the basis of the overall
nature of the institutions without regard to geographical location; (ii)
regional accrediting agencies, which accredit institutions within their
geographic areas; and (iii) programmatic accrediting agencies, which accredit
specific educational programs offered by institutions. Accrediting agencies
primarily examine the academic quality of the instructional programs offered
at the institution and also review the administrative and financial operations
of the institution to insure that it has the academic and financial resources
to achieve its educational mission. A grant of accreditation is generally
viewed as certification that an institution and its programs meet generally
accepted academic standards.
Pursuant to provisions of the HEA, the DOE relies on accrediting agencies to
determine whether an institution and its educational programs are of
sufficient quality to permit it to participate in Title IV Programs. The HEA
specifies certain standards that all recognized accrediting agencies must
adopt in connection with their review of post-secondary institutions and
requires accrediting agencies to submit to a periodic review by the DOE as a
condition of their continued recognition. All of the Company's 35 colleges are
accredited by an accrediting agency recognized by the DOE. Twenty of the
Company's schools are accredited by the Accrediting Council for Independent
Colleges and Schools ("ACICS") and the remaining fifteen are accredited by the
Accrediting Commission of Career Schools and Colleges of Technology
("ACCSCT").
The following table specifies the accrediting agency and the expiration of
accreditation for each college:
<TABLE>
<CAPTION>
ACCREDITING
COLLEGE LOCATION AGENCY EXPIRATION
------- -------- ----------- ----------
<S> <C> <C> <C>
RCI DIVISION
Blair College................. Colorado Springs, CO ACICS 12/31/1998*
Duff's Business Institute..... Pittsburgh, PA ACICS 12/31/2000
FMU--Ft. Lauderdale College... Fort Lauderdale, FL ACICS 12/31/1999
FMU--Orlando College, North... Orlando, FL ACICS August 1998+
FMU--Orlando College, South... Orlando, FL ACICS August 1998+
FMU--Orlando, Melbourne....... Melbourne, FL ACICS August 1998+
FMU--Tampa College............ Tampa, FL ACICS August 1998+
FMU--Tampa College, Brandon... Tampa, FL ACICS August 1998+
FMU--Tampa College, Lakeland.. Lakeland, FL ACICS 12/31/1999
FMU--Tampa College, Pinellas.. Clearwater, FL ACICS 12/31/1999
Las Vegas College............. Las Vegas, NV ACICS 12/31/2000
Mountain West College......... Salt Lake City, UT ACICS 12/31/2000
Parks College North........... Thorton, CO ACICS 12/31/2000
Parks College South........... Aurora, CO ACICS 12/31/2000
Rochester Business Institute.. Rochester, NY ACICS 12/31/2000
Springfield College........... Springfield, MO ACICS 12/31/2000
Western Business College,
Portland..................... Portland, OR ACICS 12/31/2001
Western Business College,
Vancouver.................... Vancouver, WA ACICS 12/31/2001
CSI DIVISION
Bryman College................ Los Angeles, CA ACCSCT 12/31/2000
Bryman College................ New Orleans, LA ACCSCT 12/31/2001
Bryman Institute.............. Brookline, MA ACCSCT 12/31/2002
National Institute of
Technology................... Cross Lanes, WV ACCSCT 12/31/2001
Bryman College................ Orange, CA ACCSCT 12/31/2002
Bryman College................ Rosemead, CA ACCSCT 12/31/1999
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
ACCREDITING
COLLEGE LOCATION AGENCY EXPIRATION
------- -------- ----------- ----------
<S> <C> <C> <C>
Bryman College.......... San Francisco, CA ACCSCT 12/31/2001
Bryman College.......... SeaTac, WA ACCSCT 12/31/2002
Bryman College.......... Gardena, CA ACCSCT 12/31/2002
Bryman College.......... Winnetka, CA ACCSCT 12/31/2001
Bryman College North.... San Jose, CA ACCSCT 12/31/2003
Bryman College South.... San Jose, CA ACCSCT 12/31/2001
Kee Business College.... Newport News, VA ACICS 12/31/1998*
National Institute of
Technology............. San Antonio, TX ACCSCT 12/31/2001
National Institute of
Technology............. Southfield, MI ACCSCT 12/31/2003
National Institute of
Technology............. Wyoming, MI ACCSCT 12/31/2002
Skadron College......... San Bernardino, CA ACICS 12/31/2001
</TABLE>
- --------
*Currently in renewal.
+Accreditation review is currently under way and is expected to be received in
August 1998.
The HEA requires accrediting agencies recognized by the DOE to review many
aspects of an institution's operations in order to ensure that the education
or training offered is of sufficient quality to achieve, for the duration of
the accreditation period, the stated objectives of the education or training
offered. Under the HEA, recognized accrediting agencies must conduct regular
inspections and reviews of the institutions they accredit, including
unannounced site visits to institutions that perform career oriented education
and training. In addition to periodic accreditation reviews, institutions
undergoing a change of ownership must be reviewed by the accrediting agency.
All of the Company's colleges have been visited and reviewed by their
respective accrediting agencies subsequent to the date of acquisition by the
Company. Accrediting agencies also monitor institutions' compliance during the
term of their accreditation. If an accrediting agency believes that an
institution may be out of compliance with accrediting standards, it may place
the institution on probation or a similar warning status or direct the
institution to show cause why its accreditation should not be revoked. An
accrediting agency may also place an institution on "reporting" status in
order to monitor one or more specific areas of the institution's performance.
An institution placed on reporting status is required to report periodically
to its accrediting agency on that institution's performance in specific areas.
Failure to demonstrate compliance with accrediting standards in any of these
instances could result in loss of accreditation. While on probation, show
cause or reporting status, an institution may be required to seek permission
of its accrediting agency to open and commence instruction at new locations.
Only one of the Company's colleges, located in Gardena, California, is on
reporting status and is required to file a report on timeliness of refunds in
July 1998. The Company believes it will satisfy ACCSCT and that the college
will be removed from reporting status in August 1998.
Two of the Company's colleges were visited by their respective accrediting
agencies in 1998 for regularly scheduled reaccreditation visits. Blair College
in Colorado Springs and Kee Business College were visited by ACICS. In both
cases, exit interviews and written Team Summary Reports indicated favorable
reviews with no material findings or citations. Reaccreditation for these
campuses will be voted on at the next regularly scheduled meetings of ACICS in
August 1998. The Company believes that both colleges will receive new grants
of accreditation, although there can be no assurance that the colleges will
receive such new grants.
Five of the Company's FMU campuses (Tampa, Brandon, Orlando North, Orlando
South, and Melbourne) were considered for new grants of accreditation at the
December 1997 meeting of ACICS. The Commission noted certain concerns
regarding record keeping and some academic policy issues and voted to extend
the current grant of accreditation until August 1998 in order to allow time
for the colleges to address the specific areas of concern. The colleges were
revisited in May 1998 and received favorable comments from the review team in
both the exit interviews and in the follow-up Team Summary reports. The
reports indicated that the colleges had satisfied the Commission's concerns
and that the colleges were in compliance with all accreditation criteria.
Reaccreditation for the colleges will be considered and voted on at the next
regularly scheduled ACICS Commission meeting beginning on August 8, 1998.
43
<PAGE>
STUDENT FINANCIAL ASSISTANCE
Students attending the Company's schools finance their education through a
combination of family contributions, individual resources, government-
sponsored financial aid (including Title IV loan programs and those sponsored
by the Company) and tuition reimbursement from employers. The Company
estimates that over 75% of its students receive financial aid from Title IV
Programs. For the 1997 fiscal year, approximately 75% of the Company's tuition
and fee revenue (on a cash basis) was derived from Title IV Programs.
To provide students access to financial assistance available through the
Title IV Programs, an institution must be (i) authorized to offer its programs
of instruction by the relevant agencies of the state in which it and its
additional campuses, if any, are located, (ii) accredited by an accrediting
agency recognized by the DOE, and (iii) certified as eligible by the DOE. In
addition, the institution must comply with strict accounting and disbursement
standards regarding Title IV Program funds.
Under HEA and its implementing regulations, each of the Company's colleges
that participate in Title IV Programs must comply with certain standards on an
institutional basis. For purposes of these standards, the regulations define
an institution as a main campus and its additional locations (formerly called
"branch" campuses), if any. Under this definition, each of the Company's
colleges is a separate institution, except for the following: Bryman College
in New Orleans, Louisiana is an additional location of Bryman College (South)
in San Jose, California; the FMU Campuses in Melbourne, Florida and Orlando,
Florida (South) are additional locations of FMU, Orlando (North); FMU in
Brandon, Florida is an additional location of FMU, Tampa; FMU, Lakeland is an
additional location of FMU, Pinellas; Parks College (South) in Denver,
Colorado is an additional location of Parks College (North) in Denver; and
Western Business College in Vancouver, Washington is an additional location of
Western Business College in Portland, Oregon. (Note: The Western Business
College, Vancouver campus, albeit an additional location, is not accounted for
separately from the main campus in Portland. Unique to the Vancouver campus,
all students must complete part of their course of study at the main campus in
Portland).
All of the Company's colleges participate in Title IV Programs. Currently,
four of the CSi colleges are ineligible to participate in the federal student
loan program (FFEL) as a result of previous Cohort Default Rates relating to
fiscal years prior to the acquisition of the schools by the Company. In 1997,
the Company expanded its internal loan program to assist students in those
seven colleges which lost access to FFEL loans during that year. The internal
loans to these students essentially replace the loss of the FFEL loans, and
thus are generally for greater amounts (average of approximately $3,200) and
longer periods of time (average of approximately 4 years) than the normal
installment payment plans routinely afforded to many of the Company's students
to supplement their financial aid. Therefore, the risk of loss is also
greater. While the Company believes it has adequate reserves against these
loan balances, there can be no assurance that losses will not exceed reserves.
Losses in excess of reserves could have a material adverse effect on the
Company's business, results of operations and financial condition. The terms
of the internal loan program are similar in most respects to the FFEL.
However, unlike the FFEL, students participating in the internal loan program
are required to make monthly payments while in school and there is no grace
period. The interest rate and repayment period are identical to the FFEL
program.
The loss of eligibility to participate in FFEL has not had a material
adverse effect on new student enrollments at the four colleges. The Company
has, however, increased its bad debt reserves for the internal loans and has
been negatively affected by the reduced cash flow resulting from the loss of
FFEL. With the reinstatement of three of the seven schools (representing over
50% of the combined total student population in all seven schools) to the
Title IV Loan Program, the Company expects the working capital needed to fund
these internal loans to decrease significantly in the future. See "--Federal
Support for Post-secondary Education--Cohort Default Rates," "Risk Factors--
Potential Adverse Effects of Regulation," and "Management's Discussion and
Analysis--Liquidity and Capital Resources".
FEDERAL SUPPORT FOR POST-SECONDARY EDUCATION
While many of states support their public colleges and universities through
direct state subsidies, the federal government provides a substantial part of
its support for post-secondary education by way of grants and loans to
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students who can use this money at any institution certified as eligible by
the DOE. Since 1972, Congress has expanded the scope of the HEA by, among
other things, (i) providing that students at proprietary institutions, such as
the Company's institutions, are eligible for assistance under the Title IV
Programs, (ii) establishing a program for loans to parents of eligible
students, (iii) opening the Title IV Programs to part-time students, and (iv)
increasing maximum loan limits and in some cases eliminating the requirement
that students demonstrate financial need to obtain federally guaranteed loans.
Most recently, the FDL program was enacted, enabling students to obtain loans
directly from the federal government rather than from commercial lenders.
Congress reauthorizes the student financial assistance programs of the HEA
approximately every five years. In connection with the current reauthorization
process, which is expected to be completed in 1998, numerous changes to the
HEA have been proposed by the DOE and other parties. See "Risk Factors--Risk
That Legislative Action Will Reduce Financial Aid Funding or Increase
Regulatory Burden."
Students at the Company's institutions receive grants, loans and work
opportunities to fund their education under several of the Title IV Programs,
of which the two largest are the FFEL program and the Federal Pell Grant
("Pell") program. The Company's institutions also participate in the Federal
Supplemental Educational Opportunity Grant ("FSEOG") program, and some of them
participate in the Perkins program and the Federal Work-Study ("FWS") program.
None of the Company's institutions is an active participant in the William D.
Ford Federal Direct Loan ("FDL") program.
Most aid under the Title IV Programs is awarded on the basis of financial
need, generally defined under the HEA as the difference between the cost of
attending an educational institution and the amount a student can reasonably
contribute to that cost. All recipients of Title IV Program funds must
maintain a satisfactory grade point average and progress in a timely manner
toward completion of their program of study.
Pell. Pell grants are the primary component of the Title IV Programs under
which the DOE makes grants to students who demonstrate financial need. Every
eligible student is entitled to receive a Pell grant; there is no
institutional allocation or limit. For the 1997-98 award year, Pell grants
range from $400 to $2,700 per year. Amounts received by students enrolled in
the Company's institutions in the 1996-97 award year under the Pell program
equaled approximately 20% of the Company's tuition and fee revenue.
FSEOG. FSEOG awards are designed to supplement Pell grants for the neediest
students. FSEOG grants generally range in amount from $100 to $4,000 per year;
however, the availability of FSEOG awards is limited by the amount of those
funds allocated to an institution under a formula that takes into account the
size of the institution, its costs and the income levels of its students. The
Company is required to make a 25% matching contribution for all FSEOG program
funds disbursed. Resources for this institutional contribution may include
institutional grants, scholarships and other eligible funds (i.e., funds from
foundations and other charitable organizations) and, in certain states,
portions of state scholarships and grants. During the 1996-97 award year, the
Company's required 25% institutional match was met by approximately $403,955
in funds from its institutions and approximately $90,007 in funds from state
scholarships and grants and from foundations and other charitable
organizations. Amounts received by students in the Company's institutions
under the federal share of the FSEOG programs in the 1996-97 award year
equaled approximately 0.1% of the Company's tuition and fee revenue.
FFEL and FDL. The FFEL program consists of two types of loans, Stafford
loans, which are made available to students, and PLUS loans, which are made
available to parents of students classified as dependents. Under the FDL
program, students may obtain loans directly from the DOE rather than
commercial lenders. The conditions on FDL loans are generally the same as on
loans made under the FFEL program. None of the Company's institutions have
elected to participate in the FDL program. Under the Stafford loan program, a
student may borrow up to $2,625 for the first academic year, $3,500 for the
second academic year and, in some educational programs, $5,500 for each of the
third and fourth academic years. Students with financial need qualify for
interest subsidies while in school and during grace periods. Students who are
classified as independent can increase their borrowing limits and receive
additional unsubsidized Stafford loans. Such students can obtain an additional
$4,000 for each of the first and second academic years and, depending upon the
educational
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program, an additional $5,000 for each of the third and fourth academic years.
The obligation to begin repaying Stafford loans does not commence until six
months after a student ceases enrollment as at least a half-time student.
Amounts received by students in the Company's institutions under the Stafford
program in the 1996-97 award year equaled approximately 44.9% of the Company's
tuition and fee revenue (on a cash basis). PLUS loans may be obtained by the
parents of a dependent student in an amount not to exceed the difference
between the total cost of that student's education (including allowable
expenses) and other aid to which that student is entitled. Amounts received by
students in the Company's institutions under the PLUS program in the 1996-97
award year equaled approximately 2.0% of the Company's tuition and fee revenue
(on a cash basis).
The Company's schools and their students use a wide variety of lenders and
guaranty agencies and have generally not experienced difficulties in
identifying lenders and guaranty agencies willing to make federal student
loans. Seven of the Company's colleges are currently ineligible to participate
on FFEL and PLUS loan programs as a result of past Cohort Default Rates that
exceeded federal standards. Five of the colleges may be eligible to reapply
for participation in October 1999 and the remaining two colleges may be
eligible to reapply in October 2000. Additionally, the HEA requires the
establishment of lenders of last resort in every state to ensure that students
at any institution that cannot identify such lenders will have access to the
FFEL program loans. One of the Company's colleges, Bryman College in Gardena,
California, uses a lender of last resort.
Perkins. Eligible undergraduate students may borrow up to $3,000 under the
Perkins program during each academic year, with an aggregate maximum of
$15,000, at a 5% interest rate and with repayment delayed until nine months
after the borrower ceases to be enrolled on at least a half-time basis.
Perkins loans are made available to those students who demonstrate the
greatest financial need. Perkins loans are made from a revolving account, 75%
of which was initially capitalized by the DOE. Subsequent federal capital
contributions, with an institutional match in the same proportion, may be
received if an institution meets certain requirements. Each institution
collects payments on Perkins loans from its former students and loans those
funds to currently enrolled students. Collection and disbursement of Perkins
loans is the responsibility of each participating institution. During the
1996-97 award year, the Company collected approximately $910,745 from its
former students in repayment of Perkins loans. In the 1996-97 award year, the
Company had no required matching contribution. The Perkins loans disbursed to
students in the Company's institutions in the 1996-97 award year equaled
approximately 1% of the Company's tuition and fee revenue. In 1995, the
Company's RCi colleges voluntarily chose to discontinue participating in the
Perkins program. Bryman College in SeaTac, Washington also does not
participate in the Perkins program.
FWS. Under the FWS program, federal funds are made available to pay up to
75% of the cost of part-time employment of eligible students, based on their
financial need, to perform work for the institution or for off-campus public
or non-profit organizations. During the 1996-97 award year, the Company's
institutions and other organizations provided matching contributions totaling
approximately $98,908. At least 5% of an institution's FWS allocation must be
used to fund student employment in community service positions. FWS earnings
are not used for tuition and fees. However, in the 1996-97 award year, the
federal share of FWS earnings equalled .003% of the Company's tuition and fee
revenue.
FEDERAL OVERSIGHT OF THE TITLE IV PROGRAMS
The substantial amount of federal funds disbursed through the Title IV
Programs coupled with the large numbers of students and institutions
participating in those programs have led to instances of fraud, waste and
abuse. As a result, the United States Congress has required the DOE to
increase its level of regulatory oversight of institutions to ensure that
public funds are properly used. Each institution which participates in the
Title IV Programs must annually submit to the DOE an audit by an independent
accounting firm of that institution's compliance with the Title IV Program
requirements, as well as audited financial statements. The DOE also conducts
compliance reviews, which include on-site evaluations, of several hundred
institutions each year, and directs student loan guaranty agencies to conduct
additional reviews relating to the FFEL programs. In addition, the Office of
the Inspector General of the DOE conducts audits and investigations of
institutions in certain circumstances. Under the HEA, accrediting agencies and
state licensing agencies also have responsibilities for overseeing
institutions' compliance with Title IV Program requirements. As a result, each
participating
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institution, including each of the Company's institutions, is subject to
frequent and detailed oversight and must comply with a complex framework of
laws and regulations or risk being required to repay funds or becoming
ineligible to participate in the Title IV Programs. In addition, the DOE
periodically revises its regulations (e.g., in November 1997, the DOE
published new regulations with respect to financial responsibility standards
to take effect July 1, 1998) and changes its interpretation of existing laws
and regulations. See "--Financial Responsibility Standards."
Cohort Default Rates. A significant component of the Congressional
initiative aimed at reducing fraud, waste and abuse was the imposition of
limitations on participation in the Title IV Programs by institutions whose
former students defaulted on the repayment of federally guaranteed or funded
student loans at an "excessive" rate ("Cohort Default Rates"). Since the DOE
began to impose sanctions on institutions with Cohort Default Rates above
certain levels, the DOE has reported that more than 600 institutions have lost
their eligibility to participate in some or all of the Title IV Programs.
However, many institutions, including all of the Company's institutions, have
responded by implementing aggressive student loan default management programs
aimed at reducing the likelihood of students failing to repay their loans in a
timely manner. An institution's Cohort Default Rates under the FFEL and FDL
programs are calculated on an annual basis as the rate at which student
borrowers scheduled to begin repayment on their loans in one federal fiscal
year default on those loans by the end of the next federal fiscal year. An
institution that participates in both the FFEL and FDL programs, including any
of the Company's institutions, receives a single "weighted average" cohort
default rate in place of an FFEL or FDL cohort default rate. Any institution
whose cohort default rate equals or exceeds 25% for any one of the three most
recent federal fiscal years may be found by the DOE to lack administrative
capability and, on that basis, placed on provisional certification status for
up to three years. Provisional certification status does not limit an
institution's access to Title IV Program funds but does subject that
institution to closer review by the DOE and possible summary adverse action if
that institution commits violations of the Title IV Program requirements. Any
institution whose Cohort Default Rates equal or exceed 25% for three
consecutive years will no longer be eligible to participate in the FFEL or FDL
programs for the remainder of the federal fiscal year in which the DOE
determines that such institution has lost its eligibility and for the two
subsequent federal fiscal years. In addition, an institution whose cohort
default rate for any federal fiscal year exceeds 40% may have its eligibility
to participate in all of the Title IV Programs limited, suspended or
terminated. Since the calculation of Cohort Default Rates involves the
collection of data from many non-governmental agencies (i.e., lenders, private
guarantors or servicers), as well as the DOE, the HEA provides a formal
process for the review and appeal of the accuracy of Cohort Default Rates
before the DOE takes any action against an institution based on such rates.
The Company proactively manages its students and has engaged two
professional default management firms to assist the Company in reducing the
Cohort Default Rates at its colleges. To date the two firms have favorably
impacted the Cohort Default Rates at the Company's colleges, lowering
historical default rates at certain colleges by ten percentage points or more.
The Company believes that professional default management services can
continue to materially improve the Cohort Default Rates at its colleges.
For federal fiscal year 1995, the published Cohort Default Rates for the
Company's CSi institutions ranged from a low of 2.6% to a high of 32.6%. For
the RCi colleges, the 1995 Cohort Default Rates ranged from a low of 15.5% to
a high of 28.8%. The average Cohort Default Rates for proprietary institutions
nationally were 23.9%, 21.1% and 19.9% in federal fiscal years 1993, 1994 and
1995, respectively. None of the RCi colleges has had a published cohort
default rate of 25% or greater for three consecutive years. Twelve of the RCi
colleges had fiscal 1993 Cohort Default Rates above 25%. However, none of the
RCi colleges had fiscal 1994 cohort default rates at or above 25%, and only
one of the RCi colleges, Las Vegas College, had a 1995 Cohort Default Rate
above 25%.
Four of the Company's CSi institutions have default rates in excess of 25%
for the most recent three consecutive federal fiscal years published (1993,
1994, 1995). The published 1995 rate for Bryman College, Los Angeles was
25.1%; the 1995 rate for Bryman College, El Monte was 26.2%; and the rate for
Skadron College in San Bernardino was 25.1%. These colleges, along with two
additional campuses, NIT in Wyoming, Michigan and Bryman Institute in
Brookline, Massachusetts, also had default rates in excess of 25% for the
1992, 1993, and 1994 federal fiscal years. As a result, six of these colleges
became ineligible to participate in the FFEL
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programs beginning in May 1997. The seventh, Skadron College in San
Bernardino, California, had lost its eligibility to participate in the FFEL
program in June of 1994.
Through the Company's aggressive default management efforts, two of the
seven colleges had fiscal 1995 published default rates below 25%: Bryman
College in Brookline, Massachusetts had a default rate of 23.4% and NIT in
Wyoming, Michigan had a default rate of 22.1%. Pursuant to extended
negotiations with the DOE regarding reinstatement of eligibility for these
seven campuses, the Company received notice in June 1998 that the DOE proposed
to reinstate three of the seven colleges, provided that the Company agree not
to pursue remedies for reinstatement of the remaining four campuses. The
Company has agreed to the terms of the proposal and the eligibility of the
three campuses to participate in the FFEL Programs has been reinstated. Of the
remaining four, NIT in Wyoming, Michigan will be eligible for reinstatement in
1999 and the other three will be eligible for reinstatement in 2000, based on
published rates for fiscal 1995 and prepublished rates in for fiscal 1996,
respectively.
The following table sets forth the Cohort Default Rates for the Company's
institutions for federal fiscal years 1993, 1994 and 1995, and the pre-
published Cohort Default Rate for federal fiscal 1996:
<TABLE>
<CAPTION>
COHORT DEFAULT RATE
---------------------------------
1996
INSTITUTION 1993 1994 1995 (PRE-PUBLISHED)
----------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C>
RCI DIVISION
Blair College, Colorado Springs, CO........... 15.0% 13.3% 15.5% 13.3%
Duff's Business Institute, Pittsburgh......... 30.8% 24.5% 17.1% 20.1%
FMU--Orlando (North, South, Melbourne)*....... 26.8% 18.8% 16.7% 19.1%
FMU--Pinellas (Lakeland)*..................... 27.8% 24.1% 21.5% 20.4%
FMU--Tampa (Brandon)*......................... 24.9% 19.9% 17.4% 19.0%
Ft. Lauderdale College........................ 28.4% 23.9% 19.8% 17.6%
Las Vegas College............................. 25.2% 23.7% 28.8% 18.9%
Mountain West College, Salt Lake City, UT..... 24.3% 18.0% 14.8% 16.4%
Parks College North and South, CO*............ 30.1% 21.8% 19.3% 15.8%
Rochester Business Institute, Rochester, NY... 21.3% 24.4% 24.6% 22.9%
Springfield College, Springfield, MO.......... 21.7% 14.8% 16.5% 19.2%
Western Bus. Col. (Portland, Vancouver)*...... 27.2% 23.0% 24.8% 22.4%
CSI DIVISION
Bryman College, Brookline, MA................. 37.9% 29.5% 23.4% 24.2%
Bryman College, El Monte, CA.................. 39.4% 31.5% 26.2% 14.7%
Bryman College, Gardena, CA................... 30.6% 23.9% 25.8% 29.2%
Bryman College, Los Angeles, CA............... 35.3% 33.6% 25.1% 19.1%
Bryman College, Orange CA..................... 24.9% 18.0% 19.5% 18.2%
Bryman College, San Francisco, CA............. 21.6% 22.6% 21.0% 24.3%
Bryman College, San Jose No. ................. 23.0% 22.5% 30.5% 22.3%
Bryman Col., San Jose South (New Orleans)*.... 35.3% 31.1% 32.6% 20.1%
Bryman College, Sea Tac, WA................... 15.0% 8.5% 7.5% 4.9%
Bryman College, Winnetka, CA.................. 28.3% 24.2% 21.4% 18.8%
Kee Business College, Newport News, VA........ 20.6% 15.4% 2.6% 8.0%
NIT, Cross Lanes, WV.......................... 28.3% 11.7% 20.7% 18.8%
NIT, San Antonio, TX.......................... 31.4% 24.3% 24.5% 17.5%
NIT, Southfield, MI........................... 32.2% 23.6% 18.9% 17.8%
NIT, Wyoming, MI.............................. 30.1% 25.9% 22.1% 14.5%
Skadron College, San Bernardino, CA........... 30.3% 28.2% 25.1% 16.6%
</TABLE>
- --------
* Indicates additional location wherein cohort default rates are blended with
the main campus. Pre-published federal fiscal 1996 default rates were issued
by the Department of Education on May 5, 1998, and may be appealed by the
colleges.
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In addition, if an institution's cohort default rate for loans under the
Perkins Program exceeds 15% for any federal award year (i.e., July 1 through
June 30), that institution may be placed on provisional certification status
for up to three years. Fifteen of the Company's institutions have Perkins
Cohort Default Rates in excess of 15% for students who were scheduled to begin
repayment in the 1997 federal award year, the most recent year for which such
rates have been calculated. The Perkins Program Cohort Default Rates for these
institutions ranged from 36.7% to 81.6%. Default rates in excess of 15% could
result in provisional certification status.
Beyond the efforts of the professional default management firms, each of the
Company's colleges has adopted an internal student loan default management
plan. Those plans emphasize the importance of meeting loan repayment
requirements and provide for extensive loan counseling, along with methods to
increase student persistence and completion rates and graduate employment
(placement) rates. Immediately upon a student's cessation of enrollment, the
professional default management firm initiates regular contact with the
student, and maintains regular contact throughout the grace period, and
continues this activity through the entire cohort period. The colleges
continue to work with the default management firm to maintain accurate and up-
to-date information on address changes, marital status changes, or changes in
circumstance that may allow the student to apply for additional deferments.
These activities are all in addition to the loan servicing and collection
activities of FFEL lenders and guarantee agencies.
Increased Regulatory Scrutiny. The HEA provides for a three-part initiative,
referred to as the Program Integrity Triad, intended to increase regulatory
scrutiny of post-secondary education institutions. One part of the Program
Integrity Triad expands the role of accrediting agencies in the oversight of
institutions participating in the Title IV Programs. As a result, the
accrediting agencies which review and accredit the Company's campuses have
increased the breadth of such reviews and have expanded their examinations in
such areas as financial responsibility and timeliness of student refunds. The
Program Integrity Triad provisions also require each accrediting agency
recognized by the DOE to undergo comprehensive periodic reviews by the DOE to
ascertain whether such accrediting agency is adhering to required standards.
A second part of the Program Integrity Triad tightened the standards to be
applied by the DOE in evaluating the financial responsibility and
administrative capability of institutions participating in the Title IV
Programs. In addition, the Program Integrity Triad mandated that the DOE
periodically reviews the eligibility and certification to participate in the
Title IV Programs of every such eligible institution. By law, all institutions
were required to undergo such a recertification review by the DOE by 1997 and
are required to undergo such a recertification review every four years
thereafter. Under these standards, each of the Company's institutions will be
evaluated by the DOE more frequently than in the past. A denial of
recertification would preclude an institution from continuing to participate
in the Title IV Programs.
A third part of the Program Integrity Triad required each state to establish
a State Post-Secondary Review Entity ("SPRE") to review certain institutions
within that state to determine their eligibility to continue participating in
the Title IV Programs. However, no SPREs are actively functioning. The United
States Congress has declined to provide funding for the SPREs. Nevertheless,
state requirements are important to an institution's eligibility to
participate in the Title IV Programs since an institution must be licensed or
otherwise authorized to operate in the state in which it offers education or
training services in order to be certified as eligible. See "State
Authorization."
Financial Responsibility Standards. All institutions participating in the
Title IV Programs must satisfy a series of specific standards of financial
responsibility. Institutions are evaluated for compliance with those
requirements in several circumstances, including as part of the DOE's
quadrennial recertification process and also annually as each institution
submits its audited financial statements to the DOE. One standard requires
each institution to demonstrate an acid test ratio (defined as the ratio of
cash, cash equivalents and current accounts receivable to current liabilities)
of at least 1:1 at the end of each fiscal year. Another standard requires that
each institution have a positive tangible net worth at the end of each fiscal
year. A third standard prohibits any institution from having a cumulative net
operating loss during its two most recent fiscal years that results in a
decline of more than 10% of that institution's tangible net worth as measured
at the beginning of that two-year period. The DOE may measure an institution's
financial responsibility on the basis of the financial statements of
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<PAGE>
the institution itself or the financial statements of the institution's parent
company, and may also consider the financial condition of any other entity
related to the institution.
An institution that is determined by the DOE not to meet any one of the
standards of financial responsibility is nonetheless entitled to participate
in the Title IV Programs if it can demonstrate to the DOE that it is
financially responsible on an alternative basis. An institution may do so by
posting surety either in an amount equal to 50% (or greater, as the DOE may
require) 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% (or
greater, as the DOE may require) of such prior year's funds if the institution
also agrees to provisional certification and to transfer to the reimbursement
or cash monitoring system of payment for its Title IV Program funds. The DOE
has interpreted this surety condition to require the posting of an irrevocable
letter of credit in favor of the DOE. Alternatively, an institution may
demonstrate, with the support of a statement from a certified public
accountant and other information specified in the regulations, that it was
previously in compliance with the numeric standards and that its continued
operation is not jeopardized by its financial condition.
In reviewing the Company's two major acquisitions, the DOE has measured
financial responsibility differently for each acquisition. In the NEC
Acquisition in 1995, the DOE reviewed the financial statements of the
institutions only, while in the Phillips Acquisition in 1996, the DOE reviewed
the financial statements of both the institutions and the Company. At the time
of the NEC Acquisition, (and subsequently, at the time of the Repose
Acquisition and Concorde Acquisitions) all of the CSi colleges met the
financial responsibility requirements set forth by the DOE. At the time of the
Phillips Acquisition, the DOE elected to review the financial statements of
both the institutions and the Company and, as a result of the debt incurred to
purchase the colleges, determined that the Company did not meet the tangible
net worth requirement. As a result of negotiations with the DOE prior to the
acquisition, the DOE and the Company agreed to the posting of an irrevocable
letter of credit in favor of the DOE in the amount of $1.0 million. In
addition, the 18 colleges would remain on the reimbursement program (they had
been placed on reimbursement under prior ownership). Although the $1.0 million
letter of credit is less than the amount normally required under such
circumstances, the DOE agreed to these terms in order to facilitate the sale
of the colleges to CCi. The need for and sufficiency of the letter of credit
are scheduled to be reviewed annually subsequent to receipt of the Company's
annual audited financial statements.
Although the above letter of credit is the only outstanding financial
responsibility requirement currently in effect, the DOE has not yet responded
to the annual audited financial statements submitted by the Company for the
1997 fiscal year. Based on these audits, eight of the Company's colleges fail
to meet one or more of the financial responsibility tests. Three of the
colleges fail to meet the acid test ratio and five of the colleges fail to
meet the profitability test. In addition, the Company, on a consolidated
basis, fails to meet the financial responsibility tests. However, at the CSi
operating company level, and at the RCi operating company level, all financial
responsibility tests were met. There can be no assurance at this time that the
DOE, upon review of the 1997 fiscal year audited financial statements, will
not require that the Company post additional letters of credit in accordance
with its regulations. Since the RCi colleges are already on reimbursement, the
Company is not aware of any additional requirements that may be imposed beyond
the posting of letters of credit. Moreover, since RCi is already on
reimbursement, and since the Company has posted a letter of credit as required
by the regulations, by definition the Company believes that it currently meets
financial responsibility standards as set forth by the DOE. There is no
assurance, however, that the DOE may not impose additional requirements for
letters of credit based upon review of the Company's fiscal 1997 financial
statements, and such actions could have a material adverse effect on the
Company's business, results of operations and financial condition, and on its
ability to generate sufficient liquidity to continue to fund growth in its
operations and purchase other institutions. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources").
In accordance with applicable law, the DOE will be required to rescind the
letter of credit and any related requirements if the Company and its colleges
demonstrate that they satisfy the standards of financial responsibility, using
accounting treatments that are acceptable to the DOE. Further, the Company
believes that
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<PAGE>
in the conduct of its next review of the financial responsibility of the
Company and its colleges, the DOE will consider financial information
reflecting the results of the offering, as well as the 1998 fiscal year
audited financial statements of each entity. The Company expects to receive
net proceeds from the Offering of approximately $39.9 million (assuming an
initial public offering price of $15.00 per share). (See "Use of Proceeds").
Management believes that the Company's post-Offering financial position will
enable the Company to satisfy the DOE's standards of financial responsibility
on a Company basis. However, there can be no assurance that all of the
Company's colleges will meet each financial responsibility test in the future
or that the DOE would not require the Company to post a letter of credit or
take other similar action with respect to an individual college which did not
meet those tests.
In November 1997, the DOE published new regulations regarding financial
responsibility that are scheduled to take effect on July 1, 1998. The
regulations provide a transition year alternative which will permit
institutions to have their financial responsibility for the 1998 fiscal year
measured on the basis of either the new regulations or the current
regulations, whichever are more favorable to the Company. Under the new
regulations, the DOE will calculate three financial ratios for an institution,
each of which will be scored separately and which will then be combined to
determine the institution's financial responsibility. If an institution's
composite score is below the minimum requirement for unconditional approval
but above a designated threshold level, such institution may take advantage of
an alternative that allows it to continue to participate in the Title IV
Programs for up to three years under additional monitoring and reporting
procedures. If an institution's composite score falls below this threshold
level or is between the minimum for unconditional approval and the threshold
for more than three consecutive years, the institution will be required to
post a letter of credit in favor of the DOE. The Company does not believe that
these new regulations will have a material effect on the Company's compliance
with the DOE's financial responsibility standards.
The Company believes that the DOE will consider the new financial
responsibility regulations or the current regulations, whichever are more
favorable to the Company, for audited financial statements filed with the DOE
subsequent to publication of the new regulations in November 1997. The Company
filed its 1997 audited financial statements with the DOE in December 1997 and
thus believes the DOE will apply such new regulations to the Company if they
prove more favorable. Under the new regulations, only one of the Company's
schools (FMU--Ft. Lauderdale College) would not be considered to be
financially responsible based on the new required calculations. However, this
college would nevertheless be considered financially responsible by virtue of
being on the reimbursement program and being covered by the existing letter of
credit for RCi. Two of the Company's schools (Blair College in Aurora,
Colorado and NIT in Wyoming, Michigan) are in the Intermediate Zone and thus
meet financial responsibility tests under additional monitoring and reporting
procedures for up to three years. The Company's two operating divisions both
meet the financial responsibility criteria under the new regulations, but the
Company, on a consolidated basis, does not. The Company expects to meet such
new standards on a consolidated basis after giving effect to the Offering and
currently meets such standards in any event by having previously post a letter
of credit.
Under a separate standard of financial responsibility, if an institution has
made late Title IV refunds to students in its prior two years, the institution
is required to post a letter of credit in favor of the DOE in an amount equal
to 25% of the total Title IV Program refunds paid by the institution in its
prior fiscal year. As of July 1, 1997, this standard has been modified to
exempt an institution if it has not been found to make late refunds to 5% or
more of its students in either of the two most recent fiscal years and has not
been cited for a reportable condition or material weakness in its internal
controls related to late refunds in either of its two most recent fiscal
years. Based on this standard, the Company currently has no outstanding
letters of credit related to late refunds. However, seven of the Company's
colleges have been cited for late refunds in their annual audits. Although
there are no citations for material weaknesses in the Company's nor its
colleges' internal controls, there can be no assurance that, upon review by
the DOE, that the Company may be required to post letters of credit in favor
of the DOE on behalf of the affected colleges.
Restrictions on Acquiring or Opening Additional Schools and Adding
Educational Programs. An institution which undergoes a change of ownership
resulting in a change in control, including all the institutions the Company
has acquired or will acquire, must be reviewed and recertified for
participation in the Title IV
51
<PAGE>
Programs under its new ownership. Pending recertification, the DOE suspends
Title IV Program funding to that institution's students except for certain
Title IV Program funds that were committed under the prior owner. If an
institution is recertified following a change of ownership, it will be on a
provisional basis. During the time an institution is provisionally certified,
it may be subject to closer review by the DOE and to summary adverse action
for violations of Title IV Program requirements, but provisional certification
does not otherwise limit an institution's access to Title IV Program funds.
All of the Company's schools have been provisionally certified.
In addition, the HEA generally requires that proprietary institutions be
fully operational for two years before applying to participate in the Title IV
Programs. However, under the HEA and applicable regulations, an institution
that is certified to participate in the Title IV Programs may establish an
additional location and apply to participate in the Title IV Programs at that
location without reference to the two-year requirement, if such additional
location satisfies all other applicable eligibility requirements. The
Company's expansion plans are based, in part, on its ability to acquire
schools that can be recertified and to open additional locations as part of
its existing institutions.
Generally, if an institution eligible to participate in the Title IV
Programs adds an educational program after it has been designated as an
eligible institution, the institution must apply to the DOE to have the
additional program designated as eligible. However, an institution is not
obligated to obtain DOE approval of an additional program that leads to an
associate's, bachelor's, professional or graduate degree or which prepares
students for gainful employment in the same or related recognized occupation
as an educational program that has previously been designated as an eligible
program at that institution and meets certain minimum length requirements.
Furthermore, short-term educational programs, which generally consist of those
programs that provide at least 300 but less than 600 clock hours of
instruction, are eligible only for FFEL funding and only if they have been
offered for a year and the institution can demonstrate, based on an
attestation by its independent auditor, that 70% of all students who enroll in
such programs complete them within a prescribed time and 70% of those students
who graduate from such programs obtain employment in the recognized occupation
for which they were trained within a prescribed time. Certain of the CSi
colleges offer such short term programs, but students enrolled in such
programs represent a small percentage of the total enrollment of the Company's
colleges. In the event that an institution erroneously determines that an
educational program is eligible for purposes of the Title IV Programs without
the DOE's express approval, the institution would likely be liable for
repayment of the Title IV Program funds provided to students in that
educational program. The Company does not believe that the DOE's regulations
will create significant obstacles to its plans to add new programs.
Certain of the state authorizing agencies and accrediting agencies with
jurisdiction over the Company's campuses also have requirements that may, in
certain instances, limit the ability of the Company to open a new campus,
acquire an existing campus or establish an additional location of an existing
institution or begin offering a new educational program. The Company does not
believe that those standards will have a material adverse effect on the
Company or its expansion plans.
Ability to Benefit Regulations. Under certain circumstances, institutions
may elect to admit non-high school graduates into certain of its programs of
study. In such instances, the institution must demonstrate that the student
has the "ability to benefit" from the program of study ("ATB"). Historically,
the basic evaluation method to determine that a student has the ability to
benefit from the program has been the student's achievement of a minimum score
on a test approved by the DOE. On December 25, 1996, the DOE tightened its
regulations regarding ATB testing, reducing the list of approved tests to
eight, and requiring institutions to institute cut off scores that were
determined solely by the test developers.
Twelve of the Company's CSi colleges admit ATB students into their programs.
The twelve colleges had been successful in evaluating ATB students through the
use of the CPAT test, a nationally recognized test which is used by many
institutions. Prior to the December 25, 1996 regulation, the twelve colleges
applied a composite cutoff score of 125 to the three part test. The integrity
of this scoring was validated over the years by the completion and placement
success of ATB students admitted into the Company's colleges. The new
regulation required that the cut-off score for the CPAT test be increased to
129 and that a minimum score be achieved in
52
<PAGE>
each of the three sections of the test, in lieu of using a composite score.
The ATB testing regulations imposed by the DOE have had a negative effect on
pass rates and new enrollments by ATB students. The pass rate dropped,
subsequent to the implementation of the new regulation, to 40%, down from 70%
before December 25, 1996. The Company's twelve colleges experienced declining
enrollments among the ATB population during the January 1997 to June 1997
period.
In addition to the testing requirements, the DOE regulations also prohibit
enrollment of ATB students from constituting 50% or more of the total
enrollment of the institution. None of the Company's colleges that accept ATB
students has an ATB enrollment population that exceeds 50% of the total
enrolled population.
The Company initiated an intensive tutorial and test preparation program at
the affected colleges beginning in February 1997. Over the next few months,
pass rates began to increase and ultimately reached a high of 65%. Currently,
the pass rate for the ATB test at the twelve affected CSi colleges ranges
between 55% and 65%. The Company believes that at these pass rates, the
colleges' enrollment of ATB students can continue to grow for the foreseeable
future.
The "85/15 Rule." Under a provision of the HEA commonly referred to as the
"85/15 Rule," a proprietary institution, such as each of the Company's
institutions, would cease being eligible to participate in the Title IV
Programs if, on a cash accounting basis, more than 85% of its revenue for the
prior fiscal year was derived from the Title IV Programs. Any institution that
violates the 85/15 Rule immediately becomes ineligible to participate in the
Title IV Programs and is unable to apply to regain its eligibility until the
following fiscal year. The Company has calculated that, since this requirement
took effect in 1995, none of the Company's institutions have derived more than
84.5% of its revenue from the Title IV Programs for any fiscal year, and that
for 1996 the range for the Company's institutions was from approximately 20.7%
to approximately 84.4%. The Company regularly monitors compliance with this
requirement in order to minimize the risk that any of its institutions would
derive more than 85% of its revenue from the Title IV Programs for any fiscal
year. If an institution appears likely to approach the 85% threshold, the
Company would evaluate the appropriateness of making changes in student
funding and financing to ensure compliance with the 85/15 Rule.
Restrictions on Payment of Bonuses, Commissions or Other Incentives. The HEA
prohibits an institution from providing any commission, bonus or other
incentive payment based directly or indirectly on success in securing
enrollments or financial aid to any person or entity engaged in any student
recruitment, admission or financial aid awarding activity for programs
eligible for Title IV Program funds. The Company believes that its current
compensation plans are in compliance with HEA standards.
STATE AUTHORIZATION
Each of the Company's campuses is authorized to offer educational programs
and grant degrees or diplomas by the state in which such campus is located.
The level of regulatory oversight varies substantially from state to state. In
some states, the campuses are subject to licensure by the state education
agency and also by a separate higher education agency. State laws establish
standards for instruction, qualifications of faculty, location and nature of
facilities, financial policies and responsibility and other operational
matters. State laws and regulations may limit the ability of the Company to
obtain authorization to operate in certain states or to award degrees or
diplomas or offer new degree programs. Certain states prescribe standards of
financial responsibility that are different from those prescribed by the DOE.
The Company believes that each of its campuses is in substantial compliance
with state authorizing and licensure laws.
53
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
Company's executive officers, directors and selected key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
President, Chief Executive Officer,
David G. Moore.............. 59 Director
Paul R. St. Pierre.......... 52 Executive Vice President, Marketing and
Admissions, Secretary, Director
Frank J. McCord............. 54 Executive Vice President and Chief
Financial Officer, Treasurer
Lloyd W. Holland............ 60 Executive Vice President, Business
Analysis and Financial Aid, Assistant
Treasurer
Dennis L. Devereux.......... 51 Executive Vice President, Human Resources,
Assistant Secretary
Loyal Wilson................ 50 Director
Nominee..................... Director
Nominee..................... Director
Mary H. Barry............... 49 Vice President, Education
Beth A. Wilson.............. 46 Vice President, Operations
</TABLE>
DAVID G. MOORE has served as President and Chief Executive Officer and a
Director of the Company since its inception in July 1995. Immediately prior to
forming the Company, he was President of National Education Centers, Inc., a
subsidiary of National Education Corporation. From 1992 to 1994, Mr. Moore
served as President of DeVry Institute of Technology in Los Angeles, where he
developed DeVry's West Coast operation and its growth strategy for the 11
western states. From 1980 to 1992 he was employed by Mott Community College in
Flint, Michigan, where he was President from 1984 to 1992. Mr. Moore served as
Dean, Management from 1982 to 1984 and Dean, Management Information Systems
from 1980 to 1982. From 1960 to 1980 Mr. Moore served a distinguished career
in the U. S. Army, retiring at the rank of Colonel. Mr. Moore received a
Bachelor of Arts in Political Science from Seattle University and Master of
Business Administration from the University of Puget Sound. He has also
completed the Management of Higher Education Program at Harvard University,
post graduate studies in Higher Education Management at the University of
Michigan and graduate study and research in Computer Science at Kansas State
University.
PAUL R. ST. PIERRE has served as Vice President, Marketing & Admissions and
a Director of the Company since its inception in July 1995. He was promoted to
Executive Vice President in April 1998. He was employed by National Education
Centers, Inc. from 1991 to 1995. His first assignment at NECI was as School
President for its San Bernardino, California campus. Subsequently, he held
corporate assignments as Director of Special Projects, Vice President of
Operations for the Learning Institutes Group (the largest colleges owned by
NEC) and as Vice President, Marketing & Admissions for NEC. From 1986 to 1991,
Mr. St. Pierre was employed by Allied Education Corporation, initially as
School Director, but the majority of the period as Regional Operations
Manager. He was employed as School Director at Watterson College in 1985. From
1982 to 1985, Mr. St. Pierre was Executive Vice President and Partner for
University Consulting Associates, principally responsible for the marketing
and sales of education services, on a contract basis, to institutions of
higher education. He was previously employed, from 1980 to 1982 as Division
Manager for the Institute for Professional Development, a division of Apollo
Group. Mr. St. Pierre received a Bachelor of Arts in Philosophy from Stonehill
College, a Master of Arts in Philosophy from Villanova University and is a
Ph.D. candidate in Philosophy at Marquette University.
54
<PAGE>
FRANK J. MCCORD has served as Vice President & Chief Financial Officer for
the Company since its inception in July 1995. He was promoted to Executive
Vice President in April 1998. He was employed by National Education Centers,
Inc. as Vice President, Finance & Administration from 1994 to 1995. From 1980
to 1994, Mr. McCord was employed by Atlantic Richfield Company ("ARCO"). From
1989 to 1994, he was Business Manager/Controller and Director for ARCO Marine,
Inc. During the period 1980 to 1989 his assignments at ARCO ranged from Senior
Internal Auditor to Audit Manager. From 1976 to 1980, Mr. McCord served in the
U. S. Army as Management Analyst, Internal Review Officer and Budget Officer,
attaining the rank of Captain. He received a Bachelor's Degree in Business
Administration (Accounting) from North Texas State University. Mr. McCord is
also a Certified Public Accountant and Certified Internal Auditor.
LLOYD W. HOLLAND has served as Vice President, Business Analysis & Financial
Aid for the Company since its inception in July 1995. He was promoted to
Executive Vice President in April 1998. He was employed by National Education
Centers, Inc. from 1987 to 1995 in financial positions including Regional
Controller, Group Controller, Vice President, Finance & Administration and
Director of Finance. Mr. Holland was employed by Bonney Forge Corporation from
1984 to 1987 as Division Controller, then Corporate Controller. From 1978 to
1979, he was Controller for SMC Corporation. Mr. Holland was employed by
Rockwell International Corporation at various Midwest plant locations during
the period 1969 to 1978, in positions ranging from Manager, General Accounting
to Division Controller. From 1963 to 1969, he was employed in various
accounting and cost accounting positions. Mr. Holland received a Bachelor of
Science in Accounting from Point Park College in Pittsburgh, Pennsylvania.
DENNIS L. DEVEREUX has served as Vice President, Human Resources for the
Company since its inception in July 1995. He was promoted to Executive Vice
President in April 1998. He was employed by National Education Centers, Inc.
as its Vice President, Human Resources from 1988 to 1995. From 1987 to 1988 he
was Director, Human Resources for Jacobs Engineering Group, Inc. He was
employed by American Diversified Companies, Inc. as its Director, Human
Resources from 1985 to 1987. From 1973 to 1984, Mr. Devereux was employed by
Bechtel Group, Inc. in a variety of human resources management positions,
including Personnel Manager for a subsidiary company and Personnel Supervisor
for a major construction site and within a large regional operation.
Previously, he was employed in a compensation assignment with Frito-Lay, Inc.
and as Personnel Manager and Personnel Assistant with Anaconda Wire & Cable
Company from 1969 to 1973. Mr. Devereux received a Bachelor of Science in
Business Administration (Industrial Relations) from California State
University, Long Beach.
LOYAL WILSON has served as a Director of the Company since its inception in
July 1995. He is a Managing Director of Primus Venture Partners, Inc. Mr.
Wilson has been in the venture capital business since 1975, and formerly was
with First Chicago Corporation. He is also a Director of NeuroControl
Corporation, REALOGIC, Inc., Southern Assisted Living, Inc., Transfusion
Technologies Corporation, and STERIS Corporation. Mr. Wilson was a former
Director of DeVRY, Inc. and currently is a Trustee of the Cleveland Clinic
Foundation. He received a Bachelor of Arts in Economics from the University of
North Carolina and a Masters in Business Administration from Indiana
University.
MARY H. BARRY has served as Vice President, Education for the Company since
April 1998. She was previously employed by University of Phoenix from 1992
through April 1998, where her assignments included Director of Academic
Affairs, Director of Administration and Director of the California Center for
Professional Education. From 1990 to 1991, Ms. Barry was Director of National
College. During the period 1980 to 1990, she was employed in the banking
industry as Senior Vice President of Marquette Banks, Director for Citibank,
South Dakota and Vice President of First National Bank, Chicago. Ms. Barry
served as a public affairs officer in the U.S. Marine Corps from 1971 to 1979,
achieving the rank of Major. Ms. Barry earned a Bachelor of Science in
Speech/Drama from Bowling Green State University, a Master of Management from
Northwestern University and a Juris Doctorate from Western State University.
55
<PAGE>
BETH A. WILSON has been employed by the Company since its inception in July
1995. She is currently Vice President, Operations for Corinthian Colleges,
Inc. Previously, she was Regional Operations Director for the College Region
of Rhodes Colleges, Inc. from May 1997 to June 1998. From July 1995 to May
1997 she was Operations Director and Regional Operations Director for
Corinthian Schools, Inc. Ms. Wilson was employed by National Education
Centers, Inc. from 1991 to 1995, initially as Executive Director of its
Capital Hill campus, then as Area Operations Manager. From 1990 to 1991, she
was Vice President, Branch Operations for National College. She was employed
by United Education and Software from 1984 to 1990, initially as Executive
Director of a business school, then as Group Manager for four to fifteen
locations and finally as Vice President, Administration. She was Scholarship
Administrator for National University from 1982 to 1984 and Assistant Director
of American Business College from 1976 to 1981. Ms. Wilson earned an MBA from
National University and a Bachelor of Arts degree from California State
College, Sonoma.
BOARD COMMITTEES
Concurrent with the Offering, the Board of Directors will establish an Audit
Committee and a Compensation Committee. Both the Audit Committee and the
Compensation Committee will be composed entirely of directors who are not
officers or employees of the Company.
The Audit Committee will generally have responsibility for recommending
independent auditors to the Board of Directors for selection, reviewing the
plan and scope of the annual audit, reviewing the Company's audit and control
functions and reporting to the full Board of Directors regarding all of the
foregoing.
The Compensation Committee will generally have the responsibility for
recommending to the Board guidelines and standards relating to the
determination of executive compensation, reviewing the Company's executive
compensation policies and reporting to the Board of Directors regarding the
foregoing. The Compensation Committee will also have responsibility for
administering the Company's incentive compensation plans, determining the
number of options to be granted to the Company's executive officers pursuant
to such plans and reporting to the Board of Directors regarding the foregoing.
DIRECTOR COMPENSATION
COMPENSATION OF DIRECTORS
Subsequent to the closing of the Offering, all directors who are not
employees of the Company will be paid an annual fee of $ and will be paid
$ for each Board meeting attended and $ for each Board committee meeting
attended. Non-employee directors are also reimbursed for their reasonable out-
of-pocket expenses incurred in attending Board and committee meetings. The
Company has adopted the 1998 Performance Award Plan, providing for annual
option grants to each director who is not an employee of the Company. See
"Benefit Plans--Performance Award Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon consummation of the Offering, the Compensation Committee will consist
of two non-employee directors. During the year ended June 30, 1997, the
Company did not have a Compensation Committee. David Moore, the Chief
Executive Officer, and Loyal Wilson, a non-employee director, made all
decisions concerning executive compensation during the year ended June 30,
1997.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted a provision in its Second Amended and Restated
Certificate of Incorporation (the "Certificate") that limits the liability of
its directors for monetary damages arising from a breach of their fiduciary
duties as directors. The Company's Bylaws provide that the Company must
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law. The Company also has officer and director
liability insurance with respect to certain liabilities. See "Description of
Capital Stock--Limitation of Liability of Directors and Indemnification of
Directors and Officers."
56
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to
compensation paid to the named executive officers during the fiscal year ended
June 30, 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
ALL OTHER
NAME AND PRINCIPAL SALARY OTHER ANNUAL COMPENSATIONS
POSITION ($) BONUS ($) COMPENSATION ($) ($)(1)
------------------ ------- --------- ---------------- -------------
<S> <C> <C> <C> <C>
David G. Moore............ 199,327 20,000 14,123(2) 4,124
President and Chief
Executive Officer
Paul St. Pierre........... 173,019 20,000 27,670(3) 3,224
Executive Vice President,
Marketing
Frank J. McCord........... 166,442 20,000 24,033(4) --
Executive Vice President
and Chief Financial
Officer
Dennis L. Devereux........ 159,865 20,000 30,568(5) 4,500
Executive Vice President,
Human Resources
Lloyd W. Holland.......... 159,865 20,000 24,158(6) 4,500
Executive Vice President,
Business Analysis and
Financial Aid
</TABLE>
- --------
(1) Represents the Company's matching contribution to the employees' 401(k)
Plan. This benefit is provided to all eligible Company employees on a 100%
matching basis up to 2% of each employee's annual salary.
(2) Includes $9,200 for auto allowance and a special one-time gross up of $612
to help defray taxes associated with a previous auto reimbursement program
that was terminated on December 31, 1996.
(3) Includes $9,200 for auto allowance and a special one-time gross up of
$6,990 to help defray taxes associated with a previous auto expense
reimbursement program that was terminated on December 31, 1996.
(4) Includes $9,200 for auto allowance and a special one-time gross up of
$5,117 to help defray taxes associated with a previous auto reimbursement
program that was terminated on December 31, 1996.
(5) Includes $9,200 for auto allowance and a special one-time gross up of
$8,635 to help defray taxes associated with a previous auto expense
reimbursement program that was terminated on December 31, 1996.
(6) Includes $9,200 for auto allowance and a special one-time gross up of
$6,077 to help defray taxes associated with a previous auto expense
reimbursement program that was terminated on December 31, 1996.
57
<PAGE>
OPTION GRANTS IN FISCAL 1998
The following table contains information concerning the grant of stock
options by the Company to the named executive officers during fiscal 1998.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION
PERCENTAGE OF TOTAL FOR OPTION
NUMBER OF OPTIONS GRANTED TO EXERCISE TERM(1)
SHARES UNDERLYING EMPLOYEES IN FISCAL PRICE EXPIRATION --------------
NAME OPTIONS GRANTED YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ----------------- ------------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
David G. Moore.......... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Paul St. Pierre......... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Frank J. McCord......... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Lloyd W. Holland........ 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Dennis L. Devereux...... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
</TABLE>
- --------
(1) Potential realizable value is presented net of the option exercise price,
but before any federal or state income taxes associated with exercise, and
is calculated assuming that the fair market value on the date of the grant
appreciates at the indicated annual rate (set by the SEC), compounded
annually, for the term of the option. The 5% and 10% rates of appreciation
are mandated by the rules of the SEC and do not represent the Company's
estimate or projection of future increases in the price of the Common
Stock.
(2) The Options were granted under the Company's 1998 Performance Award Plan
and are each incentive stock options that vest in four equal annual
installments on each of the first four anniversaries of the award date.
(3) The exercise price of these options equals the fair market value of the
option shares on the date of grant as determined by the Company's Board of
Directors based upon the evaluation of an independent appraisal firm.
FISCAL YEAR-END OPTION VALUES
The following table contains information regarding the Named Executive
Officers' unexercised options as of June 30, 1998. None of the named executive
officers exercised any options during fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AS OF AS OF JUNE 30,
NAME JUNE 30, 1998(1) 1998(2)
- ---- ---------------------- --------------------
<S> <C> <C>
David G. Moore...................... 11,068 $28,002
Paul St. Pierre..................... 11,068 $28,002
Frank J. McCord..................... 11,068 $28,002
Lloyd W. Holland.................... 11,068 $28,002
Dennis L. Devereux.................. 11,068 $28,002
</TABLE>
- --------
(1) All of the options were granted as of June 30, 1998 and none of the
options are currently exercisable.
(2) The value per option is calculated by subtracting the exercise price of
the option from the assumed public offering price of the Common Stock of
$15.00.
58
<PAGE>
BENEFIT PLANS
Performance Award Plan
The Company's 1998 Performance Award Plan (the "Plan") provides for the
grant of Options and stock appreciation rights ("SARs"), Restricted Stock
Awards, Performance Share Awards and Stock Bonuses (collectively "Awards").
While only Options are contemplated at this time, the other forms of Awards
allow the Company flexibility to incentivize and reward employees of the
Company in the future. Employees, officers, directors, and consultants of the
Company and its Subsidiaries may be selected for Plan participation. Only
persons selected by the Board can receive Awards under the Plan. A maximum of
529,134 shares of Common Stock may be issued under the Plan (subject to
adjustment upon the occurrence of certain events which affect the Common
Stock) or approximately 6.92% of the outstanding shares prior to the Offering.
The aggregate number of shares subject to Options and SARs granted under the
Plan to any one person in a calendar year can not exceed 22,047 shares. The
aggregate number of shares subject to all Awards granted under the Plan to any
one person in a calendar year can not exceed 22,047 shares.
Each of the Awards under the Plan accelerate and become immediately vested
and exercisable (subject to the right of the Board of Directors to limit such
acceleration) upon a Change of Control of the Company. A Change of Control
would occur upon the approval by the stockholders of the Company of (i) the
dissolution or liquidation of the Company, (ii) an agreement to merge or
consolidate the Company into another entity where the stockholders of the
Company immediately prior to such merger or consolidation would have less than
50% of the outstanding voting securities of the surviving entity, or (iii) the
sale of all or substantially all of the assets of the Company to an entity
that is not a subsidiary or affiliate.
401(k) Profit Sharing Plan
The Company provides a 401(k) retirement savings plan to employees who have
completed 1,000 hours of service in 12 months of employment. The plan allows
eligible employees to defer up to 16% of their compensation or the statutory
limit each year, whichever is less. The Company matches a portion of the
compensation deferred by the employee at a level which is established by the
Company at its discretion from time to time. The Company currently matches
100% of the first 2% of compensation deferred by the employee. In addition,
the plan also allows a discretionary Company contribution to participating
employee accounts from the Company's net profit. In the fiscal year ending
June 30, 1997, the Company contributed $243,570 in basic company match to
employee accounts in this program. No discretionary additional contribution
was made by the Company in the fiscal year ending June 30, 1997.
59
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company has entered into the following arrangements with certain of its
executive officers, directors, and beneficial holders of more than five
percent of its voting stock.
Transactions Between the Company and Certain Executive Officers
On November 24, 1997, the Company entered into a separate Amended and
Restated Executive Stock Agreement with each of David Moore, Paul St. Pierre,
Frank McCord, Lloyd Holland and Dennis Devereux (collectively, the
"Executives") (the "Amended Stock Agreements"). Each Amended Stock Agreement
amended and restated an earlier Executive Stock Agreement between the Company
and each of the Executives dated as of June 30, 1995, (hereinafter
collectively, the "Original Executive Stock Agreements", and together with the
Amended Stock Agreements, the "Executive Stock Agreements").
Pursuant to the Executive Stock Agreements, each Executive purchased 440,945
shares of Common Stock and between 110,236 and 275,591 shares of Nonvoting
Common Stock, each at a price of $0.2268 per share. Each Executive paid for
the Common Stock by delivering (i) $80,025 in cash, and (ii) shares of common
stock in the Company's predecessor which the Executive had previously
purchased, and with respect to which each Executive had made previous capital
contributions of $20,000. Each Executive borrowed money from the Company to
purchase their respective shares of Nonvoting Common Stock.
Each of the Executive Stock Agreements provide for a vesting schedule for
the Executives' Common Stock and Nonvoting Common Stock. As of June 30, 1998,
87.5% of each of the Executives' Common Stock was vested and none of the
Executives' Nonvoting Common Stock was vested. Pursuant to the Executive Stock
Agreements, all Executive Common Stock will vest upon a "Qualified Public
Offering" (as defined therein). The Company anticipates that the Offering will
constitute a "Qualified Public Offering" and that the Executives' Common Stock
will completely vest upon completion of the Offering. Upon vesting, the
Company will lose certain repurchase rights with respect to the unvested
Executive Common Stock. The Executive Nonvoting Common Stock vests upon the
occurrence of a "Trigger Event" (as defined in the Executive Stock Agreements)
which includes an initial public offering of a specified size. The Company
anticipates that the Offering will be of sufficient size that all of the
Executives' Nonvoting Common Stock will vest concurrently with the Offering.
The Company also anticipates that, upon vesting, each of the Executives will
exercise their rights under the Executive Stock Agreements to require the
Company to exchange each share of the Executives' Nonvoting Common Stock for
an identical number of shares of Common Stock.
Each of the Executive Stock Agreements provides for a severance benefit for
each of the Executives in the event he is terminated by the Company, other
than for Cause, in an amount equal to the Executive's base salary (excluding
bonuses) during the preceding 12 months, payable on a monthly basis in equal
installments for each of the twelve succeeding months following the
Executive's termination. Cause is defined as (i) the commission of a felony or
a crime of moral turpitude or any act involving dishonesty, disloyalty or
fraud, (ii) conduct that brings the Company into public disgrace or disrepute,
(iii) substantial or repeated failure to perform duties directed by the Board
of Directors, (iv) gross negligence or willful misconduct relating to the
Company, or (v) any material breach of the Executive Stock Agreement.
The money borrowed by the Executives from the Company to purchase their
Nonvoting Common Stock is evidenced by Promissory Notes (collectively, the
"Executive Notes") entered into on June 30, 1995 between each of the
Executives and the Company. The Executive Notes are payable on demand and bear
interest at the lesser of (i) 7.07% per annum, or (ii) the highest rate
allowed by applicable law, payable when the principal becomes due and payable.
Each Executive Note is secured by a pledge to the Company of the respective
Executive's Nonvoting Common Shares. Mr. Moore's Executive Note is in the
aggregate principal amount of $62,437 and, as of March 31, 1998, the accrued
interest on such note was $13,357. Mr. St. Pierre's Executive Note is in the
aggregate principal amount of $49,950 and, as of March 31, 1998, the accrued
interest on such note was $10,685. Each of Messrs. McCord, Holland and
Devereux have Executive Notes in the principal amount of $24,975 and, as of
March 31, 1998, the accrued interest on each of such notes was $5,343.
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Transactions Between the Company and Certain Directors and Security Holders
Loyal Wilson has served as a Director of the Company since its inception in
1995. Mr. Wilson is also a Managing Director of Primus Venture Partners, Inc.,
the sole general partner of Primus Venture Partners III Limited Partnership,
the sole general partner of Primus Capital Fund III Limited Partnership, which
holds more than 5% of the Common Stock of the Company. On October 17, 1996,
Primus and Banc One entered into a Subordinated Note and Warrant Purchase
Agreement with the Company (as subsequently amended on November 24, 1997, the
"Subordinated Note Agreement"). Pursuant to the Subordinated Note Agreement,
the Company incurred indebtedness to Primus and Banc One evidenced by
Subordinated Notes (the "Subordinated Notes") in an aggregate principal amount
of $1.0 million and $4.0 million, respectively. The Subordinated Notes have an
interest rate of 12% per annum, a maturity date of October 2005 and are
subordinate to the Company's obligations under a Note Purchase and Revolving
Credit Agreement (the "Note and Credit Agreement") between the Company and
Prudential, dated as of October 17, 1996, and as amended November 24, 1997.
The Company plans to use a portion of the proceeds from the Offering to repay
the Subordinated Notes and the Note and Credit Agreement. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Pursuant to the Subordinated Note Agreement, Primus received a warrant to
purchase 35,560 shares of Common Stock and Banc One received a Warrant to
purchase 142,241 shares of Nonvoting Common Stock, each for an aggregate
exercise price of $100 (the "Warrants"). Primus and Banc One also received
contingent stock warrants (the "Contingent Warrants") designed to prevent
possible dilution of the Warrants in connection with the vesting of the
Executive Nonvoting Common Stock. In connection with the Offering and the
concurrent vesting of the Executives' Nonvoting Common Stock, Primus's
Contingent Warrant will allow it to purchase 14,441 additional shares of
Common Stock and Banc One's Contingent Warrant will allow it to purchase
57,765 additional shares of Nonvoting Common Stock, all at an exercise price
of $.0002 per share. Primus and Banc One have informed the Company that, prior
to and contingent upon the Offering, they will exercise their Warrants and
Contingent Warrants.
On November 24, 1997, the Company, Primus and Banc One entered into an
amendment to the Subordinated Note Agreement which extended the maturity of
the Subordinated Notes from October 2004 to October 2005 (the "Subordinated
Note Amendment"). Pursuant to the Subordinated Note Amendment, Primus, Banc
One, and the Company also entered into a Purchase Agreement (the "Purchase
Agreement") dated November 7, 1997 whereby Primus purchased 25,000 shares of
Series 3 Preferred and Banc One purchased 25,000 shares of Series 2 Preferred
from the Company, all at a price of $100 per share. It is expected that all
Series 3 Preferred will be converted to Common Stock and all Series 2
Preferred Stock will be converted to Nonvoting Common Stock in connection with
the Offering. See "Description of Capital Stock--Preferred Stock--Conversion
of the Convertible Preferred" and "The Transactions."
In connection with the Subordinated Note Amendment, Primus received an
additional Warrant to purchase 186,467 shares of Common Stock and Banc One
received an additional Warrant to purchase 88,632 shares of Nonvoting Common
Stock, each at an exercise price of $.0002 per share, ("New Warrants"). The
New Warrants have terms which cause them to terminate prior to becoming
exercisable if certain conditions are satisfied; the Company anticipates that
in connection with the Offering the New Warrants will terminate.
The Executives, Primus, Banc One, Prudential, and the Company are parties to
the Registration Rights Agreement which was amended on November 24, 1997. See
"Description of Capital Stock--Registration Rights."
The Company intends that any future transactions between the Company,
Primus, Banc One and the Executives will be on terms no less favorable to the
Company than can be obtained on an arm's length basis from unaffiliated third
parties.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table (including the Notes thereto) sets forth certain
information regarding the beneficial ownership of the Common Stock as of March
31, 1998 (after giving effect to the Transactions) and as adjusted to reflect
the sale of the shares of Common Stock being offered hereby by: (i) each
person (or group of affiliated persons) known by the Company to beneficially
own more than 5% of the outstanding shares of Common Stock, (ii) each director
of the Company, (iii) each of the Named Executive Officers and (iv) all of the
Company's directors and executive officers as a group. Unless otherwise
indicated below, the persons in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY PERCENTAGE OF
OWNED PRIOR TO OUTSTANDING
THE OFFERING(1) SHARES OWNED
---------------- --------------------
BEFORE AFTER
NAME NUMBER OFFERING OFFERING(2)
---- ---------------- -------- -----------
<S> <C> <C> <C>
Primus Capital Fund III Limited
Partnership(3)....................... 2,918,652 38.2 27.4
5900 Landerbrook Drive
Suite 200
Cleveland, OH 44124
Banc One Capital Partners LLC(4)...... 1,415,112 18.5 13.3
300 Crescent Court
Suite 1600
Dallas, TX 75201
Prudential Insurance Company of
America(5)........................... 280,365 3.7 2.6
4 Embarcadero Center
Suite 2700
San Francisco, CA 94111
David Moore(6)........................ 716,536 9.4 6.7
Paul St. Pierre(7).................... 661,418 8.7 6.2
Frank McCord(8)....................... 551,182 7.2 5.2
Lloyd Holland(9)...................... 551,181 7.2 5.2
Dennis Devereux(10)................... 551,181 7.2 5.2
Loyal Wilson(11)...................... 2,918,652 38.2 27.4
All directors and executive officers
as a group
(6 persons)(6)(7)(8)(9)(10)(11)...... 5,950,152 77.8 55.9
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. The number of shares beneficially owned by a person and the
percentage ownership of that person includes shares of common stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of June 30, 1998 (including
options that will become exercisable upon consummation of the Offering).
Assuming consummation of the Transactions, there will be issued and
outstanding 7,645,627 shares of Common Stock immediately prior to the
Offering, which includes 1,176,561 shares of Nonvoting Common Stock which
is convertible into Common Stock upon a sale of such Nonvoting Common
Stock after the Offering.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Primus has granted the Underwriters an option to purchase 179,223 shares
of its Common Stock pursuant to the Underwriters' over-allotment option.
Assuming such option is exercised in full, Primus will own approximately
25.7% of the aggregate amount of Common Stock and Nonvoting Common Stock
outstanding upon consummation of the Offering.
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<PAGE>
(4) Includes 1,176,561 shares of Nonvoting Common Stock that will be
convertible into Common Stock on a share for share basis upon the sale of
such stock at any time following the Offering. Banc One has granted the
Underwriters an option to purchase 86,896 shares of its common stock
pursuant to the Underwriters' over-allotment option. Assuming such option
is exercised in full, Banc One will own approximately 12.5% of the
aggregate amount of Common Stock and Nonvoting Common Stock outstanding
upon consummation of the Offering.
(5) Prudential has granted the Underwriters an option to purchase 17,216
shares of its Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Prudential will own
approximately 2.5% of the aggregate amount of Common Stock and Nonvoting
Common Stock outstanding upon consummation of the Offering.
(6) Includes 275,591 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. Moore has granted the Underwriters an option to purchase 33,333
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. Moore will own
approximately 6.4% of the Common Stock (including Nonvoting Common Stock)
upon consummation of the Offering.
(7) Includes 220,473 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. St. Pierre has granted the Underwriters an option to purchase 33,333
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. St. Pierre will
own approximately 5.9% of the Common Stock (including Nonvoting Common
Stock) upon consummation of the Offering.
(8) Includes 110,236 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. McCord has granted the Underwriters an option to purchase 33,333
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. McCord will own
approximately 4.9% of the Common Stock (including Nonvoting Common Stock)
upon consummation of the Offering.
(9) Includes 110,236 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. Holland has granted the Underwriters an option to purchase 33,333
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. Holland will own
approximately 4.9% of the Common Stock (including Nonvoting Common Stock)
upon consummation of the Offering.
(10) Includes 110,236 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. Devereux has granted the Underwriters an option to purchase 33,333
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. Devereux will own
approximately 4.9% of the Common Stock (including Nonvoting Common Stock)
upon consummation of the Offering.
(11) Mr. Wilson, a director of the Company, is a managing director of Primus
Venture Partners, Inc., the sole general partner of Primus Venture
Partners III Limited Partnership, the sole general partner of Primus
Capital Fund III Limited Partnership. Mr. Wilson shares voting and
investment power with respect to such shares with four other directors of
Primus Venture Partners, Inc. Mr. Wilson disclaims beneficial ownership
of the shares held by Primus Capital Fund III Limited Partnership, except
to the extent of his pecuniary interest therein.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.0001 par value
per share, 2,500,000 shares of Nonvoting Common Stock, $0.0001 par value per
share, and 500,000 shares of Preferred Stock, $1.00 par value per stock (the
"Preferred Stock"), of which shares of Preferred Stock, 18,125 shares are
Redeemable Preferred, 25,000 shares are Series 2 Convertible Preferred, and
25,000 shares are Series 3 Convertible Preferred (the Series 2 Preferred and
the Series 3 Preferred are collectively referred to herein as the "Convertible
Preferred"). See "The Transactions."
The following summary of certain provisions relating to the Common Stock,
the Nonvoting Common Stock and the Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by, provisions of
applicable law and the provisions of the Company's Second Restated Certificate
of Incorporation (the "Certificate") and the Bylaws (the "Bylaws") that are
included as exhibits to the Registration Statement of which this Prospectus is
a part.
COMMON STOCK
Upon consummation of the Transactions, there will be 6,469,066 shares of
Common Stock and 1,176,561 shares of Nonvoting Common Stock outstanding. As of
March 31, 1998 (giving effect to the stock split but not to any of the other
Transactions), 4,923,594 shares of Common Stock and 1,414,994 shares of
Nonvoting Common Stock were outstanding and were held by eight and one
stockholders of record, respectively. Each holder of Nonvoting Common Stock
is entitled to convert any or all of such holder's Nonvoting Common Stock into
an equal number of shares of Common Stock as will be distributed, disposed of
or sold in connection with a Conversion Event. A Conversion Event includes a
public offering such as the Offering wherein such Nonvoting Common Stock is
proposed to be sold, or any sale of such Nonvoting Common Stock pursuant to
Rule 144 of the Securities Act following a public offering. Upon consummation
of the Offering, the holder of all Nonvoting Common Stock will be entitled to
convert and sell such stock as Common Stock, subject to the volume and holding
requirements of Rule 144.
Voting. Holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders of the Company. Holders of
Nonvoting Common Stock have no right to vote, except that holders of Nonvoting
Common Stock are entitled to one vote per share together with the Common Stock
as one class on (i) any merger or consolidation of the Company with or into
another entity or entity, (ii) any sale of all or substantially all of the
Company's assets, and (iii) any amendment to the Certificate. The Certificate
does not provide for cumulative voting in the election of directors.
Dividends. Dividends on the Common Stock and Nonvoting Common Stock of the
Company may be declared by the Board of Directors at any regular or special
meeting, pursuant to law, and may be paid in cash, in property, or in
securities of the Company. When dividends are paid, subject to the provisions
of the Preferred Stock, the holders of Common Stock and the holders of
Nonvoting Common Stock are entitled to receive such dividends pro rata at the
same rate per share; provided that dividends paid in stock will be paid in
Common Stock to the holders of Common Stock and in Nonvoting Common Stock to
the holders of Nonvoting Common stock and that dividends consisting of other
voting securities will be paid in equivalent nonvoting securities to holders
of Nonvoting Common Stock. The Company does not anticipate paying any cash
dividends in the foreseeable future. See "Risk Factors--Absence of Dividends"
and "Dividend Policy."
Liquidation. Subject to the rights of holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to participate pro rata upon any
liquidation, dissolution, or winding up of the Corporation.
Amendment and Waiver. The Certificate limits the Company's authority to
amend or waive the rights, preferences, and powers given to the holders of
Common Stock and Nonvoting Common Stock under the Certificate. Any such
amendment to or waiver of the Certificate must be approved by the holders of a
majority of the outstanding Common Stock voting as a separate class and the
holders of a majority of the then outstanding Nonvoting Common Stock voting as
a separate class.
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<PAGE>
The rights, preferences, and privileges of holders of Common Stock and
Nonvoting Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock currently
outstanding and which the Company may designate and issue in the future.
PREFERRED STOCK
As of March 31, 1998, 18,125, 25,000 and 25,000 shares of Redeemable
Preferred, Series 2 Convertible Preferred and Series 3 Convertible Preferred,
respectively, were outstanding, all of which was held by Primus and Banc One.
New Series of Preferred Stock. The Board of Directors of the Company is
authorized to issue up to 500,000 shares of preferred stock in one or more
series and to determine and alter all rights (including voting rights),
preferences, privileges and qualifications, limitations, and restrictions
granted to or imposed upon any wholly unissued series of stock. The Board of
Directors is also authorized to determine the number of shares constituting
any such series and to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any series.
Redemption of Redeemable Preferred. The Company may at any time, and by vote
of the majority of the holder of Redeemable Preferred after the Offering is
required to, redeem all or any portion of the Redeemable Preferred then
outstanding. In connection with any such redemption, the Company shall pay a
price equal to the liquidation value of the shares (plus all accrued and
unpaid dividends thereon). The Company intends to use a portion of the
proceeds from the Offering to redeem all of the Redeemable Preferred at an
aggregate redemption price including accrued dividends of $2.2 million.
Conversion of the Convertible Preferred. At the time of, and subject to, the
Offering, Company may, at its option and with 10 days' prior written notice to
the holders of the Convertible Preferred, require the conversion of all shares
of the Convertible Preferred into Common Stock and Nonvoting Common Stock.
Series 2 Convertible Preferred will be converted into Nonvoting Common Stock;
Series 3 Convertible Preferred will be converted into Common Stock
(collectively, the "Conversion Stock"). The Company plans to effectuate the
conversion of all of the Convertible Preferred in connection with the
Offering. At any time, holders of the Convertible Preferred may convert any or
all of their Convertible Preferred to Conversion Stock. The number of shares
of Conversion Stock received in a conversion of Convertible Preferred Stock is
computed by multiplying the number of shares to be converted by $100 and
dividing by the Conversion Price then in effect. The Conversion Price at the
time of the Offering is expected to be $283.87 ($6.40 on a post-split basis),
and based on the terms of the Convertible Preferred, the Company will earn
back some of the Convertible Preferred. In connection with the Offering, each
share of Series 3 Convertible Preferred will be converted into 15.53 shares of
Common Stock, and a total of 388,334 shares of Common Stock will be issued in
connection with the conversion. Each share of Series 2 Convertible Preferred
will be converted into 15.53 shares of Nonvoting Common Stock, and a total of
388,334 shares of Nonvoting Common Stock will be issued in connection with the
conversion. See "Description of Capital Stock--Common Stock." After all
conversions of Preferred Stock into Common Stock and Nonvoting Common Stock,
and all conversions of Nonvoting Common Stock into Common Stock, a total of
7,645,627 shares of Common Stock and Nonvoting Common Stock will be
outstanding prior to the Offering.
Dividends. Until redeemed, Redeemable Preferred accrues preferential
dividends at an annual rate of 6% of their liquidation value (plus all
accumulated and unpaid dividends thereon) until June 30, 2002, and a rate of
12% thereafter. Until redeemed, the Convertible Preferred accrue preferential
dividends at an annual rate of 8% of their liquidation value (plus all
accumulated and unpaid dividends thereon). Holders of the Convertible and
Redeemable Preferred also participate in dividends, other than dividends paid
solely in Common Stock and Nonvoting Common Stock, paid to holders of the
Common Stock and Nonvoting Common Stock.
Liquidation. Until redeemed, holders of the Preferred Stock have priority in
any liquidation, dissolution, or winding up of the Company. Holders of the
Redeemable Preferred are entitled to the liquidation value of their shares, in
cash. Holders of the Convertible Preferred are entitled to the greater of the
liquidation value of their
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<PAGE>
shares and the amount they would receive on an "as if" converted basis as
holders of the Common Stock. If the Company's assets to be distributed are
insufficient to permit full payment to all Existing Preferred Stockholders,
then all such assets will be distributed ratably to such holders based upon
the liquidation value (plus all accrued and unpaid dividends thereon) of their
Existing Preferred Shares.
Voting. Except as required by law, holders of the Existing Preferred Stock
have no right to vote on any matters to be voted on by the stockholders of
Company; however, holders of the Existing Preferred Stock have the right to
vote as a separate class on any amendment to the Certificate or any equivalent
action by the Company which alters the terms of the Existing Preferred Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS
Limitation of Directors' Liability and Indemnification. The Certificate
eliminates, to the fullest extent permitted by the Delaware General
Corporation Law (the "DGCL") or other applicable law, liability of a director
of the Company to the Company or its stockholders for money damages for breach
of fiduciary duty as a director. The Certificate requires, and the Bylaws
provide, that the Company will, to the fullest extent permitted by law,
indemnify its directors and officers against any liabilities, losses, or
related expenses which they may incur by reason of serving or having served as
directors or officers of the Company or at the request of the Company in an
entity in which Company has an interest.
Under the DGCL, liability of a director may not be limited (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases and (iv) for any
transaction from which the director derives an improper personal benefit. The
effect of the provisions of the Company's Certificate of Incorporation is to
eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of the fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior), except as provided in the Company's Certificate of Incorporation
and in the situations described in clauses (i) through (iv) above. This
provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.
Anti-takeover Provisions. The Company's Certificate and Bylaws contain a
number of provisions related to corporate governance and to the rights of
stockholders. Certain of these provisions may be deemed to have a potential
"anti-takeover" effect in that such provisions may delay, defer, or prevent a
change of control of the Company. These provisions include (i) a requirement
that stockholder action be taken only at stockholder meetings, (ii) notice
requirements relating to nominations to the Board of Directors and to the
raising of business matters at stockholders meetings, and (iii) the
classification of the Board of Directors into three classes, each serving for
staggered three year terms.
Delaware Antitakeover Law. The Company is subject to the provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"). Section 203
provides, with certain exceptions, that a Delaware corporation may not engage
in certain business combinations with a person or affiliate or associate of
such person who is an "interested stockholder" for a period of three years
from the date such person became an interested stockholder, unless: (1) the
transaction resulting in the acquiring person's becoming an interested
stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder, excluding (a) shares held by directors who are
also officers, or (b) shares held in certain employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board
of directors and by the holders of at least two-thirds of the corporation's
outstanding voting stock, at an annual or special meeting (excluding shares
held by an interested
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stockholder). Except as otherwise specified in Section 203, an "interested
stockholder" is defined as: (a) any person that is the owner of 15% or more of
the outstanding voting stock of the corporation, (b) any person that is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the three-
year period immediately prior to the date on which it is sought to be
determined whether such person is the interested stockholder, or (c) the
affiliates and associates of any such person. By restricting the ability of
the Company to engage in business combinations with an interested person, the
application of Section 203 to the Company may provide a barrier to hostile or
unwanted takeovers.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to such interested stockholder. For purposes
of Section 203, an "interested" stockholder is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock
Authorized but Unissued Shares. Upon completion of the Offering, there will
be approximately 30,531,000 shares of Common Stock, 1,323,000 shares of
Nonvoting Common Stock and 500,000 shares of Preferred Stock available for
further issuance. Delaware law does not require stockholder approval for the
issuance of authorized shares. The additional shares may be used for a variety
of corporate purposes. The issuance of Common Stock, Nonvoting Common Stock or
Preferred Stock may have the effect of delaying, deferring, or preventing a
change in control of the Company.
REGISTRATION RIGHTS
The following shareholders are parties to an Amended and Restated
Registration Rights Agreement dated October 17, 1996 (as amended November 24,
1997, the "Registration Rights Agreement"): Primus and Banc One (collectively,
the "Investors"), David Moore, Paul St. Pierre, Frank McCord, Dennis Devereux,
and Lloyd Holland (collectively, the "Executives"), Prudential, and the
Company. Pursuant to the Registration Rights Agreement, the parties thereto
have certain rights with respect to the registration under the Securities Act
of shares of Common Stock owned by them (including Common Stock received upon
the conversion of Nonvoting Common Stock, upon the exercise of warrants, or
upon the conversion of Convertible Preferred Stock) (the "Registrable
Securities").
"Demand" Registration Rights. The Investors and Prudential are entitled to
certain "demand" registration rights as follows.
At any time the holders of a majority of the Investors' Registrable
Securities (the "Investor Registrable Securities") may demand registration on
Form S-1 (subject to the Lock-up Agreements) of all or any portion of their
Registrable Securities, and the holders of at least 10% of the Investor
Registrable Securities may demand registration on Form S-2, Form S-3, or any
similar short-form registration ("Short-Form Registration"), if available, of
all or any portion of their Registrable Securities. For the first two such
registrations on Form S-1, the holders of the Investor Registrable Securities
are entitled to have the Company pay all registration expenses, except
underwriting discounts and commissions ("Company-Paid Long-Form
Registrations"); such holders may also demand an unlimited number of
registrations on Form S-1 in which the holders pay their pro rata share of the
registration expenses ("Holder-Paid Long-Form Registrations"), provided that
the aggregate offering value of the Registrable Securities in each case must
be at least $1,000,000. The holders of the Investor Registrable Securities are
entitled to request an unlimited number of Short-Form Registrations in which
the Company pays all registration expenses, except underwriting discounts and
commissions, provided that the aggregate offering value of the Registrable
Securities requested to be registered must be at least $500,000. Demand
registrations will be Short-Form Registrations whenever the Company is
permitted to use any applicable short-form.
At any time after October 17, 1998, Prudential will have demand registration
rights (subject to the Lock-up Agreements) with respect to its Registrable
Securities (the "Prudential Registrable Securities") under the same terms as
the Investors, except that (i) if after two Company-Paid Long-Form
Registrations one-third or more of the aggregate number of shares of
Prudential Registrable Securities initially issuable have not been sold
pursuant
67
<PAGE>
to such Registrations, the holders of the Prudential Registrable Securities
are entitled to request one additional Company-Paid Long-Form Registration,
provided that the aggregate offering value of the Registrable Securities
requested to be registered in each case is at least $1,000,000, and (ii)
holders of the Prudential Registrable Securities are not entitled to demand
additional Holder-Paid Long-Form Registrations. See "Description of Capital
Stock--Registration Rights--Investors."
"Piggyback" Registration Rights. The Investors, Prudential, and the
Executives are entitled to the following "piggyback" registration rights.
Whenever the Company proposes to register any of its securities under the
Securities Act (other than pursuant to a demand registration), the Company
must notify all holders of Registrable Securities of the registration, and
must include in the registration all Registrable Securities whose holders so
request. If a "piggyback" registration is underwritten, and the managing
underwriters advise the Company that the number of securities requested to be
included exceeds the number which can be sold at an acceptable price, priority
in the registration is as follows: (i) the securities the Company proposes to
sell, (ii) the Investor Registrable Securities and the Prudential Registrable
Securities requested to be included, and (iii) the Registrable Securities held
by the Executives (the "Executive Registrable Securities") requested to be
included. The Company will pay all registration expenses, except underwriting
discounts and commissions, in connection with any "piggyback" registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have an aggregate of
10,645,627 outstanding shares of Common Stock and Nonvoting Common Stock. Of
the outstanding shares, the 3,000,000 shares issued in this Offering will be
freely tradeable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act.
The remaining 7,645,627 shares of Common Stock and Nonvoting Common Stock
outstanding are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act and are eligible for sale subject to
holding period, volume and other limitations imposed by that rule. As
described below, Rule 144 permits resales of restricted securities subject to
certain restrictions. In addition, stock options for an additional 121,039
shares of Common Stock have been granted to certain non-employee directors and
employees of the Company under the Stock Option Plan. An additional 408,095
shares of Common Stock are reserved for future issuance under the Stock Option
Plan. The Company and certain stockholders have agreed, subject to certain
conditions, that they will not offer, sell or otherwise dispose of any of the
shares of Common Stock or securities convertible into Common Stock owned by
them for 180 days from the date of this Prospectus and the commencement of the
Offering, respectively, without the prior written consent of Smith Barney Inc.
on behalf of the Underwriters.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of: (i) 1% of the number of
shares of Common Stock then outstanding (approximately 106,456 shares
immediately after the Offering) or (ii) the average weekly trading volume of
the Company's Common Stock on Nasdaq during the four calendar weeks
immediately preceding the date on which the notice of sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned restricted securities for at least three years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations and requirements described above.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under its 1998
Performance Award Plan, thus permitting the resales of such shares by non-
affiliates in the public market without restriction under the Securities Act.
Such registration statement is expected to be filed shortly after the date of
this Prospectus. As of this date of this Prospectus, options to purchase an
aggregate of 121,039 shares of Common Stock were outstanding under the Stock
Option Plan.
69
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
the number of shares of Common Stock set forth opposite the name of such
Underwriter.
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- ------
<S> <C>
Smith Barney Inc. .................................................
Credit Suisse First Boston Corporation.............................
Piper Jaffray Inc..................................................
-----
Total............................................................
=====
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Credit Suisse First Boston
Corporation and Piper Jaffray Inc. are acting as the Representatives, propose
to offer part of the shares directly to the public at the public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price which represents a concession not in excess of $
per share under the public offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial offering of the shares to the public,
the public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any Shares to any
accounts over which they exercise discretionary authority.
Primus, Banc One, Prudential, David Moore, Paul St. Pierre, Frank McCord,
Lloyd Holland and Dennis Devereux have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 450,000 additional shares of Common Stock at the price to public
set forth on the cover page of this Prospectus minus the underwriting
discounts and commissions. The Underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, in connection with the
offering of the shares offered hereby. To the extent such option is exercised,
each Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
In connection with this offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more shares of Common Stock than the
total amount shown on the list of Underwriters and participations which appear
above) and may effect transactions which stabilize, maintain or otherwise
affect the market price of the shares of Common Stock at levels above those
which might otherwise prevail in the open market. Such transactions may
include placing bids for the shares of Common Stock or effecting purchases of
the shares of Common Stock for the purpose of pegging, fixing or maintaining
the price of the shares of Common Stock or for the purpose of reducing a
syndicate short position created in connection with this Offering. A syndicate
short position may be covered by exercise of the option described above in
lieu of or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Underwriters purchase shares of Common Stock in the open market for the
account of the underwriting syndicate and the securities purchased can be
traced to a particular Underwriter or member of the selling group, the
underwriting syndicate may require the Underwriter or selling group member in
question to purchase the shares of Common Stock in question at the cost price
to the syndicate or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities and such activities, if commenced, may be discontinued at any
time.
70
<PAGE>
The Company, its officers and directors, and Primus, Banc One and Prudential
have agreed that, for a period of 180 days from the date of this Prospectus,
they will not, without the prior written consent of Smith Barney Inc., offer,
sell, contract to sell, or otherwise dispose of, any shares of Common Stock of
the Company or any securities convertible into, or exercisable or exchangeable
for, Common Stock of the Company.
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Shares of Common Stock included in this offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain matters relating to this Offering are being passed upon for the
Company by O'Melveny & Myers LLP, Newport Beach, California. Gibson, Dunn &
Crutcher LLP, Los Angeles, California will act as counsel for the
Underwriters.
EXPERTS
The consolidated financial statements and schedule of the Company and the
combined statement of revenue and expenses for National Education Centers,
Inc., to the extent and for the periods indicated in their reports, have been
audited by Arthur Andersen, LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The combined financial statements of the Seventeen Operating Companies owned
by Phillips Colleges, Inc. to the extent and for the periods indicated in
their reports have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
71
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC"), in Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. Certain items are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement and the exhibits filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, if such contract or document is filed as an exhibit, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference to such exhibit. Upon completion of the Offering, the Company
will be subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith, will file reports and
other information with the SEC. The Registration Statement, including exhibits
thereto, as well as the reports and other information filed by the Company
with the SEC, may be inspected without charge at the Public Reference Room of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can also be obtained at prescribed
rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Electronic filings made through the Electronic Data
Gathering Analysis and Retrieval System are publicly available through the
SEC's Web Site (http://www.sec.gov).
The Company will issue to its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited financial statements and reports of its
independent auditors with respect to the examination of such financial
statements.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997, and March 31,
1998 (unaudited)....................................................... F-3
Consolidated Statement of Operations for the years ended June 30, 1996
and 1997 and for the nine months ended March 31, 1997 and 1998
(unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1996 and 1997 and the nine months ended March 31, 1998 (unaudited). F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1996
and 1997 and for the nine months ended March 31, 1997 and 1998
(unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
COMBINED FINANCIAL STATEMENTS OF PHILLIPS COLLEGES, INC.:
Report of Independent Accountants....................................... F-19
Combined Balance Sheets as of December 31, 1995 and October 16, 1996.... F-20
Combined Statements of Income for the year ended October 31, 1995 and
for the period ended October 16, 1996.................................. F-21
Combined Statements of Stockholders' Equity for the year ended December
31, 1995 and for the period ended October 16, 1996..................... F-22
Combined Statements of Cash Flows for the year ended December 31, 1995
and for the period ended October 16, 1996.............................. F-23
Notes to Combined Financial Statements.................................. F-24
COMBINED FINANCIAL STATEMENT OF ELEVEN CAREER COLLEGES OWNED BY NATIONAL
EDUCATION CENTERS, INC.:
Report of Independent Public Accountants................................ F-30
Combined Statement of Revenues and Direct Expenses for the year ended
December 31, 1995...................................................... F-31
Notes to Combined Financial Statement................................... F-32
</TABLE>
F-1
<PAGE>
To Corinthian Colleges, Inc:
After the completion of the planned stock split and increase in authorized
shares discussed in Note 12, we expect to be in a position to render the
following audit report and the report on schedules included elsewhere in this
Registration Statement.
/s/ Arthur Andersen LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Corinthian Colleges, Inc.:
We have audited the accompanying consolidated balance sheets of CORINTHIAN
COLLEGES, INC. (a Delaware corporation) and subsidiaries as of June 30, 1996
and 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended June 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Corinthian
Colleges, Inc. and subsidiaries, as of June 30, 1996 and 1997, and the results
of their operations and their cash flows for each of the two years in the
period ended June 30, 1997 in conformity with generally accepted accounting
principles.
Orange County, California
November 10, 1997 (except for Note 11,
as to which the date is June 3, 1998 and
Note 12, as to which the date is
July 21, 1998)
F-2
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 1,823,951 $ 2,820,831 $ --
Restricted cash........................ 200,000 1,010,000 760,000
Accounts receivable, net of allowance
for doubtful accounts of $1,585,429,
$2,762,577 and $3,820,711 at June 30,
1996 and 1997 and March 31, 1998,
respectively.......................... 5,596,698 9,256,935 9,984,610
Student notes receivable, net of
allowance for doubtful accounts of
$106,949 and $258,031 at June 30,
1997 and March 31, 1998,
respectively.......................... -- 904,636 1,424,960
Income tax refund receivable........... 746,356 195,507 --
Deferred income taxes.................. 178,136 1,463,962 1,059,469
Prepaid expenses and other current
assets................................ 626,146 1,397,078 3,216,709
----------- ----------- -----------
Total current assets................. 9,171,287 17,048,949 16,445,748
PROPERTY AND EQUIPMENT, net............. 3,456,934 10,174,959 10,596,935
OTHER ASSETS:
Intangibles, net of accumulated
amortization of $126,817, $890,144
and $1,740,772 at June 30, 1996 and
1997 and March 31, 1998,
respectively.......................... 507,334 23,839,246 22,988,618
Student notes receivable, net of
allowance for doubtful accounts of
$754,118 and $1,032,125 at June 30,
1997 and March 31, 1998,
respectively.......................... -- 1,312,818 3,735,665
Deposits and other assets.............. 351,338 1,433,298 1,697,398
----------- ----------- -----------
TOTAL ASSETS......................... $13,486,893 $53,809,270 $55,464,364
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................... $ 1,920,284 $ 5,147,116 $ 4,362,570
Accrued compensation and related
liabilities........................... 1,356,348 3,220,922 2,623,876
Accrued expenses....................... 741,596 707,582 1,003,984
Accrued interest....................... 84,503 743,314 1,711,411
Prepaid tuition........................ 947,136 5,264,176 3,433,845
Current portion of long-term debt...... 1,815,660 121,472 2,630,486
----------- ----------- -----------
Total current liabilities............ 6,865,527 15,204,582 15,766,172
----------- ----------- -----------
LONG-TERM DEBT, net of current portion.. 2,536,541 36,168,324 31,569,297
----------- ----------- -----------
DEFERRED INCOME TAXES................... 36,622 273,284 273,284
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. 1,923,721 2,041,767 2,135,032
----------- ----------- -----------
CONVERTIBLE PREFERRED STOCK............. -- -- 4,933,860
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $0.0001 par value:
Common Stock, 40,000,000 shares
authorized, 4,868,476 shares issued
and outstanding at June 30, 1996 and
4,923,594 shares issued and
outstanding at June 30, 1997 and
March 31, 1998...................... 487 492 492
Nonvoting Common Stock, 2,500,000
shares authorized, 1,194,521 shares
issued and outstanding at June 30,
1996 and 1,414,994 issued and
outstanding at June 30, 1997 and
March 31, 1998...................... 119 141 141
Additional paid-in capital........... 1,374,394 1,374,567 1,374,567
Notes receivable for stock............. (187,312) (187,312) (187,312)
Retained earnings (accumulated
deficit).............................. 936,794 (1,066,575) (401,169)
----------- ----------- -----------
Total stockholders' equity........... 2,124,482 121,313 786,719
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.............................. $13,486,893 $53,809,270 $55,464,364
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CORINTHIAN COLLEGES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
------------------------ ----------------------------
1996 1997 1997 1998
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES............ $31,498,352 $77,201,176 $ 54,331,086 $ 78,626,909
----------- ----------- ------------- -------------
OPERATING EXPENSES:
Educational services.. 18,593,569 50,567,978 34,573,365 48,271,108
General and
administrative....... 3,298,332 8,101,177 5,206,307 8,091,715
Marketing and
advertising.......... 7,562,504 18,999,560 13,217,194 18,285,931
----------- ----------- ------------- -------------
Total operating
expenses........... 29,454,405 77,668,715 52,996,866 74,648,754
----------- ----------- ------------- -------------
Income (loss) from
operations......... 2,043,947 (467,539) 1,334,220 3,978,155
INTEREST EXPENSE, net... 273,802 2,524,984 1,730,329 2,479,484
----------- ----------- ------------- -------------
Income (loss) before
provision for
income taxes....... 1,770,145 (2,992,523) (396,109) 1,498,671
PROVISION (BENEFIT) FOR
INCOME TAXES........... 722,130 (1,107,200) (160,000) 600,000
----------- ----------- ------------- -------------
NET INCOME (LOSS)....... $ 1,048,015 $(1,885,323) $ (236,109) $ 898,671
=========== =========== ============= =============
INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
Net income (loss)..... $ 1,048,015 $(1,885,323) $ (236,109) $ 898,671
Less preferred stock
dividends ........... (111,221) (118,046) (88,535) (233,265)
----------- ----------- ------------- -------------
Income (loss)
attributable to
common
stockholders....... $ 936,794 $(2,003,369) $ (324,644) $ 665,406
=========== =========== ============= =============
Net income (loss) per
common share:
Basic ................ $ 0.15 $ (0.32) $ (0.05) $ 0.10
=========== =========== ============= =============
Diluted............... $ 0.15 $ (0.32) $ (0.05) $ 0.09
=========== =========== ============= =============
Weighted average number
of common shares
outstanding:
Basic................. 6,062,997 6,273,655 6,252,089 6,338,588
=========== =========== ============= =============
Diluted............... 6,338,588 6,273,655 6,252,089 7,066,703
=========== =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CORINTHIAN COLLEGES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NONVOTING COMMON RETAINED
COMMON STOCK STOCK ADDITIONAL EARNINGS TOTAL
------------------- ------------------- PAID-IN NOTES (ACCUMULATED STOCKHOLDERS
SHARES PAR VALUE SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT) EQUITY
--------- --------- --------- --------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 4,868,476 $487 1,194,521 $119 $1,374,394 $(187,312) $ -- $ 1,187,688
Redeemable Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (111,221) (111,221)
Net income............ -- -- -- -- -- -- 1,048,015 1,048,015
--------- ---- --------- ---- ---------- --------- ----------- -----------
Balance at June 30,
1996................... 4,868,476 487 1,194,521 119 1,374,394 (187,312) 936,794 2,124,482
Exercise of warrants
for Common Stock..... 55,118 5 -- -- 95 -- -- 100
Exercise of warrants
for Nonvoting Common
Stock................ -- -- 220,473 22 78 -- -- 100
Redeemable Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (118,046) (118,046)
Net loss.............. -- -- -- -- -- -- (1,885,323) (1,885,323)
--------- ---- --------- ---- ---------- --------- ----------- -----------
Balance at June 30,
1997................... 4,923,594 492 1,414,994 141 1,374,567 (187,312) (1,066,575) 121,313
Redeemable Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (93,265) (93,265)
Convertible Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (140,000) (140,000)
Net income............ -- -- -- -- -- -- 898,671 898,671
--------- ---- --------- ---- ---------- --------- ----------- -----------
Balance at March 31,
1998 (unaudited)....... 4,923,594 $492 1,414,994 $141 $1,374,567 $(187,312) $ (401,169) $ 786,719
========= ==== ========= ==== ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CORINTHIAN COLLEGES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED JUNE 30, ENDED MARCH 31,
------------------------- -------------------------
1996 1997 1997 1998
----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)....... $ 1,048,015 $ (1,885,323) $ (236,109) $ 898,671
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities--
Depreciation and
amortization.......... 681,903 2,070,015 1,161,227 2,258,240
Deferred income taxes.. (141,514) (1,049,164) (18,486) 404,493
Changes in assets and
liabilities, net of
effects from
acquisitions:
Accounts receivable... (1,896,000) (1,505,078) 1,528,306 (1,170,443)
Student notes
receivable........... -- (476,337) (1,461,591) (2,943,171)
Income tax refund
receivable........... (746,356) 550,849 746,356 195,507
Prepaid expenses and
other assets......... (315,435) 176,118 (1,869,444) (1,579,408)
Accounts payable...... 1,217,000 2,859,383 1,436,076 (784,546)
Accrued expenses...... 1,561,000 2,085,426 507,567 527,451
Prepaid tuition....... (412,000) (1,830,464) (1,094,340) (1,830,331)
----------- ------------ ------------ -----------
Net cash provided by
(used in) operating
activities............ 996,613 995,425 699,562 (4,023,537)
----------- ------------ ------------ -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of schools
and colleges, net of
cash acquired.......... (3,048,616) (24,227,318) (24,227,318) --
Change in restricted
cash................... (200,000) (810,000) (810,000) 250,000
Capital expenditures.... (1,046,000) (5,936,073) (5,434,575) (1,707,024)
----------- ------------ ------------ -----------
Net cash used in
investing activities.. (4,294,616) (30,973,391) (30,471,893) (1,457,024)
----------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of
convertible preferred
stock.................. -- -- -- 4,933,860
Proceeds from exercise
of warrants............ -- 200 200 --
Increase in deferred
financing costs........ -- (962,950) (962,950) (184,116)
Borrowings under long-
term debt.............. 4,300,000 36,251,692 34,450,000 --
Principal repayments on
long-term debt......... (397,000) (4,314,096) (4,306,266) (2,090,014)
----------- ------------ ------------ -----------
Net cash provided by
financing activities.. 3,903,000 30,974,846 29,180,984 2,659,730
----------- ------------ ------------ -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............. 604,997 996,880 (591,347) (2,820,831)
CASH AND CASH
EQUIVALENTS, beginning
of period............... 1,218,954 1,823,951 1,823,951 2,820,831
----------- ------------ ------------ -----------
CASH AND CASH
EQUIVALENTS, end of
period.................. $ 1,823,951 $ 2,820,831 $ 1,232,604 $ --
=========== ============ ============ ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for:
Income taxes........... $ 1,610,000 $ -- $ -- $ --
=========== ============ ============ ===========
Interest............... $ 198,581 $ 1,754,981 $ 1,230,802 $ 1,839,864
=========== ============ ============ ===========
SUPPLEMENTAL DISCLOSURE
OF NON CASH
INVESTING AND FINANCING
ACTIVITIES:
Software acquired under
a capital lease
arrangement............ $ 62,641 $ -- $ -- $ --
=========== ============ ============ ===========
Preferred stock
dividend accrual....... $ 111,221 $ 118,046 $ 88,535 $ 233,265
=========== ============ ============ ===========
Acquisitions of various
schools and colleges--
Fair value of assets
acquired.............. $ 4,661,380 $ 31,147,526 $ 31,147,526 $ --
Net cash used in
acquisitions.......... (3,048,616) (24,227,318) (24,227,318) --
----------- ------------ ------------ -----------
Liabilities assumed or
incurred............. $ 1,612,764 $ 6,920,208 $ 6,920,208 $ --
=========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 1--DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of the Business
Corinthian Schools, Inc. ("CSi"), a Delaware corporation, was formed in
February 1995 for the purpose of acquiring certain schools from National
Education Centers, Inc., and until July 1995 its operations were not
significant (see Note 4--CSi Acquisitions). In July 1996, Corinthian Colleges,
Inc. ("CCi") and Rhodes Colleges, Inc. ("RCi"), both Delaware corporations,
were formed for the purpose of acquiring certain colleges from Phillips
Colleges, Inc. ("Phillips") (see Note 4--RCi acquisitions). In September 1996,
CCi and CSi completed a reorganization transaction whereby CSi became a
wholly-owned subsidiary of CCi. Corinthian Property Group, Inc. ("CPGI"), a
Delaware Corporation, was formed in April 1997 to hold certain real properties
previously acquired by CCi. These entities are collectively referred to as the
"Company."
The Company's primary business is the operation of degree and non-degree
granting proprietary post-secondary schools devoted to career program training
primarily in the medical, technical and business fields. The Company operates
a total of 35 private colleges located in 16 states: Virginia, West Virginia,
Texas, Michigan, Massachusetts, Louisiana, California, Oregon, Colorado,
Nevada, Utah, Missouri, Pennsylvania, New York, Washington and Florida.
Revenues generated from these schools consist primarily of tuition and fees
paid by students. To pay for a substantial portion of their tuition, the
majority of students rely on funds received from federal financial aid
programs under Title IV ("Title IV Programs") of the Higher Education Act of
1965, as amended ("HEA"). For further discussion see Concentration of Risk
below and Note 10--Governmental Regulation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
CCi and each of its wholly owned subsidiaries, CSi, RCi and CPGI. All
intercompany activity has been eliminated in consolidation.
Financial Statement Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from
estimated amounts.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash primarily consists of amounts to secure a letter of credit
in favor of the U.S. Department of Education ("DOE").
F-7
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Revenues consist primarily of tuition derived from courses taught in the
Company's career colleges. Tuition revenues are recognized on a straight-line
basis over the term of the applicable course. If a student withdraws from a
course or program, the paid but unearned portion of the student tuition is
refunded. Textbook sales and other revenues are recognized as sales occur or
services are performed and represent less then 10 percent of total revenues.
Prepaid tuition is the portion of payments received but not earned and is
reflected as a current liability in the accompanying consolidated balance
sheet as such amount is expected to be earned within the next year.
Educational Services
Educational services include direct operating expenses of the schools
consisting primarily of payroll and payroll related, occupancy and supplies
costs, as well as amortization of goodwill.
Marketing and Advertising
Marketing and advertising consists primarily of payroll and payroll related,
direct-response and other advertising, promotional materials and other related
marketing costs. All marketing and advertising costs are expensed as incurred.
Property and Equipment
Property and equipment are stated at cost and are being depreciated or
amortized utilizing the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Furniture and equipment................ 7 years
Computer hardware and software......... 3-5 years
Leasehold improvements................. Shorter of 7 years or term of lease
Buildings.............................. 39 years
</TABLE>
Deferred Financing Costs
Costs incurred in connection with obtaining financing are capitalized and
amortized over the maturity period of the debt and are included in deposits
and other assets in the accompanying consolidated balance sheets.
Intangible Assets
Intangible assets consist of goodwill, trade names and course curriculum.
Goodwill represents the excess of cost over the fair market value of net
assets acquired, including identified intangible assets. Goodwill is amortized
using the straight-line method over 40 years. Course curriculum represents the
cost of acquiring such curriculum and is amortized using the straight-line
method over 15 years. Trade names represents the cost to acquire and use the
names of the colleges acquired and are amortized using the straight line
method over 40 years. Amortization of curriculum and tradenames is included in
general and administrative expenses in the accompanying consolidated
statements of operations. Management evaluates the realizability of
intangibles periodically as events or circumstances indicate a possible
inability to recover the carrying amount. Such evaluation is based on
undiscounted cash flows and historical profitability.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, restricted cash,
receivables and accounts payable approximates the fair value. In addition, the
carrying value of all borrowings approximate fair value based on interest
rates currently available to the Company.
F-8
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company accounts for income taxes as prescribed by the Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 prescribes the use of the asset and liability method to
compute the differences between the tax basis of assets and liabilities and
the related financial amounts, using currently enacted tax laws. Valuation
allowances are established, when necessary, to reduce deferred tax assets to
the amount that more likely than not will be realized.
Net Income (Loss) Per Common Share
The Company accounts for net income per common share in accordance with SFAS
No. 128 "Earnings Per Share" and SFAS No. 129, "Disclosure of Information
about Capital Structure." Basic net income (loss) per common share is computed
by dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income (loss) per
common share is computed by dividing income (loss) available to common
stockholders by the weighted average number of common shares outstanding plus
the effect of any dilutive stock options, common stock warrants and
convertible preferred stock, utilizing the treasury stock method.
For the year ended June 30, 1996 and the nine months ended March 31, 1998,
275,591 and 962,848, respectively, of dilutive warrants were included in the
diluted net income per common share calculation. For the year ended June 30,
1997 and the nine months ended March 31, 1997, the effect of all common stock
warrants was excluded from the diluted loss per common share calculation as
the effect of such inclusion would be antidilutive.
Unaudited Interim Information
The accompanying financial information as of March 31, 1998 and for the nine
months ended March 31, 1997 and 1998 is unaudited and has been prepared on
substantially the same basis as the annual financial statements. In the
opinion of management, the unaudited information contains all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and results of operations as of such date and for such
periods.
New Accounting Pronouncements
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
include SFAS No. 133 "Accounting for Derivatives Instruments and for Hedging
Activities", SFAS No. 132, "Employers Disclosures about Pension and Other Post
Retirement Benefits", SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", and SFAS No. 130, "Reporting
Comprehensive Income". The Statements are effective for fiscal years beginning
after December 15, 1997 and earlier application is not permitted. The adoption
of these Statements is not expected to have a material effect on the Company's
consolidated financial position or results of operations. The impact of these
pronouncements on the disclosures in the consolidated financial statements has
not been determined.
Concentration of Risk
The Company extends credit for tuition to a majority of the students. A
substantial portion is repaid through the student's participation in federally
funded financial aid programs. Transfers of funds from the financial aid
programs to the Company are made in accordance with the DOE requirements.
Approximately 73 percent 75 percent and 71 percent of the Company's revenues
(on a cash basis) were collected from funds distributed under Title IV
Programs of the HEA for the year ended June 30, 1996 and 1997, and the nine
months ended March 31, 1998, respectively.
F-9
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The financial aid and assistance programs, in which most of the Company's
students participate, are subject to political and budgetary considerations.
There is no assurance that such funding will be maintained at current levels.
Extensive and complex regulations in the U.S. govern all the government
financial assistance programs in which the Company's students participate. The
Company's administration of these programs is periodically reviewed by various
regulatory agencies. Any regulatory violation could be the basis for the
initiation of a suspension, limitation or termination proceeding which could
have a material adverse effect to the Company.
NOTE 2--DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------- MARCH 31,
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Course materials............................ $218,598 $1,086,913 $1,496,273
Prepaids and other.......................... 407,548 310,165 1,720,436
-------- ---------- ----------
$626,146 $1,397,078 $3,216,709
======== ========== ==========
</TABLE>
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Furniture and equipment............ $3,960,337 $ 5,932,564 $ 6,639,235
Computer hardware and software..... -- 2,157,149 2,747,613
Leasehold improvements............. 21,240 381,644 791,532
Land............................... -- 2,248,792 2,248,792
Buildings.......................... -- 1,178,558 1,178,558
---------- ----------- -----------
3,981,577 11,898,707 13,605,730
Less--accumulated depreciation and
amortization...................... (524,643) (1,723,748) (3,008,795)
---------- ----------- -----------
$3,456,934 $10,174,959 $10,596,935
========== =========== ===========
</TABLE>
Depreciation and amortization expense associated with property and equipment
was $524,643, $1,199,105 and $1,292,828 for the years ended June 30, 1996 and
1997, and the nine months ended March 31, 1998, respectively.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------- MARCH 31,
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Goodwill............................. $ 634,151 $ 8,285,445 $ 8,285,445
Curriculum........................... -- 11,405,140 11,405,140
Trade names.......................... -- 5,038,805 5,038,805
--------- ----------- -----------
634,151 24,729,390 24,729,390
Less--accumulated amortization....... (126,817) (890,144) (1,740,772)
--------- ----------- -----------
$ 507,334 $23,839,246 $22,988,618
========= =========== ===========
</TABLE>
F-10
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization expense associated with intangibles was $126,817, $763,327 and
$850,628 for the years ended June 30, 1996 and 1997, and the nine months ended
March 31, 1998, respectively.
NOTE 3--STUDENT NOTES RECEIVABLE
As of June 30, 1997, student notes receivable represents loans which have
maturity dates of 6 months to 84 months from the loan origination date. The
interest charged on the notes ranges from 8.25 to 15.00 percent per annum.
<TABLE>
<CAPTION>
NET
STUDENT ALLOWANCE GROSS
NOTES FOR DOUBTFUL STUDENT NOTES
RECEIVABLE ACCOUNTS RECEIVABLE
---------- ------------ -------------
<S> <C> <C> <C>
Current................................ $ 904,636 $106,949 $1,011,585
Long-term.............................. 1,312,818 754,118 2,066,936
Add-unearned portion................. 783,645
Add-unrecorded interest.............. 1,547,412
----------
Total.................................. $5,409,578
==========
</TABLE>
Payments due under student notes receivable are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
------------
<S> <C>
1998.......................................................... $1,158,425
1999.......................................................... 1,155,106
2000.......................................................... 1,093,724
2001.......................................................... 1,056,776
2002.......................................................... 757,096
Thereafter.................................................... 188,451
----------
Total......................................................... $5,409,578
==========
</TABLE>
NOTE 4--BUSINESS ACQUISITIONS
CSi Acquisitions
In June 1995, the Company entered into an asset purchase agreement with
National Education Centers, Inc. to purchase certain assets and assume certain
liabilities of 16 career colleges for approximately $4.7 million in cash. The
acquisitions of these colleges occurred in three ownership transfers
effectively completed in June 1995 for approximately $1.7 million and in
September and December of 1995 for approximately $3.0 million.
In the first quarter of fiscal 1997, the Company entered into asset purchase
agreements with Repose, Inc. and Concorde Career Colleges, Inc. to purchase
certain assets and assume certain liabilities of the Bryman Colleges, in
Bellevue, Washington and San Jose, California for $600,000 in cash. The
colleges currently offer career training in the medical and technical fields.
Subsequent to the acquisition, the Bellevue location moved to SeaTac,
Washington.
RCi Acquisitions
Effective October 1996, the Company entered into an asset purchase agreement
with Phillips Colleges, Inc. ("Phillips") to purchase certain assets and
assume certain liabilities of 17 colleges currently operating under the names
of Rhodes Colleges, Inc., and Florida Metropolitan University, Inc., for $6.0
million in cash. Additionally, the Company entered into a separate transaction
with Phillips to purchase certain curriculum and trade names. The cost to
purchase the curriculum, trade names and other intangibles was approximately
$17.6 million.
F-11
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounting for Acquisitions
All acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair market values
at the dates of the acquisitions. The results of operations of each
acquisition are included in the consolidated results of the Company beginning
on the effective date of the acquisitions.
The purchase price of the CSi and RCi transactions were allocated as follows
during fiscal 1996 and 1997, respectively:
<TABLE>
<CAPTION>
CSI RCi
---------- -----------
<S> <C> <C>
Tangible assets.................................. $4,540,764 $ 7,052,287
Identified intangible assets..................... -- 16,443,945
Goodwill......................................... 120,616 7,651,294
Liabilities assumed.............................. (758,003) (772,703)
Prepaid tuition.................................. (854,761) (6,147,505)
---------- -----------
Net assets acquired............................ $3,048,616 $24,227,318
========== ===========
</TABLE>
Pro Forma Information
Unaudited pro forma net revenues were $85,100,000, $89,700,000 and
$66,900,000 for the years ended June 30, 1996 and 1997, and the nine months
ended March 31, 1997, respectively. The unaudited pro forma net revenues
assumes the CSi and RCi acquisitions had taken place on July 1, 1995.
Management believes the pre acquisition allocations of corporate expenses to
the CSi and RCi schools acquired is not indicative of the results that would
have been presented by the Company. Accordingly, management believes
presentation of pro forma net income and net income per common share would not
be meaningful and has therefore not presented this pro forma information.
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Senior secured revolving note due
December 31, 1997, interest at the
lenders' base rate, as defined plus
6.19 percent, (11.68 percent at June
30, 1996), secured by substantially all
assets................................. $ 1,800,000 $ -- $ --
Subordinated note due June 30, 2000,
with interest at the lenders' base
rate, as defined plus a fixed
percentage (11.68 percent at June 30,
1996), secured by substantially all
assets................................. 2,500,000 -- --
Senior Secured Notes, as amended, due
October 2004, with interest at 11.02
percent per annum payable quarterly in
January, April, July and October of
each year beginning January 1997,
secured by substantially all assets,
excluding real estate. A $2.5 million
and $5.0 million principal payment is
due October 1998 and 1999,
respectively. The remaining $15 million
is amortized quarterly through October
2004................................... -- 22,500,000 22,500,000
Senior Secured Revolving Note, as
amended due October 2000, with interest
at the lenders' libor rate, as defined,
plus 3.50 percent, secured by
substantially all assets, excluding
real estate (9.34 percent at March 31,
1998). Available borrowing under this
facility reduces to $3.0 million
effective October 1998 with the
remaining balance due October 2000..... -- 5,000,000 3,000,000
Subordinated Notes, as amended, due
October 2005, interest at 12.00 percent
per annum payable quarterly, principal
payable in quarterly installments of
$281,250 beginning October 2001,
subordinated to the Senior Secured
Notes and Revolving Note shown above... -- 5,000,000 5,000,000
Promissory note due April 2007, with
interest at 10.95 percent per annum,
secured by certain land and
improvements........................... -- 3,751,692 3,673,423
Other................................... 52,201 38,104 26,360
----------- ----------- -----------
4,352,201 36,289,796 34,199,783
Less--current portion................... (1,815,660) (121,472) (2,630,486)
----------- ----------- -----------
$ 2,536,541 $36,168,324 $31,569,297
=========== =========== ===========
</TABLE>
F-12
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Senior Secured Notes and Senior Secured Revolving Note, pursuant to the
Senior Credit Agreement, as well as the Subordinated Notes (collectively
referred to as "the Notes"), contain various financial and non-financial
covenants. At June 30, 1997, the Company was not in compliance with certain
covenant requirements of these Notes. However, on November 7, 1997, the
Company entered into agreements amending the terms of these Notes (the
"Amended Notes"). The Amended Notes waived all covenant violations through
September 30, 1997, extended the principal payment dates, adjusted certain
interest rates and reset the financial ratios to be consistent with the
Company's current operating plan. The Company is required to maintain certain
financial ratios throughout the term of the Amended Notes. Examples of such
ratios are a quick ratio of 60 percent increasing to 100 percent by September
2000, certain levels of senior debt to adjusted cash flows, various measures
of debt to equity, minimum levels of cash flows and operating lease payments
to fixed charges. Pursuant to the terms of the Amended Notes and the
promissory note, the Company is restricted from paying dividends, as defined,
selling or disposing of certain assets or subsidiaries and issuing
subordinated debt.
Principal payments due under the long-term debt arrangements discussed above
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
------------
<S> <C>
1998......................................................... $ 121,472
1999......................................................... 4,640,444
2000......................................................... 6,312,588
2001......................................................... 5,697,742
2002......................................................... 3,830,392
Thereafter................................................... 15,687,158
-----------
$36,289,796
===========
</TABLE>
NOTE 6--PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
The Company is authorized to issue 500,000 shares of preferred stock.
Preferred stock outstanding consists of Series 1 Preferred Stock, $1.00 par
value ("Redeemable Preferred Stock"), Series 2 Preferred Stock, $1.00 par
value ("Series 2 Convertible Preferred Stock") and Series 3 Preferred Stock,
$1.00 par value ("Series 3 Convertible Preferred Stock").
Redeemable Preferred Stock
There are 18,125 shares of Redeemable Preferred Stock issued and outstanding
at June 30, 1996 and 1997 and March 31, 1998. CSi issued the shares on June
30, 1995 for $100 per share. In connection with the reorganization transaction
described in Note 1, the Redeemable Preferred Stock became an outstanding
security of CCi. The Redeemable Preferred stockholders are entitled to
dividends that accrue daily at 6 percent per annum until June 30, 2002 and 12
percent thereafter. These shares have a defined liquidation value of $100 per
share plus all accrued and unpaid dividends. Accrued dividends on the
Redeemable Preferred Stock at June 30, 1996 and 1997 and March 31, 1998 are
$111,221, $229,267 and $322,532, respectively, and are included in Redeemable
Preferred Stock in the accompanying consolidated balance sheets. Upon the
completion of a Qualified Initial Public Offering, as defined, or at any time
after June 30, 2001, the holders may require the shares be redeemed provided
that such redemption would not constitute a default under the Senior Credit
Agreement. The Company shall redeem all outstanding Redeemable Preferred
Shares on October 31, 2005. As long as the Redeemable Preferred Stock is
outstanding, the Company shall not redeem, purchase or otherwise acquire any
other shares of stock.
F-13
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Convertible Preferred Stock
There are 25,000 shares each of Series 2 and Series 3 Convertible Preferred
Stock outstanding at March 31, 1998. The shares were issued in November 1997
for $100 per share. The Series 2 and Series 3 Convertible Preferred
Stockholders are entitled to dividends that accrue daily at 8 percent per
annum. These shares have a defined Liquidation value of $100 per shares plus
all accrued and unpaid dividends. The Series 2 and Series 3 Convertible
Preferred Stock is convertible into Non-Voting Class B and Voting Class A
common stock, respectively.
At any time after June 30, 2001, the holders of the Series 2 and Series 3
Convertible Preferred Stock may require that the Company redeem a portion of
the shares that have a liquidation value not in excess of $4,000,000, or in
any amount after October 17, 2004, provided that such redemption would not
constitute a default under the Senior Credit Agreement. Additionally, the
Company may require conversion upon the results of a Qualified Initial Public
Offering, as defined. The conversion to common stock is computed by
multiplying the number of shares to be converted by $100 and dividing the
result by the Conversion Price then in effect. The initial Conversion Price is
$5.783, subject to adjustment to prevent dilution of the conversion rights.
The Company must pay dividends quarterly beginning December 1998, or upon
certain events of noncompliance, as defined. If such payments are not made,
the holders of the preferred stock may demand immediate redemption, except in
the event such redemption results in a default under the Senior Credit
Agreement.
Common Stock
On June 30, 1995, CSi sold 4,868,476 and 367,748 shares of Class A and Class
B common stock, respectively. In connection with the reorganization
transaction described in Note 1, the Class A and Class B common stock became
an outstanding security of CCi. Class A common stock (referred to herein as
the "Common Stock") is entitled to one vote per share on all matters. Class B
common stock (referred to herein as the "Nonvoting Common Stock") has no
voting rights, except the Nonvoting Common Stock together with Common Stock,
as one class, has the right to vote on (i) any merger or consolidation of the
Company with or into another company, (ii) any sale of all or substantially
all of the Company's assets and (iii) any amendment to the Company's
Certificate of Incorporation.
In connection with 2,204,726 of the 4,868,476 shares of Common Stock issued
on June 30, 1995, the Company entered into various Executive Stock Agreements
(the "Agreements") with each of its principal executives. Under the terms of
these Agreements, the shares of Common Stock acquired by the executives vest
over time. At June 30, 1996 and 1997, 62.5 percent (1,377,954 shares) and 75.0
percent (1,653,545 shares), respectively, were vested. On June 30, 1998,
275,591 shares vest, with the remaining shares vesting on June 30, 1999. In
addition, the Agreements provided the executives with 826,773 shares of
Nonvoting Common Stock at $0.2268 per share. The executives paid cash of
$0.00023 per share, for total consideration of $188, with the remaining
balance of $187,312 included in notes receivable for stock on the accompanying
consolidated balance sheets. The shares are held in trust (i.e., restricted)
until the earlier occurrence of a Qualifying Initial Public Offering of the
Company's common stock or sale of the Company, as defined, or the passage of
time.
F-14
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Warrants
The following represents a summary of the warrant activity:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------- NINE MONTHS ENDED
1996 1997 MARCH 31, 1998
--------------- ------------------ ------------------
WTD AVG
EX WTD AVG WTD AVG
SHARES PRICE SHARES EX PRICE SHARES EX PRICE
------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
the period.............. 275,591 $0.0007 275,591 $ 0.0007 525,342 $ 0.0005
Granted.................. -- -- 525,342 0.0005 437,506 0.0002
Exercised................ -- -- (275,591) (0.0007) -- --
------- ------- -------- -------- -------- --------
Outstanding, end of the
period.................. 275,591 $0.0007 525,342 $ 0.0005 962,848 $ 0.0004
======= ======= ======== ======== ======== ========
</TABLE>
The warrants outstanding at June 30, 1995 and the warrants granted during
fiscal 1997 were issued to lenders in conjunction with loans made to the
Company (See Note 5--Long-Term Debt). In September 1997, 55,118 Common Stock
warrants and 220,473 Nonvoting Common Stock warrants were exercised into their
respective class of common stock. Outstanding warrants at June 30, 1997
include 325,329 Common Stock warrants exercisable into Common Stock and
200,013 Nonvoting Common Stock warrants exercisable into Nonvoting Common
Stock. All warrants outstanding at June 30, 1997 have an exercise price of
$0.0005, are exercisable and have a remaining average contractual life of
approximately 7.5 years. No amount was allocated to the warrants because
management believes the effect would not be material to the consolidated
results of operations.
In November 1997, in connection with the amended Senior Credit Agreement,
the lenders received additional warrants equivalent to two percent of the
Company on a fully diluted basis, exercisable at $0.0002 per share. These
warrants are subject to forfeiture by the lenders if the Company attains
certain performance criteria, as defined. As a result, management believes the
fair value of these warrants is nominal and therefore no amount has been
allocated to the warrants.
NOTE 7--INCOME TAXES
The components of the income tax provisions (benefit) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, NINE MONTHS
---------------------- ENDED MARCH 31,
1996 1997 1998
--------- ----------- ---------------
<S> <C> <C> <C>
Current provision:
Federal............................... $ 671,627 $ (172,736) $ --
State................................. 192,017 114,700 195,507
--------- ----------- --------
863,644 (58,036) 195,507
--------- ----------- --------
Deferred provision:
Federal............................... (116,815) (806,964) 343,819
State................................. (24,699) (242,200) 60,674
--------- ----------- --------
(141,514) (1,049,164) 404,493
--------- ----------- --------
Total provision (benefit) for income
taxes.............................. $ 722,130 $(1,107,200) $600,000
========= =========== ========
</TABLE>
F-15
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Actual income tax provision (benefit) differs from the income tax provision
(benefit) computed by applying the U.S. federal statutory tax rate of 34
percent to income (loss) before provision for income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, NINE MONTHS
-------------------- ENDED MARCH 31,
1996 1997 1998
-------- ----------- ---------------
<S> <C> <C> <C>
Provision (benefit) at the statutory
rate.................................... $601,849 $(1,017,458) $509,548
State income tax provision (benefit), net
of federal benefit...................... 88,507 (149,626) 74,934
Other.................................... 31,774 59,884 15,518
-------- ----------- --------
$722,130 $(1,107,200) $600,000
======== =========== ========
</TABLE>
The components of the Company's deferred tax asset and liability are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Current deferred tax asset:
Allowance for doubtful accounts............. $ 90,397 $ 181,072 $ 181,072
Accrued vacation............................ 19,139 302,221 302,221
State taxes................................. 68,600 224,697 224,697
Net operating loss carryforward............. -- 720,000 315,507
Other....................................... -- 35,972 35,972
-------- ---------- ----------
Current deferred tax asset................ 178,136 1,463,962 1,059,469
-------- ---------- ----------
Non-current deferred tax liability:
Depreciation................................ (36,622) (84,660) (84,660)
Amortization................................ -- (188,624) (188,624)
-------- ---------- ----------
Non-current deferred tax liability........ (36,622) (273,284) (273,284)
-------- ---------- ----------
$141,514 $1,190,678 $ 786,185
======== ========== ==========
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its operating facilities under noncancellable operating
leases expiring at various dates through 2007. The leases require the Company
to pay various operating expenses of the facilities in addition to base
monthly lease payments. Certain leases contain renewal options.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
YEARS
ENDING
JUNE 30,
--------
<S> <C>
1998....................................................... $ 6,571,811
1999....................................................... 5,912,844
2000....................................................... 5,674,474
2001....................................................... 4,881,043
2002....................................................... 3,620,901
Thereafter................................................. 5,661,268
-----------
$32,322,341
===========
</TABLE>
F-16
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense for the years ended June 30, 1996 and 1997, and the nine months
ended March 31, 1998 amounted to $2,200,657, $7,835,384 and $6,210,142,
respectively, and is reflected in educational services and general and
administrative expense in the accompanying consolidated statements of
operations.
Legal Matters
The Company is involved in various legal proceedings which have been routine
litigation, in the normal course of business. In the opinion of management,
after consultation with legal counsel, the resolution of these matters will
not have a material adverse impact on the Company's financial position or
results of operations.
NOTE 9--EMPLOYEE SAVINGS PLAN
The Company has established an employee savings plan under Section 401(k) of
the Internal Revenue Code. All employees with at least one year and 1,000
hours of employment are eligible to participate. Contributions to the plan by
the Company are discretionary. The plan provides for vesting of Company
contributions over a five-year period. Employees previously employed by each
of the sellers (see Note 4) shall vest in the plan based on total service
time. Company contributions to the plan were $131,309 and $243,570 for the
years ended June 30, 1996 and 1997, respectively.
NOTE 10--GOVERNMENTAL REGULATION
The Company and each school is subject to extensive regulation by
governmental agencies and accrediting bodies. In particular, the HEA and the
regulations promulgated thereunder by the DOE subject the Company's operations
to regulatory scrutiny. Schools must satisfy certain criteria in order to
participate in various financial assistance programs under Title IV of the
HEA. For example, each school must (i) have an acid test ratio (defined as the
ratio of cash, cash equivalents, and current accounts receivable to current
liabilities) of at least 1:1 at the end of each fiscal year, (ii) have a
positive tangible net worth at the end of each fiscal year, (iii) not have a
cumulative net operating loss during its two most recent fiscal years that
results in a decline of more than 10 percent of the schools tangible net
worth, (iv) collect no more than 85 percent of its cash revenues from Title IV
Program funds in any fiscal year and (v) not have cohort default rates ("CDR")
on federally funded or federally guaranteed student loans in excess of 25
percent for each of the most recent three federal fiscal years. Any regulatory
violation could be the basis for the initiation of a suspension, limitation or
termination proceeding against the Company or any of its schools.
Based on the audit as of June 30, 1997, eight of the Company's colleges fail
to meet one or more of the financial responsibility tests. Three of the
colleges fail to meet the acid test ratio (Blair College in Colorado Springs,
Colorado; FMU in Melbourne, Florida; and FMU in Fort Lauderdale, Florida) and
five of the colleges fail to meet the profitability test (Bryman College in
Seatac, Washington; NIT in Wyoming, Michigan; Bryman College (North) in San
Jose, California; Parks College in Aurora, Colorado; and Springfield College
in Springfield, Missouri). In addition, the Company, on a consolidated basis,
fails to meet the financial responsibility tests. However, at the CSi
operating company level, and at the RCi operating company level, all financial
responsibility tests were met. There can be no assurance at this time that the
DOE, upon review of fiscal 1997 audited financial statements, will not require
that the Company post additional letters of credit in accordance with its
regulations. Since RCi is already on reimbursement, and since the Company has
posted a letter of credit as required by the regulations, by definition the
Company believes that it currently meets financial responsibility standards as
set forth by the DOE. There is no assurance, however, that the DOE will not
impose additional requirements for letters of credit based upon its review of
the Company's fiscal 1997 financial statements. Such actions, or other similar
actions, could have a material adverse effect on the Company's business,
results of operations and financial condition, and on its ability to generate
sufficient liquidity to continue to fund growth in its operations and purchase
other institutions.
F-17
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of June 30, 1997, all schools except for four (Skadron College in San
Bernardino, California; Bryman in Rosemead (now El Monte), California; Bryman
in Sacramento, California; and Bryman in Los Angeles, California) were
eligible to receive federal funding, including loan funds. These four schools
were ineligible for federal loan funds as they exceeded the CDR threshold.
Subsequent to June 30, 1997, four additional schools (Bryman in Brookline,
Massachusetts; NIT in Wyoming, Missouri; Bryman in New Orleans, Louisiana; and
Bryman in San Jose South, California) exceeded the CDR threshold. The Company
was notified on July 3, 1997 that Bryman in Brookline, Massachusetts was
excluded from Title IV Loan Programs. The Company was notified that the
remaining three campuses were excluded from Title IV Loan Programs on
September 10, 1997. The earliest date these schools can apply to be reinstated
is October 1, 1999.
Effective June 17, 1997, the Company approved the closing of Bryman in
Sacramento, California. The school remained open through December 1997 in
order for the current students to complete their programs.
In order to operate and award degrees, diplomas and certificates and to
participate in the Title IV Programs, a campus must be licensed or authorized
to offer its programs by the state agency in which it operates. Additionally,
each institution must be accredited by an agency recognized by the DOE. As of
June 30, 1997, all of the Company's schools meet these requirements.
The financial aid and assistance programs, in which most of the Company's
students participate, are subject to political and budgetary considerations.
There is no assurance that such funding will be maintained at current levels.
The Company's administration of these programs is periodically reviewed by
various regulatory agencies. The failure by the Company and its colleges and
schools to comply with applicable, federal, state or accrediting agency
requirements could result in the limitation, suspension or termination of the
ability to participate in Title IV Programs or the loss of state licensure or
accreditation. The loss of or a significant reduction in Title IV Program
funds would have a material adverse effect on the Company's revenues and cash
flows because the college's and school's student enrollment would likely
decline as a result of its students' inability to finance their education
without the availability of Title IV Program funds. Additionally, if
alternative financing was made available to students it would be on longer
terms which could have a material adverse effect on the Company's cash flows.
NOTE 11--SUBSEQUENT EVENT
On June 3, 1998, the Company received notification that the DOE was prepared
to enter into an agreement whereby Title IV Loan eligibility will be
reinstated for the Brookline, Rosemead (now El Monte) and Los Angeles schools
upon release of certain claims the Company has asserted against the DOE. The
Company has agreed in principle to the terms and is awaiting the final form of
the agreement from the DOE for execution.
NOTE 12--INITIAL PUBLIC OFFERING
On July 21, 1998, the Company's Board of Directors authorized management to
pursue an Initial Public Offering of the Company's common stock ("IPO"). The
Company plans to file an S-1 Registration Statement with the Securities and
Exchange Commission to sell common stock to the public. The proceeds of the
IPO will be used, in part to repay debt and a prepayment penalty of
approximately $2.3 million. Prior to the IPO, the Company intends to complete
a 44.094522 for one stock split and increase the number of authorized shares
from 9,000,000 to 40,000,000 and 500,000 to 2,500,000 for Common Stock and
Nonvoting Common Stock, respectively. Additionally, the Company intends to
change the par value of its Common Stock and Nonvoting Common Stock from $0.01
to $0.0001 per share. All share and per share amounts shown in the
accompanying consolidated financial statements have been retroactively
adjusted to reflect this stock split, increase in authorized shares and change
in par value.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Phillips Colleges, Inc.
We have audited the accompanying combined balance sheets of the Seventeen
Operating Companies owned by Phillips Colleges, Inc. (the "Companies"), as of
December 31, 1995 and October 16, 1996, and the related combined statements of
income, stockholders' equity and cash flows for the year ended December 31,
1995 and for the period January 1, 1996 to October 16, 1996. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 9 to the combined financial statements, certain
operating assets and liabilities of the Companies were sold to an independent
third party on October 17, 1996.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Companies as of December 31, 1995 and October 16, 1996, and the combined
results of their operations and their cash flows for the year ended December
31, 1995 and for the period January 1, 1996 to October 16, 1996 in conformity
with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Jacksonville, Florida
August 15, 1997
F-19
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND OCTOBER 16, 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash.............................................. $ 314,561 $ 339,159
Accounts receivable--students, current portion,
net of allowance for doubtful accounts of
$525,232 and $703,271 in 1995 and 1996,
respectively..................................... 8,378,236 16,467,436
Accounts receivable--other........................ 341,611 15,349
Inventories and prepaid expenses.................. 1,158,145 1,505,927
Refundable income taxes........................... 86,626 150,587
Deferred income taxes............................. 144,105 120,000
------------ ------------
Total current assets............................ 10,423,284 18,598,458
------------ ------------
Property and equipment:
Land.............................................. 3,610,839 3,624,414
Buildings......................................... 7,672,989 7,672,989
Leasehold improvements............................ 1,878,542 1,878,372
Furniture and equipment........................... 8,983,903 9,098,281
------------ ------------
22,146,273 22,274,056
Less accumulated depreciation and amortization.... (11,629,279) (12,286,294)
------------ ------------
10,516,994 9,987,762
------------ ------------
Other assets:
Accounts receivable--students, net of current
portion.......................................... 2,532,646 2,617,893
Deferred income taxes............................. 275,130 190,380
Intangible assets, net of accumulated
amortization of $1,307,304 and $1,433,114 in
1995 and 1996, respectively...................... 5,276,726 5,150,916
Investment in Perkins loan, net of allowances for
unrecoverable investment of $593,194 and
$587,386 in 1995 and 1996, respectively.......... -- --
Other assets...................................... 230,574 100,527
------------ ------------
Total other assets.............................. 8,315,076 8,059,716
------------ ------------
$ 29,255,354 $ 36,645,936
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 2,500,730 $ 1,291,271
Accrued expenses.................................. 682,899 672,008
Advance student payments.......................... 336,711 113,116
Current portion of deferred tuition............... 9,524,119 20,817,733
Current maturities of long-term debt.............. 318,014 2,326,183
Current maturities of capital lease obligation.... 219,345 28,081
------------ ------------
Total current liabilities....................... 13,581,818 25,248,392
------------ ------------
Deferred tuition, less current portion............. 59,130 --
Long-term debt, less current portion............... 2,409,854 73,660
Capital lease obligation, less current maturities.. 1,342 --
Deferred income taxes.............................. 61,366 45,654
------------ ------------
16,113,510 25,367,706
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, 153,800 stocks authorized; 28,950
stocks issued and outstanding.................... 123,550 123,550
Non-cumulative preferred stock, $100 par value,
100 stocks authorized, 50 stocks issued and
outstanding...................................... 5,000 5,000
Additional paid-in capital........................ 11,279,408 9,147,294
Retained earnings................................. 1,733,886 2,002,386
------------ ------------
13,141,844 11,278,230
------------ ------------
$ 29,255,354 $ 36,645,936
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD ENDED OCTOBER 16, 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenue:
Tuition.............................................. $43,323,794 $32,889,855
Other................................................ 1,381,293 1,109,629
----------- -----------
44,705,087 33,999,484
----------- -----------
Expenses:
Academic............................................. 11,043,931 9,423,602
Admissions........................................... 3,398,202 2,718,943
Advertising.......................................... 2,249,106 2,187,789
Administrative....................................... 15,404,790 11,792,855
Depreciation and amortization........................ 939,130 709,326
Amortization of intangibles.......................... 158,088 125,810
Interest............................................. 439,185 260,351
Bad debts............................................ 2,328,561 1,696,360
Management fees...................................... 8,152,448 4,587,625
----------- -----------
44,113,441 33,502,661
----------- -----------
Income from operations................................. 591,646 496,823
Income tax expense..................................... 280,030 228,323
----------- -----------
Net income............................................. $ 311,616 $ 268,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD ENDED OCTOBER 16, 1996
<TABLE>
<CAPTION>
NONCUMULATIVE ADDITIONAL
COMMON PREFERRED PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
-------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $123,550 $5,000 $10,231,718 $1,422,270 $11,782,538
Contributions of land,
building, and
furniture and
equipment by parent
company.............. -- -- 1,884,057 -- 1,884,057
Increase in
intercompany net
receivable........... -- -- (836,367) -- (836,367)
Net income............ -- -- -- 311,616 311,616
-------- ------ ----------- ---------- -----------
Balance at December 31,
1995................... 123,550 5,000 11,279,408 1,733,886 13,141,844
Increase in
intercompany net
receivable........... -- -- (2,132,114) -- (2,132,114)
Net income............ -- -- -- 268,500 268,500
-------- ------ ----------- ---------- -----------
Balance at October 16,
1996................... $123,550 $5,000 $ 9,147,294 $2,002,386 $11,278,230
======== ====== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD ENDED OCTOBER 16, 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 311,616 $ 268,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 939,130 709,326
Amortization of intangibles..................... 158,088 125,810
Allowance for doubtful accounts................. 158,275 178,039
Loss on disposal of property and equipment...... 6,922 --
Allowance for Perkins Loan Program.............. 284 (5,808)
Deferred income taxes........................... 121,025 (93,144)
Changes in assets and liabilities:
Accounts receivable........................... 1,485,432 (8,174,447)
Inventories and prepaid expenses.............. (25,816) (347,782)
Refundable income taxes....................... (59,330) (63,961)
Other assets.................................. (16,066) 412,244
Accounts payable.............................. 547,004 (1,209,459)
Accrued expenses.............................. (168,071) (10,891)
Advance student payments...................... (489,416) (223,595)
Deferred tuition.............................. (1,853,808) 11,234,484
----------- -----------
Net cash provided by operating activities... 1,115,269 2,799,316
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment................ (124,677) (127,781)
Proceeds from sale of property and equipment...... 1,060 --
Proceeds from Perkins liquidation................. 45,109 5,808
----------- -----------
Net cash used in investing activities....... (78,508) (121,973)
----------- -----------
Cash flows from financing long-term activities:
Proceeds from issuance of long-term debt.......... 282,101 --
Principal payments on debt........................ (218,006) (328,025)
Principal payments under capital lease
obligations...................................... (233,059) (192,606)
Intercompany advances............................. (922,183) (2,132,114)
----------- -----------
Net cash used in financing activities....... (1,091,147) (2,652,745)
----------- -----------
Net increase (decrease) in cash..................... (54,386) 24,598
Cash at beginning of year........................... 368,947 314,561
----------- -----------
Cash at end of year................................. 314,561 339,159
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................ $ 429,356 $ 273,574
=========== ===========
Income taxes.................................... $ 74,801 $ 60,925
=========== ===========
</TABLE>
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995, the Parent Company contributed land, building, and furniture and
equipment to the Companies with a net book value of $1,884,057.
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. GENERAL:
The seventeen operating companies owned by Phillips Colleges, Inc. and
combined in these financial statements (the "Companies") are engaged in the
business of conducting general academic and vocational/technical instruction
programs leading toward degrees or certificates of higher education. The
Companies are wholly owned subsidiaries of Phillips Colleges, Inc. (the
"Parent Company") and operate 18 colleges located in various cities in the
United States. The colleges are: Western Business College, Portland, Oregon
and Vancouver, Washington; Blair Junior College, Colorado Springs, Colorado;
Parks College, Denver, Colorado; Parks College, Aurora, Colorado; Phillips
College, Las Vegas, Nevada; Phillips Junior College of Salt Lake City, Salt
Lake City, Utah; Phillips Junior College, Springfield, Missouri; Duff's
Business Institute, Pittsburgh, Pennsylvania; Rochester Business Institute,
Rochester, New York; Ft. Lauderdale College, Ft. Lauderdale, Florida; Orlando
College--North, Orlando, Florida; Orlando College--South Orlando, Florida;
Orlando College, Melbourne, Florida; Tampa College--Main, Tampa, Florida;
Tampa College--Brandon, Tampa, Florida; Tampa College--Pinellas, Clearwater,
Florida; and Tampa College, Lakeland, Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES--Inventories consist primarily of textbooks and media materials
and are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT--Land is recorded at cost. Buildings are recorded at
cost and are depreciated by the straight-line method over the estimated useful
lives of the assets, ranging from 25 to 35 years.
Furniture and equipment are recorded at cost and are depreciated principally
by the straight-line method over the estimated useful lives of the assets,
ranging from 3 to 10 years.
Leasehold improvements are recorded at cost and are amortized using the
straight-line method over the shorter of the estimated useful life of the
asset or the term of the noncancelable lease.
Major renewals and betterments are capitalized while replacements,
maintenance and repairs which do not improve or extend the useful lives of the
respective assets are expensed as incurred. Gains and losses on the retirement
or disposal of individual assets are recorded as income or expense.
TUITION REVENUE--Tuition for a student's program is recorded at the
beginning of each academic year and is deferred and recognized ratably over
the number of months in the program.
INTANGIBLE ASSETS--Intangible assets remaining at October 16, 1996 consist
of excess of costs over net assets acquired and are amortized using the
straight-line method based on a 40-year life.
INCOME TAXES--The Companies recognize the future tax consequences of
transactions or events in the period the transactions or events are recognized
in the financial statements. Deferred tax assets and liabilities are recorded
for temporary differences by applying enacted statutory tax rates applicable
to the future years to differences between financial statement carrying
amounts and the tax bases of existing assets and liabilities. Valuation
allowances required for the consolidated group are recorded by the Parent
Company to reduce net deferred tax assets to amounts that are more likely than
not to be realized.
STOCK--Common stock is recorded at par or stated value. Par values of common
stock issued and outstanding range between no par and $100. Preferred stock is
noncumulative and is recorded at par value.
SIGNIFICANT ESTIMATES, RISKS AND UNCERTAINTIES--The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
F-24
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECOVERABILITY OF LONG-LIVED ASSETS--The Companies record losses on
impairment of property and equipment and intangible assets whenever events or
changes in circumstances indicate that the carrying amount of these assets may
not be recoverable.
3. INCOME TAXES:
The income tax expense for the year ended December 31, 1995 and the period
ended October 31, 1996 includes the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Federal income tax expense.............................. $255,070 $201,349
State income tax expense................................ 24,960 26,974
-------- --------
Income tax expense...................................... $280,030 $228,323
======== ========
</TABLE>
The Companies file consolidated federal income tax returns with the Parent
Company. Current and deferred taxes are allocated to the Companies as if they
were separate taxpayers. The Companies' use of federal net operating losses
generated by other members of the consolidated group resulted in an
intercompany payable to the Parent Company of $1,768,332 and $2,062,824 at
December 31, 1995 and October 16, 1996, respectively. Such amounts are netted
with the intercompany receivable from the Parent Company reflected as a
reduction or increase of contributed capital.
For the year ended December 31, 1995 and period ended October 16, 1996, the
differences between the federal income tax expense and the amount calculated
by applying the 34% statutory rate to pre-tax earnings result primarily from
state income taxes and miscellaneous non-deductible items are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Income tax expense at a statutory rate of 34%.......... $201,160 $168,920
Amortization of intangibles............................ 58,950 39,100
State income tax benefit............................... (8,486) (9,171)
Miscellaneous other.................................... 3,446 2,500
-------- --------
Federal income tax expense............................. 255,070 201,349
State income taxes..................................... 24,960 26,974
-------- --------
$280,030 $228,323
======== ========
</TABLE>
At December 31, 1995 and October 16, 1996 the components of net deferred
taxes recognized in the Companies' balance sheets were:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current deferred tax assets........................... $144,105 $120,000
======== ========
Non-current deferred tax assets....................... $280,617 $190,380
Non-current deferred tax liabilities.................. (5,487) --
-------- --------
Net non-current deferred tax assets................... $275,130 $190,380
======== ========
Non-current deferred tax assets....................... $ 12,874 $ --
Non-current deferred tax liabilities.................. (74,240) (45,654)
-------- --------
Net non-current deferred tax liabilities.............. $(61,366) $(45,654)
======== ========
</TABLE>
F-25
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets result primarily from allowances recorded for doubtful
accounts and capitalized leases. Deferred tax liabilities result primarily
from depreciation.
At December 31, 1995, the Companies had state net operating loss
carryforwards of approximately $1,000,000 expiring in tax years 1996 through
1998.
4. RETIREMENT PLANS:
In 1991, the Parent Company established the Phillips Colleges, Inc. Employee
Retirement Savings Plan (the "Plan"), a defined contribution plan [Section
401(k) plan] covering all eligible employees. Employees are eligible to
participate after one year of service and upon attaining the age of 21.
The Parent Company did not provide contributions to the Plan in 1995 or
1996. The Plan was terminated with an effective termination date of January
31, 1996.
The Plan was fully funded at termination. Plan assets were paid out to
participants upon receipt of a determination letter from the Internal Revenue
Service.
5. LEASES:
The Companies lease administrative and classroom facilities and certain
equipment. In 1992, the Companies entered into several leases for computer
equipment which qualified as capitalized leases. All noncancelable facility
leases are operating leases and contain various renewal options and escalation
clauses and require that the Companies pay for utilities, taxes, insurance and
maintenance expenses.
As of October 16, 1996, future minimum rental payments on all noncancelable
capital and operating leases, along with the present value of the net minimum
capital lease payments are:
<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- --------
<S> <C> <C>
Remainder of 1996................................... $ 1,114,991 $ 28,957
1997................................................ 3,343,962 --
1998................................................ 2,609,254 --
1999................................................ 1,662,591 --
2000................................................ 1,019,273 --
Thereafter.......................................... 1,259,700 --
----------- --------
Total minimum lease payments........................ $11,009,771 28,957
===========
Less amount representing interest................... (876)
--------
28,081
--------
Less current maturities of obligation under capital
leases............................................. (28,081)
--------
Long-term obligation under capital leases........... $ --
========
</TABLE>
The cost and accumulated depreciation of equipment under capital leases were
$1,122,957 and $974,558, respectively, as of December 31, 1995 and $1,122,957
and $1,094,610, respectively, as of October 16, 1996.
Rent expense charged to operations in 1995 and 1996 was $5,238,106 and
$4,204,142, respectively.
Certain of the Companies lease housing facilities which are in turn
subleased to students. Sublease income in 1995 and 1996 was $191,452 and
$46,931, respectively.
F-26
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INTANGIBLES:
Details relating to costs of intangibles and their amortization are as
follows:
<TABLE>
<CAPTION>
AMORTIZATION
--------------------
COST EXPENSE ACCUMULATED
---------- -------- -----------
<S> <C> <C> <C>
December 31, 1995
Excess of costs over net assets acquired... $6,584,030 $158,088 $1,307,304
========== ======== ==========
Period ended October 16, 1996
Excess of costs over net assets acquired... $6,584,000 $125,810 $1,433,114
========== ======== ==========
</TABLE>
7. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31, 1995 and October
16, 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Prime rate plus 2% note payable to a financial
institution, with monthly installments of $11,556
principal and accrued interest; remaining principal
due January 2, 1997; collateralized by real property
located at Tampa, Florida........................... $2,009,783 $1,663,528
Uncollateralized note payable dated July 15, 1993,
due in 30 monthly installments, including interest
at 8%, beginning November 30, 1994.................. 79,904 23,134
Uncollateralized note payable dated May 14, 1996, due
in 27 monthly installments, including interest at
8%, beginning June 15, 1996......................... -- 157,999
Uncollateralized note payable dated July 14, 1995,
due in 18 monthly installments, including interest
at 8%, beginning January 10, 1996................... 136,332 73,563
Uncollateralized note payable dated March 15, 1982,
with monthly installments of $8,093 principal and
accrued interest at 14.875%, remaining principal due
March 15, 1997...................................... 501,849 481,619
---------- ----------
2,727,868 2,399,843
Less current maturities.............................. 318,014 2,326,183
---------- ----------
$2,409,854 $ 73,660
========== ==========
</TABLE>
Scheduled repayment of debt for the next five years and thereafter is as
follows:
<TABLE>
<S> <C>
Remainder of 1996............................................. $ 57,776
1997.......................................................... 2,282,771
1998.......................................................... 59,296
1999.......................................................... --
2000.......................................................... --
Thereafter.................................................... --
----------
$2,399,843
----------
</TABLE>
Subsequent to the transaction described in Note 9 to these financial
statements, all long-term debt obligations were settled by the Parent Company
using some of the proceeds from the sale of the Companies (Note 9).
F-27
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. RELATED PARTY TRANSACTIONS:
At December 31, 1995 and October 16, 1996, the Companies had intercompany
receivables from the Parent Company of $11,134,374 and $13,011,312,
respectively, which are reclassified as reductions of additional paid-in
capital.
At December 31, 1995 and October 16, 1996, the Companies had intercompany
payables due to the Parent Company of $2,131,711 and $1,876,535, respectively,
which are reclassified as additions to additional paid-in capital. The Parent
Company and the Companies have not executed a formal note agreement;
therefore, no interest income or expense has been recorded pursuant to this
arrangement for the year ended December 31, 1995 and the period ended October
16, 1996.
The Parent Company's management services agreement with the Companies
stipulates that management fees charged to subsidiaries are calculated based
upon the Companies' gross revenues and operating profit (defined by the
agreement as gross revenue less operating expenses except for amortization,
management fees and income taxes). The Parent Company will not charge
management fees beyond defined maximum limits. Therefore, management fees will
not cause the Companies to have a loss after considering all income statement
items except for income taxes.
9. COMMITMENTS AND CONTINGENCIES:
The Federal Regulations, as amended in 1994, (34 CFR, section 600.5)
implemented the statutory requirement that an institution eligible for Title
IV student aid funding must not receive more than 85% of its total revenue
from Title IV sources. This requirement is calculated on an annual basis, and
the Companies were in compliance with this requirement at December 31, 1995.
In the ordinary course of business, the Companies' federal financial
assistance programs are subject to ongoing program reviews by the Department
of Education ("ED") and Title IV program audits by external auditors. The
Parent Company and the Companies are parties to various pending or threatened
legal proceedings generally incidental to its business. Management of the
Parent Company does not believe that the results of these matters will have a
material impact on the financial statements.
At October 16, 1996, all assets of the Companies are pledged as collateral
under various debt arrangements entered into by the Parent Company.
During 1995, the Companies' Parent recorded a reserve for regulatory
assessments payable to the ED in an amount greatly exceeding the resources of
the Parent and all subsidiaries of the Parent, including the Companies. As a
result of the assessment, the Companies, the Parent Company, the ED and the
Companies' bankers agreed upon a plan of voluntary liquidation in which the
Parent Company was obligated to sell all of the assets of the Companies. The
proceeds would then be used by the Parent Company to satisfy its
aforementioned obligation. Due to the terms of this agreement, the regulatory
assessment was not recorded on an individual company basis. In accordance with
the Plan, all assets of the Parent and the Companies were sold with net
proceeds of the sale distributed to the bankers and the ED. Additionally,
pursuant to the terms of the Plan, purchasers of the assets of the Companies
were not required to assume any part of the regulatory assessment liability.
On October 17, 1996, the Parent Company entered into a transaction at a gain
in which substantially all of the Companies' operating assets were bought and
certain liabilities assumed (principally the Companies' contractual liability
to perform its educational obligation related to tuition collected or tuition
receivable and the assumption of building and equipment leases beginning
October 17, 1996) by an independent third party.
F-28
<PAGE>
SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. CONCENTRATION OF CREDIT RISK:
Substantially all of the Companies' business is with students who rely to
varying degrees on student financial assistance of the ED. Collection from the
ED is reasonably assured provided the Companies have complied with the ED
student financial assistance requirements. Changes in the ED funding levels
could have a significant impact on the Companies' ability to attract students.
The receivables from students and the ED are not collateralized.
The Companies maintain their cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced any
losses in such accounts.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In the normal course of business, the Companies use various financial
instruments to manage their interest rate risk, for purposes other than
trading. By nature all such instruments involve risk, including the credit
risk of nonperformance by counterparties, and the maximum potential loss may
exceed the amount recognized in the balance sheet. However, at October 16,
1996, in management's opinion there was no significant risk of loss in the
event of nonperformance of the counterparties to these financial instruments.
The following methods and assumptions were uses to estimate the fair value
of each class of financial instruments held or issued for purposes other than
trading.
<TABLE>
<CAPTION>
FINANCIAL INSTRUMENT VALUATION METHOD
-------------------- ----------------
<S> <C>
Accounts receivable--students... Carrying amounts
Accounts receivable--other...... Carrying amounts
Long-term debt.................. Carrying amounts which approximate market
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Corinthian Colleges, Inc.:
We have audited the accompanying combined statement of revenues and direct
expenses of eleven career colleges purchased from National Education Centers,
Inc. (see Note 1) for the year ended December 31, 1995, respectively. This
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenue and direct expenses of eleven career
colleges purchased from National Education Centers, Inc, for the year ended
December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Orange County, California
July 15, 1997
F-30
<PAGE>
ELEVEN CAREER COLLEGES
NATIONAL EDUCATION CENTERS, INC.
COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES
FOR TIER 2 AND TIER 3 SCHOOLS (SEE NOTE 1)
<TABLE>
<CAPTION>
FROM JANUARY 1995
THROUGH THE DATES
OF THE
ACQUISITIONS
(SEE NOTE 1)
-----------------
<S> <C>
REVENUES:
Tuition revenue............................................. $22,230,293
-----------
DIRECT OPERATING EXPENSES:
Course materials, services and instruction.................. 13,251,585
Marketing and advertising................................... 3,999,879
Total direct operating expenses........................... 17,251,464
-----------
EXCESS OF REVENUES OVER DIRECT OPERATING EXPENSES............. $ 4,978,829
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-31
<PAGE>
NATIONAL EDUCATION CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENT
DECEMBER 31, 1995
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
a. Operations
Corinthian Schools, Inc. ("CSi"), a Delaware corporation, was incorporated
in February 1995 to acquire and operate non-degree granting proprietary
schools devoted to career program training primarily in the medical,
technical, and business fields. In September 1996, Corinthian Colleges, Inc.
(the "Company") completed a reorganization transaction whereby CSi became a
wholly owned subsidiary of the Company. The Company's corporate headquarters
are located in Santa Ana, California.
In June 1995 (amended August 30, 1995 and September 27, 1995), CSi entered
into an asset purchase agreement with National Education Centers, Inc.
("NECI") to purchase certain assets and assume certain liabilities of 16
career colleges for approximately $4.7 million. Department of Education
("DOE") approval was required for the transfer of ownership; thus the Company
staged the acquisition date on all 16 schools over a period of six months. The
school, location and date acquired for each school are as follows:
<TABLE>
<CAPTION>
SCHOOL LOCATION DATE ACQUIRED
------ -------- -------------
<S> <C> <C>
TIER 1
National Institute of Technology....... San Antonio, TX June 30, 1995
National Institute of Technology....... Cross Lanes, WV
Bryman College......................... Orange, CA
Bryman College......................... Winnetka, CA
Skadron College........................ San Bernardino, CA
TIER 2
National Institute of Technology....... Wyoming, MI September 30, 1995
Bryman College......................... San Francisco, CA
Bryman College......................... San Jose, CA
Bryman College......................... New Orleans, LA
Kee Business College................... Newport News, VA
TIER 3
National Institute of Technology....... Livonia, MI December 31, 1995
Bryman Institute....................... Brookline, MA
Bryman College......................... Los Angeles, CA
Bryman College......................... Rosemead, CA
Bryman College......................... Gardena, CA
Sawyer College......................... Sacramento, CA
</TABLE>
The accompanying combined statement of revenues and direct expenses includes
the operating results of only the tier 2 and tier 3 schools from January 1,
1995 through the date of acquisition.
b. Basis of Statements
The combined statement of revenues and direct expenses has been prepared on
a basis permitted by the Securities and Exchange Commission in a letter dated
April 8, 1997. In accordance with the terms of that letter, the balance sheet
of NECI as of December 31, 1995, and the statement of cash flows for the year
ended December 31, 1995 have been omitted. Additionally, certain indirect
expenses (interest and corporate overhead) were omitted. Management believes
it would have been extremely impractical to include such statements and
F-32
<PAGE>
NATIONAL EDUCATION CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENT--(CONTINUED)
expense items because such statements and expense items would have required
many assumptions and estimates which are subject to a high degree of
inaccuracy. Consequently, the combined statement of revenues and direct
expenses is not intended to be a complete presentation of operations.
2. REVENUE RECOGNITION
Revenues are derived primarily from tuition on courses taught in the
Company's colleges. Revenues are recognized on a straight-line basis over the
length of the applicable course. If a student withdraws from a course, the
unearned tuition that the student has paid is refunded in accordance with
federal, state and accrediting agency standards.
3. MARKETING AND ADVERTISING
Marketing and advertising costs include primarily marketing salaries,
direct-response and other advertising, promotional materials and other related
marketing costs. All advertising costs are expensed as incurred.
4. GOVERNMENTAL REGULATION
The Company and each school are subject to extensive regulation by
governmental agencies and accrediting bodies. In particular, TITLE IV of the
Higher Education Act of 1965, as amended ("HEA") and the regulations
promulgated thereunder by the DOE subject the Company's operations to
regulatory scrutiny. Schools must satisfy certain criteria in order to
participate in programs under Title IV of the HEA. For example, each school
must (i) have an acid test ratio (defined as the ratio of cash, cash
equivalents, and current accounts receivable to current liabilities) of at
least 1:1 at the end of each fiscal year, (ii) have a positive tangible net
worth at the end of each fiscal year, (iii) not have a cumulative net
operating loss during its two most recent fiscal years that results in a
decline of more than 10 percent of the schools tangible net worth, (iv)
collect no more than 85 percent of its revenues from Title IV Program funds in
any fiscal year, and (v) not have cohort default rates ("CDR") on federally
funded or federally guaranteed student loans in excess of 25 percent for each
of the most recent three federal fiscal years. Any regulatory violation could
be the basis for the initiation of a suspension, limitation or termination
proceeding against the Company or any of its schools.
In order to operate and award degrees, diplomas and certificates and to
participate in the Title IV Programs, a campus must be licensed or authorized
to offer its programs by the state agency in which it operates. Additionally,
each institution must be accredited by an agency recognized by the DOE.
The financial aid and assistance programs are subject to political and
budgetary considerations. There is no assurance that such funding will be
maintained at current levels. The Company's administration of these programs
is periodically reviewed by various regulatory agencies. Any regulatory
violation could be the basis for the initiation of a suspension, limitation or
termination proceeding against the Company, which could have a material
adverse effect on the Company.
5. CONCENTRATION OF RISK
A substantial portion of the revenues and accounts receivable reflected in
the accompanying financial statement are a direct result of the Company's
participation in Government student financial assistance programs for the
payment of student tuition. The loss of Title IV funding by a number of
schools would have a material adverse impact on the Company.
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Corinthian Colleges, Inc.
We have audited in accordance with generally accepted auditing standards,
the financial statements of Corinthian Colleges, Inc. (a Delaware corporation)
and subsidiaries included in this Form S-1 Registration Statement and have
issued our report thereon dated November 10, 1997 (except for Note 11, as to
which the date is June 3, 1998, and Note 12, as to which the date is July 21,
1998). Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index above
is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Orange County, California
November 10, 1997 (except
for Note 11, as to which
the date is June 3, 1998
and Note 12, as to which
the date is July 21, 1998.)
S-1
<PAGE>
CORINTHIAN COLLEGES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Accounts receivable:
Year ended June 30, 1996..... $ -- $2,275,481 $ (690,520) $1,585,429
Year ended June 30, 1997..... 1,585,429 3,646,004 (2,468,856) 2,762,577
Nine-months ended March 31,
1997........................ 1,585,429 3,098,850 (1,851,642) 2,832,637
Nine-months ended March 31,
1998........................ 2,762,577 3,657,064 (2,598,930) 3,820,711
Student notes receivable:
Year ended June 30, 1996..... -- -- -- --
Year ended June 30, 1997..... -- 1,523,560 (662,493) 861,067
Nine-months ended March 31,
1997........................ -- 1,470,969 (441,662) 1,029,307
Nine-months ended March 31,
1998........................ 861,067 1,213,611 (784,522) 1,290,156
</TABLE>
S-2
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 6
The Transactions.......................................................... 17
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution.................................................................. 19
Capitalization............................................................ 20
Selected Historical Consolidated Financial and Other Data................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 23
Business.................................................................. 30
Financial Aid and Regulations............................................. 42
Management................................................................ 54
Certain Relationships and Transactions.................................... 60
Security Ownership of Certain Beneficial Owners and Management............ 62
Description of Capital Stock.............................................. 64
Shares Eligible for Future Sale........................................... 69
Underwriting.............................................................. 70
Legal Matters............................................................. 71
Experts................................................................... 71
Additional Information.................................................... 72
Index to Consolidated Financial Statements................................ F-1
</TABLE>
Until , 1998 (25 days after the commencement of the offering), all dealers
effecting transactions in the Common Stock, whether or not participating in
the distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
===============================================================================
===============================================================================
SHARES
CORINTHIAN
COLLEGES, INC.
COMMON STOCK
[LOGO OF CORINTHIAN COLLEGES, INC.]
--------
PROSPECTUS
, 1998
--------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
PIPER JAFFRAY INC.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than the underwriting
discount, payable by the Company in connection with the issuance and
distribution of the Common Stock being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee, the NASD
filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 15,267
NASD filing fee.................................................. 5,675
Nasdaq listing fee............................................... 75,625
Accounting fees and expenses..................................... 750,000
Legal fees and expenses.......................................... 700,000
Blue Sky qualification fees and expenses......................... 7,500
Printing and engraving expenses.................................. 300,000
Transfer agent and registrar fees................................ 15,000
Miscellaneous.................................................... 130,933
----------
Total.......................................................... $2,000,000
==========
</TABLE>
The Company intends to pay all expenses of registration, issuance and
distribution, excluding the underwriters' discount and commissions, with
respect to the shares being sold by the Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director except to the extent
provided by applicable law for any breach of the director's duty of loyalty to
the Corporation or its stockholders, for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
pursuant to Section 174 of the Delaware General Corporation Law (the "DGCL")
or for any transaction from which such director derived an improper personal
benefit. Under the DGCL, liability of a director may not be limited (i) for
any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except as provided in the Company's Certificate of
Incorporation and in the situations described in clauses (i) through (iv)
above. This provision does not limit or eliminate the rights of the Company or
any stockholder to seek nonmonetary relief such as an injunction or rescission
in the event of a breach of a director's duty of care. The Bylaws of the
Company (the "Bylaws") provide that the Company will indemnify its directors
and officers to the fullest extent permitted by the DGCL.
The Form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company since its
incorporation involving sales of the Company's securities that were not
registered under the Securities Act:
On June 30, 1995, Corinthian Schools, Inc. ("CSi"), the predecessor to the
Company, issued the following stock:
(1) 10,000 shares of Class A Common Stock to each of David Moore, Paul St.
Pierre, Frank McCord, Lloyd Holland, and Dennis Devereux at $10 per share.
Payment for the stock by each consisted of $80,000 cash, plus the surrender
of previous stock and a credit for a previous capital contribution in the
total amount of $20,000;
(2) 55,000 shares of Class A Common Stock to Primus Capital Fund III
Limited Partnership ("Primus") at $10 per share, for a total payment of
$55,000 cash;
(3) 5,410 shares of Class A Common Stock to Banc One Capital Partners
("Banc One") at $10 per share, for a total payment of $54,100 cash;
(4) 6,250 shares of Class B Common Stock to David Moore at $10 per share,
for a total purchase price of $62,500 (payment consisted of $62.50 cash
plus a note in the amount of $62,437.50 for the balance);
(5) 5,000 shares of Class B Common Stock to Paul St. Pierre at $10 per
share, for a total purchase price of $50,000 (payment consisted of $50 cash
plus a note in the amount of $49,950 for the balance);
(6) 2,500 shares of Class B Common Stock to each of Frank McCord, Lloyd
Holland, and Dennis Devereux at $10 per share, for an aggregate price by
all three of $75,000 (payment for each consisted of $25 cash plus a note in
the amount of $24,975 for the balance); (Earnback shares)
(7) 8,340 shares of Class B Common Stock to Banc One at $10 per share, for
a total payment of $83,400 cash;
(8) 14,500 shares of Class A Series Preferred Stock (the "Redeemable
Preferred") to Primus and 3,625 shares of Redeemable Preferred to Banc One
at $100 per share, for a total payment of $1,812,500 cash; and
(9) Warrants to Primus and Banc One to purchase 1,250 shares of Class A
Common Stock and 5,000 shares of Class B Common Stock, respectively, each
at an aggregate exercise price of $100.
On October 3, 1996, the Company underwent a reverse triangular merger with
CSi whereby CSi became a subsidiary of the Company and all previously issued
and outstanding shares of CSi were canceled in exchange for Company equivalent
stock. Each of the previously issued shares of CSi thus became shares of the
Company. On that same date, Primus and Banc One exercised their warrants and
the Company issued 1,250 shares of Class A Common Stock to Primus and 5,000
shares of Class B Common Stock to Banc One, each at an aggregate exercise
price of $100 cash.
On October 17, 1996, the Company issued the following stock:
(1) A $22.5 million senior term note (together with a $5.0 million
revolving credit facility) to Prudential Insurance Company of America
("Prudential"), maturing on October 17, 2004;
(2) A $4.0 million subordinated term note maturing on October 17, 2005 to
Banc One;
(3) A $1.0 million subordinated term note maturing on October 17, 2005 to
Primus;
(4) A warrant to Primus to purchase 806.45 shares of Class A Common Stock
and a warrant to Banc One to purchase 3,225.81 shares of Class B Common
Stock, each at an aggregate exercise price of $100, together with a
Contingent Warrant to each of Primus and Banc One to purchase a certain
number of shares of Class A Common Stock and Class B Common Stock,
respectively, depending on the vesting of Common Stock held by certain
executives of the Company (the "Management Earnback"); and
II-2
<PAGE>
(5) A warrant to Prudential to purchase 5,376.34 shares of Class A Common
Stock, together with a Contingent Warrant to purchase a certain number of
shares of Class A Common Stock, depending on the Management Earnback.
On November 24, 1997, the Company issued the following stock:
(1) 25,000 shares of Series 2 Class A Convertible Preferred Stock to Banc
One at $100 per share, for a total payment of $2,500,000 cash;
(2) 25,000 shares of Series 3 Class convertible Preferred Stock to Primus
at $100 per share, for a total payment of $2,500,000 cash;
(3) A warrant to Prudential to purchase 3,683.28 shares of Class A Common
Stock (contains a claw-back feature that will result in the early
termination of the warrant upon the occurrence of certain events);
(4) A warrant to Primus to purchase 4,228.8 shares of Class A Common Stock
(contains a claw-back feature that will result in the early termination of
the warrant upon the occurrence of certain events); and
(5) A warrant to Banc One to purchase 2,010.04 shares of Class B Common
Stock (contains a claw-back feature that will result in the early
termination of the warrant upon the occurrence of certain events).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Asset Purchase Agreement, dated as of June 28, 1995, among Corinthian
Schools, Inc., National Education Centers, Inc. and National
Education Corporation, and schedules thereto.
2.2 Asset Purchase Agreement, dated as of March 20, 1996, by and between
Corinthian Schools, Inc. and Repose, Inc.
2.3 Asset Purchase Agreement, dated as of July 11, 1996, by and between
Corinthian Schools, Inc. and Concorde Career Colleges, Inc.
2.4 Amendment to Asset Purchase Agreement, made as of August 29, 1996, by
and between Corinthian Schools, Inc. and Concorde Career Colleges,
Inc.
2.5 Master Asset Purchase Agreement, dated as of October 17, 1996, by and
between the Company and Phillips Colleges, Inc.
2.6 Schools Acquisition Agreement, dated as of October 17, 1996, by and
between Rhodes Colleges, Inc., Rhodes Business Group, Inc., Florida
Metropolitan University, Inc. and Phillips Colleges, Inc.
2.7 Provisions Concerning Purchase and Sale of Real Estate, dated as of
October 17, 1996, by and among Blair Business College, Inc., Phillips
College of Denver, Inc., Phillips Educational Group of Central
Florida, Inc., the Company and Phillips Colleges, Inc.
2.8 Amendment to Provisions Concerning Purchase and Sale of Real Estate,
dated as of November 25, 1996, by and among Blair Business College,
Inc., Phillips College of Denver, Inc., Phillips Educational Group of
Central Florida, Inc., the Company and Phillips Colleges, Inc.
3.1 Second Restated Certificate of Incorporation of the Company, dated as
of November 21, 1997.
3.2* Third Restated Certificate of Incorporation, dated , 1998.
3.3 Bylaws of the Company, certified as of September 19, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.1 Promissory Note, dated as of July 1, 1996, by Corinthian Schools, Inc.
in favor of Repose, Inc., in the amount of $50,000.
4.2 Promissory Note, dated as of August 31, 1996, made by Corinthian
Schools, Inc. in favor of Concorde Career Colleges, Inc. in the
amount of $300,000.
4.3 10.27% Senior Secured Term Note dated October 17, 1996 in the original
principal amount of $22,500,000 registered in the name of The
Prudential Insurance Company of America.
4.4 Senior Secured Revolving Note dated October 17, 1996 in the original
principal amount of $5,000,000 registered in the name of The
Prudential Insurance Company of America.
4.5 Subordinated Note dated October 17, 1996, in the principal amount of
$1,000,000 registered in the name of Primus Capital Fund III Limited
Partnership.
4.6 Subordinated Note, dated October 17, 1996, in the principal amount of
$4,000,000, from the Company to Banc One Capital Partners II, Ltd.
4.7 Promissory Note (Secured) dated April 30, 1997, by Corinthian Property
Group, Inc. in favor of Banc One Capital Partners VI, Ltd. in the
amount of $3,760,000.
4.8 Senior Secured Note, dated October 17, 1997, in the principal amount
of $22,500,000 from the Company to The Prudential Insurance Company
of America.
5.1* Opinion of O'Melveny & Myers LLP.
10.1 Promissory Note from David Moore to the Company, dated as of June 30,
1995, in the principal amount of $62,437.50.
10.2 Promissory Note from Paul St. Pierre to the Company, dated as of June
30, 1995, in the principal amount of $49,950.
10.3 Promissory Note from Frank McCord to the Company, dated as of June 30,
1995, in the principal amount of $24,975.
10.4 Promissory Note from Dennis Devereux to the Company, dated as of June
30, 1995, in the principal amount of $24,975.
10.5 Promissory Noted from Lloyd Holland to the Company, dated as of June
30, 1995, in the principal amount of $24,975.
10.6 Subordinated Secured Note and Warrant Purchase Agreement, dated as of
June 30, 1995, by and among Corinthian Schools, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II,
Limited Partnership.
10.7 Credit Facility Agreement, dated as of June 30, 1995, by and between
Corinthian Schools, Inc. and Banc One Capital Partners II, Limited
Partnership.
10.8 Warrant Certificate for 5,000 shares of Class B Non-Voting Common
Stock, dated as of June 30, 1995, issued to Banc One Capital Partners
II, Limited Partnership by Corinthian Schools, Inc.
10.9 Warrant Certificate for 1,250 shares of Class A Voting Common Stock,
dated as of June 30, 1995, issued to Primus Capital Fund III Limited
Partnership by Corinthian Schools, Inc.
10.10 Security Agreement, dated as of June 30, 1995, by Corinthian Schools,
Inc. for the benefit of Primus Capital Fund III Limited Partnership
and Banc One Capital Partners II, Limited Partnership, and UCC-1
Financing Statements.
10.11 Purchase Agreement, dated June 30, 1995, between Corinthian Schools,
Inc., Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, Limited Partnership, and schedules thereto.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.12 Amended and Restated Registration Agreement dated October 17, 1996, by
and between the Company, Primus Capital Fund III Limited Partnership,
The Prudential Insurance Company of America, Banc One Capital
Partners II, LLC, Banc One Capital Partners II, Limited Partnership,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.13 First Amendment to the Amended and Restated Registration Agreement,
dated as of November 24, 1997, by and between the Company, Primus
Capital Fund III Limited Partnership, BOCP II Limited Liability
Company, Banc One Capital Partners II, LLC, David G. Moore, Paul St.
Pierre, Frank J. McCord, Dennis L. Devereux, Lloyd W. Holland and The
Prudential Insurance Company of America.
10.14 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Dennis L. Devereux.
10.15 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Lloyd W. Holland.
10.16 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Frank J. McCord.
10.17 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and David G. Moore.
10.18 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Paul St. Pierre.
10.19 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Lloyd W. Holland.
10.20 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Dennis L. Devereux.
10.21 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and David G. Moore.
10.22 Executive Stock Pledge Agreement, dated as of June 30, 1995 between
Corinthian Schools, Inc. and Frank J. McCord.
10.23 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Paul St. Pierre.
10.24 Escrow Agreement, dated as of March 20, 1996, by and between
Corinthian Schools, Inc., Repose, Inc. and Key Trust Company, as
escrow agent.
10.25 Certificate of Merger of Corinthian Schools, Inc., dated as of
September 30, 1996.
10.26 Revolving Loan Request dated October 17, 1996 from Corinthian
Colleges, Inc. to The Prudential Insurance Company of America.
10.27 Contingent Stock Warrant dated October 17, 1996, for The Prudential
Insurance Company of America.
10.28 Subordinated Note and Warrant Purchase Agreement dated October 17,
1996 by and between Corinthian Colleges, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II, LLC.
10.29 Amendment dated November , 1997, to the Subordinated Note and
Warrant Purchase Agreement dated October 17, 1996, by and between the
Company, Primus Capital Fund III Limited Partnership, and Banc One
Capital Partners II, LLC.
10.30 Warrant Certificate for Class A Common Stock, dated October 17, 1996
for Primus Capital Fund III Limited Partnership.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.31 Warrant Certificate for Class B Common Stock, dated October 17, 1996
for Banc One Capital Partners II, Limited Partnership.
10.32 Contingent Stock Warrant, dated October 17, 1996, for Primus Capital
Fund III Limited Partnership.
10.33 Contingent Stock Warrant, dated October 17, 1996, for Banc One Capital
Partners II, Limited Partnership.
10.34 Contingent Stock Warrant, dated October 17, 1996, for BOCP II, Limited
Liability Company.
10.35 Rights Agreement dated October 17, 1996 between the Company,
Corinthian Schools, Inc., Primus Capital Fund III Limited
Partnership, BOCP II, Limited Liability Company, Banc One Capital
Partners II, Limited Partnership and David G. Moore, Paul St. Pierre,
Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland.
10.36 Amendment to the Rights Agreement, dated November 24, 1997, by and
between the Company, Primus Capital Fund III Limited Partnership,
BOCP II Limited Liability Company, Banc One Capital Partners II, LLC,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.37 Pledge Agreement, dated as of October 17, 1996, by and between the
Company and Rhodes Colleges, Inc., in favor of The Prudential
Insurance Company of America.
10.38 Escrow Agreement, dated as of October 17, 1996, by and between the
Company, Phillips Colleges, Inc. and Wells Fargo Bank, N.A. as escrow
agent.
10.39 Guaranty, dated as of October 17, 1996, by the Company in favor of
Phillips Colleges, Inc.
10.40 Escrow Funding Note, dated as of October 17, 1996, made by the Company
in favor of Phillips Colleges, Inc. in the amount of $2,900,000.
10.41 Interim Promissory Note, dated as of October 17, 1996, made by the
Company in favor of Phillips Colleges, Inc., in the amount of
$1,100,000.
10.42 Note Purchase and Revolving Credit Agreement dated October 17, 1996,
by and between the Company and The Prudential Insurance Company of
America, in the amount of $22,500,000.
10.43 Security Agreement, dated October 17, 1996, by and between the
Company, Corinthian Schools, Inc., Rhodes Colleges, Inc., Rhodes
Business Group, Inc., Florida Metropolitan University, Inc. and the
Prudential Insurance Company of America.
10.44 Stock Subscription Warrant, dated October 17, 1996, to The Prudential
Insurance Company of America for Class A Common Stock.
10.45 Loan Agreement dated April 30, 1997 by and between Corinthian Property
Group, Inc. and Banc One Capital Partners VI, Ltd., in the amount of
$3,760,000.
10.46 Limited Guaranty and Indemnity Agreement dated as of April 30, 1997 by
the Company in favor of Banc One Capital Partners VI, Ltd.
10.47 Default Waiver and Third Amendment, dated October 31, 1997, under Note
Purchase and Revolving Credit Agreement dated October 17, 1996, from
The Prudential Insurance Company of America to the Company.
10.48 Purchase Agreement, dated as of November 7, 1997, by and between the
Company, Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, LLC.
10.49 Stock Subscription Warrant, dated November 24, 1997, to purchase Class
B Common Stock, issued to Banc One Capital Partners II, LLC.
10.50 Stock Subscription Warrant, dated November 24, 1997, to purchase Class
A Common Stock, issued to Primus Capital Fund III Limited
Partnership.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.51 Stock Subscription Warrant, dated November 25, 1997, to purchase Class
A Common Stock, issued to the Prudential Insurance Company of
America.
10.52 1998 Performance Award Plan of the Company.
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3* Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-4).
</TABLE>
- --------
*To be filed by amendment
(b) Financial Statement Schedules.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in the denominations and registered in the names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether the indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of those securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Ana, County of Orange, State of California, on the 17th day of July, 1998.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
----------------------------------
David G. Moore
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
We, the undersigned directors and officers of Corinthian Colleges, Inc., do
hereby constitute and appoint David G. Moore and Frank J. McCord, or either of
them, our true and lawful attorneys and agents, to do any and all acts and
things in our name and behalf in our capacities as directors and officers and
to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the
Securities Act of 1933, as amended, and any rules, regulations, and
requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names and in the
capacities indicated below, any and all amendments (including post-effective
amendments) to this Registration Statement, or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, as amended; and we do hereby ratify and confirm
all that the said attorneys and agents, or either of them, shall do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David G. Moore President, Chief Executive July 17, 1998
____________________________________ Officer and Director
David G. Moore
/s/ Paul St. Pierre Executive Vice President, July 17, 1998
____________________________________ Marketing and Director
Paul St. Pierre
/s/ Frank J. McCord Executive Vice President and July 17, 1998
____________________________________ Chief Financial Officer
Frank J. McCord
/s/ Loyal Wilson Director July 17, 1998
____________________________________
Loyal Wilson
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Asset Purchase Agreement, dated as of June 28, 1995, among Corinthian
Schools, Inc., National Education Centers, Inc. and National
Education Corporation, and schedules thereto.
2.2 Asset Purchase Agreement, dated as of March 20, 1996, by and between
Corinthian Schools, Inc. and Repose, Inc.
2.3 Asset Purchase Agreement, dated as of July 11, 1996, by and between
Corinthian Schools, Inc. and Concorde Career Colleges, Inc.
2.4 Amendment to Asset Purchase Agreement, made as of August 29, 1996, by
and between Corinthian Schools, Inc. and Concorde Career Colleges,
Inc.
2.5 Master Asset Purchase Agreement, dated as of October 17, 1996, by and
between the Company and Phillips Colleges, Inc.
2.6 Schools Acquisition Agreement, dated as of October 17, 1996, by and
between Rhodes Colleges, Inc., Rhodes Business Group, Inc., Florida
Metropolitan University, Inc. and Phillips Colleges, Inc.
2.7 Provisions Concerning Purchase and Sale of Real Estate, dated as of
October 17, 1996, by and among Blair Business College, Inc., Phillips
College of Denver, Inc., Phillips Educational Group of Central
Florida, Inc., the Company and Phillips Colleges, Inc.
2.8 Amendment to Provisions Concerning Purchase and Sale of Real Estate,
dated as of November 25, 1996, by and among Blair Business College,
Inc., Phillips College of Denver, Inc., Phillips Educational Group of
Central Florida, Inc., the Company and Phillips Colleges, Inc.
3.1 Second Restated Certificate of Incorporation of the Company, dated as
of November 21, 1997.
3.2* Third Restated Certificate of Incorporation, dated , 1998.
3.3 Bylaws of the Company, certified as of September 19, 1996.
4.1 Promissory Note, dated as of July 1, 1996, by Corinthian Schools, Inc.
in favor of Repose, Inc., in the amount of $50,000.
4.2 Promissory Note, dated as of August 31, 1996, made by Corinthian
Schools, Inc. in favor of Concorde Career Colleges, Inc. in the
amount of $300,000.
4.3 10.27% Senior Secured Term Note dated October 17, 1996 in the original
principal amount of $22,500,000 registered in the name of The
Prudential Insurance Company of America.
4.4 Senior Secured Revolving Note dated October 17, 1996 in the original
principal amount of $5,000,000 registered in the name of The
Prudential Insurance Company of America.
4.5 Subordinated Note dated October 17, 1996, in the principal amount of
$1,000,000 registered in the name of Primus Capital Fund III Limited
Partnership.
4.6 Subordinated Note, dated October 17, 1996, in the principal amount of
$4,000,000, from the Company to Banc One Capital Partners II, Ltd.
4.7 Promissory Note (Secured) dated April 30, 1997, by Corinthian Property
Group, Inc. in favor of Banc One Capital Partners VI, Ltd. in the
amount of $3,760,000.
4.8 Senior Secured Note, dated October 17, 1997, in the principal amount
of $22,500,000 from the Company to The Prudential Insurance Company
of America.
5.1* Opinion of O'Melveny & Myers LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.1 Promissory Note from David Moore to the Company, dated as of June 30,
1995, in the principal amount of $62,437.50.
10.2 Promissory Note from Paul St. Pierre to the Company, dated as of June
30, 1995, in the principal amount of $49,950.
10.3 Promissory Note from Frank McCord to the Company, dated as of June 30,
1995, in the principal amount of $24,975.
10.4 Promissory Note from Dennis Devereux to the Company, dated as of June
30, 1995, in the principal amount of $24,975.
10.5 Promissory Note from Lloyd Holland to the Company, dated as of June
30, 1995, in the principle amount of $24,975.
10.6 Subordinated Secured Note and Warrant Purchase Agreement, dated as of
June 30, 1995, by and among Corinthian Schools, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II,
Limited Partnership.
10.7 Credit Facility Agreement, dated as of June 30, 1995, by and between
Corinthian Schools, Inc. and Banc One Capital Partners II, Limited
Partnership.
10.8 Warrant Certificate for 5,000 shares of Class B Non-Voting Common
Stock, dated as of June 30, 1995, issued to Banc One Capital Partners
II, Limited Partnership by Corinthian Schools, Inc.
10.9 Warrant Certificate for 1,250 shares of Class A Voting Common Stock,
dated as of June 30, 1995, issued to Primus Capital Fund III Limited
Partnership by Corinthian Schools, Inc.
10.10 Security Agreement, dated as of June 30, 1995, by Corinthian Schools,
Inc. for the benefit of Primus Capital Fund III Limited Partnership
and Banc One Capital Partners II, Limited Partnership, and UCC-1
Financing Statements.
10.11 Purchase Agreement, dated June 30, 1995, between Corinthian Schools,
Inc., Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, Limited Partnership, and schedules thereto.
10.12 Amended and Restated Registration Agreement dated October 17, 1996, by
and between the Company, Primus Capital Fund III Limited Partnership,
The Prudential Insurance Company of America, Banc One Capital
Partners II, LLC, Banc One Capital Partners II, Limited Partnership,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.13 First Amendment to the Amended and Restated Registration Agreement,
dated as of November 24, 1997, by and between the Company, Primus
Capital Fund III Limited Partnership, BOCP II Limited Liability
Company, Banc One Capital Partners II, LLC, David G. Moore, Paul St.
Pierre, Frank J. McCord, Dennis L. Devereux, Lloyd W. Holland and The
Prudential Insurance Company of America.
10.14 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Dennis L. Devereux.
10.15 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Lloyd W. Holland.
10.16 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Frank J. McCord.
10.17 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and David G. Moore.
10.18 Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Paul St. Pierre.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.19 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Lloyd W. Holland.
10.20 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Dennis L. Devereux.
10.21 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and David G. Moore.
10.22 Executive Stock Pledge Agreement, dated as of June 30, 1995 between
Corinthian Schools, Inc. and Frank J. McCord.
10.23 Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Paul St. Pierre.
10.24 Escrow Agreement, dated as of March 20, 1996, by and between
Corinthian Schools, Inc., Repose, Inc. and Key Trust Company, as
escrow agent.
10.25 Certificate of Merger of Corinthian Schools, Inc., dated as of
September 30, 1996.
10.26 Revolving Loan Request dated October 17, 1996 from Corinthian
Colleges, Inc. to The Prudential Insurance Company of America.
10.27 Contingent Stock Warrant dated October 17, 1996, for The Prudential
Insurance Company of America.
10.28 Subordinated Note and Warrant Purchase Agreement dated October 17,
1996 by and between Corinthian Colleges, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II, LLC.
10.29 Amendment dated November , 1997, to the Subordinated Note and
Warrant Purchase Agreement dated October 17, 1996, by and between the
Company, Primus Capital Fund III Limited Partnership, and Banc One
Capital Partners II, LLC.
10.30 Warrant Certificate for Class A Common Stock, dated October 17, 1996
for Primus Capital Fund III Limited Partnership.
10.31 Warrant Certificate for Class B Common Stock, dated October 17, 1996
for Banc One Capital Partners II, Limited Partnership.
10.32 Contingent Stock Warrant, dated October 17, 1996, for Primus Capital
Fund III Limited Partnership.
10.33 Contingent Stock Warrant, dated October 17, 1996, for Banc One Capital
Partners II, Limited Partnership.
10.34 Contingent Stock Warrant, dated October 17, 1996, for BOCP II, Limited
Liability Company.
10.35 Rights Agreement dated October 17, 1996 between the Company,
Corinthian Schools, Inc., Primus Capital Fund III Limited
Partnership, BOCP II, Limited Liability Company, Banc One Capital
Partners II, Limited Partnership and David G. Moore, Paul St. Pierre,
Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland.
10.36 Amendment to the Rights Agreement, dated November 24, 1997, by and
between the Company, Primus Capital Fund III Limited Partnership,
BOCP II Limited Liability Company, Banc One Capital Partners II, LLC,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.37 Pledge Agreement, dated as of October 17, 1996, by and between the
Company and Rhodes Colleges, Inc., in favor of The Prudential
Insurance Company of America.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.38 Escrow Agreement, dated as of October 17, 1996, by and between the
Company, Phillips Colleges, Inc. and Wells Fargo Bank, N.A. as escrow
agent.
10.39 Guaranty, dated as of October 17, 1996, by the Company in favor of
Phillips Colleges, Inc.
10.40 Escrow Funding Note, dated as of October 17, 1996, made by the Company
in favor of Phillips Colleges, Inc. in the amount of $2,900,000.
10.41 Interim Promissory Note, dated as of October 17, 1996, made by the
Company in favor of Phillips Colleges, Inc., in the amount of
$1,100,000.
10.42 Note Purchase and Revolving Credit Agreement dated October 17, 1996,
by and between the Company and The Prudential Insurance Company of
America, in the amount of $22,500,000.
10.43 Security Agreement, dated October 17, 1996, by and between the
Company, Corinthian Schools, Inc., Rhodes Colleges, Inc., Rhodes
Business Group, Inc., Florida Metropolitan University, Inc. and the
Prudential Insurance Company of America.
10.44 Stock Subscription Warrant, dated October 17, 1996, to The Prudential
Insurance Company of America for Class A Common Stock.
10.45 Loan Agreement dated April 30, 1997 by and between Corinthian Property
Group, Inc. and Banc One Capital Partners VI, Ltd., in the amount of
$3,760,000.
10.46 Limited Guaranty and Indemnity Agreement dated as of April 30, 1997 by
the Company in favor of Banc One Capital Partners VI, Ltd.
10.47 Default Waiver and Third Amendment, dated October 31, 1997, under Note
Purchase and Revolving Credit Agreement dated October 17, 1996, from
The Prudential Insurance Company of America to the Company.
10.48 Purchase Agreement, dated as of November 7, 1997, by and between the
Company, Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, LLC.
10.49 Stock Subscription Warrant, dated November 24, 1997, to purchase Class
B Common Stock, issued to Banc One Capital Partners II, LLC.
10.50 Stock Subscription Warrant, dated November 24, 1997, to purchase Class
A Common Stock, issued to Primus Capital Fund III Limited
Partnership.
10.51 Stock Subscription Warrant, dated November 25, 1997, to purchase Class
A Common Stock, issued to the Prudential Insurance Company of
America.
10.52 1998 Performance Award Plan of the Company.
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3* Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-4).
</TABLE>
- --------
*To be filed by amendment
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
CORINTHIAN SCHOOLS, INC.
AS BUYER,
NATIONAL EDUCATION CENTERS, INC.
AS SELLER
AND
NATIONAL EDUCATION CORPORATION
AS PARENT
DATED AS OF JUNE 28, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SALE AND PURCHASE OF ASSETS................................................ 1
Purchased Assets to be Transferred.................................... 1
Accounts Receivable.............................................. 2
Inventory........................................................ 2
Equipment........................................................ 2
Records.......................................................... 2
Contracts and Leases............................................. 2
Intellectual Property............................................ 2
Warranty Rights.................................................. 2
Prepaid Expenses................................................. 2
Permits.......................................................... 3
Goodwill......................................................... 3
Headquarters Assets.............................................. 3
Trademarks....................................................... 3
Curriculum....................................................... 3
Lead Bank........................................................ 3
800-Number....................................................... 3
Excluded Assets....................................................... 3
Cash............................................................. 3
Intellectual Property............................................ 3
Nontransferable Rights........................................... 3
Other Excluded Assets............................................ 4
CONSIDERATION.............................................................. 4
Purchase Price........................................................ 4
Cash Consideration.................................................... 4
Tier I........................................................... 4
Tier II.......................................................... 4
Tier III......................................................... 4
Final Payment.................................................... 4
Calculation of Deferred and Non-Deferred Amounts...................... 4
Tier I Deferrals................................................. 5
Tier II Deferrals................................................ 5
Tier III Deferrals............................................... 5
Obligations and Liabilities to be Assumed............................. 5
Excluded Liabilities.................................................. 6
Allocation of Purchase Price.......................................... 6
Excise and Property Taxes............................................. 6
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Employees............................................................. 6
Assignment of Accounts Receivable..................................... 7
Disposition of Other Seller Assets.................................... 7
CLOSING.................................................................... 7
Tier I Closing........................................................ 7
Tier II Closing....................................................... 8
Tier III Closing...................................................... 8
Deliveries by Seller at each Tier Closing............................. 8
Deliveries by Buyer at each Tier Closing.............................. 9
Delivery by Buyer at Final Payment Date............................... 11
Permitted Deferral of Tier Closings................................... 11
TERMINATION................................................................ 11
Termination........................................................... 11
Effect of Termination................................................. 12
REPRESENTATIONS AND WARRANTIES OF SELLER................................... 12
Incorporation; Authority.............................................. 13
Due Authorization; Binding Agreement.................................. 13
No Violation or Conflict by Seller.................................... 13
Consents and Approvals................................................ 13
Taxes................................................................. 14
Title to Assets....................................................... 14
Litigation............................................................ 14
Compliance with Laws.................................................. 14
Employee Benefits..................................................... 14
Disclosure............................................................ 15
Seller's Disclaimer................................................... 15
REPRESENTATIONS AND WARRANTIES OF BUYER.................................... 15
Incorporation; Authority.............................................. 15
Due Authorization; Binding Agreement.................................. 16
No Violation or Conflict.............................................. 16
No Undisclosed Liabilities............................................ 16
Consents and Approvals................................................ 16
Title IV Program Liabilities.......................................... 16
Disclosure............................................................ 16
COVENANTS.................................................................. 17
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Covenants of Seller Pending Tier Closings............................. 17
Support Services Covenants............................................ 17
Covenants of Buyer Pending Tier Closings.............................. 18
Special Covenants of Buyer Pending the Tier I Closing................. 18
Closing and Post-Closing Covenants.................................... 18
Further Assurances............................................... 18
Mutual Cooperation............................................... 19
Access to Employees.............................................. 19
Best Efforts to Satisfy Conditions............................... 19
Financial Condition.............................................. 19
Management Agreement and Administration of the Schools................ 20
Management Agreement............................................. 20
Administration in Accordance with Accreditations................. 20
Administration of Closed Schools................................. 20
Performance of Assumed Obligations.................................... 21
Access and Maintenance of Records..................................... 21
Financial Reporting Covenants......................................... 22
Insurance............................................................. 22
Substitution of Undertakings.......................................... 22
Restrictions on Acquisitions and Mergers.............................. 23
Restrictions on Reorganizations and Changes in Capital Structure...... 23
Certain Remedies...................................................... 23
Security Interest................................................ 23
Enforcement and Remedies......................................... 23
Foreclosure of Security Interest................................. 23
Failure to Timely Close.......................................... 23
Certain Limitations on Buyer's Remedies.......................... 24
CONDITIONS................................................................. 24
Conditions Precedent to Obligations of Buyer.......................... 24
Conditions Precedent to Obligations of Seller......................... 25
MISCELLANEOUS.............................................................. 26
Binding Effect........................................................ 26
Notices............................................................... 26
Entire Agreement...................................................... 27
Nature and Survival of Representations................................ 27
Risk of Loss or Damage; Insurance..................................... 28
Waiver................................................................ 28
Governing Law......................................................... 28
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Headings.............................................................. 28
Counterparts.......................................................... 28
Severability.......................................................... 28
Time is of the Essence................................................ 28
Brokers or Finders.................................................... 28
Indemnification by Seller............................................. 29
Seller's Indemnity............................................... 29
Time Limit on Certain Indemnification Claims..................... 29
Indemnification by Buyer.............................................. 29
Procedure for Indemnification......................................... 30
Dispute Resolution and Arbitration.................................... 31
Negotiation Between Executives................................... 31
Arbitration...................................................... 31
Limitation on Remedies........................................... 32
Satisfaction of Damages.......................................... 32
Third Party Beneficiaries............................................. 32
Bulk Transfers........................................................ 32
Best of Knowledge..................................................... 33
</TABLE>
-iv-
<PAGE>
SCHEDULES
Schedule 1.1.2 Inventory
Schedule 1.1.3 Equipment
Schedule 1.1.5 Assumed Contracts
Schedule 1.1.6 Licensed Software
Schedule 1.1.8 Prepaid Expenses and Deposits
Schedule 1.1.9 Seller's Permits
Schedule 1.1.11 Headquarters Assets
Schedule 1.1.12 Trademarks, Service Marks and Trade Names
Schedule 1.2.4 Other Excluded Assets
Schedule 2.3 PPI Budgets
Schedule 2.4.1 Accounts Payable Not Assumed by Buyer
Schedule 2.6 Allocation of Purchase Price
Schedule 2.8 List of Employees
Schedule 5.5 Tax Matters
Schedule 5.6 Permitted Exceptions
Schedule 5.7 Litigation
Schedule 5.9 Welfare and Benefit Plans
Schedule 6.4 Buyer's Proforma Opening Balance Sheet
Schedule 6.5 Consents and Approvals
-v-
<PAGE>
EXHIBITS
Exhibit A List of Schools, by Tiers
Exhibit B Assumption Agreement
Exhibit C-1 Assignment Agreement
Exhibit C-2 Accounts Receivable Assignment
Exhibit D Bill of Sale
Exhibit E Management Agreement
Exhibit F-1 Buyer's Officers' Certificate
Exhibit F-2 Seller's Officers' Certificate
Exhibit G-1 Form of Opinion of Buyer's Counsel
Exhibit G-2 Form of Opinion of Seller's Counsel
Exhibit H Trademark License Agreement
Exhibit I Curriculum License Agreement
Exhibit J Software License Agreement
Exhibit L Deferred Payment Note
Exhibit M Subordinated Security Agreement
Exhibit N Support Services Agreement
Exhibit O Principal's Certificate
Exhibit P Seller's ED Letter
-vi-
<PAGE>
ASSET PURCHASE AGREEMENT
This Agreement, dated as of June 28, 1995 (the "Agreement"), is
entered into among Corinthian Schools, Inc., a Delaware corporation ("Buyer"),
National Education Centers, Inc., a California corporation ("Seller") and
National Education Corporation, a Delaware corporation ("Parent").
P R E A M B L E :
WHEREAS, Seller owns, operates and administers, among other things,
those certain post-secondary, vocational training schools listed on Exhibit A
---------
attached hereto and made a part hereof by this reference (the "Schools");
WHEREAS, for purposes of this Agreement, the parties have separated
the Schools into three groups, designated as the "Tier I Schools", the "Tier II
Schools" and the "Tier III Schools" as specified on Exhibit A;
---------
WHEREAS, Buyer desires to buy, through the payment of cash, the
delivery of a promissory note, the assumption of liabilities of Seller and other
valuable consideration, and Seller desires to sell, substantially all assets and
property owned by Seller and used solely and directly in the business of the
Schools and certain related assets as specified herein, upon the terms and
conditions hereinafter set forth;
WHEREAS, Buyer desires to assume management responsibilities for the
Tier II Schools and the Tier III Schools prior to the Tier Closings (as defined
in Section 2.4 below) for such Schools in accordance with the terms of a
management agreement; and
WHEREAS, Seller is a wholly-owned subsidiary of Parent, and Parent has
agreed to guarantee on a limited basis certain obligations of Seller;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained in this Agreement and intending to be legally bound hereby,
agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Purchased Assets to be Transferred. Subject to the terms and
----------------------------------
conditions of this Agreement, Seller hereby agrees to sell, assign, convey,
transfer and deliver to Buyer at the Tier Closings (as defined in Section 2.4),
and Buyer hereby agrees to purchase from Seller at the Tier Closings, all of the
Seller's right, title and interest in and to the following assets (the
"Purchased Assets"), subject to all existing mortgages, pledges, liens, claims,
restrictions,
1
<PAGE>
encumbrances and security interests of any kind or nature, including without
limitation the Assumed Liabilities and as otherwise described in Schedule 5.6
------------
(collectively the "Permitted Exceptions"), and except for the Excluded Assets
(as defined in Section 1.2 hereof):
1.1.1 Accounts Receivable. All accounts receivable (and causes
-------------------
of action related thereto), including accounts receivable that have been written
off and those arising with respect to that certain contract with 3M in Chicago,
Illinois (the "3M Contract"), of Seller arising solely from the Schools
("Accounts Receivable");
1.1.2 Inventory. All of Seller's inventory of textbooks,
---------
materials and supplies on hand at the Schools at the Tier Closings, as described
in Schedule 1.1.2 ("Inventory");
--------------
1.1.3 Equipment. All of Seller's computer hardware, printers,
---------
other data processing equipment, other machinery and equipment, furniture,
fixtures, leasehold improvements, furnishings and other tangible personal
property used solely and directly at the Schools, as described in Schedule 1.1.3
--------------
("Equipment");
1.1.4 Records. All of Seller's records related to or used in
-------
connection with the operation of the Schools or pertaining to the Purchased
Assets, including without limitation, all student records, ledgers, copies of
financial statements, copies of correspondence, copies of employment records,
copies of placement records, copies of marketing materials and copies of all
documents filed by Seller with any state, federal or local government authority
or any guaranty or accrediting agency (the "Records");
1.1.5 Contracts and Leases. All of the contracts and leases
--------------------
applicable solely to one or more of the Schools to which Seller is a party
entered into in the course of Seller's business, including without limitation
those identified in Schedule 1.1.5 and the 3M Contract (collectively, the
--------------
"Assumed Contracts");
1.1.6 Intellectual Property. All of the off the shelf software
---------------------
installed on the Equipment (the "Software"), copies of and a license to use
certain administrative software used and owned by Seller and set forth on
Schedule 1.1.6 attached hereto (the "Licensed Software") and copies of and a
- --------------
license to use that portion of the Inventory constituting works copyrighted by
Seller or its affiliates (the "License Rights" and together with the Software
and the Licensed Software, the "Intellectual Property");
1.1.7 Warranty Rights. All rights of Seller, if any, relating
---------------
to or arising out of express or implied warranties from suppliers with respect
to any of the Purchased Assets, and all causes of action arising therefrom;
1.1.8 Prepaid Expenses. All of Seller's prepaid security,
----------------
vendor, utility and other deposits and expenses described in Schedule 1.1.8, but
--------------
excluding security deposits under leases and contracts not assumed by Buyer
hereunder;
2
<PAGE>
1.1.9 Permits. To the extent transferable, Seller's licenses,
-------
permits, certifications, approvals and other governmental and regulatory
authorizations required under all laws, rules and regulations applicable to or
affecting the Schools, described in Schedule 1.1.9 ("Seller's Permits");
--------------
1.1.10 Goodwill. All of the goodwill and going concern value of
--------
the Schools;
1.1.11 Headquarters Assets. Those certain assets that are set
-------------------
forth on Schedule 1.1.11 attached hereto, which assets are owned by Seller and
---------------
located at Seller's headquarters at 1732 Reynolds Street, Irvine, California, or
at Seller's warehouse in Irvine, California (collectively, the "Headquarters
Assets");
1.1.12 Trademarks. All of Seller's right, title and interest in
----------
and to those trademarks, service marks and tradenames described on Schedule
--------
1.1.12 attached hereto, and those rights granted to Buyer pursuant to that
- ------
certain Trademark License Agreement in the form attached hereto as Exhibit H
---------
that will be delivered by Seller at Tier I Closing (as defined in Section 3.1
below);
1.1.13 Curriculum. Those certain rights granted to Buyer
----------
pursuant to that certain Curriculum License Agreement in the form attached
hereto as Exhibit I that will be delivered by Seller at the Tier I Closing;
---------
1.1.14 Lead Bank. Copies of all information in existence as of
---------
the Tier I Closing in Seller's lead bank (the "Lead Bank Data"); and
1.1.15 800-Number. All of Seller's right, title and interest in
----------
and to the phone number 800-4BRYMAN (the "Telephone Number").
1.2 Excluded Assets. The Excluded Assets shall not be conveyed
---------------
hereunder. The "Excluded Assets" means:
1.2.1 Cash. All of Seller's cash or cash equivalents
----
(including cash arising from prepaid tuition and all collected accounts
receivable) on hand at the Tier I Closing and Seller's bank accounts relating
thereto;
1.2.2 Intellectual Property. All trademarks, service marks and
---------------------
copyrights (whether or not registered) and all applications and registrations
therefor, owned or licensed by Seller or any of its affiliates, and all computer
programs and software, including the Seller's proprietary SEA-SYS system, except
the Licensed Software listed on Schedule 1.1.6 and the Software.
--------------
1.2.3 Nontransferable Rights. Any license, permit, contract
----------------------
and governmental authorization or accreditation that is not transferable; and
3
<PAGE>
1.2.4 Other Excluded Assets. All assets and rights listed on
---------------------
Schedule 1.2.4.
- --------------
ARTICLE II
CONSIDERATION
2.1 Purchase Price. The purchase price payable to Seller in
--------------
connection with the transfer to Buyer of the Purchased Assets shall be the cash
consideration portion referred to in Section 2.2, plus the assumption of
liabilities of Seller referred to in Section 2.4 (collectively, the "Purchase
Price").
2.2 Cash Consideration. The cash consideration portion of the
------------------
Purchase Price shall be Five Million Dollars ($5,000,000), payable at the
following times:
2.2.1 Tier I. On the Tier I Closing (as defined in Section 3.1
------
below), Buyer shall pay to Seller in cash by certified check or by wire transfer
$1,375,000.
2.2.2 Tier II. On the Tier II Closing (as defined in Section
-------
3.2 below), Buyer shall pay to Seller (i) $750,000 plus the Tier I Non-Deferred
Amount (as calculated in accordance with Section 2.3.1 below) in cash by
certified check or by wire transfer and (ii) the Tier I Deferred Amount (as
calculated in accordance with Section 2.3.1 below) pursuant to a Deferred
Payment Note in the form attached hereto as Exhibit L, with an initial principal
---------
balance equal to the Tier I Deferred Amount.
2.2.3 Tier III. On the Tier III Closing (as defined in Section
--------
3.3 below), Buyer shall pay to Seller (i) $375,000 plus the Tier II Non-Deferred
Amount (as calculated in accordance with Section 2.3.2 below) in cash by
certified check or by wire transfer and (ii) the Tier II Deferred Amount (as
calculated in accordance with Section 2.3.2 below) pursuant to an increase in
the principal balance of the Deferred Payment Note.
2.2.4 Final Payment. On the earlier of the certification by
-------------
the U.S. Department of Education ("ED") of all Tier III Schools as eligible for
Title IV funding or 90 days after the Tier III Closing (the "Final Payment
Date"), Buyer shall pay to Seller (i) the Tier III Non-Deferred Amount (as
calculated in accordance with Section 2.3.3 below) in cash by certified check or
by wire transfer and (ii) the Tier III Deferred Amount (as calculated in
accordance with Section 2.3.3 below) pursuant to an increase in the principal
balance of the Deferred Payment Note.
2.3 Calculation of Deferred and Non-Deferred Amounts. For purposes
------------------------------------------------
of this Section 2.3 (and each subsection hereof), the term "PPI Budget" shall
refer to the applicable School's budgeted revenue for the twelve months ending
December 31, 1995, as set forth on Schedule 2.3 attached hereto. On each of the
------------
Tier II and Tier III Closing, and on the Final Payment Date, the following
amounts will be calculated for application to Section 2.2 above:
4
<PAGE>
2.3.1 Tier I Deferrals. For purposes of Section 2.2.2, (i)
----------------
the "Tier I Deferred Amount" shall equal $1,375,000 multiplied by a fraction,
the numerator of which is the sum of PPI Budgets for each Tier I School that has
not been certified by ED as eligible for Title IV funding as of the Tier II
Closing, and the denominator of which is the sum of the Tier I Schools' PPI
Budgets, and (ii) the "Tier I Non-Deferred Amount" shall equal $1,375,000 less
the Tier I Deferred Amount.
2.3.2 Tier II Deferrals. For purposes of Section 2.2.3, (i)
-----------------
the "Tier II Deferred Amount" shall equal $750,000 multiplied by the lesser of
(A) a fraction, the numerator of which is the sum of PPI Budgets for each Tier I
School that has not been certified by ED as eligible for Title IV funding as of
the Tier III Closing, and the denominator of which is the sum of the Tier I
Schools' PPI Budgets and (B) a fraction, the numerator of which is the sum of
PPI Budgets for each Tier II School that has not been certified by ED as
eligible for Title IV funding as of the Tier III Closing, and the denominator of
which is the sum of the Tier II Schools' PPI Budgets, and (ii) the "Tier II Non-
Deferred Amount" shall equal $750,000 less the Tier II Deferred Amount.
2.3.3 Tier III Deferrals. For purposes of Section 2.2.4, (i)
------------------
the "Tier III Deferred Amount" shall equal $375,000 multiplied by the lesser of
(A) a fraction, the numerator of which is the sum of PPI Budgets for each Tier I
School that has not been certified by ED as eligible for Title IV funding as of
the Final Payment Date, and the denominator of which is the sum of the Tier I
Schools' PPI Budgets and (B) a fraction, the numerator of which is the sum of
PPI Budgets for each Tier III School that has not been certified by ED as
eligible for Title IV funding as of the Final Payment Date, and the denominator
of which is the sum of the Tier III Schools' PPI Budgets, and (ii) the "Tier III
Non-Deferred Amount" shall equal $375,000 less the Tier III Deferred Amount.
2.4 Obligations and Liabilities to be Assumed. Upon each of the Tier
-----------------------------------------
I Closing, the Tier II Closing and the Tier III Closing (each, a "Tier
Closing"), with respect to the applicable Schools, Buyer shall, by an
appropriate instrument of assumption to be executed and delivered on the Tier
Closing substantially in the form of Exhibit B hereto (the "Assumption
---------
Agreement"), assume and agree to perform, pay or discharge, when due, to the
extent not theretofore performed, paid or discharged, all of the following
obligations, commitments and liabilities of Seller relating to or arising from
the Tier I Schools, Tier II Schools or Tier III Schools, as applicable
(collectively, the "Assumed Liabilities"):
2.4.1 All accounts payable at such Schools existing at the Tier
Closing and which shall have been entered into in the ordinary course of the
business of those Schools, except for those accounts payable that are more than
90 days old as of April 21, 1995 and listed on Schedule 2.4.1 attached hereto;
--------------
2.4.2 All obligations of and restrictions on Seller with
respect to the applicable Schools: (i) under the Assumed Contracts (including
assumption of the liabilities, duties and obligations under enrollment contracts
between students and Seller which Seller is obligated to perform on or after the
Tier I Closing), but not including liabilities for breaches by
5
<PAGE>
Seller under Assumed Contracts as of January 1, 1995; (ii) with respect to the
Intellectual Property; (iii) with respect to the Records; and (iv) otherwise
directly arising from the Purchased Assets;
2.4.3 All obligations and liabilities relating to the refunds
owed to students for the applicable Schools;
2.4.4 All regulatory liabilities imposed by ED and the
applicable state regulatory agencies for periods from and after January 1, 1995;
2.4.5 Vacation and sick pay obligations to employees of the
Schools accrued through the Tier I Closing, which accruals are shown as of the
most recent practicable date on Schedule 2.8 attached hereto; and
------------
2.4.6 All other obligations, commitments and liabilities of the
applicable Schools, except for the Excluded Liabilities (as defined in Section
2.5 below).
2.5 Excluded Liabilities. The following obligations and liabilities
--------------------
of the Schools (collectively, the "Excluded Liabilities") will not be assumed by
Buyer: (i) regulatory liabilities imposed by ED and the applicable state
regulatory agencies for periods prior to January 1, 1995, (ii) liabilities
relating to employees of the School prior to the Tier I Closing, including, but
not limited to, accrued payroll obligations as of the date of the Tier I
Closing, except as set forth in Section 2.4.4 hereof, (iii) liabilities with
respect to accounts payable listed on Schedule 2.4.1 attached hereto and (iv)
--------------
liabilities with respect to the matters set forth on Schedule 5.7 attached
------------
hereto.
2.6 Allocation of Purchase Price. Buyer and Seller agree that the
----------------------------
Purchase Price shall be allocated among the Purchased Assets in accordance with
the allocation set forth in Schedule 2.6 attached hereto. Buyer and Seller
------------
agree that each will report the federal, state and local income tax and other
tax consequences of the purchase and sale contemplated hereby in a manner
consistent with such allocation and that neither will take any position
inconsistent therewith upon examination of any tax return, in any refund claim,
in any litigation, or otherwise.
2.7 Excise and Property Taxes. Buyer shall pay seventy-five percent
-------------------------
(75%) and Seller shall pay twenty-five percent (25%) of all sales and use taxes
arising out of the transfer of the Purchased Assets. Each of Buyer and Seller
and shall pay its respective portion, prorated as of the applicable Tier Closing
(but subject to Buyer's obligations under the Management Agreement, with respect
to the Tier II and Tier III Closings), of state and local real and personal
property taxes of the business.
2.8 Employees. Schedule 2.8 is a list of employees at the Schools,
--------- ------------
including each employee's title, base salary and accrued vacation time and sick
leave as of June 21, 1995. Prior to the Tier I Closing, Buyer shall extend an
offer of employment with Buyer to such employees (except for those whose
employment is severed or terminated in the ordinary course
6
<PAGE>
of business prior to the Tier I Closing) from and after the Tier I Closing. It
is the intention of the parties that such employment will be offered with base
salary at least equal to the base salary currently paid by Seller. In
accordance with Section 2.4.4 above, Buyer shall assume Seller's obligation for
accrued and unused vacation and sick time for all employees hired by Buyer.
Buyer agrees to establish the Corinthian Schools, Inc. Retirement Savings Plan
("Buyer's Plan"). As soon as practicable following the Tier I Closing, Seller
agrees to cause the trustee of the National Education Corporation Retirement
Plan (the "401(k) Plan") to transfer to the trustee of the Buyer's Plan an
amount, as required by law applicable to plans qualified under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended, equal to the
account balances attributable to the participants and beneficiaries in the
Seller's 401(k) Plan who are Buyer's employees, as of the date of the Tier I
Closing (including any amounts accrued as of such date but not yet contributed
to the 401(k) Plan or not yet allocated to the account of an employee of Buyer
under the 401(k) Plan) (the "401(k) Plan Transfer"). The 401(k) Plan Transfer
shall be transferred to the Buyer's Trustee entirely in cash or other assets
acceptable to the Buyer's Trustee. Such transfer shall be made by the last day
of any month following the Tier I Closing. However, in no event shall such
transfer be delayed beyond the last day of the month following 120 days after
the Tier I Closing.
2.9 Assignment of Accounts Receivable. On the Tier I Closing,
---------------------------------
accounts receivable (including all existing and future accounts receivable) for
the Tier II Schools and Tier III Schools shall be assigned to Corinthian
pursuant to an Accounts Receivable Assignment in the form of Exhibit C-2
-----------
attached hereto. Seller shall maintain a security interest in such accounts
receivable pursuant to the Subordinated Security Agreement provided under
Section 7.14.1 below.
2.10 Disposition of Other Seller Assets. Seller acknowledges that it
----------------------------------
is in the process of winding down its business and operations and, from time to
time following the date of this Agreement, Seller may determine to dispose of
certain assets, including without limitation the Lead Bank Data, located at
Headquarters that are not Purchased Assets hereunder (the "Other Seller Assets")
in the course of its winding down. To the extent that Seller determines to sell
to any person or entity that is not affiliated with Seller any Other Seller
Assets after the date hereof, Seller shall use its reasonable efforts to offer
such Other Seller Assets to Buyer for purchase by Buyer at the reasonable value
of such Other Seller Assets. In addition, at such time that Seller determines
to dispose of its rights to the phone number 800-722-7337, Seller shall transfer
its rights to such number to Buyer without further consideration.
ARTICLE III
CLOSING
3.1 Tier I Closing. The effective time of the completion of the
--------------
purchase and sale of that portion of the Purchased Assets that relate solely and
directly to Tier I Schools, the Accounts Receivable, the Lead Bank Data, the
Headquarters Assets and the Telephone Number (the "Tier I Closing") shall take
place at the offices of National Education Corporation, 18400 Von Karman Avenue,
Irvine, California 92715, at 11:59 p.m. on June 30, 1995.
7
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3.2 Tier II Closing. Subject to Section 3.7 below, the effective
---------------
time of the completion of the purchase and sale of that portion of the Purchased
Assets that relate solely and directly to Tier II Schools (the "Tier II
Closing") shall take place at the offices of National Education Corporation,
18400 Von Karman Avenue, Irvine, California 92715, at 11:59 p.m. on the earlier
of the certification by ED of all Tier I Schools as eligible for Title IV
funding or 90 days after the Tier I Closing.
3.3 Tier III Closing. Subject to Section 3.7 below, the effective
----------------
time of the completion of the purchase and sale of that portion of the Purchased
Assets that relate solely and directly to Tier III Schools (the "Tier III
Closing") shall take place at the offices of National Education Corporation,
18400 Von Karman Avenue, Irvine, California 92715, at 11:59 p.m. on the earlier
of the certification by ED of all Tier II Schools as eligible for Title IV
funding or 90 days after the Tier II Closing.
3.4 Deliveries by Seller at each Tier Closing. Subject to Section
-----------------------------------------
3.7 below, except for those items to be delivered only at the Tier I Closing as
specified below in this Section 3.4, at each Tier Closing Seller shall deliver
or cause to be delivered to Buyer the following:
3.4.1 The following documents of transfer and assignment duly
executed by Seller relating to that portion of the Purchased Assets to be
conveyed to Buyer at such Tier Closing:
(i) Bill of Sale substantially in the form of Exhibit
-------
D hereto;
- -
(ii) Assignment Agreement substantially in the form of
Exhibit C-1 hereto; and
- -----------
(iii) At the Tier I Closing only, an Accounts Receivable
Assignment substantially in the form of Exhibit C-2 hereto;
-----------
3.4.2 Such other instruments of conveyance as shall, in the
reasonable opinion of Buyer and its counsel, be necessary to vest in Buyer title
to that portion of the Purchased Assets to be conveyed to Buyer at such Tier
Closing;
3.4.3 At the Tier I Closing only, the following agreements
executed by Seller:
(i) A license agreement permitting the Buyer to use
the Seller's name in the form of that attached hereto as Exhibit H (the
---------
"Trademark License Agreement");
(ii) A license agreement permitting the Buyer to use
the Seller's curriculum in the form of that attached hereto as Exhibit I (the
---------
"Curriculum License Agreement");
8
<PAGE>
(iii) A license agreement permitting the Buyer to use
the Licensed Software in the form of that attached hereto as Exhibit J (the
---------
"Software License Agreement"); and
(iv) A support services agreement in the form of that
attached hereto as Exhibit N (the "Support Services Agreement");
---------
3.4.4 At the Tier I Closing only, Seller shall deliver
certified resolutions of Seller's Board of Directors authorizing the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein;
3.4.5 At the Tier I Closing only, Seller shall deliver an
opinion of Philip C. Maynard, Esq., General Counsel to Parent, in form and
substance reasonably acceptable to Buyer containing the opinions set forth on
Exhibit G-2, along with usual and customary exceptions and qualifications;
- -----------
3.4.6 At the Tier I Closing only, Seller shall deliver an
officers' certificate signed by the President and the Chief Financial Officer of
Seller, or such other officer reasonably acceptable to Buyer, certifying that
Seller is, as of the date of such Tier Closing, in material compliance with all
of Seller's covenants and obligations under this Agreement, and certify the
other matters set forth in Sections 8.3.1 and 8.3.2 below, which officers'
certificate shall be in the form attached hereto as Exhibit F-2; and
-----------
3.4.7 At the Tier I Closing only, Seller shall deliver to Buyer
a letter addressed to ED and duly executed by Seller, in the form attached
hereto as Exhibit P.
---------
3.5 Deliveries by Buyer at each Tier Closing. Subject to Section 3.7
----------------------------------------
below, except for those items to be delivered only at the Tier I Closing, the
Tier II Closing or the Tier III Closing as specified below in this Section 3.5,
at each Tier Closing Buyer shall deliver or cause to be delivered to Seller the
following:
3.5.1 On the Tier I Closing, a certified check or wire transfer
payable to Seller in the amount of $1,375,000 and a duly executed Subordinated
Security Agreement (as defined in Section 7.14.1) along with UCC-1 Financing
Statements on the Purchased Assets transferred as of the Tier I Closing and such
other documentation as is reasonably satisfactory to Seller and its counsel to
perfect its security interest described in Section 7.14 of this Agreement;
3.5.2 On the Tier II Closing, (i) a certified check or wire
transfer payable to Seller in the aggregate amount of $750,000 plus the Tier I
Non-Deferred Amount, (ii) the duly executed Deferred Payment Note with an
original principal balance equal to the Tier I Deferred Amount and (iii) UCC-1
Financing Statements on the Purchased Assets transferred as of the Tier II
Closing and such other documentation as is reasonably satisfactory to Seller and
its counsel to perfect its security interest described in Section 7.14 of this
Agreement;
9
<PAGE>
3.5.3 On the Tier III Closing, (i) a certified check or wire
transfer payable to Seller in the aggregate amount of $375,000 plus the Tier II
Non-Deferred Amount, (ii) a duly executed amendment to the Deferred Payment Note
increasing the then-outstanding principal balance of such Note by an amount
equal to the Tier II Deferred Amount and (iii) UCC-1 Financing Statements on the
Purchased Assets transferred as of the Tier III Closing and such other
documentation as is reasonably satisfactory to Seller and its counsel to perfect
its security interest described in Section 7.14 of this Agreement;
3.5.4 At the Tier I Closing only, certified resolutions of the
Board of Directors of Buyer authorizing the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated herein;
3.5.5 At each Tier Closing, documents reasonably required by
Seller for the assumption by Buyer of Assumed Liabilities in accordance with
Section 2.4 duly executed by Buyer, including without limitation, the Assumption
Agreement;
3.5.6 At the Tier I Closing only, an opinion of counsel to
Buyer in form and substance reasonably acceptable to Seller containing the
opinions set forth on Exhibit G-1, along with usual and customary exceptions and
-----------
qualifications;
3.5.7 At each Tier Closing, an officers' certificate signed by
the President and the Chief Financial Officer of Buyer certifying that Buyer is,
as of the date of such Tier Closing, in material compliance with all of Buyer's
covenants and obligations under this Agreement including but not limited to the
financial covenants set forth in Sections 7.5.5 and 7.9 hereof, and that Buyer
is in full compliance with all terms and provisions of the Management Agreement
(as defined in Section 7.6 hereof), and certify the other matters set forth in
Sections 8.2.1 and 8.2.2 below, which officers' certificate shall be in the form
attached hereto as Exhibit F-1;
-----------
3.5.8 An Assignment Agreement substantially in the form of
Exhibit C-1 hereto and, at the Tier I Closing only, an Accounts Receivable
- -----------
Assignment Agreement substantially in the form of Exhibit C-2 attached hereto;
-----------
3.5.9 At the Tier I Closing only, the following agreements
executed by Buyer:
(i) The Trademark License Agreement;
(ii) The Curriculum License Agreement;
(iii) The Software License Agreement; and
(iv) The Support Services Agreement; and
10
<PAGE>
3.5.10 At the Tier I Closing only, a Principal's Certificate
from and duly executed by each of David Moore, Frank McCord, Lloyd Holland,
Dennis Devereux and Paul St. Pierre in the form attached hereto as Exhibit O.
---------
3.6 Delivery by Buyer at Final Payment Date. On the Final Payment
---------------------------------------
Date, Buyer shall deliver or cause to be delivered to Seller (i) a certified
check or wire transfer payable to Seller in the amount of the Tier III Non-
Deferred Amount and (ii) a duly executed amendment to the Deferred Payment Note
increasing the then-outstanding principal balance of such Note by an amount
equal to the Tier III Deferred Amount.
3.7 Permitted Deferral of Tier Closings. Notwithstanding anything to
-----------------------------------
the contrary in this Article III, Buyer may defer delivery by Seller of the Bill
of Sale, Assignment Agreement and such other instruments of conveyance under
Sections 3.4.1(i), 3.4.1(ii) and 3.4.2, respectively, and delivery by Buyer of
the Assignment Agreement, the Assumption Agreement and such other instruments of
conveyance under Sections 3.5.8 and 3.5.5, respectively, (collectively, the
"Asset Transfer Documents") with respect to any Tier II or Tier III School (a
"Deferred School") for a period not to exceed ninety (90) days beyond the date
of the applicable Tier Closing if, without such deferral, Buyer would own more
than five (5) Schools that are not eligible for Title IV funding. Such deferred
Asset Transfer Documents for each Deferred School shall be delivered on the
earlier of (i) the date that, upon consummation of such deliveries, Buyer will
own five (5) or fewer Schools that are not eligible for Title IV funding or (ii)
the date that is ninety (90) days following the original date of the applicable
Tier Closing, as determined in accordance with Sections 3.2 and 3.3 above. In
addition, Buyer may defer delivery of the Asset Transfer Documents for Seller's
National Institute of Technology Campus in San Antonio, Texas (the "San Antonio
Campus") for a period not to exceed thirty (30) days beyond the date of the Tier
I Closing, to the extent Buyer has not received approval from the Texas
Education Agency ("TEA") in accordance with Section 8.1.5 below as of that date.
Such deferred Asset Transfer Documents for the San Antonio Campus shall be
delivered on the earlier of (i) the date that Buyer receives approval from TEA
for transfer of the San Antonio Campus or (ii) the date that is thirty (30) days
following the date of the Tier I Closing, as determined in accordance with
Section 3.1 above. In no event shall this Section 3.7 affect or cause deferral
of Buyer's payment obligation and deliveries under Sections 2.2, 3.5.1, 3.5.2,
3.5.3 and 3.6 above.
ARTICLE IV
TERMINATION
4.1 Termination. This Agreement may be terminated only as follows
-----------
and in each case only by written notice:
4.1.1 At any time by mutual written consent of Seller and
Buyer;
4.1.2 Prior to the Tier I Closing by Seller on the one hand or
Buyer on the other, if the other party shall be in breach of any covenant,
undertaking or restriction
11
<PAGE>
contained herein in any material respect and such breach has not been cured
within ten (10) business days after the giving of written notice to the
breaching party of such breach;
4.1.3 Prior to the Tier I Closing by Seller if Buyer has failed
to deliver true and correct copies of Primus and Banc One financing documents,
as certified by Buyer, in form and substance acceptable to Seller in Seller's
sole and absolute discretion; or
4.1.4 By Seller in Seller's sole discretion if any Tier Closing
shall not have occurred for any reason whatsoever (other than to the extent such
failure is based on the action or inaction of Seller) on or before the date set
for each such Tier Closing in Sections 3.1 through 3.3 hereof, or if Buyer,
after the Tier I Closing, shall be in breach of any covenant, undertaking or
restriction contained herein or in the Management Agreement in any material
respect and such breach has not been cured within ten (10) business days after
the giving of written notice to Buyer.
4.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Buyer or Seller in accordance with the applicable provisions
above, this Agreement shall forthwith terminate upon notice thereof duly given
in accordance with the provisions hereof, and there shall be no liability of any
nature on the part of either Buyer or Seller (or their respective officers or
directors) to the other, except for liabilities arising from a breach of this
Agreement prior to such termination; provided, however, that Seller shall have
-------- -------
no liability of any nature if it terminates this Agreement pursuant to Section
4.1.3; provided, further that this Section 4.2 in no way limits the obligations
-------- -------
of the parties set forth in Sections 9.13, 9.14, 9.15 and 9.16 hereof, which
obligations shall survive the termination. If this Agreement is terminated as
provided herein, each of Buyer and Seller shall, and shall cause its respective
representatives to, either destroy or redeliver all documents, work papers and
other materials relating to the transaction contemplated hereby or to the
business or operations of the other party, whether so obtained before or after
the execution hereof, to such other party, and all such information received by
Buyer or Seller, as the case may be, (other than information which is in or
becomes part of the public domain by publication or otherwise or which has
heretofore been or is hereafter filed or available as public information with
any governmental authority) shall be kept confidential, except as required by
law. In addition, each of Buyer and Seller shall cooperate in good faith
following termination of this Agreement to provide any information or documents
reasonably required by the other party in connection with preparation of such
party's financial statements and tax returns.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Except to the extent David G. Moore, Paul St. Pierre, Dennis L. Devereux,
Lloyd W. Holland, Frank J. McCord or each of the directors at each of the
Schools has actual knowledge to the contrary, Seller, and Parent with respect
only to the representations and warranties set forth in Sections 5.1, 5.2, 5.5,
5.6 and 5.9 below, hereby represent and warrant to Buyer as follows, which
representations and warranties are made and shall be true and correct as of the
date of each of the Tier Closings unless another date is therein specified:
12
<PAGE>
5.1 Incorporation; Authority. Seller (i) is a corporation duly
------------------------
organized, validly existing and in good standing under the laws of the state of
California, and (ii) has the requisite corporate power and authority to execute,
deliver and perform this Agreement and all other agreements and instruments
required to be executed by Seller in connection with or pursuant hereto. Seller
is a wholly owned subsidiary of Parent. Parent (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and (b) has the requisite corporate power and authority to execute,
deliver and perform this Agreement and all other agreements and instruments
required to be executed by Parent in connection with or pursuant hereto.
5.2 Due Authorization; Binding Agreement. The execution and delivery
------------------------------------
by Seller of this Agreement and all other agreements and instruments required to
be executed by Seller in connection with or pursuant hereto and the performance
by Seller of its obligations hereunder and thereunder have been duly authorized
by all necessary corporate action on the part of Seller (including approval by
its sole shareholder, Parent). This Agreement and all other agreements and
instruments required to be executed by Seller in connection with or pursuant
hereto constitute the legal, valid and binding obligations and acts of Seller
enforceable in accordance with the respective terms thereof, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and to general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or equity) and any exceptions expressly set forth in this
Agreement. The execution and delivery by Parent of this Agreement and all other
agreements and instruments required to be executed by Parent in connection with
or pursuant hereto and the performance by Parent of its obligations hereunder
and thereunder have been duly authorized by all necessary corporate action on
the part of Parent. This Agreement and all other agreements and instruments
required to be executed by Parent in connection with or pursuant hereto
constitute the legal, valid and binding obligations and acts of Parent
enforceable in accordance with the respective terms thereof, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and to general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or equity) and any exceptions expressly set forth in this
Agreement.
5.3 No Violation or Conflict by Seller. The execution, delivery and
----------------------------------
performance of this Agreement by Seller does not and the consummation of the
transactions contemplated by this Agreement will not (i) contravene any
provision of the Articles of Incorporation or Bylaws of Seller, (ii) breach any
term or provision of or cause an acceleration of any obligation under any
material agreement of Seller, (iii) cause a default under any indenture or other
instrument to which Seller is bound or (iv) to the best of Seller's knowledge,
violate or conflict with any statute, law, rule or regulation.
5.4 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by Seller in connection with the
execution, delivery or performance of the
13
<PAGE>
Agreement and the consummation of the transactions contemplated, other than
those which shall have been obtained by Seller prior to the applicable Tier
Closing to which such approval relates.
5.5 Taxes. With respect to each School, Seller or its Parent has
-----
timely filed or will file all required tax returns and has paid all taxes due
for all periods ending on or before the applicable Tier Closing. Adequate
provision has been made in the books and records of Seller and, to the extent
required by generally accepted accounting principles, in the financial
statements of Seller, for all taxes due or that will become due. All required
tax returns, including amendments to date, have been prepared in good faith
without gross negligence or willful misrepresentation and, to the best of
Seller's knowledge, are complete and accurate in all material respects. Except
as set forth in Schedule 5.5 attached hereto, to the best of Seller's knowledge
------------
no governmental entity has, during the past three years, examined or is in the
process of examining any tax returns of Seller. Except as set forth on Schedule
--------
5.5, to the best of Seller's knowledge no governmental entity has threatened,
- ---
proposed (tentatively or definitely), asserted or assessed against Seller any
deficiency, assessment or claim for taxes.
5.6 Title to Assets. Except for the Assumed Liabilities and those
---------------
items described in Schedule 5.6, (together the "Permitted Exceptions"), as of
------------
the Tier I Closing, Seller has, and has the right and authority to transfer, and
upon the sale contemplated hereby Buyer will be vested with, good and marketable
title to the Inventory, Equipment and Records, free and clear of any and all
mortgages, pledges, liens, claims, restrictions, encumbrances or security
interests of any kind or nature.
5.7 Litigation. Except as described on Schedule 5.7, as of the Tier
---------- ------------
I Closing there is no action, order, writ, injunction or decree outstanding or
claim, suit, litigation, proceeding, arbitral action or investigation
(collectively "Proceedings") pending and served or, to the best of Seller's
knowledge, threatened against, relating to or affecting (i) any School, (ii) the
Purchased Assets or (iii) the transactions contemplated by this Agreement, at
law or in equity, by or before any court or governmental department, agency or
instrumentality. Seller is not in default with respect to any judgment, order,
writ, injunction or decree of any court or governmental agency.
5.8 Compliance with Laws. To the best of Seller's knowledge, except
--------------------
as set forth on Schedule 5.7, as of the Tier I Closing (i) Seller has conducted
------------
its business in all material respects in accordance with applicable laws, (ii)
the forms, procedures and practices of Seller are, in all material respects, in
compliance with all such laws, to the extent applicable, and (iii) Seller's use
and operation of the Purchased Assets have been in compliance in all material
respects with all applicable environmental, zoning, subdivision and land use
laws, and other local, state and federal laws and regulations.
5.9 Employee Benefits.
-----------------
5.9.1 Except for the welfare benefit plans (within the meaning
of section 3(1) of ERISA) listed on Schedule 5.9 (the "Welfare Plans") and the
------------
pension benefit plans (within the meaning of section 3(2) of ERISA) listed on
Schedule 5.9 hereto (the "Pension
- ------------
14
<PAGE>
Plans") (together the "Plans"), each of Parent and Seller currently does not
sponsor or maintain or is not required, either by law or by contract, to
contribute to any employee welfare benefit plan, within the meaning of section
3(1) of ERISA, or to any employee pension benefit plan, within the meaning of
section 3(2) of ERISA, or to any multi-employer plan, within the meaning of
section 3(37) of ERISA.
5.9.2 Except as set forth on Schedule 5.9, To the best of
------------
Seller's knowledge, each of Parent and Seller is in compliance in all material
respects with applicable provisions of ERISA and the regulations published
thereunder, and all other laws applicable with respect to such Plans. Each of
Parent and Seller has performed all of its obligations under such Plans and, to
the best of Seller's knowledge, there are no actions (other than routine claims
for benefits) pending or threatened against such Plans or their assets, or
arising out of such Plans.
5.9.3 Except as set forth on Schedule 5.9, to the best of
------------
Seller's knowledge, there has been no act or omission by Seller or its
affiliates that has given rise to or may give rise to fines, penalties, taxes or
related charges under Section 502(c) or (i) or Section 4071 of ERISA or Chapter
43 of the Internal Revenue Code of 1986, as amended.
5.10 Disclosure. No representation or warranty by Seller in this
----------
Agreement, and no exhibit, certificate or schedule furnished or to be furnished
by Seller pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements or facts contained herein or therein, in light of the
circumstances under which they were made, not misleading.
5.11 Seller's Disclaimer. Seller makes no representation or warranty
-------------------
express or implied, except as set forth in this Article V. Without limiting the
generality of the foregoing, Seller makes no warranty of merchantability,
suitability of fitness for a particular purpose, or quality, as to the Purchased
Assets or any part thereof, or as to the condition or workmanship thereof, or
the absence of any defects therein, whether latent or patent. IT IS
SPECIFICALLY UNDERSTOOD AND AGREED BY BUYER THAT THE PURCHASED ASSETS ARE BEING
CONVEYED HEREUNDER ON AN "AS IS" BASIS ON THE DATES FOR EACH TIER CLOSING AND IN
-- --
THEIR THEN PRESENT CONDITION AND BUYER SHALL RELY SOLELY UPON ITS OWN
EXAMINATION OF SUCH PURCHASED ASSETS.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
6.1 Incorporation; Authority. Buyer is a corporation duly organized,
------------------------
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to execute, deliver and
perform this Agreement and all other agreements and instruments required to be
executed by Buyer in connection with or pursuant hereto.
15
<PAGE>
6.2 Due Authorization; Binding Agreement. The execution and delivery
------------------------------------
by Buyer of this Agreement and all other agreements and instruments required to
be executed by Buyer in connection with or pursuant hereto and the performance
by Buyer of its obligations hereunder and thereunder have been duly authorized
by all necessary corporate action on the part of Buyer. This Agreement and all
other agreements or instruments required to be executed by Buyer in connection
with or pursuant hereto constitute the legal, valid and binding obligation and
act of Buyer enforceable in accordance with the respective terms thereof,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or equity).
6.3 No Violation or Conflict. The execution and delivery of this
------------------------
Agreement, the consummation of the transactions provided for herein, and the
fulfillment of the terms hereof by Buyer will not result in the breach of any of
the terms and provisions of, or constitute a default under, or conflict with, or
cause an acceleration of any obligation of Buyer under any material agreement,
indenture or other instrument to which it is bound, any judgment, decree, or
order, or award of any court, governmental body, or arbitrator, or applicable
law, rule or regulation applicable to Buyer.
6.4 No Undisclosed Liabilities. Buyer has no liability or obligation
--------------------------
of any nature, whether due or to become due, absolute, contingent or otherwise,
including liabilities for or in respect of federal, state and local taxes and
any interest or penalties relating thereto, except (i) liabilities incurred in
the ordinary course of Buyer's business prior to date of the Tier I Closing,
(ii) liabilities and obligations created by this Agreement, and (iii)
liabilities and obligations of Buyer disclosed on Buyer's proforma balance sheet
as of the date of the Tier I Closing, which shall have been delivered to and
approved by Seller prior to the Tier I Closing ("Buyer's Proforma Opening
Balance Sheet") and which shall be attached hereto as Schedule 6.4. Buyer's
------------
Proforma Opening Balance Sheet fairly presents, in all material respects, the
financial condition of Buyer as of the date of the Tier I Closing.
6.5 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any governmental or regulatory
authority, or any third person or entity, is required to be made or obtained by
Buyer in connection with the execution, delivery or performance of the Agreement
and the consummation of the transactions contemplated hereby other than those
set forth in Schedule 6.5, all of which shall have been obtained by Buyer prior
------------
to the applicable Tier Closing to which such approval relates.
6.6 Title IV Program Liabilities. Neither Buyer nor any person or
----------------------------
entity affiliated with Buyer who exercises substantial control over another
institution owes a liability for a violation of a Title IV program requirement
that may be an impairment to certification of Buyer under 34 C.F.R. Section
668.15(c).
6.7 Disclosure. No representation or warranty by Buyer in this
----------
Agreement, and no exhibit, certificate or schedule furnished or to be furnished
by Buyer pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state
16
<PAGE>
a material fact necessary to make the statements or facts contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE VII
COVENANTS
7.1 Covenants of Seller Pending Tier Closings. Seller covenants and
-----------------------------------------
agrees with Buyer that from and after the date hereof and until the earlier of
the Tier Closings or the termination of this Agreement pursuant to Article IV
hereof, Seller (i) shall use its best efforts to fulfill or satisfy, or cause to
be fulfilled or satisfied, all of the conditions precedent to Seller's
obligations to consummate and complete the sale provided herein and to take all
other steps and do all other things reasonably required to consummate this
Agreement in accordance with its terms, (ii) shall not interfere with the
performance by Buyer of its obligations under this Agreement, (iii) shall not
fail to pay prior to delinquency any taxes, assessments, governmental charges or
levies imposed upon it or its income, profits or assets or otherwise required to
be paid by it, (iv) shall not make or authorize the making of any capital
expenditure except for the performance of obligations previously incurred, or
for the replacement of equipment or tangible property necessary to the
operations of the business of Seller, (v) shall promptly notify Buyer of any
notice from any governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement, or any fact or
circumstance of which Seller has knowledge which would make any representation
or warranty set forth herein materially untrue or inaccurate as of the
applicable date of the Tier Closing or as of the date of this Agreement, or any
planned or threatened labor dispute, organization efforts, strike or collective
work stoppage affecting the employees of Seller and (vi) shall not take any
action outside the ordinary course of business that would cause Buyer to be
unable to obtain good and marketable title to the Purchased Assets to be
transferred to Buyer at each Tier Closing. Until the earlier of the Tier I
Closing or termination of this Agreement, Seller will not directly or indirectly
solicit, respond to or negotiate with or release any information relative to the
Tier I, Tier II, or Tier III Schools to any potential buyer other than Buyer.
In addition, from and after the date hereof until the earlier of the Tier I
Closing or termination of this Agreement in accordance with Article IV hereof,
Seller shall operate the Schools in the ordinary course of business consistent
with past practices, including processing of accounts receivable and accounts
payable in accordance with past practices, and Seller shall process and pay
refunds to students at the Schools in the ordinary course of business consistent
with Seller's past practices.
7.2 Support Services Covenants. Seller covenants that it will
--------------------------
maintain its corporate existence during the term of the Support Services
Agreement. In the event that Seller breaches the foregoing covenant, Parent
hereby covenants and agrees to fulfill Seller's obligations to Buyer under the
Support Services Agreement, for the term of such Support Services Agreement.
Seller hereby covenants (i) that it has entered into stay bonuses with key
employees at its Headquarters location as reasonable and necessary to provide
services to Buyer contemplated under the Support Services Agreement and (ii)
Seller will use its best commercially reasonable efforts to fulfill its
obligations to Buyer under the Support Services Agreement.
17
<PAGE>
7.3 Covenants of Buyer Pending Tier Closings. Buyer covenants and
----------------------------------------
agrees with Seller that from and after the date hereof and until the earlier of
the Final Payment Date or the termination of this Agreement pursuant to Article
IV hereof, Buyer (i) shall use its best efforts to fulfill or satisfy, or cause
to be fulfilled or satisfied, all of the conditions precedent to Seller's
obligations to consummate and complete the sale provided herein and to take all
other steps and do all other things reasonably required to consummate this
Agreement in accordance with its terms; (ii) shall not interfere with the
performance by Seller of its obligations under this Agreement; (iii) shall fully
perform all its obligations under the Management Agreement; and (iv) shall
provide reasonable assurances to Seller regarding Buyer's financial capacity to
satisfy applicable financial responsibility regulations and otherwise Close this
transaction and thereafter operate the business through the Final Payment Date
and, if later, throughout the term of the Deferred Payment Note. In addition to
the foregoing, Buyer covenants and agrees to cause all cash (in whatever form,
including without limitation checks, moneyorders, wire transfers and currency)
received by the Schools on or before June 30, 1995, to be forwarded to Seller
after the Tier I Closing, to the extent such cash was not deposited in Seller's
bank accounts for the benefit of Seller on or before June 30, 1995.
7.4 Special Covenants of Buyer Pending the Tier I Closing. Buyer
-----------------------------------------------------
covenants and agrees with Seller: (i) proforma cash flow statements for Buyer
shall have been delivered to, and approved by, Seller on or before the Tier I
Closing and must demonstrate, to Seller's reasonable satisfaction that Buyer has
adequate capital to sustain its operations throughout the term of the post-Tier
Closing ED certification approval process for all Schools; (ii) prior to the
Tier I Closing, to the extent possible under applicable laws and regulations,
Buyer shall have obtained all federal and state regulatory consents or
approvals, all accrediting agency approvals and filed all notices or other
documents with all federal and state regulatory authorization and accrediting
agencies necessary or appropriate to the performance by Buyer of its obligations
hereunder, including its obligations under the Management Agreement; and (iii)
Buyer shall have met with representatives of ED and shall have solicited from
such representatives candid evaluation of the application and the likelihood of
post-closing approval of the change of ownership by ED. In addition to the
foregoing, prior to the Tier I Closing, Buyer shall provide to Seller executed
documents entered into between Buyer and its equity and debt investors,
containing terms and provisions reasonably acceptable to Seller and establishing
that such investors have agreed irrevocably and unconditionally to provide the
funds necessary to pay all amounts owed by Buyer to Seller pursuant to this
Agreement at each of the Tier Closings, the Final Payment Date and upon maturity
of the Deferred Payment Note.
7.5 Closing and Post-Closing Covenants.
----------------------------------
7.5.1 Further Assurances. From time to time after each Tier
------------------
Closing, (i) Seller will use reasonable efforts for as long as it continues its
corporate existence to execute and deliver such instruments of conveyance, sale
or assignment as Buyer may reasonably request, to more effectively vest, confirm
or evidence Buyer's title to or rights in any of the Purchased Assets and to
otherwise carry out the purpose and intent of this Agreement, and (ii) Buyer
will execute and deliver such instruments as Seller may reasonably request to
more effectively assure the assignment to and assumption by Buyer of the
obligations and liabilities
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of Seller to be assumed by Buyer pursuant to this Agreement and to otherwise
carry out the purpose and intent of this Agreement.
7.5.2 Mutual Cooperation. The parties shall use reasonable
------------------
efforts to cooperate fully with each other and with their respective counsel and
accountants in connection with any steps required to be taken to consummate the
transaction contemplated hereby and transition management and ownership of the
Schools from Seller to Buyer. Before and after each Tier Closing, Seller shall
use its best efforts to assist Buyer in obtaining any required Accreditation
reasonably necessary for Buyer's operation of the Schools (collectively "Buyer's
Accreditations"), including furnishing Buyer such necessary information and
reasonable assistance as Buyer may request in connection with its preparation of
necessary filings, submissions or Accreditation applications to any governmental
agency in connection with the transactions contemplated hereby.
7.5.3 Access to Employees. From and after the Tier I Closing,
-------------------
each of Buyer and Seller shall afford to the other party, its officers, counsel,
accountants and other authorized representatives (the "Requesting Party") access
to the other party's employees who formerly were or currently are employed by
Seller, as the case may be, without cost to the Requesting Party (other than
payment of out-of-pocket costs not including personnel costs) and as reasonably
required by the Requesting Party in connection with any claim, action,
litigation or other proceeding involving Seller, a School or any other school
previously owned or operated by Seller. Each party shall use its best efforts
to cause such employees to cooperate with and assist the Requesting Party in its
prosecution or defense of such claims, actions, litigations and other
proceedings, which cooperation shall include without limitation preparing and
providing written and oral discovery and attending and testifying at
depositions, hearings, motions and trials, all as necessary in the reasonable
opinion of the Requesting Party or its counsel. Any such access shall take
place only during normal business hours in such a manner as not to interfere
unreasonably with the operation of the business of the other party.
7.5.4 Best Efforts to Satisfy Conditions. Prior to and after
----------------------------------
each Tier Closing, Seller and Buyer shall provide to the ED and to all state
regulatory agencies and accrediting bodies all information required or
reasonably requested by any of them, and Buyer shall use its best efforts to
satisfy promptly all requirements and demands of ED or any such agency or body
requisite to obtaining certification. Without limiting the foregoing, Buyer
shall submit to ED a completed application for certification for the Schools
conveyed to Buyer at a Tier Closing within a reasonable time after that Tier
Closing.
7.5.5 Financial Condition. Following the Tier I Closing and so
-------------------
long as Buyer has ongoing obligations hereunder or under the Management
Agreements to Seller, Buyer shall maintain sufficient, unimpaired equity capital
as shall be acceptable to ED and other governmental and quasi-governmental
authorities including satisfaction of all applicable financial responsibility
regulations and standards, and as shall be reasonably acceptable to Seller so as
to provide reasonable assurances that Buyer shall be financially capable of
obtaining all necessary or appropriate approvals from ED, state regulatory
agencies and accrediting bodies including certification by ED for participation
in Title IV student financial and programs ("Buyer
19
<PAGE>
Accreditations") and performing its obligations hereunder and under the
Management Agreements.
7.5.6 Use of Bryman Name. Buyer acknowledges that, as of the
------------------
date of this Agreement, Seller operates National Education Center-Bryman Campus
at 1017 Wilshire Blvd., Los Angeles, California 90017 ("Bryman-LA") and National
Education Center-Bryman Campus at 323 Bolyston Street, Brookline, Massachusetts
02146 ("Bryman-Brookline"). Seller covenants and agrees that Seller, and any
successor to Seller's interests in and to Bryman-LA or Bryman-Brookline, shall
use the name "Bryman" only in connection with the operation of Bryman-LA or
Bryman-Brookline, as the case may be, at the current location of each school, or
any location to which such school relocates, so long as the subsequent location
is within the same market in which the school currently operates. Seller shall
not transfer, assign, license or sublicense the right to use the "Bryman" name
to any person for any use at any location other than as set forth in the
preceding sentence.
7.6 Management Agreement and Administration of the Schools.
------------------------------------------------------
7.6.1 Management Agreement. Concurrently with the execution of
--------------------
this Agreement, Buyer and Seller shall execute and deliver a Management
Agreement in the form of that attached hereto as Exhibit E and made a part
---------
hereof by this reference (the "Management Agreement"). The Management Agreement
shall become effective on the Tier I Closing. Covenants contained in the
Management Agreement shall be supplemental to any continuing covenants
undertaken by Buyer in this Agreement.
7.6.2 Administration in Accordance with Accreditations. From
------------------------------------------------
and after the Tier I Closing, Buyer, at Buyer's sole cost and expense, shall
administer and operate the Schools in accordance with all federal and state
laws, statutes, rules and regulations and in accordance with all permits,
accreditations, authorizations and agreements issued by or entered into with any
federal, state or local governmental or quasi-governmental entity in any way
regulating or otherwise relating to the administration and operation of the
Schools, or any of them. Subject to the terms and provisions of this Agreement,
Buyer and Seller shall work together cooperatively and in good faith to obtain
any and all approvals from ED, any state education regulatory authority and any
other governmental or quasi-governmental entity that may be necessary or
appropriate to vest in Buyer the right and authority to administer and operate
the Schools and to release Seller from further liability or obligations in
connection with the administration or operation of the Schools.
7.6.3 Administration of Closed Schools. If, following any Tier
--------------------------------
Closing, Buyer fails to obtain certification of eligibility for Title IV funding
for any School, then Buyer shall be responsible, at its sole cost and expense,
for determining whether to operate or teachout (at the School or at another
qualified educational institution) and close such School. If Buyer decides to
teachout and close such a School (a "Closed School(s)"), then Buyer, without
limiting Buyer's obligations elsewhere contained in this Agreement including
Section 7.6.2, at Buyer's sole cost and expense, shall administer the teachout
of the Closed Schools or transfer all students to another qualified educational
institution, and conduct the operations of such Schools during
20
<PAGE>
such teachout period, so as to provide to all students currently enrolled at any
such Closed School the opportunity to fully complete the programs in which they
are currently enrolled and to provide such students an education consistent with
the Schools' description of such program and the students' contract with such
School. Buyer shall further administer the teachout of the Closed Schools and
conduct the operations of the Closed and Teachout Schools in accordance with the
applicable requirements of ED, any state regulatory authority and any other
governmental or quasi-governmental entity, including but not limited to
accrediting agencies, that may impose such requirements.
7.7 Performance of Assumed Obligations. From and after the Tier I
----------------------------------
Closing, Buyer shall diligently perform in a commercially reasonable manner all
obligations under the Assumed Liabilities, to the extent Seller and Parent have
not been fully and unconditionally released from all obligations under such
Assumed Liabilities. Buyer shall provide Seller with prompt notice of any
assertion by a party (other than Buyer or Seller) to any Assumed Liability (but
only to the extent such party has not released and discharged Seller of all
liability relating thereto) of any alleged default, breach or other violation of
any term, condition or covenant of such obligation, and Buyer shall use
commercially reasonably efforts to resolve, at Buyer's sole cost and expense,
any such alleged default, breach or other violation. Buyer shall use good faith
efforts to cause Seller and any guarantor of any obligation of Seller assumed by
Buyer as herein provided, to be released and discharged of any such obligation.
7.8 Access and Maintenance of Records. From and after the Tier I
---------------------------------
Closing, each party shall afford the other party, its officers, counsel,
accountants and other authorized representatives and regulatory authorities (the
"Requesting Party") access to the other party's properties, books and records,
including those maintained by the other party's accountants, at any time and
from time to time upon reasonable notice from the Requesting Party, as
reasonably required by the Requesting Party in connection with (i) performance
by the Requesting Party of any of its obligations under the terms and conditions
of this Agreement, including without limitation any liability or obligation of
Seller not assumed by Buyer pursuant to the Agreement, (ii) any claim, action,
litigation or other proceeding involving the Requesting Party or any School and
(iii) the Requesting Party's preparation of its financial statements and tax
returns. In addition, the Requesting Party, at its expense, may make copies of
any such records as may be necessary or appropriate for the Requesting Party's
use. Each party shall maintain all such records in accordance with, and subject
to all restrictions imposed by, all laws, rules and regulations. Each party
shall not destroy or otherwise dispose of any of such records without prior
notice to the other party, which party shall have the option, at such party's
expense, to take possession of any such records which the other party elects to
destroy or otherwise dispose of. Any such access shall take place only during
normal business hours in such a manner as not to interfere unreasonably with the
operation of the business of the other party. Notwithstanding the foregoing,
Buyer shall preserve and protect all books, documents, papers, computer programs
and records pertaining in any manner to the administration by Seller of the
Federal student financial assistance programs pursuant to Title IV of the Higher
Education Act of 1965, as amended, for the period of time specified under
applicable law and regulation. Any document or other information obtained from
a party hereunder that is designated by such party as
21
<PAGE>
confidential shall be maintained in confidence by the other party, except to the
extent Seller is required by law or regulation to disclose part or all of such
documents or information.
7.9 Financial Reporting Covenants. Not later than the 25th day of
-----------------------------
each month during the period beginning on the Tier I Closing through the later
of (i) completion of performance of all of Buyer's duties and obligations
hereunder (including under the Management Agreement, the Deferred Payment Note
and Section 7.6.3 hereof), or (ii) certification by ED of Buyer and the Schools
for full participation in Title IV student financial aid funding programs (the
"Management Period"), Buyer shall provide to Seller a financial report
containing the following information: (i) statements of operations for the
immediately preceding month and year-to-date; (ii) balance sheets as of the end
of the immediately preceding month; and (iii) statements of cash flows for the
immediately preceding month and year-to-date (the "Monthly Financial Reports").
The Monthly Financial Reports shall be prepared in accordance with Generally
Accepted Accounting Principles except for footnote disclosures and customary
year-end adjustments that in the aggregate are not and will not be material to
the financial condition of Buyer. The Monthly Financial Reports shall be in
such detail as Seller may reasonably request. Buyer shall not be deemed in
breach of this Section 7.9 to the extent of any failure or delay by Buyer to
deliver any Monthly Financial Report, which failure or delay is based solely on
Seller being unable to provide certain MicroSoft Excel reports to Buyer under
the Support Services Agreement following migration of the SAS to a UNIX
operating system under Section 1.2(e)(vii) of the Support Services Agreement.
Buyer shall also provide to Seller copies of all quarterly and annual financial
statements and reports distributed to Buyer's stockholders generally or filed
with any federal or state governmental agency with respect to Buyer's business.
Such reports will be provided to Seller no later than three business days
following the first to occur of (a) the date of distribution thereof to Buyer's
stockholders, and (b) the date of filing thereof with any state or federal
governmental agency.
7.10 Insurance. From and after the Tier I Closing through the Final
---------
Payment Date, Buyer shall maintain such insurance policies as are reasonable, in
both scope and amount, for the Schools and Buyer's other operations, and shall
name Seller and its parent company, Parent, as additional insureds on all
policies relating to any School.
7.11 Substitution of Undertakings. As of the Tier I Closing, Buyer
----------------------------
shall substitute Buyer's undertaking, guarantee, bond or other commitment for
each undertaking, guarantee, bond or commitment, as the case may be, made by
Seller or any affiliate of Seller in favor of any governmental or quasi-
governmental entity in support of or relating to any permit, contract,
authorization, accreditation or license from any such governmental entity with
respect to the Schools. Notwithstanding the foregoing, if, following the Tier I
Closing, Seller as owner of the Schools maintains in place any undertaking,
guaranty, bond or other commitment, then Buyer shall reimburse Seller for all
premiums, fees and expenses associated with all such undertakings, guaranties,
bonds and other commitments and indemnifies, defends and holds harmless Seller
and Parent from and against any and all claims and liabilities arising
thereunder.
22
<PAGE>
7.12 Restrictions on Acquisitions and Mergers. Prior to expiration
----------------------------------------
of the Management Period, Buyer shall not acquire any other business operations
other than the Schools or otherwise become financially responsible for the
conduct of any other business operations other than the Schools being acquired
pursuant to this Agreement, to the extent such action would have a material
adverse effect on Buyer's ability to perform and pay all of its obligations and
liabilities pursuant to this Agreement and the Management Agreement during the
Management Period.
7.13 Restrictions on Reorganizations and Changes in Capital
------------------------------------------------------
Structure. Prior to expiration of the Management Period, Buyer may not enter
- ---------
into any plan or agreement of reorganization or recapitalization or alter
materially its existing capital structure or dispose of any material amount of
assets, to the extent such action would have a material adverse effect on
Buyer's ability to perform and pay all of its obligations and liabilities
pursuant to this Agreement and the Management Agreement during the Management
Period.
7.14 Certain Remedies.
----------------
7.14.1 Security Interest. As security for the performance of
-----------------
Buyer's obligations under this Agreement (including but not limited to payment
of all principal and interest due under the Deferred Payment Note) and the
Management Agreement (the "Secured Obligations"), Buyer shall execute and
deliver to Seller at the Tier I Closing a Subordinated Security Agreement in the
form attached hereto as Exhibit M (the "Subordinated Security Agreement") and,
---------
at each of the Tier I, Tier II and Tier III Closings, such UCC-1 Financing
Statements and other documents as may be reasonably necessary to create and
perfect the security interest in the Purchased Assets provided for under the
Subordinated Security Agreement.
7.14.2 Enforcement and Remedies. In addition to any and all
------------------------
remedies Seller may have hereunder or at law or in equity for breach by Buyer of
its representations, warranties, obligations or covenants under this Agreement,
the Management Agreement or any other agreement or document delivered by Buyer
in connection herewith, if Buyer breaches or otherwise fails to perform any of
its representations, warranties, obligations or covenants under this Agreement
or the Management Agreement (or other agreement or document delivered by Buyer
in connection herewith) and fails to cure such breach within two weeks following
written notice from Seller specifying the nature of the breach and the actions
necessary to cure the breach, then Seller, at Seller's sole and exclusive option
shall have the right to proceed with enforcement of the remedies set forth in
Section 7.14.3 and 7.14.4.
7.14.3 Foreclosure of Security Interest. Following a breach
--------------------------------
and failure to cure by Buyer as described in Section 7.14.2 above, Seller may
proceed with the foreclosure of its security interests under the Subordinated
Security Agreement and related documents.
7.14.4 Failure to Timely Close. If Buyer fails to close on
-----------------------
any School or Schools strictly within the time frame specified in Article III of
this Agreement, then Seller shall have the right to terminate Buyer's right to
purchase any or all of the Schools then subject
23
<PAGE>
to the Management Agreement, or terminate Buyer's right to manage any such or
all such Schools, or both, effective upon written notice from Seller to Buyer,
except to the extent such failure to close is based on the action or inaction of
Seller. Thereupon Seller shall have the right to proceed with the sale of any
or all such Schools on such terms and conditions and for such price as Seller
deems appropriate. This remedy shall be in addition to any other remedies
Seller may have at law or in equity as a result of Buyer's failure to perform
under this Agreement, the Management Agreement or any other agreement delivered
by Buyer in connection with the transactions herein contemplated.
7.14.5 Certain Limitations on Buyer's Remedies. Following
---------------------------------------
the Tier I Closing, Buyer's remedies for breach of this Agreement are expressly
limited to specific performance or recovery of compensatory money damages. Buyer
may not terminate or otherwise avoid the performance of its obligations under
this Agreement or the Management Agreements as a result of any breach of this
Agreement or the Management Agreements by Seller and Buyer hereby irrevocably
waives any right it may have to terminate this Agreement or the Management
Agreement following, or as a result of, a breach of this Agreement or the
Management Agreement by Seller.
ARTICLE VIII
CONDITIONS
8.1 Conditions Precedent to Obligations of Buyer. The obligation of
--------------------------------------------
Buyer to complete the purchase of Purchased Assets as provided for herein is
subject to the fulfillment or satisfaction on or before the Tier I Closing of
each of the conditions set forth below, any of which may be waived by Buyer in
writing. The obligation of Buyer to complete the purchase of Purchased Assets
at any Tier Closing subsequent to the Tier I Closing shall not be subject to any
conditions. If Seller as of any date scheduled for a Tier Closing is in
violation of any obligation or covenant or any representation or warranty made
by Seller as of the date of such Tier Closing is untrue, then Buyer shall have
the remedies specified in Section 7.14.5 of this Agreement.
8.1.1 All representations and warranties of Seller contained
in this Agreement shall be true and correct in all material respects as of the
date of the Tier I Closing (except to the extent such representations and
warranties speak of a particular date), and Buyer shall have received a
certificate signed by two executive officers of Seller, substantially in the
form as set forth in Exhibit F-2, to such effect;
-----------
8.1.2 Seller shall have performed in all material respects
all of the obligations, covenants and agreements contained in this Agreement to
be performed by Seller on or before the date of the Tier I Closing, and Buyer
shall have received a certificate signed by two executive officers of Seller,
substantially in the form as set forth in Exhibit F-2, to such effect;
-----------
8.1.3 All instruments and documents required on Seller's part
to effectuate and consummate the transactions contemplated hereby as of the Tier
I Closing,
24
<PAGE>
including those set forth in Section 3.4, shall be delivered by Seller and shall
be in form and substance reasonably satisfactory to Buyer and its counsel;
8.1.4 As of the Tier I Closing, Buyer shall have received
from counsel for Seller the opinion referenced in Section 3.4.5 above dated as
of the date of the Tier I Closing; and
8.1.5 With respect to the School located in the State of
Texas, Buyer shall have received the approval of the Texas Education Agency on
or before the Tier I Closing.
8.2 Conditions Precedent to Obligations of Seller. The obligations
---------------------------------------------
of Seller to complete the sale of Purchased Assets as provided for herein are
subject to the fulfillment or satisfaction on or before the date of each Tier
Closing of each of the conditions set forth below, any of which may be waived by
Seller in writing.
8.2.1 All representations and warranties of Buyer contained
in this Agreement shall be true and correct in all material respects as of the
date of the Tier Closing, with the same force and effect as if the same had been
made on and as of the date of the Tier I Closing (except to the extent such
representations and warranties speak of a particular date), and Seller shall
have received a certificate signed by two executive officers of Buyer,
substantially in the form as set forth in Exhibit F-1, to such effect;
-----------
8.2.2 Buyer shall have performed in all material respects all
of the obligations, covenants and agreements contained in this Agreement (and
the Management Agreement) to be performed by Buyer on or before the date of the
Tier Closing including, but not limited to, Buyer shall be in compliance with
the Financial Covenants and other financial obligations hereunder, and the Tier
Closing shall not cause Buyer to become out of compliance therewith, and Seller
shall have received a certificate signed by two executive officers of Buyer,
substantially in the form as set forth in Exhibit F-1, to such effect;
-----------
8.2.3 All instruments and documents required on Buyer's part
to effectuate and consummate the transactions contemplated hereby including
those set forth in Section 3.5 shall be delivered by Buyer and shall be in form
and substance reasonably satisfactory to Seller and its counsel;
8.2.4 No order of any court or administrative agency shall be
in effect which restrains or prohibits the transactions contemplated hereby and
there shall not have been threatened, nor shall there be pending, any action or
proceeding by or before any court or governmental agency or other regulatory or
administrative agency or commission, challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions;
8.2.5 All necessary consents and approvals of all
governmental departments, agencies or other regulatory bodies to the
transactions contemplated hereby shall have been obtained by Buyer; provided,
however, Buyer and Seller acknowledge that neither the
25
<PAGE>
ED nor certain state regulatory agencies are expected to issue any approvals of
this transaction or for the transfer of the operations of the Schools prior to
the applicable Tier Closing, and receipt of such approvals is not a condition
precedent hereunder;
8.2.6 Seller shall have received from counsel for Buyer the
opinion referenced in Section 3.5.6 above dated as of the date of the Tier I
Closing; and
8.2.7 Seller shall have received from Buyer evidence
reasonably satisfactory to Seller that, immediately following such Tier Closing,
Buyer shall cause each of the Schools subject to such Tier Closing to meet or
exceed the financial requirements and ratios of ED and any applicable
accrediting or licensing body as of the date of such Tier Closing.
ARTICLE IX
MISCELLANEOUS
9.1 Binding Effect. All terms and provisions of this Agreement shall
--------------
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns, and the
parties acknowledge that the rights and benefits hereunder accruing in favor of
Seller also benefit Seller's parent corporation, Parent, and that Parent may
enforce the same. Neither this Agreement, nor the obligations of either party
hereunder, shall be assignable or transferable by either such party without the
prior written consent of all parties hereto. If Buyer desires to assign its
right to acquire a portion of the Schools to an affiliated entity, Seller will
consider such request in good faith and will not unreasonably withhold its
consent. Without limiting Seller's rights of approval the parties acknowledge
that approval may be withheld if Seller believes such assignment may impair or
otherwise negatively affect Buyer's ability to obtain timely all accreditations,
approvals and consents (including ED certifications) contemplated in this
Agreement.
9.2 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be given or made by personal
delivery, by a nationally recognized courier service for overnight delivery or
by registered or certified mail, postage prepaid, return receipt requested,
addressed
if to Buyer, at:
Corinthian Schools, Inc.
1732 Reynolds Avenue
Irvine, California 92714
Attention: David Moore, President
26
<PAGE>
with each such notice to Buyer, a copy to:
O'Melveny & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
if to Seller, at:
National Education Centers, Inc.
18400 Von Karman Avenue
Irvine, CA 92715
Attention: Keith K. Ogata, CFO
with a copy to:
National Education Corporation
18400 Von Karman Avenue
Irvine, CA 92715
Attention: Philip C. Maynard, General Counsel
or at such other place as the party to whom such notice of communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 9.2. Notices shall be deemed effective and received (i) on the
actual receipt in the case of hand delivery, (ii) on the next business day after
deposit in the case of notices by nationally recognized overnight courier
services, or (iii) on the third business day after the date of mailing in the
manner set forth herein. As used herein, notice to a party shall include
concurrent notice to that party's counsel as set forth herein.
9.3 Entire Agreement. This Agreement and the documents referred to
----------------
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations,
representations, warranties and discussions of the parties, whether oral or
written; and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
9.4 Nature and Survival of Representations. The representations,
--------------------------------------
warranties, covenants and agreements of Buyer, Seller and Parent contained in
this Agreement, and all statements contained in this Agreement or any Exhibit or
Schedule hereto or any certificate or financial statement delivered pursuant to
this Agreement shall be deemed to constitute
27
<PAGE>
representations, warranties, covenants and agreements of the respective party
delivering the same. All such representations, warranties, covenants and
agreements shall survive each Tier Closing hereunder but shall be subject to the
limitations in Sections 9.13, 9.14 and 9.15 hereof and particularly 9.13.2.
9.5 Risk of Loss or Damage; Insurance. It is understood and agreed
---------------------------------
that all right, title and interest in and to the Purchased Assets and all risk
of loss or damage thereto shall not pass from Seller to Buyer unless and until
the Tier I Closing whereupon all risk of loss or damage shall pass to Buyer. In
the event of a casualty or condemnation in respect of the Purchased Assets prior
to the Tier I Closing, Buyer shall have the right, at its sole option, to elect
to either terminate this Agreement or to accept the insurance proceeds in
respect of such casualty or condemnation and proceed to close otherwise in
accordance with the terms and conditions of this Agreement. Seller agrees to
maintain the insurance currently carried with respect to the Purchased Assets
until the Tier I Closing.
9.6 Waiver. No waiver shall be deemed to have been made by any party
------
of any of its rights hereunder unless the same shall be in writing and shall be
signed by the waiving party. Such a waiver, if any, shall be a waiver only in
respect to the specific instance involved and shall in no way impair the rights
of the waiving party or the obligations of any other party in any other respect
at any other time.
9.7 Governing Law. This Agreement shall be construed and interpreted
-------------
according to the substantive laws of the State of California without giving
effect to the principles of conflicts of law thereof.
9.8 Headings. The headings of the articles and sections of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
9.9 Counterparts. This Agreement may be executed by the parties in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.10 Severability. In the event that any one or more terms or
------------
provisions hereof shall be held void or unenforceable by any court or
arbitrator, all remaining terms and provisions hereof shall remain in full force
and effect.
9.11 Time is of the Essence. Seller and Buyer agree that time is of
----------------------
the essence in connection with the implementation and performance by the parties
of all terms, conditions and obligations of this Agreement.
9.12 Brokers or Finders. Seller represents that, no agent, broker,
------------------
investment banker or other firm or person retained by Seller is or will be
entitled to any broker's or finder's fee or any similar commission or fee in
connection with any of the transactions contemplated by this Agreement. Buyer
represents that, except for the retention of Trenwith South Coast Capital Group
("Trenwith") by Buyer, whom Buyer shall pay or reimburse at Buyer's sole cost
28
<PAGE>
and expense, no agent, broker, investment banker or other firm or person
retained by Buyer is or will be entitled to any broker's or finder's fee or any
similar commission or fee in connection with any of the transactions
contemplated by this Agreement.
9.13 Indemnification by Seller.
-------------------------
9.13.1 Seller's Indemnity. Seller hereby indemnifies,
------------------
defends and holds harmless Buyer and its affiliates and their respective
officers and directors from and against:
(i) any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any misrepresentation, breach of
warranty or nonfulfillment of any covenant or agreement on the part of Seller
contained in this Agreement or the Management Agreement or any other agreement,
statement or certificate furnished or to be furnished to Seller in connection
with the transactions contemplated hereby;
(ii) any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any claim related to or arising out
of Seller's operation of the Schools prior to the Tier I Closing that are
asserted with respect to any liabilities that are not Assumed Liabilities; and
(iii) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.13.
9.13.2 Time Limit on Certain Indemnification Claims. For
--------------------------------------------
purposes of this Agreement, the aggregate amount of a party's losses,
liabilities, claims, obligations, damages, deficiencies, costs, expenses, and
fees shall be hereinafter referred to as "Damage" or "Damages." No action or
claim for Damages resulting from breaches of the representations, warranties and
covenants of Seller or Parent shall be brought or made after the expiration of a
two year period from the Tier I Closing, except for (i) any action or claim
resulting from breach of the representations and warranties in Section 5.1 and
5.2, which may be brought at any time, and (ii) any action or claim resulting
from breach of the representations and warranties in Section 5.5 and 5.9, which
may be brought at any time within the respective statute of limitations periods
for claims arising out of the breach of the representations and warranties in
such Sections.
9.14 Indemnification by Buyer. Buyer hereby indemnifies, defends and
------------------------
holds harmless Seller, and its affiliates and their respective officers and
directors from and against:
9.14.1 any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any misrepresentation, breach of
warranty or nonfulfillment of any covenant or agreement on the part of Buyer
contained in this Agreement, the Management Agreement or any other agreement,
statement or certificate furnished or to be furnished to Seller in connection
with the transactions contemplated hereby;
29
<PAGE>
9.14.2 any loss, liability, claim, obligation, damage or
deficiency resulting from or arising out of the failure by Buyer to pay, perform
or discharge, or cause to be paid, performed or discharged, any of the Assumed
Liabilities; and
9.14.3 all actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.14.
9.15 Procedure for Indemnification.
-----------------------------
9.15.1 The provisions of this Section 9.15 shall govern any
claim for indemnification of Buyer, pursuant to Section 9.13, or of Seller,
pursuant to Section 9.14 (each such party an "Indemnitee") against the party
agreeing to provide indemnification hereunder (the "Indemnitor").
9.15.2 The Indemnitee shall promptly give notice hereunder to
the Indemnitor, after obtaining notice of any claim as to which recovery may be
sought against the Indemnitor because of the indemnity in Sections 9.13 or 9.14,
and, if such indemnity shall arise from the claim of a third party, the
Indemnitee shall consent to the Indemnitor assuming the defense of any such
claim; provided that the Indemnitee shall not be required to permit the
--------
Indemnitor to assume the defense of any third party claim (x) which, if not
first paid, discharged or otherwise complied with, would result in a material
interruption or cessation of the conduct of the business of the Indemnitee, or
(y) if the Indemnitee, reasonably concludes that there may be a conflict of
interest between the Indemnitor, on the one hand, and the Indemnitee, on the
other hand, in the conduct of the defense of such action. Failure by the
Indemnitor to notify the Indemnitee of its election to defend any such claim or
action within 14 days of the date of notice from the Indemnitee shall be deemed
to constitute its consent to the Indemnitee's assumption of such defense. If
the Indemnitor assumes the defense of such claim or litigation resulting
therefrom, the obligations of the Indemnitor hereunder as to such claim shall
include taking all steps necessary in the defense or settlement of such claim or
litigation resulting therefrom including the retention of counsel, which counsel
must be to the Indemnitee's reasonable satisfaction, and holding the indemnitee
harmless from and against any and all Damage resulting from, arising out of, or
incurred with respect to any settlement approved by the Indemnitor or any
judgment in connection with such claim or litigation resulting therefrom. The
Indemnitor shall not, in the defense of such claim or litigation, (i) consent to
the entry of any judgment (other than a judgment of dismissal on the merits
without costs) except with the written consent of the Indemnitee, which consent
shall not be unreasonably withheld or (ii) enter into any settlement (except
with the written consent of the Indemnitee, which consent shall not be
unreasonably withheld), unless the Indemnitee is released and held harmless from
and against any and all Damages resulting from, arising out of or incurred with
respect to such judgment or settlement.
9.15.3 If the Indemnitor shall not assume the defense of any
such claim by a third party or litigation resulting therefrom, the Indemnitee
may defend against such claim
30
<PAGE>
or litigation in such manner as it deems appropriate, and the Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate and the
Indemnitor shall promptly reimburse the Indemnitee for the amount of such
settlement and for all Damages incurred by the Indemnitee in connection with the
defense against or settlement of such claim or litigation.
9.15.4 If Seller has any liability to Buyer for any indemnity
for Damages under this Agreement and if there is then outstanding (i) any amount
under the Deferred Payment Note or (ii) any amount that has not been paid in
cash or added as principal to the Deferred Payment Note under Section 2.2 above,
then the amount of such Damages shall be satisfied first by offset against
amounts not yet paid in cash or added as principal to the Deferred Payment Note
under Section 2.2 above and second by offset against amounts outstanding under
the Deferred Payment Note.
9.16 Dispute Resolution and Arbitration.
----------------------------------
9.16.1 Negotiation Between Executives. The parties shall
------------------------------
attempt in good faith to resolve any dispute arising out or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the controversy and who are at a higher level of management (if any) than
the persons with direct responsibility for administration of this contract. Any
party may give the other party written notice of any dispute not resolved in the
normal course of business. Within 15 days after delivery of the notice the
receiving party shall submit to the other a written response. The notice and the
response shall include (i) a statement of each party's position and a summary of
arguments supporting that position, and (ii) the name and title of the executive
who represents that party and of any other person who will accompany the
executive. Within 10 days after delivery of the disputing party's notice, the
executives of both parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to attempt to resolve
the dispute. All reasonable requests for information made by one party to the
other will be honored. If the matter has not been resolved within 45 days of the
disputing party's notice, or if the parties fail to meet within 10 days, either
party may initiate arbitration of the controversy or claim as provided
hereinafter. All negotiations pursuant to this clause are confidential and shall
be treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence of California and other states' Rules of Evidence.
9.16.2 Arbitration. Any dispute arising out of or relating
-----------
to this contract or the breach, termination or the validity thereof, which has
not been resolved by the nonbinding meet and confer provisions provided in
Section 9.16.1 within 90 days of the initiation of such procedure, shall be
settled by arbitration in accordance with the then-current End Dispute-Judicial
Arbitration and Mediation Services (JAMS) rules for arbitration of business
disputes by a sole arbitrator who shall be a former superior court or appellate
court judge or justice with significant experience in resolving business
disputes. If available, the arbitrator should have familiarity or experience in
Title IV funding matters. The arbitration shall be governed by the California
Code of Civil Procedure Section 1280 et seq. and the parties intend this
------
procedure to be specifically enforceable in accordance with such provisions.
Judgment upon the award rendered by the arbitrator may be entered by any court
having jurisdiction thereof. The place
31
<PAGE>
of arbitration shall be Orange County, California. THE ARBITRATOR IS NOT
EMPOWERED TO AWARD DAMAGES IN EXCESS OF COMPENSATORY DAMAGES (INCLUDING
REASONABLE ATTORNEYS FEES AND EXPERT WITNESS FEES) AND EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT TO RECOVER SUCH DAMAGES (INCLUDING, WITHOUT
LIMITATION, PUNITIVE DAMAGES) IN ANY FORUM. The arbitrator may award equitable
relief in those circumstances where monetary damages would be inadequate. The
arbitrator shall be required to follow the applicable law as set forth in the
governing law section of this Agreement.
9.16.3 Limitation on Remedies. Neither Seller nor Parent
----------------------
shall have any liability for any breach of any representation, warranty,
covenant or other provision of this Agreement, the Management Agreement or any
other agreement related to this transaction except to the extent the aggregate
of Seller's and Parent's liability for compensatory Damages on a cumulative
basis exceeds $150,000, at which time Seller or Parent, as the case may be, must
pay amounts for compensatory Damages on a cumulative basis that exceed $75,000.
Absent a showing of intentional fraud or malfeasance by Seller or Parent,
Seller's and Parent's aggregate liability for compensatory Damages for breach of
this Agreement, the Management Agreement or any other agreement related to this
transaction shall not exceed $5,000,000.
9.16.4 Satisfaction of Damages. In the event that an
-----------------------
arbitrator awards Damages to Buyer hereunder, or Seller admits in writing
liability for Damages hereunder, and if there is then outstanding any amount
owed by Buyer to Seller for any current or future Tier Closing or the Final
Payment Date, then the amount of such Damages shall first be satisfied by offset
against such outstanding amounts.
9.17 Third Party Beneficiaries. This Agreement shall be binding upon,
-------------------------
be enforceable against, and inure the benefit of the parties and their
respective successors and permitted assigns; otherwise, this Agreement shall
not, and shall not be deemed to, inure to the benefit of or be enforceable by
any third party.
9.18 Bulk Transfers. If Buyer requests, Seller will comply with any
--------------
applicable bulk transfer laws. If Buyer does not so request, Buyer and Seller
each hereby waives compliance with any applicable bulk transfer laws in
connection with the sale of the Purchased Assets hereunder and Seller hereby
agrees to indemnify Buyer against and hold Buyer harmless from any and all
damages and liabilities (including reasonable attorneys' fees) relating to or
resulting from such non-compliance.
32
<PAGE>
9.19 Best of Knowledge. The phrase "to the best of [party's]
-----------------
knowledge" means the actual knowledge of an officer of that party of Vice
President or higher office without a duty of investigation.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of this 29 day of June, 1995.
CORINTHIAN SCHOOLS, INC.
By: /s/ David G. Moore
---------------------------------------------
Its: President
---------------------------------------------
NATIONAL EDUCATION CENTERS, INC.
By: /s/ Philip C. Maynard
---------------------------------------------
Its: Vice President and Secretary
---------------------------------------------
NATIONAL EDUCATION CORPORATION
By: /s/ Philip C. Maynard
---------------------------------------------
Its: Vice President, Secretary and General Counsel
---------------------------------------------
33
<PAGE>
EXHIBIT A
SCHOOLS
-------
Tier I Schools
- --------------
National Education Center National Education Center
National Institute of Technology Campus Skadron College of Business Campus
5514 Big Tyler Road 825 East Hospitality Lane
Cross Lanes, WV 25313 San Bernardino, CA 92408
National Education Center National Education Center
Bryman Campus Bryman Campus
1120 W. La Veta Avenue, Suite 100 20835 Sherman Way
Orange, CA 92668 Winnetka, CA 91306
National Education Center
National Institute of Technology Campus
3622 Fredericksburg Road
San Antonio, TX 78201
Tier II Schools
- ---------------
National Education Center National Education Center
Bryman Campus Kee Business College Campus
2322 Canal Street 803 Diligence Drive
New Orleans, LA 70119 Newport News, VA 23606
National Education Center National Education Center
Bryman Campus National Institute of Technology
731 Market Street Campus
San Francisco, CA 94103 2620 Remico S.W.
Wyoming, MI 49509
National Education Center
Bryman Campus
2015 Naglee Avenue
San Jose, CA 95128
Tier III Schools
- ----------------
National Education Center National Education Center
Bryman Campus Bryman Campus
3505 North Hart Avenue 4212 West Artesia Boulevard
Rosemead, CA 91770 Torrance, CA 90504
34
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
BETWEEN
CORINTHIAN SCHOOLS, INC.
AS BUYER,
AND
REPOSE, INC.
AS SELLER
DATED AS OF MARCH 20, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I SALE AND PURCHASE OF ASSETS............................. 1
1.1 Purchased Assets to be Transferred...................... 1
1.2 Excluded Assets......................................... 3
ARTICLE II CONSIDERATION........................................... 3
2.1 Purchase Price.......................................... 3
2.2 Cash Consideration...................................... 3
2.3 Obligations and Liabilities to be Assumed............... 4
2.4 Excluded Liabilities.................................... 4
2.5 Allocation of Purchase Price............................ 4
2.6 Excise and Property Taxes............................... 5
ARTICLE III CLOSING................................................. 5
3.1 Closing................................................. 5
3.2 Deliveries by Seller at Closing......................... 5
3.3 Deliveries by Buyer at Closing.......................... 5
ARTICLE IV TERMINATION............................................. 6
4.1 Termination............................................. 6
4.2 Effect of Termination................................... 6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER................ 7
5.1 Organization and Corporate Power........................ 7
5.2 Ownership of School..................................... 7
5.3 Capacity; Authorization; Binding Effect, Etc............ 7
5.4 No Conflicts, Etc....................................... 8
5.5 Compliance with Laws; Licenses and Permits.............. 8
5.6 Recruitment; Admissions Procedures; Attendance; Reports. 9
5.7 Cohort Default Rate..................................... 9
5.8 Title to the Purchased Assets........................... 9
5.9 Material Assumed Contracts.............................. 10
5.10 Tradenames; Confidential Information.................... 10
5.11 Financial Statements; Indebtedness...................... 11
5.12 Receivables............................................. 12
5.13 Inventories............................................. 12
5.14 Litigation, Etc......................................... 13
5.15 Insurance............................................... 13
5.16 Environmental Matters................................... 13
5.17 Employee Benefit Plans.................................. 14
5.18 Employment Matters...................................... 14
5.19 Tax Matters............................................. 15
5.20 Brokers or Finders...................................... 15
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C>
5.21 Absence of Certain Changes.............................. 15
5.22 Delivery of Documents................................... 16
5.23 Disclosure.............................................. 16
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER................. 16
6.1 Organization and Corporate Power........................ 16
6.2 Capacity; Authorization; Binding Effect, Etc............ 16
6.3 No Conflicts, Etc....................................... 17
6.4 Brokers or Finders...................................... 17
6.5 Disclosure.............................................. 17
ARTICLE VII COVENANTS............................................... 17
7.1 Covenants of Seller Pending Closing..................... 17
7.2 Covenants of Buyer Pending Closing...................... 18
7.3 Closing and Post-Closing Covenants...................... 18
7.4 Management Agreement and Administration of the School... 20
7.5 Access and Maintenance of Records....................... 20
7.6 Substitution of Undertakings............................ 21
ARTICLE VIII CONDITIONS TO CLOSING; UNWINDING........................ 21
8.1 Conditions Precedent to Obligations of Buyer............ 21
8.2 Conditions Precedent to Obligations of Seller........... 22
8.3 Unwinding the Transaction............................... 23
ARTICLE IX MISCELLANEOUS........................................... 23
9.1 Binding Effect.......................................... 23
9.2 Notices................................................. 24
9.3 Entire Agreement........................................ 24
9.4 Nature and Survival of Representations.................. 25
9.5 Risk of Loss or Damage; Insurance....................... 25
9.6 Waiver.................................................. 25
9.7 Governing Law........................................... 25
9.8 Headings................................................ 25
9.9 Counterparts............................................ 25
9.10 Severability............................................ 25
9.11 Time is of the Essence.................................. 26
9.12 Indemnification by Seller............................... 26
9.13 Indemnification by Buyer................................ 26
9.14 Limitations on Indemnification.......................... 27
9.15 Procedure for Indemnification........................... 27
9.16 Dispute Resolution and Arbitration...................... 28
9.17 Third Party Beneficiaries............................... 29
9.18 Mitigation of Losses.................................... 29
</TABLE>
ii
<PAGE>
SCHEDULES
Schedule 1.2.3 Other Excluded Assets
Schedule 2.5 Allocation of Purchase Price
Schedule 5.5(a) Compliance with Laws
Schedule 5.5(b) Licenses and Permits
Schedule 5.6 Policy Manuals & Procedures
Schedule 5.7 Cohort Default Rate
Schedule 5.8 Permitted Exceptions
Schedule 5.9 Material Assumed Contracts
Schedule 5.10 Intellectual Property
Schedule 5.11 Financial Security Arrangements
Schedule 5.14 Litigation
Schedule 5.15 Insurance
Schedule 5.17 Employee Benefit Plans
Schedule 5.18 Employment Matters
Schedule 5.21 Absence of Certain Changes
iii
<PAGE>
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Note
Exhibit C Assignment and Assumption Agreement
Exhibit D Bill of Sale
Exhibit E-1 Form of Opinion of Seller's Counsel
Exhibit E-2 Form of Opinion of Buyer's Counsel
Exhibit F Management Agreement
iv
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of March 20, 1996 (the
"Agreement"), is entered into between Corinthian Schools, Inc., a Delaware
corporation ("Buyer"), and Repose, Inc., a Washington corporation ("Seller").
P R E A M B L E :
WHEREAS, Seller owns, operates and administers that certain post-
secondary, vocational training school known as Career Floral Design Institute,
located at 14350 NE 21st Street, Suite 1, Bellevue, Washington, 98007 (the
"School");
WHEREAS, Buyer desires to buy, through the payment of cash, the
assumption of certain liabilities of Seller and other valuable consideration,
and Seller desires to sell, substantially all assets and property owned by
Seller and used solely and directly in the business of the School, upon the
terms and conditions hereinafter set forth; and
WHEREAS, Buyer desires to assume management responsibility for the
School prior to the Closing (as defined in Section 3.1 below) in accordance with
the terms of a management agreement;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained in this Agreement and intending to be legally bound hereby,
agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Purchased Assets to be Transferred. Subject to the terms and
----------------------------------
conditions of this Agreement, Seller hereby agrees to sell, assign, convey,
transfer and deliver to Buyer at the Closing, and Buyer hereby agrees to
purchase from Seller at the Closing, all of the Seller's right, title and
interest in and to the following assets (the "Purchased Assets"), subject to all
existing mortgages, pledges, liens, claims, restrictions, encumbrances and
security interests of any kind or nature, including without limitation the
Assumed Liabilities and as otherwise described in Schedule 5.8 (collectively the
------------
"Permitted Exceptions"), and except for the Excluded Assets (as defined in
Section 1.2 hereof):
1.1.1 Accounts Receivable. All accounts receivable (and causes
-------------------
of action related thereto), including accounts receivable that have been written
off, of Seller ("Accounts Receivable");
<PAGE>
1.1.2 Inventory. All of Seller's inventory of textbooks,
---------
materials and supplies as of the date hereof, plus or minus any such items which
have been added or deleted in the ordinary course of business consistent with
past practice ("Inventory");
1.1.3 Equipment. All of Seller's computer hardware, printers,
---------
other data processing equipment, other machinery and equipment, furniture,
fixtures, leasehold improvements, furnishings and other tangible personal
property used solely and directly at the School as of the date hereof, plus or
minus any such items which have been added or deleted in the ordinary course of
business consistent with past practice ("Equipment");
1.1.4 Records. All of Seller's records related to or used in
-------
connection with the operation of the School or pertaining to the Purchased
Assets, including without limitation, all student records, ledgers, copies of
financial statements, copies of correspondence, copies of employment records,
copies of placement records, copies of marketing materials and copies of all
documents filed by Seller with any state, federal or local government authority
or any guaranty or accrediting agency (the "Records");
1.1.5 Contracts and Leases. All of the contracts and leases
--------------------
applicable solely to the School to which Seller is a party entered into in the
course of Seller's business, including without limitation those identified in
Schedule 5.9 (collectively, the "Assumed Contracts");
- ------------
1.1.6 Intellectual Property. All trademarks, service marks and
---------------------
copyrights (whether or not registered) and all applications and registrations
therefor, owned or licensed by Seller, and all computer programs and software,
including those described in Schedule 5.10 (the "Intellectual Property");
-------------
1.1.7 Warranty Rights. All rights of Seller, if any, relating
---------------
to or arising out of express or implied warranties from suppliers with respect
to any of the Purchased Assets, and all causes of action arising therefrom;
1.1.8 Prepaid Expenses. All of Seller's prepaid security,
----------------
vendor, utility and other deposits and expenses;
1.1.9 Permits. To the extent transferable, Seller's licenses,
-------
permits, certifications, approvals and other governmental and regulatory
authorizations required under all laws, rules and regulations applicable to or
affecting the School, including those described in Schedule 5.5(b);
---------------
1.1.10 Goodwill. All of the goodwill and going concern value of
--------
the School;
1.1.11 Curriculum. All proprietary curriculum used in connection
----------
with the educational programs of the School, in the form of texts, lesson plans,
handouts, films, videos, exams and other related materials; and
2
<PAGE>
1.1.12 Lead Bank. Copies of all information in existence as of
---------
the Closing in Seller's lead bank (the "Lead Bank Data").
1.2 Excluded Assets. The Excluded Assets shall not be conveyed
---------------
hereunder. The "Excluded Assets" means:
1.2.1 Cash. All of Seller's cash or cash equivalents (including
----
cash arising from prepaid tuition and all collected accounts receivable) on hand
at the Closing and Seller's bank accounts relating thereto;
1.2.2 Nontransferable Rights. Any license, permit, contract and
----------------------
governmental authorization or accreditation that is not transferable; and
1.2.3 Other Excluded Assets. All assets and rights listed on
---------------------
Schedule 1.2.3.
- --------------
ARTICLE II
CONSIDERATION
2.1 Purchase Price. The purchase price payable to Seller in
--------------
connection with the transfer to Buyer of the Purchased Assets shall be the cash
consideration portion referred to in Section 2.2, plus the assumption of
liabilities of Seller referred to in Section 2.3 (collectively, the "Purchase
Price").
2.2 Cash Consideration. The cash consideration portion of the
------------------
Purchase Price shall be Two Hundred Fifty Thousand Dollars ($250,000), payable
as follows:
2.2.1 Upon the execution of the Management Agreement (as
defined in Section 7.4), Buyer shall deposit Two Hundred Thousand Dollars
($200,000) into an escrow account (the "Escrow") established at Key Trust
Company of the Northwest pursuant to the Escrow Agreement attached hereto as
Exhibit A (the "Escrow Agreement"). If and when (i) a Program Participation
- ---------
Agreement, and (ii) an Eligibility and Certification Approval Report (which
includes the allied health program), are submitted to the Escrow, One Hundred
Eighty Thousand Dollars ($180,000) will be released to Seller from the Escrow.
2.2.2 On the date (which shall be no sooner than the date at
which funds are released from the Escrow pursuant to Section 2.2.1 and no sooner
than 30 days after the Closing Date (as defined in Section 3.1)) when Seller
provides satisfactory evidence to Buyer that all payables incurred prior to the
Closing Date have been paid in full or renegotiated to the mutual satisfaction
of Buyer and Seller, the remaining Twenty Thousand Dollars ($20,000) plus all
interest accrued in Escrow, if any, shall be released to Seller from the Escrow.
2.2.3 At the Closing, Buyer shall deliver to Seller a
promissory note (in substantially the form attached hereto as Exhibit B) (the
"Note") in the principal amount of Fifty Thousand Dollars ($50,000), which shall
be payable in full, without interest at the later of (i)
3
<PAGE>
the one-year anniversary of the Closing Date, and (ii) the date at which funds
are released from the Escrow pursuant to Section 2.2.1.
2.3 Obligations and Liabilities to be Assumed. At the Closing, Buyer
-----------------------------------------
shall, by an appropriate instrument of assumption to be executed and delivered
on the Closing Date substantially in the form of Exhibit C hereto (the
---------
"Assignment and Assumption Agreement"), assume and agree to perform, pay or
discharge, when due, to the extent not theretofore performed, paid or
discharged, all of the following obligations, commitments and liabilities of
Seller relating to or arising from the School (collectively, the "Assumed
Liabilities"):
2.3.1 All obligations of and restrictions on Seller with
respect to the School: (i) under the Assumed Contracts (including assumption of
the liabilities, duties and obligations under enrollment contracts between
students and Seller which Seller is obligated to perform on or after the
Closing), but not including liabilities for breaches by Seller under Assumed
Contracts on or before the Closing Date; (ii) with respect to the Intellectual
Property; and (iii) with respect to the Records;
2.3.2 All obligations and liabilities relating to the refunds
owed to students of the School; and
2.3.3 All regulatory liabilities imposed by the U.S. Department
of Education ("ED") and the applicable state regulatory agencies for periods
from and after the Closing Date.
2.4 Excluded Liabilities. Except for the Assumed Liabilities, Buyer
--------------------
shall not assume, or otherwise be responsible for, any liabilities or
obligations (whether actual or contingent, matured or unmatured, liquidated or
unliquidated, or known or unknown) of Seller, any other owner or operator of the
School prior to the Closing Date, or any affiliate of any of the foregoing
(collectively, the "Excluded Liabilities"), including but not limited to any
liability or obligation as a result of, or based upon or arising out of the
conduct of the School on or prior to the Closing Date, including but not limited
to the following: (i) regulatory liabilities imposed by ED and the applicable
state regulatory agencies for periods prior to the Closing Date including, but
not limited to any liabilities arising from the ED program review presently
scheduled to commence on March 25, 1996, (ii) liabilities relating to employees
of the School prior to the Closing Date, including, but not limited to, accrued
payroll obligations, (iii) liabilities with respect to accounts payable incurred
on or before the Closing Date, and (iv) the alleged or actual violation of any
law, rule or regulation prior to the Closing, by the Seller or the School.
2.5 Allocation of Purchase Price. Buyer and Seller agree that the
----------------------------
Purchase Price shall be allocated among the Purchased Assets in accordance with
the allocation set forth in Schedule 2.5 attached hereto. Buyer and Seller
------------
agree that each will report the federal, state and local income tax and other
tax consequences of the purchase and sale contemplated hereby in a manner
consistent with such allocation and that neither will take any position
inconsistent therewith upon examination of any tax return, in any refund claim,
in any litigation, or otherwise.
4
<PAGE>
2.6 Excise and Property Taxes. Buyer and Seller shall each pay fifty
-------------------------
percent (50%) of all sales and use taxes arising out of the transfer of the
Purchased Assets. Each of Buyer and Seller and shall pay its respective
portion, prorated as of the Closing, of state and local real and personal
property taxes of the business.
ARTICLE III
CLOSING
3.1 Closing. The effective time of the completion of the purchase
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and sale of the Purchased Assets (the "Closing") shall take place at the offices
of O'Melveny & Myers, 610 Newport Center Drive, Suite 1700, Newport Beach,
California 92660, at 11:59 p.m. on the last day of the month following the month
in which the conditions specified in Sections 8.1.6 and 8.1.7 first become
satisfied (the "Closing Date").
3.2 Deliveries by Seller at Closing. At the Closing Seller shall
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deliver or cause to be delivered to Buyer the following:
3.2.1 The following documents of transfer and assignment duly
executed by Seller:
(i) Bill of Sale substantially in the form of Exhibit D
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hereto; and
(ii) Assignment and Assumption Agreement substantially in
the form of Exhibit C hereto.
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3.2.2 Such other instruments of conveyance as shall, in the
reasonable opinion of Buyer and its counsel, be necessary to vest in Buyer title
to the Purchased Assets;
3.2.3 Certified resolutions of Seller's Board of Directors
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein;
3.2.4 An opinion of counsel to Seller, in form and substance
reasonably acceptable to Buyer, containing the opinions set forth on Exhibit
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E-1, along with usual and customary exceptions and qualifications; and
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3.2.5 An officers' certificate signed by the President and the
Chief Financial Officer of Seller, or such other officer reasonably acceptable
to Buyer, certifying that Seller is, as of the Closing Date, in material
compliance with all of Seller's covenants and obligations under this Agreement.
3.3 Deliveries by Buyer at Closing. At the Closing Buyer shall
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deliver or cause to be delivered to Seller the following:
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3.3.1 The Note;
3.3.2 Certified resolutions of the Board of Directors of Buyer
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein;
3.3.3 Documents reasonably required by Seller for the assumption
by Buyer of Assumed Liabilities in accordance with Section 2.3 duly executed by
Buyer, including without limitation, the Assignment and Assumption Agreement
substantially in the form of Exhibit C hereto.
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3.3.4 An opinion of counsel to Buyer in form and substance
reasonably acceptable to Seller containing the opinions set forth on Exhibit
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E-2, along with usual and customary exceptions and qualifications; and
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3.3.5 An officers' certificate signed by the President and the
Chief Financial Officer of Buyer certifying that Buyer is, as of the Closing
Date, in material compliance with all of Buyer's covenants and obligations under
this Agreement, and that Buyer is in full compliance with all terms and
provisions of the Management Agreement (as defined in Section 7.4 hereof).
ARTICLE IV
TERMINATION
4.1 Termination. This Agreement may be terminated only as follows
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and in each case only by written notice:
4.1.1 At any time by mutual written consent of Seller and Buyer;
4.1.2 Prior to the Closing by Seller on the one hand or Buyer on
the other, if the other party shall be in breach of any covenant, undertaking or
restriction contained herein in any material respect and such breach has not
been cured within fifteen (15) business days after the giving of written notice
to the breaching party of such breach;
4.1.3 Prior to the Closing by Buyer if ED, the State of
Washington or any of its agencies, any guaranty agency or any accreditation
agency deny approval of the School to teach the basic Corinthian Allied Health
program, or determine that the School or the program will not be certified as
eligible for Title IV funds; or
4.1.4 Prior to the Closing by either Party if the Management
Agreement has terminated.
4.2 Effect of Termination. In the event of termination of this
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Agreement by either Buyer or Seller in accordance with the applicable provisions
above, this Agreement shall forthwith terminate upon notice thereof duly given
in accordance with the provisions hereof, and
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there shall be no liability of any nature on the part of either Buyer or Seller
(or their respective officers or directors) to the other, except for liabilities
arising from a breach of this Agreement prior to such termination; provided,
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however, that this Section 4.2 in no way limits the obligations of the parties
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set forth in Sections 9.12, 9.13, 9.14 and 9.15 hereof, which obligations shall
survive the termination. If this Agreement is terminated as provided herein,
each of Buyer and Seller shall, and shall cause its respective representatives
to, either destroy or redeliver all documents, work papers and other materials
relating to the transaction contemplated hereby or to the business or operations
of the other party, whether so obtained before or after the execution hereof, to
such other party, and all such information received by Buyer or Seller, as the
case may be, (other than information which is in or becomes part of the public
domain by publication or otherwise or which has heretofore been or is hereafter
filed or available as public information with any governmental authority) shall
be kept confidential, except as required by law. In addition, each of Buyer and
Seller shall cooperate in good faith following termination of this Agreement to
provide any information or documents reasonably required by the other party in
connection with preparation of such party's financial statements and tax
returns.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to Buyer to enter into this Agreement, to
purchase the Assets and assume the Assumed Liabilities, Seller hereby represents
and warrants (a) as of the date hereof and (b) as of the Closing Date, that:
5.1 Organization and Corporate Power. Seller is a corporation, duly
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organized, validly existing and in good standing under the laws of the State of
Washington, Seller has all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and to
consummate the transactions contemplated by this Agreement. The copies of
Seller's articles of incorporation and bylaws which have been furnished to Buyer
reflect all amendments made thereto at any time prior to the date of this
Agreement and are correct and complete.
5.2 Ownership of School. The School is owned and operated by Seller
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directly, and no other Person has any ownership interest in the School. No
other Person has any right, option, subscription or other arrangement to
purchase or otherwise acquire any interest in the School.
5.3 Capacity; Authorization; Binding Effect, Etc. Seller has the
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power, legal capacity and authority to execute, deliver and perform this
Agreement and each other document being executed in connection herewith to which
it is a party. Seller has the power, legal capacity and authority to transfer,
convey and deliver the Purchased Assets, free and clear of all liens, claims,
encumbrances, options, rights and restrictions, except as otherwise disclosed in
Schedule 5.8. This Agreement and each other document executed by Seller in
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connection herewith has been duly executed and delivered by Seller, and
(assuming the due authorization, execution and
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delivery hereof and thereof by Buyer) this Agreement and each such other
document is a valid and binding obligation of Seller, enforceable against it, in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).
5.4 No Conflicts, Etc. The execution, delivery and performance of
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this Agreement and each other document being executed by Seller in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby will not: (a) violate any provisions of law applicable to Seller; (b)
with or without the giving of notice or the passage of time, or both, conflict
with or result in the breach of any provision of the articles of incorporation
or bylaws of Seller, any material instrument, license, agreement or commitment
to which Seller is a party or by which any of its assets or properties is bound;
(c) constitute a violation of any order, judgment or decree to which Seller is a
party or by which any of its assets or properties is bound; or (d) require any
approval of, or filing or registration with, any governmental entity or
regulatory authority other than those which will be effected by Seller prior to
the Closing Date.
5.5 Compliance with Laws; Licenses and Permits. Except as shown on
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Schedule 5.5(a), Seller is not in violation of any law or any regulation or
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requirement which violation might reasonably be expected to have a material
adverse effect upon the financial condition, operating results, accreditation or
business prospects of the School, and Seller has not received notice of any such
violation. Seller currently maintains all licenses, accreditation,
certificates, permits, consents, authorizations and other governmental or
regulatory approvals (the "Licenses and Permits") necessary for Seller to
conduct the business and operations of the School as presently being conducted.
Seller has duly filed all reports and returns required to be filed by it with
respect to the School with governmental authorities and accrediting bodies. The
Licenses and Permits for the School are in full force and effect, and no
proceedings for the suspension or cancellation of any of them is pending or, to
the best of Seller's knowledge, threatened. No application made by Seller for
any Licenses and Permits during the last three (3) years has been denied, and to
the best of Seller's knowledge, no such applications were denied for the two (2)
preceding years. Schedule 5.5(b) attached hereto is a true, correct and
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complete list of all Licenses and Permits held by Seller with respect to the
School and the governmental authority or accrediting body granting such Licenses
and Permits. Seller has delivered to Buyer copies of all such Licenses and
Permits. Seller has received no notice that any of the Licenses and Permits
will not be renewed and to the best of Seller's knowledge, there is no basis for
nonrenewal. The School is accredited by A.C.C.S.C.T., is certified by ED as a
qualified institution under Title IV and is a party to, and in compliance with,
valid program participation agreements with ED with respect to the School's
operations. Seller has not received any notice, not previously complied with,
in respect of any alleged violation of the rules or regulations of ED or any
applicable accrediting body in respect of the School, including sales and
marketing activities, or the terms of any program participation agreement to
which it is or was a party. If any such notices have been received and complied
with, Seller has disclosed their receipt and disposition to Buyer prior to the
execution of this Agreement in writing. Except for the ED program review
presently scheduled to commence on March 25, 1996, Seller
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is not aware of any investigation or review of Seller's student financial aid
programs or any review of the accreditation of the School by any Person.
5.6 Recruitment; Admissions Procedures; Attendance; Reports.
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Schedule 5.6 attached hereto is a complete list of all policy manuals and other
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statements of procedures or instruction relating to recruitment of students for
the School, including (a) procedures for assisting in the application by
prospective students for direct or indirect state or federal financial
assistance; (b) admissions procedures, including any descriptions of procedures
for insuring compliance with state or federal or other appropriate standards or
tests of eligibility; and (c) procedures for encouraging and verifying
attendance, minimum required attendance policies, and other relevant criteria
relating to course completion and certification (collectively, the "Policy
Guidelines"). Seller has delivered to Buyer true, correct and complete copies
of all Policy Guidelines. To the best of Seller's knowledge, Seller's
operations with respect to the School have, in all material respects, been
conducted in accordance with the Policy Guidelines and all relevant standards
imposed by applicable accrediting bodies, agencies administering state or
federal governmental programs in which Seller participates, and other applicable
laws or regulations. Seller has submitted all reports, audits, and other
information, whether periodic in nature or pursuant to specific requests, for
the School ("Compliance Reports") to all agencies or other entities with which
such filings are required relating to its compliance with (i) applicable
accreditation standards governing its activities or (ii) laws or regulations
governing programs pursuant to which Seller or its students receive funding, and
(iii) all articulation agreements with degree-granting colleges and universities
in effect as of the date of this Agreement. Complete and accurate records in
all material respects for all present and past students attending the School
have been maintained consistent with the operations of a school business. All
forms and records with respect to the School have been prepared, completed,
maintained and filed in all material respects in accordance with all applicable
federal and state laws and regulations, and are true and correct in all material
respects. All financial aid grants and loans, disbursements and record keeping
relating thereto have been completed in compliance with all federal and state
requirements, and there are no material deficiencies in respect thereto. No
student at the School has been funded prior to the date for which such student
was eligible for funding, and such student's records conform in form and
substance to all relevant regulatory requirements.
5.7 Cohort Default Rate. Schedule 5.7 attached hereto sets forth the
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cohort default rate for the School, calculated in the manner prescribed by ED,
of all students attending the School receiving assistance pursuant to Title IV
programs for the years ended December 31, 1990 through 1993, with an estimate
prepared by Seller for 1994. To the best knowledge of Seller, such schedule is
materially accurate in all respects.
5.8 Title to the Purchased Assets.
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(i) The leased facilities ("the Facilities") located at 14350
N.E. 21st Street, Suites 1 through 4, Bellevue, Washington, King County, as
further described in that certain Lease Agreement dated June 29, 1994 by and
between Seller, Katherine Salvog and Kristi R. Russell as Lessee, and John W.
and Mary Ann Underwood and Roy B. and Gulah E. Dunham as Lessor, constitute the
only real property used in connection with the operation of the School by
Seller.
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(ii) All of Seller's operations with respect to the School are
conducted at the Facilities of the School, and all of the tangible Purchased
Assets and records relating to intangible Purchased Assets of the School are or
as of the Closing will be located at the Facilities. Seller is not under any
contractual or other legal obligation and has not entered into any commitment to
make capital improvements or alterations to the Facilities. The Facilities are
not subject to any zoning ordinance or other restrictions which would prohibit
the use and enjoyment of the Facilities in the manner in which the Facilities
are currently used. Seller has no knowledge of any condemnation proceedings
relating to any Facility. To the best of Seller's knowledge, each Facility and
Seller's use thereof is in compliance in all material respects with all laws,
including, without limitation, the Americans with Disabilities Act.
(iii) Seller owns outright, and has good and marketable title
to, all of the Purchased Assets of the School, free and clear of all liens,
claims and encumbrances, options, rights, and restrictions, other than as set
forth on Schedule 5.8 and liens for current taxes not yet due and payable. All
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leases for tangible personal property used by Seller in connection with the
operation of the School are valid and in full force and effect and are
enforceable in all material respects in accordance with their terms. Neither
Seller nor, to the best of Seller's knowledge, any of the other parties thereto,
is in default under any such lease, and no event, act or omission has occurred
which (with or without notice, the passage of time or the happening or
occurrence of any other event) would result in a default thereunder.
(iv) The tangible Purchased Assets and properties of the School
which are owned or leased by Seller and used in connection with the operation of
the School are in good operating condition, order and repair, useable in the
ordinary course of business consistent with past practice, subject to ordinary
wear and tear, and are sufficient and adequate for all current operations.
Seller has not received notice of any violation of or default under any law,
ordinance, order, regulation or requirement relating to any of the Purchased
Assets of the School which remains uncured or has not been resolved.
5.9 Material Assumed Contracts. Schedule 5.9 attached hereto sets
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forth a true, complete and correct list of all material Assumed Contracts
(hereinafter collectively referred to as the "Material Assumed Contracts") of
Seller. True, complete and correct copies of all Material Assumed Contracts,
together with all amendments thereto, have heretofore been delivered or
otherwise made available to Buyer. The Material Assumed Contracts are in full
force and effect, constitute legal, valid and binding obligations of Seller and,
to the best knowledge of Seller, of the other parties thereto. Seller is not in
material default or alleged to be in material default on any term of any such
Material Assumed Contract. Except as noted on Schedule 5.9 attached hereto, the
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consummation of the transactions contemplated by this Agreement does not require
the consent or approval of any party to any Material Assumed Contract.
5.10 Tradenames; Confidential Information.
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(i) All tradenames, trademarks or service marks and all forms,
derivatives and graphic presentations thereof of the School (collectively, the
"Tradenames"), having any material value to the operation of the School are set
forth on Schedule 5.10 attached
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hereto. Seller has exclusive right to the use of each Tradename as an assumed
business name in the states in which such Tradename is used, and Schedule 5.10
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sets forth all registrations of each Tradename as a trademark, servicemark or
assumed name. Seller has not licensed any other Person to use any Tradename.
Seller has not been sued or threatened with suit for infringement, violation or
breach with respect to any Tradename, and to the best of Seller's knowledge, no
basis exists for any such suit. Except as disclosed on Schedule 5.10, Seller is
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not on notice of any infringement, violation or breach of the Tradename by any
other Person.
(ii) Seller has the right to use, free and clear of any claims
or rights of any third party, all trade secrets, customer lists, know-how,
curricula and any other confidential information required for or used in the
operation of the School. Seller is not in any way making any unlawful or
wrongful use of any trade secrets, customer lists, know-how, curricula or any
other confidential information of any third party including, without limitation
any former employer of any present or past employee of Seller in connection with
the operation of the School.
5.11 Financial Statements; Indebtedness. Seller has previously
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furnished to Buyer the following financial statements: reviewed Balance Sheets
at December 31, 1990, and December 31, 1991, audited Balance Sheets at December
31, 1993, December 31, 1994 and December 31, 1995; reviewed Cash Flow Statements
for the fiscal years ended December 31, 1990 and December 31, 1991, and audited
Cash Flow Statements for the fiscal years ended December 31, 1993, December 31,
1994 and December 31, 1995; reviewed Statements of Operations and Deficit for
the fiscal years ended December 31, 1990 and December 31, 1991 and audited
Statement of Operations and Deficit for the fiscal year ended December 31, 1993
and audited Statement of Operations and Stockholder Equity for December 31, 1994
and December 31, 1995 (collectively, the "Financial Statements"). The balance
sheets included in the Financial Statements present fairly in accordance with
generally accepted accounting principles ("GAAP") the assets and liabilities of
the School covered thereby as of the respective dates thereof, and the related
statements of operations present fairly in accordance with GAAP the results of
operations of the School for the respective periods covered thereby. The
Financial Statements for the School have been prepared in a manner consistent
with Seller's standard internal accounting practices, consistently applied, are
substantially correct and complete and fairly present the financial position of
the School as of the dates of such Financial Statements, and the results of
operations and changes in financial position for the periods covered by such
Financial Statements. Seller has maintained the books and records of the School
in accordance with applicable laws, rules and regulations and with GAAP, and
such books and records are, and during the periods covered by the Financial
Statements were, correct and complete, fairly reflecting the income, expenses,
assets and liabilities of the School. On the date hereof, the School does not
have any liabilities required to be set forth in a balance sheet prepared in
accordance with GAAP, that were not included in the Financial Statements. Except
as provided in Schedule 5.11, Seller is not required to provide any letters of
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credit, guaranty or other financial security arrangements in connection with any
transactions, approvals or licenses in the ordinary course of the School's
business. Except as disclosed on Schedule 5.14, as of the date hereof, the
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School has no indebtedness, liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, other than:
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(i) those set forth or reserved against in the balance sheets
included in the Audited Financial Statements for the fiscal years then
ended to the extent set forth, reserved against or disclosed;
(ii) those set forth or reserved against in the Unaudited
Financial Statements, or those which would have been disclosed in footnotes
if footnotes had been prepared and which have been disclosed in writing to
Buyer, to the extent set forth, reserved against or, in the case of
footnote items, disclosed; and
(iii) those incurred since December 31, 1995, in the ordinary
course of business and consistent in nature with past practice.
To the best of Seller's knowledge, there exists no condition relating to the
School, whether absolute, accrued, contingent or otherwise, which could have a
material adverse effect on the properties, business, Purchased Assets, results
of operations or condition (financial or otherwise) of the School or which would
prevent the operations of the School from being carried on in the future in
substantially the same manner as it is presently being conducted. There are no
long-term fixed or contractual liabilities relating to the operation of the
School which are required to be assumed by Buyer in order to continue to operate
the School as presently operated by Seller, the annual expense of which are not
reflected in the Financial Statements or which are not otherwise disclosed in
this Agreement or any schedule hereto.
5.12 Receivables. The tuition receivable and accounts receivable of
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the School, except to the extent of the allowance for cancellations and doubtful
accounts set forth in the Financial Statements, are bona fide receivables, arose
out of arms' length transactions in the normal and usual practices of Seller and
the School, are recorded correctly on the books and records of Seller and the
School, and, to the best of Seller's knowledge, will be collected in full in the
ordinary course of business, within the ordinary time frame for such
receivables, subject in the case of certain receivables to reserves established
for such receivables in the Financial Statements. Such receivables are not
subject to any defense, counterclaim or setoff or trade discounts or credits not
reflected in the Financial Statements (other than tuition refund policies
administered in accordance with all applicable legal requirements and the
applicable Policy Guidelines), and Seller has no knowledge of any facts or
circumstances which would cause any of such receivables to have to be written
down or written off.
5.13 Inventories. The only inventories maintained by Seller in
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connection with the operation of the School consist of supplies used in the
ordinary course of business of the School and are reflected on the Financial
Statements as "other assets." Such supplies are reflected at cost, are usable
in the ordinary and regular course of business, are to the best of Seller's
knowledge fit and sufficient for the purpose for which they were purchased, and,
at the date of this Agreement, are in customary amounts appropriate to Seller's
operations of the School. All excess or obsolete items have been written down
to net realizable value or written off.
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5.14 Litigation, Etc. Except as set forth in Schedule 5.14 attached
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hereto; there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of Seller's knowledge,threatened against or
affecting Seller or the School at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality or
accrediting body pertaining to or affecting Seller or the School; to the best of
Seller's knowledge, Seller is not the subject of any governmental investigations
or inquiries (including inquiries as to the qualification to hold or receive any
of the Licenses and Permits with respect to the School); and, to the best of
Seller's knowledge, there is no basis for any of the foregoing.
5.15 Insurance. Schedule 5.15 attached hereto sets forth the
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insurance coverages maintained by Seller on the Facilities, the other Purchased
Assets and the operations of the School, including all policies or binders of
fire, extended coverage, general and vehicular, fidelity and fiduciary
liability, workers' compensation, key-man life and other insurance held by
Seller and all binders for insurance to be purchased on or before Closing, in
order to replace policies expiring prior to the Closing or otherwise. Such
policies and binders are in full force and effect, and there is no material
breach or default with respect to any provision contained in any such policy or
binder, and all premiums, to the extent due and payable, have been paid or the
liability therefor properly accrued. To the best of Seller's knowledge, the
insurance coverage maintained by Seller for the School is sufficient and is
customary for a well-insured School of similar size, engaged in similar lines of
business. Except for amounts deductible under such policies of insurance, Seller
is not and has not been, prior to the date hereof, subject to liability as a
self-insurer for the School. There are no claims pending or threatened under any
of said policies pertaining to the School or disputes with underwriters
regarding coverage under such policies pertaining to the School. Except as set
forth on Schedule 5.15, neither the execution, delivery and performance of this
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Agreement, nor the consummation of the transactions contemplated hereby, will
result in the loss to Seller of any of the insurance policies listed or impair
the rights of Seller with respect to liabilities arising in connection with the
operation of the School prior to the Closing for the School. Within the three
(3) years prior to the date hereof, Seller has not been denied insurance for the
School, or been offered insurance for the School only at a commercially
prohibitive premium nor to the best of Seller's knowledge, were there any such
denials or offerings for the preceding two (2) years.
5.16 Environmental Matters. In connection with the operations of the
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School, Seller has not generated, transported, stored, treated or disposed, nor
has it allowed or arranged for any third persons to transport, store, treat or
dispose, any hazardous substance to or at: (a) any location other than a site
lawfully permitted to receive such hazardous substance for such purposes or (b)
any location designated for remedial action pursuant to federal, state or local
statute and relating to the environment or waste disposal; nor has Seller
performed, arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any laws or regulations or in any
other manner which may result in liability for contamination or threat of
contamination of the environment. No generation, use, handling, storage,
treatment, release, threat of release, discharge, spillage or disposal of any
hazardous substance, has occurred or is occurring at the Facilities or any other
facilities or properties owned or operated by Seller in connection with its
operation of the School. Seller has not received notification, nor is it aware
of, any past or present failure by Seller to comply with any environmental
laws,
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regulations, permits, franchises, licenses or orders applicable to the School or
its operations. Seller has not received any notification, nor is it aware of,
any past or present failure to comply with any environmental laws, regulations,
permits, franchises, licenses or orders applicable to its operations other than
the School which may result in judicial, regulatory or other legal proceedings
having a material adverse impact on the operations of the School or result in
the imposition of any lien, claim, assessment or other encumbrance against the
Purchased Assets. To the best of Seller's knowledge, the Facilities do not
contain asbestos or polychlorinated biphenyls or any underground storage tanks.
5.17 Employee Benefit Plans. Schedule 5.17 attached hereto sets forth
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a complete accurate and detailed description of all of Seller's employee welfare
and benefit plans ("Plans"). Except as set forth in Schedule 5.17, none of the
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Plans constitutes a pension plan, profit sharing plan or "employee benefit plan"
as such term is defined in Section 3 of ERISA, with respect to which Seller is
required to obtain a determination letter from the Internal Revenue Service or
to file Form 5500. Each Plan and related trust agreement (as applicable) has
been administered and operated in accordance with its terms and applicable law,
and to the extent applicable, each Plan is "qualified" within the meaning of
Section 401(a) of the Code, and each related trust is exempt from tax under
Section 501(a) of the Code, and each qualified plan has been amended to conform
to the requirements of the Tax Reform Act of 1986 and applicable regulations and
the Omnibus Budget Reconciliation Act of 1987 and all other applicable laws and
regulations. No liability under ERISA or otherwise has been incurred or, based
upon existing facts, may be expect to be incurred with respect to any Plan.
Other than claims for benefit payments in the ordinary course under the Plans,
there are no actions, suits, claims or proceedings, pending or, to the best of
Seller's knowledge, threatened, nor, to the best of Seller's knowledge, does
there exist any basis therefor, which would result in any liability with respect
to any Plan. Seller is not now, nor has it ever been a participant in, any
Multiemployer Plan within the meaning of Section 3(37) of ERISA. There are no
accrued liabilities under any Plans, programs or practices maintained on behalf
of the employees of the School which are not provided for on its books or in the
Financial Statements or which have not been fully provided for by contributions
to such Plans, programs or practices. As of the date hereof, Seller does not
maintain any employee welfare benefit plans, as defined in Section 3(1) of
ERISA, which provide post-retirement benefits to former employees of the School
and to current employees of the School after their termination of employment
(including, without limitation, medical and life insurance benefits), other than
as may be required by the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended and interpreted by regulations thereunder.
5.18 Employment Matters. Except as disclosed in Schedule 5.18, Seller
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and the School are in compliance in all material respects with all federal,
state and local laws, rules and regulations affecting employment and employment
practices with respect to the School, including terms and conditions of
employment, employment discrimination and wages and hours, and Seller is not
engaged in any unfair labor practices with respect to employees of the School;
there are no complaints against Seller with respect to employees of the School
pending before the National Labor Relations Board or any similar state or local
labor agency; there are no labor strikes, slow-downs or stoppages or other labor
troubles pending or, to the best of Seller's knowledge, threatened with respect
to any employees of the School; no labor organization activities have occurred
with respect to employees of the School during the past three (3) years;
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there are no collective bargaining agreements binding on Seller relating to the
operation of the School; no grievances have been asserted against Seller with
respect to employees of the School; and Seller has not experienced any work
stoppage by its employees at the School during the last three (3) years.
5.19 Tax Matters. Seller has completed and filed on or before the due
-----------
dates thereof or within applicable extension periods all returns for taxes
required to be filed, and such returns are true and correct in all material
respects. Seller has paid all taxes shown to be due and payable on such returns
to the extent that the same have become due and payable on or before the
Closing. Seller is not a party to, nor to the best of Seller's knowledge,
expected to become a party to, any pending or threatened action or proceeding,
assessment or collection of taxes by any governmental authority relating to the
business and operations of Seller.
5.20 Brokers or Finders. Seller represents that except for the
------------------
retention of Gena Wikstrom by Seller, whom Seller shall pay or reimburse at
Seller's sole cost and expense, no agent, broker, investment banker or other
firm or person retained by Seller is or will be entitled to any broker's or
finder's fee or any similar commission or fee in connection with any of the
transactions contemplated by this Agreement.
5.21 Absence of Certain Changes. Except as contemplated by this
--------------------------
Agreement or as set forth on Schedule 5.21 attached hereto, for the School, from
-------------
December 31, 1995 until the date of this Agreement there has not been, occurred
or arisen with respect to the School:
(i) any sale, lease, transfer, abandonment or other disposition
of any right, title or interest in or to any of the properties or assets of
Seller used in connection with the operations of the School (tangible or
intangible), except in the ordinary course of business;
(ii) (i) any approval or action to put into effect any increase
in any compensation or benefits payable to any employee, agent or officer
of Seller employed or providing services in connection with the operation
of the School or any payment, grant or accrual to or for the benefit of any
such employee, agent or officer of any bonus, service award, percentage
compensation or other benefit, (ii) any adoption or amendment of any Plans,
or any severance agreement or employment contract to which any such
employee, agent or officer of the School is a party or (iii) any entering
into of any employment, deferred compensation or other agreements with
respect to bonuses, service awards, percentage compensation or other
benefits with any such employee, agent or officer;
(iii) any material adverse change in the financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise), business
prospects, reserves or operations of the School;
(iv) any damage, destruction or loss, whether or not covered by
insurance, materially adverse to the assets, business, or operations of the
School;
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(v) any change in any material respect in the business policies
or practices of the School or a failure to operate the business of the
School in the ordinary course with a view to preserving such business
intact, to retaining the services of the present officers, employees and
agents of Seller employed or providing services in connection with the
operation of the School and with a view to preserving the business
relationships of the School with, and the goodwill of, students, sales
representatives, suppliers, accrediting bodies, governmental authorities
and others; or
(vi) any agreement, whether in writing or otherwise, to take any
action described in this Section 5.21.
5.22 Delivery of Documents. True, correct and complete copies of all
---------------------
material documents, instruments, agreements and records of Seller relating to
the Purchased Assets, the Assumed Liabilities, the representations and
warranties of Seller contained in this Agreement and/or the operation of the
School have been delivered or made available to Buyer.
5.23 Disclosure. Neither this Agreement nor any of the schedules,
----------
exhibits, attachments, documents, certificates or other items prepared or
supplied to Buyer in writing by or on behalf of Seller with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make such statements not misleading in
light of the circumstances in which such statements were made. To the best of
Seller's knowledge, there is no fact which Seller has not disclosed to Buyer in
writing and of which any of its officers, directors or executive employees is
aware and which has had or may reasonably be anticipated to have a material
adverse effect upon the existing or expected financial condition, operating
results, assets, employee relations, accreditation, reputation or business
prospects of the School.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Seller to enter into this Agreement, Buyer
hereby represents and warrants (a) as of the date hereof and (b) as of the
Closing Date, that:
6.1 Organization and Corporate Power. Buyer is a corporation, duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has all requisite corporate power and authority to consummate
the transactions contemplated by this Agreement. The copies of Buyer's Restated
Certificate of Incorporation and bylaws which have been furnished to Seller
reflect all amendments made thereto at any time prior to the date of this
Agreement and are correct and complete.
6.2 Capacity; Authorization; Binding Effect, Etc. Buyer has the
--------------------------------------------
power, legal capacity and authority to execute, deliver and perform this
Agreement and each other document being executed in connection herewith to which
it is a party. This Agreement and each other document executed by Buyer in
connection herewith has been duly executed and delivered by Buyer, and (assuming
the due authorization, execution and delivery hereof and thereof by Seller)
16
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this Agreement and each such other document is a valid and binding obligation of
Buyer, enforceable against it, in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
6.3 No Conflicts, Etc. The execution, delivery and performance of
-----------------
this Agreement and each other document being executed by Seller in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby will not: (a) violate any provisions of law applicable to Buyer; (b)
with or without the giving of notice or the passage of time, or both, conflict
with or result in the breach of any provision of the articles of incorporation
or bylaws of Buyer, any material instrument, license, agreement or commitment to
which Buyer is a party or by which any of its assets or properties is bound; (c)
constitute a violation of any order, judgment or decree to which Buyer is a
party or by which any of its assets or properties is bound; or (d) require any
approval of, or filing or registration with, any governmental entity or
regulating authority other than those which will be effected by Seller prior to
the Closing Date.
6.4 Brokers or Finders. Buyer represents that no agent, broker,
------------------
investment banker or other firm or person retained by Buyer is or will be
entitled to any broker's or finder's fee or any similar commission or fee in
connection with any of the transactions contemplated by this Agreement.
6.5 Disclosure. Neither this Agreement nor any of the schedules,
----------
exhibits, attachments, documents, certificates or other items prepared or
supplied to Seller in writing by or on behalf of Buyer with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make such statements not misleading in
light of the circumstances in which such statements were made.
ARTICLE VII
COVENANTS
7.1 Covenants of Seller Pending Closing. Seller covenants and agrees
-----------------------------------
with Buyer that from and after the date hereof and until the earlier of the
Closing Date or the termination of this Agreement pursuant to Article IV hereof,
Seller (i) shall use commercially reasonable efforts to fulfill or satisfy, or
cause to be fulfilled or satisfied, all of the conditions precedent to Seller's
obligations to consummate and complete the sale provided herein and to take all
other steps and do all other things reasonably required to consummate this
Agreement in accordance with its terms, (ii) shall not interfere with the
performance by Buyer of its obligations under this Agreement, (iii) shall not
fail to pay prior to delinquency any taxes, assessments, governmental charges or
levies imposed upon it or its income, profits or assets or otherwise required to
be paid by it, (iv) shall not make or authorize the making of any capital
expenditure in excess of $250 without Buyer's prior written consent except for
the performance of obligations previously incurred, or for the replacement of
equipment or tangible property necessary to the operations of the business of
Seller, (v) shall promptly notify Buyer of any notice from any governmental or
regulatory agency or authority in connection with the
17
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transactions contemplated by this Agreement, or any fact or circumstance of
which Seller has knowledge which would make any representation or warranty set
forth herein materially untrue or inaccurate as of the Closing Date or as of the
date of this Agreement, or any planned or threatened labor dispute, organization
efforts, strike or collective work stoppage affecting the employees of Seller
and (vi) shall not take any action outside the ordinary course of business that
would cause Buyer to be unable to obtain good and marketable title to the
Purchased Assets to be transferred to Buyer at the Closing. Until the earlier
of the Closing or termination of this Agreement, Seller will not directly or
indirectly solicit, respond to or negotiate with or release any information
relative to the School to any potential buyer other than Buyer.
7.2 Covenants of Buyer Pending Closing. Buyer covenants and agrees
----------------------------------
with Seller that from and after the date hereof and until the earlier of the
Closing Date or the termination of this Agreement pursuant to Article IV hereof,
Buyer (i) shall use commercially reasonable efforts to fulfill or satisfy, or
cause to be fulfilled or satisfied, all of the conditions precedent to Seller's
obligations to consummate and complete the sale provided herein and to take all
other steps and do all other things reasonably required to consummate this
Agreement in accordance with its terms; (ii) shall not interfere with the
performance by Seller of its obligations under this Agreement; (iii) shall fully
perform all its obligations under the Management Agreement; and (iv) shall
promptly notify Seller of any regulatory or accreditation decision or
determinations which would prevent or prohibit Buyer from performing its
obligations under this Agreement.
7.3 Closing and Post-Closing Covenants.
----------------------------------
7.3.1 Further Assurances. From time to time after the Closing,
------------------
(i) Seller will use reasonable efforts for as long as it continues its corporate
existence to execute and deliver such instruments of conveyance, sale or
assignment as Buyer may reasonably request, to more effectively vest, confirm or
evidence Buyer's title to or rights in any of the Purchased Assets and to
otherwise carry out the purpose and intent of this Agreement, and (ii) Buyer
will execute and deliver such instruments as Seller may reasonably request to
more effectively assure the assignment to and assumption by Buyer of the
obligations and liabilities of Seller to be assumed by Buyer pursuant to this
Agreement and to otherwise carry out the purpose and intent of this Agreement.
7.3.2 Mutual Cooperation. The parties shall use reasonable
------------------
efforts to cooperate fully with each other and with their respective counsel and
accountants in connection with any steps required to be taken to consummate the
transaction contemplated hereby and transition management and ownership of the
School from Seller to Buyer. Before and after the Closing, Seller shall use its
best efforts to assist Buyer in obtaining any required accreditation reasonably
necessary for Buyer's operation of the School (collectively "Buyer's
accreditations"), including furnishing Buyer such necessary information and
reasonable assistance as Buyer may request in connection with its preparation of
necessary filings, submissions or accreditation applications to any governmental
agency in connection with the transactions contemplated hereby.
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7.3.3 Access to Employees. From and after the Closing, each of
-------------------
Buyer and Seller shall afford to the other party, its officers, counsel,
accountants and other authorized representatives (the "Requesting Party")
reasonable access to the other party's employees who formerly were or currently
are employed by Seller, as the case may be, without cost to the Requesting Party
(other than payment of out-of-pocket costs not including personnel costs) and as
reasonably required by the Requesting Party in connection with any claim,
action, litigation or other proceeding involving Seller or the School. Each
party shall use its best efforts to cause such employees to cooperate with and
assist the Requesting Party in its prosecution or defense of such claims,
actions, litigations and other proceedings, which cooperation shall include
without limitation preparing and providing written and oral discovery and
attending and testifying at depositions, hearings, motions and trials, all as
necessary in the reasonable opinion of the Requesting Party or its counsel. Any
such access shall take place only during normal business hours in such a manner
as not to interfere unreasonably with the operation of the business of the other
party.
7.3.4 Best Efforts to Satisfy Conditions. Prior to and after the
----------------------------------
Closing, Seller and Buyer shall provide to the ED and to all state regulatory
agencies and accrediting bodies all information required or reasonably requested
by any of them, and Buyer shall use its best efforts to satisfy promptly all
requirements and demands of ED or any such agency or body requisite to obtaining
certification. Without limiting the foregoing, Buyer shall submit to ED a
completed application for certification for the School conveyed to Buyer at the
Closing within a reasonable time after that Closing, but in any event no later
than thirty (30) days after Closing.
7.3.5 Continued Operation of Floral Program. Buyer shall
-------------------------------------
continue to operate the School's current floral design program for a period of
at least 12 months following the Closing on the condition that such program
remains profitable and continues to be eligible for Title IV funds.
7.3.6 Director. Buyer agrees to employ Kristi Russell (the
--------
"Director") as the full-time Director of the School for a period of one year
following the Closing Date, at an annual salary of $35,000 payable monthly in
arrears. The Director shall be entitled to two (2) weeks paid vacation
annually, which vacation shall accrue on a monthly basis in arrears. Buyer
shall be entitled to terminate the employment of Director hereunder for any
reason at Buyer's sole discretion; provided, however, that if such termination
is for any reason other than "Cause" (as defined below), Buyer shall be required
to continue making the monthly salary payments through the remainder of the
twelve-month period. "Cause" for termination of the employment of Director by
Buyer shall mean that Buyer, acting in good faith, determines that Director has:
(i) committed a material breach of her duties and responsibilities (other than
as a result of incapacity due to disability); or (ii) engaged in an act or acts
of personal dishonesty involving moral turpitude and intended to result in
personal enrichment of Director; or (iii) been convicted of a felony or
misdemeanor; or (iv) refused to perform duties and responsibilities required of
her in good faith by the Board of Directors of Buyer; or (v) violated any
fiduciary duty owed to Buyer or the School.
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7.4 Management Agreement and Administration of the School.
-----------------------------------------------------
7.4.1 Management Agreement. Concurrently with the execution of
--------------------
this Agreement, Buyer and Seller shall execute and deliver a Management
Agreement in the form of that attached hereto as Exhibit F and made a part
---------
hereof by this reference (the "Management Agreement"). The Management Agreement
shall become effective upon execution. Covenants contained in the Management
Agreement shall be supplemental to any continuing covenants undertaken by Buyer
in this Agreement.
7.4.2 Administration in Accordance with accreditations. From and
------------------------------------------------
after the Effective Date, Buyer, at Buyer's sole cost and expense, shall
administer and operate the School in accordance with all federal and state laws,
statutes, rules and regulations and in accordance with all permits,
accreditations, authorizations and agreements issued by or entered into with any
federal, state or local governmental or quasi-governmental entity in any way
regulating or otherwise relating to the administration and operation of the
School, or any of them. Subject to the terms and provisions of this Agreement,
Buyer and Seller shall work together cooperatively and in good faith to obtain
any and all approvals from ED, any state education regulatory authority and any
other governmental or quasi-governmental entity that may be necessary or
appropriate to vest in Buyer the right and authority to administer and operate
the School and to release Seller from further liability or obligations in
connection with the administration or operation of the School.
7.5 Access and Maintenance of Records. From and after the Closing,
---------------------------------
each party shall afford the other party, its officers, counsel, accountants and
other authorized representatives and regulatory authorities (the "Requesting
Party") access to the other party's properties, books and records, including
those maintained by the other party's accountants, at any time and from time to
time upon reasonable notice from the Requesting Party, as reasonably required by
the Requesting Party in connection with (i) performance by the Requesting Party
of any of its obligations under the terms and conditions of this Agreement,
including without limitation any liability or obligation of Seller not assumed
by Buyer pursuant to the Agreement, (ii) any claim, action, litigation or other
proceeding involving the Requesting Party or the School and (iii) the Requesting
Party's preparation of its financial statements and tax returns. In addition,
the Requesting Party, at its expense, may make copies of any such records as may
be necessary or appropriate for the Requesting Party's use. Each party shall
maintain all such records in accordance with, and subject to all restrictions
imposed by, all laws, rules and regulations. Each party shall not destroy or
otherwise dispose of any of such records without prior notice to the other
party, which party shall have the option, at such party's expense, to take
possession of any such records which the other party elects to destroy or
otherwise dispose of. Any such access shall take place only during normal
business hours in such a manner as not to interfere unreasonably with the
operation of the business of the other party. Notwithstanding the foregoing,
Buyer shall preserve and protect all books, documents, papers, computer programs
and records pertaining in any manner to the administration by Seller of the
Federal student financial assistance programs pursuant to Title IV of the Higher
Education Act of 1965, as amended, for the period of time specified under
applicable law and regulation. Any document or other information obtained from a
party hereunder that is designated by such party as confidential shall be
maintained in confidence by the other party, except to the extent Seller is
20
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required by law or regulation to disclose part or all of such documents or
information. Seller and Buyer agree that the books and records relating to the
School and the floral design program shall be maintained separate and apart from
the books and records relating to Buyer's allied health program and its other
operations until the date at which funds are first released from Escrow pursuant
to Section 2.2.1.
7.6 Substitution of Undertakings. As of the Closing, Buyer shall
----------------------------
substitute Buyer's undertaking, guarantee, bond or other commitment for each
undertaking, guarantee, bond or commitment, identified on Schedule 5.11, made by
-------------
Seller or any affiliate of Seller in favor of any governmental or quasi-
governmental entity in support of or relating to any permit, contract,
authorization, accreditation or license from any such governmental entity with
respect to the School, and upon Closing Buyer shall promptly take action and
make commercially reasonable efforts to obtain such substitutions.
ARTICLE VIII
CONDITIONS TO CLOSING; UNWINDING
8.1 Conditions Precedent to Obligations of Buyer. The obligation of
--------------------------------------------
Buyer to complete the purchase of Purchased Assets as provided for herein is
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Buyer in
writing.
8.1.1 All representations and warranties of Seller contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date (except to the extent such representations and warranties speak of
a particular date), and Buyer shall have received a certificate signed by an
executive officer of Seller to such effect;
8.1.2 Seller shall have performed in all material respects all
of the obligations, covenants and agreements contained in this Agreement (and
the Management Agreement) to be performed by Seller on or before the Closing
Date, and Buyer shall have received a certificate signed by an executive officer
of Seller to such effect;
8.1.3 All instruments and documents required on Seller's part to
effectuate and consummate the transactions contemplated hereby as of the
Closing, including those set forth in Section 3.2, shall be delivered by Seller
and shall be in form and substance reasonably satisfactory to Buyer and its
counsel; and
8.1.4 No order of any court or administrative agency shall be in
effect which restrains or prohibits the transactions contemplated hereby and
there shall not have been threatened, nor shall there be pending, any action or
proceeding by or before any court or governmental agency or other regulatory or
administrative agency or commission, challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions; and
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8.1.5 Seller shall have received from counsel for Seller the
opinion referenced in Section 3.2.4 above dated as of the Closing Date.
8.1.6 Seller shall have obtained all registrations, licenses,
permits and approvals required by any governmental entity or agency or other
regulatory body to operate the School in the State of Washington and all local
jurisdictions contained therein;
8.1.7 The School shall have received all required accreditation
approvals, including approval to teach a basic allied health curriculum similar
to that presently offered by Buyer;
8.1.8 Seller shall have provided evidence satisfactory to Buyer
that all debts incurred through the Closing Date, including lender payables,
regulatory fines, repayment, refunds, and all known obligations or liens have
been satisfied and paid in full or renegotiated to the mutual satisfaction of
Buyer and Seller; and
8.1.9 Buyer shall have received satisfactory evidence that all
liens on the Purchased Assets, including but not limited to UCC-1 Financing
Statement No. 93-035-0521 filed with the State of Washington Department of
Licensing in favor of Career Floral Design Institute, Inc., as secured party,
have been terminated and completely released of record.
8.2 Conditions Precedent to Obligations of Seller. The obligations
---------------------------------------------
of Seller to complete the sale of Purchased Assets as provided for herein are
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Seller in
writing.
8.2.1 All representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date (except to the extent such representations and warranties speak of
a particular date), and Seller shall have received a certificate signed by an
executive officer of Buyer to such effect;
8.2.2 Buyer shall have performed in all material respects all of
the obligations, covenants and agreements contained in this Agreement (and the
Management Agreement) to be performed by Buyer on or before the Closing Date,
and Seller shall have received a certificate signed by an executive officer of
Buyer to such effect;
8.2.3 All instruments and documents required on Buyer's part to
effectuate and consummate the transactions contemplated hereby including those
set forth in Section 3.3 shall be delivered by Buyer and shall be in form and
substance reasonably satisfactory to Seller and its counsel;
8.2.4 No order of any court or administrative agency shall be in
effect which restrains or prohibits the transactions contemplated hereby and
there shall not have been threatened, nor shall there be pending, any action or
proceeding by or before any court or governmental agency or other regulatory or
administrative agency or commission, challenging
22
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any of the transactions contemplated by this Agreement or seeking monetary
relief by reason of the consummation of such transactions; and
8.2.5 Seller shall have received from counsel for Buyer the
opinion referenced in Section 3.3.4 above dated as of the Closing Date.
8.3 Unwinding the Transaction. Notwithstanding anything to the
-------------------------
contrary in this Agreement, it is the parties' express intention that all
transactions contemplated by this Agreement be unwound if subsequent to the
Closing ED denies approval of the School to teach the basic allied health
program currently offered by Buyer in other locations or determines that the
School (or such allied health program) will not be certified as eligible to
receive Title IV funds or if conditions to approval or certification are raised
by either ED, ACCSCT or WTECB, which conditions would be deemed unacceptable by
a reasonable buyer of the Purchased Assets. Accordingly, if such an event
occurs after the Closing, the parties shall take all actions necessary to return
the parties to their original status as if the Closing had not occurred and the
Purchased Assets had not been transferred. Seller shall immediately return to
Buyer all funds received hereunder (exclusive of any fees received pursuant to
the Management Agreement). Buyer shall transfer, assign and reconvey to Seller,
and Seller shall accept and assume from Buyer, all Purchased Assets and Assumed
Liabilities. Notwithstanding the foregoing, the parties agree that if the
transaction is unwound after the Closing pursuant to this Section 8.3 and Seller
has not obtained a restoration of its (or the School's) institutional
participation in Title IV funding within sixty (60) days following such
unwinding after Seller's having diligently pursued such restoration, Seller
shall be entitled to liquidated damages from Buyer in the amount of Fifteen
Thousand Dollars ($15,000), such damages being a reasonable estimate by both
parties of the financial risk and damages to Seller from such unwinding, the
true damages being incapable of calculation. The parties agree that the
indemnification provisions and governing procedures set forth in Article IX
shall continue in effect beyond any such "unwinding."
ARTICLE IX
MISCELLANEOUS
9.1 Binding Effect. All terms and provisions of this Agreement shall
--------------
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement, nor the obligations of either party hereunder, shall be
assignable or transferable by either such party without the prior written
consent of all parties hereto. If Buyer desires to assign its right to acquire
a portion of the School to an affiliated entity, Seller will consider such
request in good faith and will not unreasonably withhold its consent.
23
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9.2 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be given or made by personal
delivery, by a nationally recognized courier service for overnight delivery or
by registered or certified mail, postage prepaid, return receipt requested,
addressed
if to Buyer, at:
Corinthian Schools, Inc.
1932 East Deere Avenue, Suite 210
Santa Ana, California 92705
Attention: David Moore, President
with each such notice to Buyer, a copy to:
O'Melveny & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
if to Seller, at:
Repose, Inc.
Attention: Kristi Russell
23310 14th Place West
Bothell, Washington 98021
with each such notice to Seller, a copy to:
Karr Tuttle Campbell
1201 Third Ave., Suite 2900
Seattle, Washington 98101
Attention: Diana K. Carey, Esq.
or at such other place as the party to whom such notice of communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 9.2. Notices shall be deemed effective and received (i) on the
actual receipt in the case of hand delivery, (ii) on the next business day after
deposit in the case of notices by nationally recognized overnight courier
services, or (iii) on the third business day after the date of mailing in the
manner set forth herein. As used herein, notice to a party shall include
concurrent notice to that party's counsel as set forth herein.
9.3 Entire Agreement. This Agreement and the documents referred to
----------------
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations,
representations, warranties and discussions of the parties, whether oral or
written; and there are no warranties, representations or other agreements
between the
24
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parties in connection with the subject matter hereof, except as specifically set
forth herein or therein. No amendment, supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
9.4 Nature and Survival of Representations. The representations,
--------------------------------------
warranties, covenants and agreements of Buyer and Seller contained in this
Agreement, and all statements contained in this Agreement or any Exhibit or
Schedule hereto or any certificate or financial statement delivered pursuant to
this Agreement shall be deemed to constitute representations, warranties,
covenants and agreements of the respective party delivering the same. All such
representations, warranties, covenants and agreements shall survive the Closing
hereunder but shall be subject to the limitations in Sections 9.12, 9.13, 9.14
and 9.15 hereof.
9.5 Risk of Loss or Damage; Insurance. It is understood and agreed
---------------------------------
that all right, title and interest in and to the Purchased Assets and all risk
of loss or damage thereto shall not pass from Seller to Buyer unless and until
the Closing occurs whereupon all risk of loss or damage shall pass to Buyer. In
the event of a casualty or condemnation in respect of the Purchased Assets prior
to the Closing, Buyer shall have the right, at its sole option, to elect to
either terminate this Agreement or to accept the insurance proceeds in respect
of such casualty or condemnation and proceed to close otherwise in accordance
with the terms and conditions of this Agreement. Seller agrees to maintain the
insurance currently carried with respect to the Purchased Assets until the
Closing.
9.6 Waiver. No waiver shall be deemed to have been made by any party
------
of any of its rights hereunder unless the same shall be in writing and shall be
signed by the waiving party. Such a waiver, if any, shall be a waiver only in
respect to the specific instance involved and shall in no way impair the rights
of the waiving party or the obligations of any other party in any other respect
at any other time.
9.7 Governing Law. This Agreement shall be construed and interpreted
-------------
according to the substantive laws of the State of California without giving
effect to the principles of conflicts of law thereof.
9.8 Headings. The headings of the articles and sections of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
9.9 Counterparts. This Agreement may be executed by the parties in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.10 Severability. In the event that any one or more terms or
------------
provisions hereof shall be held void or unenforceable by any court or
arbitrator, all remaining terms and provisions hereof shall remain in full force
and effect.
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9.11 Time is of the Essence. Seller and Buyer agree that time is of
----------------------
the essence in connection with the implementation and performance by the parties
of all terms, conditions and obligations of this Agreement.
9.12 Indemnification by Seller. Seller hereby indemnifies, defends
-------------------------
and holds harmless Buyer and its affiliates and their respective officers and
directors from and against:
(i) any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any misrepresentation, breach of
warranty or nonfulfillment of any covenant or agreement on the part of Seller
contained in this Agreement or the Management Agreement or any other agreement,
statement or certificate furnished or to be furnished to Seller in connection
with the transactions contemplated hereby provided that notice of a claim
pursuant to this subsection 9.12(i) must be provided to Seller on or before the
three (3) year anniversary of the Closing Date;
(ii) any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any claim related to or arising out
of Seller's operation of the School prior to the Closing Date that are asserted
with respect to any liabilities that are not Assumed Liabilities;
(iii) any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from the Excluded Liabilities; and
(iv) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.12.
9.13 Indemnification by Buyer. Buyer hereby indemnifies, defends and
------------------------
holds harmless Seller, and its affiliates and their respective officers and
directors from and against:
9.13.1 any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any misrepresentation, breach of
warranty or nonfulfillment of any covenant or agreement on the part of Buyer
contained in this Agreement, the Management Agreement or any other agreement,
statement or certificate furnished or to be furnished to Seller in connection
with the transactions contemplated hereby;
9.13.2 any loss, liability, claim, obligation, damage or
deficiency resulting from or arising out of the failure by Buyer to pay, perform
or discharge, or cause to be paid, performed or discharged, any of the Assumed
Liabilities; and
9.13.3 all actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.13.
26
<PAGE>
9.14 Limitations on Indemnification.
------------------------------
9.14.1 Threshold. Notwithstanding anything to the contrary
---------
herein, no claim for indemnification shall be made by any party against the
other party unless and until the claiming party has claims totalling at least
Five Thousand Dollars ($5,000.00) (the "Threshold Amount"); provided, however,
once the Threshold Amount has been met or surpassed, all indemnifiable claims
are recoverable hereunder with no deduction of the Threshold Amount.
9.14.2 Aggregate Recovery. Notwithstanding anything to the
------------------
contrary herein, absent fraud, and exclusive of loss or damage arising from or
related to the Excluded Liabilities, Seller's maximum aggregate liability
pursuant to Section 9.12 shall be Two Hundred Fifty Thousand Dollars ($250,000).
Notwithstanding anything to the contrary herein, absent fraud, Buyer's maximum
aggregate liability pursuant to Section 9.13 shall be Two Hundred Fifty Thousand
Dollars ($250,000).
9.15 Procedure for Indemnification.
-----------------------------
9.15.1 The provisions of this Section 9.15 shall govern any
claim for indemnification of Buyer, pursuant to Section 9.12, or of Seller,
pursuant to Section 9.13 (each such party an "Indemnitee") against the party
agreeing to provide indemnification hereunder (the "Indemnitor").
9.15.2 The Indemnitee shall promptly give notice hereunder to
the Indemnitor, after obtaining notice of any claim as to which recovery may be
sought against the Indemnitor because of the indemnity in Sections 9.12 or 9.13,
and, if such indemnity shall arise from the claim of a third party, the
Indemnitee shall consent to the Indemnitor assuming the defense of any such
claim; provided that the Indemnitee shall not be required to permit the
--------
Indemnitor to assume the defense of any third party claim (x) which, if not
first paid, discharged or otherwise complied with, would result in a material
interruption or cessation of the conduct of the business of the Indemnitee, or
(y) if the Indemnitee, reasonably concludes that there may be a conflict of
interest between the Indemnitor, on the one hand, and the Indemnitee, on the
other hand, in the conduct of the defense of such action. Failure by the
Indemnitor to notify the Indemnitee of its election to defend any such claim or
action within 14 days of the date of notice from the Indemnitee shall be deemed
to constitute its consent to the Indemnitee's assumption of such defense. If the
Indemnitor assumes the defense of such claim or litigation resulting therefrom,
the obligations of the Indemnitor hereunder as to such claim shall include
taking all steps necessary in the defense or settlement of such claim or
litigation resulting therefrom including the retention of counsel, which counsel
must be to the Indemnitee's reasonable satisfaction, and holding the indemnitee
harmless from and against any and all Damage resulting from, arising out of, or
incurred with respect to any settlement approved by the Indemnitor or any
judgment in connection with such claim or litigation resulting therefrom. The
Indemnitor shall not, in the defense of such claim or litigation, (i) consent to
the entry of any judgment (other than a judgment of dismissal on the merits
without costs) except with the written consent of the Indemnitee, which consent
shall not be unreasonably withheld or (ii) enter into any settlement (except
with the written consent of the Indemnitee, which consent shall not be
unreasonably withheld), unless the Indemnitee is released and held harmless from
and against
27
<PAGE>
any and all Damages resulting from, arising out of or incurred with respect to
such judgment or settlement.
9.15.3 If the Indemnitor shall not assume the defense of any
such claim by a third party or litigation resulting therefrom, the Indemnitee
may defend against such claim or litigation in such manner as it deems
appropriate, and the Indemnitee may settle such claim or litigation on such
terms as it may deem appropriate and the Indemnitor shall promptly reimburse the
Indemnitee for the amount of such settlement and for all Damages incurred by the
Indemnitee in connection with the defense against or settlement of such claim or
litigation.
9.16 Dispute Resolution and Arbitration.
----------------------------------
9.16.1 Negotiation Between Executives. The parties shall attempt
------------------------------
in good faith to resolve any dispute arising out or relating to this Agreement
promptly by negotiation between executives who have authority to settle the
controversy and who are at a higher level of management (if any) than the
persons with direct responsibility for administration of this contract. Any
party may give the other party written notice of any dispute not resolved in the
normal course of business. Within 15 days after delivery of the notice the
receiving party shall submit to the other a written response. The notice and the
response shall include (i) a statement of each party's position and a summary of
arguments supporting that position, and (ii) the name and title of the executive
who represents that party and of any other person who will accompany the
executive. Within 10 days after delivery of the disputing party's notice, the
executives of both parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to attempt to resolve
the dispute. All reasonable requests for information made by one party to the
other will be honored. If the matter has not been resolved within 45 days of the
disputing party's notice, or if the parties fail to meet within 10 days, either
party may initiate arbitration of the controversy or claim as provided
hereinafter. All negotiations pursuant to this clause are confidential and shall
be treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence of California and other states' Rules of Evidence.
9.16.2 Arbitration. Any dispute arising out of or relating to
-----------
this contract or the breach, termination or the validity thereof, which has not
been resolved by the nonbinding meet and confer provisions provided in Section
9.16.1 within 90 days of the initiation of such procedure, shall be settled by
arbitration in accordance with the then-current End Dispute-Judicial Arbitration
and Mediation Services (JAMS) rules for arbitration of business disputes by a
sole arbitrator who shall be a former superior court or appellate court judge or
justice with significant experience in resolving business disputes. If
available, the arbitrator should have familiarity or experience in Title IV
funding matters. The arbitration shall be governed by the California Code of
Civil Procedure Section 1280 et seq. and the parties intend this procedure to be
------
specifically enforceable in accordance with such provisions. Judgment upon the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Orange County, California. THE
ARBITRATOR IS NOT EMPOWERED TO AWARD DAMAGES IN EXCESS OF COMPENSATORY DAMAGES
(INCLUDING REASONABLE ATTORNEYS FEES AND EXPERT WITNESS FEES) AND EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT TO RECOVER SUCH DAMAGES
28
<PAGE>
(INCLUDING, WITHOUT LIMITATION, PUNITIVE DAMAGES) IN ANY FORUM. The arbitrator
may award equitable relief in those circumstances where monetary damages would
be inadequate. The arbitrator shall be required to follow the applicable law as
set forth in the governing law section of this Agreement.
9.16.3 Satisfaction of Damages. In the event that an arbitrator
-----------------------
awards Damages to Buyer hereunder, or Seller admits in writing liability for
Damages hereunder, and if there is then outstanding any amount owed by Buyer to
Seller hereunder, then the amount of such Damages shall first be satisfied by
offset against such outstanding amounts.
9.17 Third Party Beneficiaries. This Agreement shall be binding upon,
-------------------------
be enforceable against, and inure to the benefit of the parties and their
respective successors and permitted assigns; otherwise, this Agreement shall
not, and shall not be deemed to, inure to the benefit of or be enforceable by
any third party.
9.18 Mitigation of Losses. Losses for which any party is liable under
--------------------
this Article IX shall be subject to appropriate mitigation for actual recovery
from third parties, and the actual collection of insurance proceeds in respect
of the event or conditions giving rise to the recoverable loss.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of this 20th day of March, 1996.
---- -----
"BUYER"
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: /s/ David G. Moore
-------------------------
Name: David G. Moore
-----------------------
Title: President /CEO
----------------------
"SELLER"
REPOSE, INC.,
a Washington corporation
By:/s/ Kristi R Russell
------------------------
Name: KRISTI R RUSSELL
----------------------
Title: PRESIDENT
---------------------
<PAGE>
CONSENT OF SPOUSES
Each of the undersigned executed this consent and agrees to be bound by
this Agreement in his capacity as spouse of the Seller's principals to the
extent he may have any community property or other interest in the assets of the
principals of the Seller or the Purchased Assets.
/s/ Bruce Salvog /s/ Craig Russell
- ------------------- ----------------------
Bruce Salvog Craig Russell
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of this ___ day of _____________, 1996.
"BUYER"
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
"SELLER"
REPOSE, INC.,
a Washington corporation
By: /s/ Kristi R. Russell
--------------------------------
Name: Kristi R. Russell
------------------------------
Title: President
-----------------------------
<PAGE>
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
BETWEEN
CORINTHIAN SCHOOLS, INC.
AS BUYER,
AND
CONCORDE CAREER COLLEGES, INC.,
AS SELLER
DATED AS OF JULY 11, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I SALE AND PURCHASE OF ASSETS.............................. 1
1.1 Purchased Assets to be Transferred....................... 1
1.2 Excluded Assets.......................................... 3
ARTICLE II CONSIDERATION............................................ 3
2.1 Purchase Price........................................... 3
2.2 Cash Consideration....................................... 3
2.3 Obligations and Liabilities to be Assumed................ 4
2.4 Excluded Liabilities..................................... 4
2.5 Allocation of Purchase Price............................. 4
2.6 Employees................................................ 5
ARTICLE III. CLOSING.................................................. 5
3.1 Closing.................................................. 5
3.2 Deliveries by Seller at Closing.......................... 5
3.3 Deliveries by Buyer at Closing........................... 6
ARTICLE IV.. TERMINATION.............................................. 6
4.1 Termination.............................................. 6
4.2 Effect of Termination.................................... 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER................. 7
5.1 Organization and Corporate Power......................... 7
5.2 Capacity; Authorization; Binding Effect.................. 8
5.3 Ownership of School...................................... 8
5.4 No Conflicts 8
5.5 Compliance with Laws; Licenses and Permits............... 9
5.6 Recruitment; Admissions Procedures; Attendance; Reports.. 9
5.7 Cohort Default Rate...................................... 10
5.8 Title to and Condition of the Purchased Assets........... 10
5.9 Assumed Contracts........................................ 11
5.10 Tradenames; Confidential Information..................... 11
5.11 Financial Statements; Indebtedness....................... 12
5.12 Receivables 13
5.13 Inventories 14
5.14 Litigation............................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.15 Insurance................................................ 14
5.16 Environmental Matters.................................... 14
5.17 Employee Benefit Plans................................... 15
5.18 Employment Matters....................................... 15
5.19 Tax Matters 16
5.20 Brokers or Finders....................................... 16
5.21 Absence of Certain Changes............................... 16
5.22 Delivery of Documents.................................... 17
5.23 Disclosure............................................... 17
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER.................. 17
6.1 Organization and Corporate Power......................... 18
6.2 Capacity; Authorization; Binding Effect.................. 18
6.3 No Conflicts 18
6.4 Brokers or Finders....................................... 18
6.5 Disclosure............................................... 18
ARTICLE VII. COVENANTS................................................ 19
7.1 Covenants of Seller Pending Closing...................... 19
7.2 Covenants of Buyer Pending Closing....................... 19
7.3 Closing and Post-Closing Covenants....................... 19
7.4 Excise and Property Taxes................................ 21
7.5 Administration in Accordance with Accreditations......... 21
7.6 Access and Maintenance of Records........................ 21
ARTICLE VIII CONDITIONS TO CLOSING.................................... 22
8.1 Conditions Precedent to Obligations of Buyer............. 22
8.2 Conditions Precedent to Obligations of Seller............ 23
ARTICLE IX MISCELLANEOUS............................................ 24
9.1 Binding Effect........................................... 24
9.2 Notices.................................................. 24
9.3 Entire Agreement......................................... 25
9.4 Nature and Survival of Representations................... 25
9.5 Risk of Loss or Damage; Insurance........................ 25
9.6 Waiver................................................... 25
9.7 Governing Law............................................ 26
9.8 Headings................................................. 26
9.9 Counterparts............................................. 26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
9.10 Severability............................................. 26
9.11 Time is of the Essence................................... 26
9.12 Indemnification by Seller................................ 26
9.13 Indemnification by Buyer................................. 27
9.14 Procedure for Indemnification............................ 27
9.15 Dispute Resolution and Arbitration....................... 28
9.16 Third Party Beneficiaries................................ 29
9.17 Expenses................................................. 29
</TABLE>
SCHEDULES
Schedule 2.4 Excluded Accounts Payable
Schedule 2.5 Allocation of Purchase Price
Schedule 2.6 Accrued Vacation and Sick Pay
Schedule 5.4 Certain Regulatory Approvals
Schedule 5.5(a) Licenses and Permits
Schedule 5.5(b) Accreditations
Schedule 5.5(c) Investigations/Reviews
Schedule 5.6(a) Policy Manuals & Procedures
Schedule 5.6(b) Disclosed Guidelines
Schedule 5.7 Cohort Default Rate
Schedule 5.8(a) Leased Facilities
Schedule 5.8(b) Permitted Exceptions
Schedule 5.9 Assumed Contracts
Schedule 5.10 Intellectual Property
Schedule 5.11(a) Financial Statements
Schedule 5.11(b) Basis of Presentation
Schedule 5.11(c) Financial Security Arrangements
Schedule 5.11(d) Interim Financial Statements
Schedule 5.11(e) Long-term Liabilities
Schedule 5.14 Litigation
Schedule 5.15 Insurance
Schedule 5.17 Employee Benefit Plans
Schedule 5.21 Absence of Certain Changes
EXHIBITS
Exhibit A License Agreement
Exhibit B Assignment and Assumption Agreement
Exhibit C Bill of Sale
Exhibit D Form of Opinion of Seller's Counsel
iii
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of July 11, 1996 (this
"AGREEMENT"), is entered into between Corinthian Schools, Inc., a Delaware
corporation ("BUYER"), and Concorde Career Colleges, Inc., a Delaware
corporation ("SELLER").
BACKGROUND
A. Seller owns, operates and administers that certain post-
secondary, vocational training school known as Concorde Career Institute,
located at 1290 North 1st Street, San Jose, California 95112 (the "SCHOOL").
B. Buyer desires to buy, through the payment of cash and the
assumption of certain liabilities of Seller, and Seller desires to sell,
substantially all assets and property owned by Seller and used in the business
of the School, upon the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the mutual covenants contained in this Agreement
and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 PURCHASED ASSETS TO BE TRANSFERRED. Subject to the terms and
conditions of this Agreement, Seller hereby agrees to sell, assign, convey,
transfer and deliver to Buyer at the Closing (as defined in Section 2.2.1
hereof), and Buyer hereby agrees to purchase from Seller at the Closing, all of
the Seller's right, title and interest in and to all assets and property owned
by Seller and used in the business of the School, as set forth below (the
"PURCHASED ASSETS"), subject to all existing mortgages, pledges, liens, claims,
restrictions, encumbrances and security interests of any kind or nature,
consisting of the Assumed Liabilities and as otherwise described in Schedule
--------
5.8(b) (collectively the "PERMITTED EXCEPTIONS"), and except for the Excluded
- ------
Assets (as defined in Section 1.2 hereof):
1.1.1 ACCOUNTS RECEIVABLE. All of Seller's accounts receivable,
notes receivable and other receivables (and causes of action related to any of
the foregoing), including any such receivables that have been written off, but
excluding those receivables that have been previously assigned ("ACCOUNTS
RECEIVABLE");
<PAGE>
1.1.2 INVENTORY. All of Seller's inventory of textbooks,
materials and supplies as of the date hereof, plus or minus any such items which
have been added or deleted in the ordinary course of business consistent with
past practice ("INVENTORY");
1.1.3 EQUIPMENT. All of Seller's computer hardware, printers,
other data processing equipment, other machinery and equipment, furniture,
fixtures, leasehold improvements, furnishings, classroom equipment and other
tangible personal property used at the School as of the date hereof, plus or
minus any such items which have been added or deleted in the ordinary course of
business consistent with past practice ("EQUIPMENT");
1.1.4 RECORDS. All of Seller's records related to or used in
connection with the operation of the School or pertaining to the Purchased
Assets, including, without limitation, all student records, ledgers, copies of
financial statements, copies of correspondence, copies of employment records,
copies of placement records, copies of marketing materials and copies of all
documents and other information and data filed by Seller with any state, federal
or local government authority or any guaranty or accrediting agency, whether on
computer disk, in paper form or otherwise (the "RECORDS");
1.1.5 CONTRACTS AND LEASES. All of the contracts and leases
applicable to the School to which Seller is a party entered into in the course
of Seller's business, including, without limitation, those identified in
Schedule 5.9 (collectively, the "ASSUMED CONTRACTS";
- ------------
1.1.6 INTELLECTUAL PROPERTY. All patents, trademarks, service
marks licenses and copyrights (whether or not registered) and all applications
and registrations therefor, owned or licensed by Seller and used solely and
directly for the School (other than the name Concorde Career Institute), and all
computer programs and software used in the classrooms of the School, including
those described in Schedule 5.10 and excluding Seller's EdDGE administrative
-------------
software (but including the database used in connection therewith), (the
"INTELLECTUAL PROPERTY");
1.1.7 WARRANTY RIGHTS. All rights of Seller relating to or
arising out of express or implied warranties, representations or guarantees from
suppliers with respect to any of the Purchased Assets, and all causes of action
arising therefrom;
1.1.8 PREPAID EXPENSES. All of Seller's prepaid security,
vendor, utility and other deposits and expenses;
1.1.9 PERMITS. To the extent transferable, Seller's licenses,
permits, certifications, approvals and other governmental and regulatory
authorizations required under all laws, rules and regulations applicable to or
affecting the School, including those described in Schedule 5.5(a);
---------------
2
<PAGE>
1.1.10 GOODWILL AND OTHER INTANGIBLES. All of the goodwill and
going concern value of the School and all other intangibles used in connection
with the School;
1.1.11 CURRICULUM. The right to use for a period of five years
after the Closing all proprietary curriculum used in connection with the
educational programs of the School (including all periodic updates to the
curriculum as developed or used by Seller during such period), in the form of
texts, lesson plans, handouts, films, videos, exams and other related materials,
such right, and the limitations thereon, shall be evidenced by a License
Agreement substantially in the form of Exhibit A hereto (the "LICENSE
---------
AGREEMENT");
1.1.12 LEAD BANK. Copies of all information in existence as of
the Closing in Seller's lead bank (the "LEAD BANK DATA"); and
1.1.13 OTHER ASSETS. All other assets and property owned by
Seller and used in the business of the School (other than the Excluded Assets),
including, without limitation, promotional and marketing materials.
1.2 EXCLUDED ASSETS. The Excluded Assets shall not be conveyed
hereunder. The "Excluded Assets" means:
1.2.1 CASH. All of Seller's cash or cash equivalents on hand at
the Closing and Seller's bank accounts relating thereto;
1.2.2 NONTRANSFERABLE RIGHTS. Any license, permit, contract and
governmental authorization or accreditation that is not transferable;
1.2.3 OTHER EXCLUDED ASSETS. Intellectual property of Seller
other than that owned by Seller and used solely and directly for the School.
1.2.4 OVERPAYMENT REFUND. Any refund relating to years ending
prior to the Closing Date which represents amounts overpaid into the Student
Tuition Recovery Fund.
ARTICLE II
CONSIDERATION
2.1 PURCHASE PRICE. The purchase price payable to Seller in
connection with the transfer to Buyer of the Purchased Assets shall be the cash
consideration portion referred to in Section 2.2, plus the assumption of
liabilities of Seller referred to in Section 2.3 (collectively, the "PURCHASE
PRICE").
2.2 CASH CONSIDERATION. The cash consideration portion of the
Purchase Price shall be $350,000, payable as follows:
3
<PAGE>
2.2.1 CLOSING. On July 31, 1996, or on such other date as the
parties hereto may agree in writing (the "CLOSING" or "CLOSING DATE"), Buyer
shall pay to Seller in cash by certified check, cashier's check or wire transfer
$150,000 (the "CLOSING PAYMENT").
2.2.2 CERTIFICATION. On December 31, 1996, Buyer shall pay to
Seller in cash by certified check, cashier's check or wire transfer $200,000
(the "CERTIFICATION PAYMENT"). Buyer shall provide Seller with an irrevocable
letter of credit (the "LETTER OF CREDIT") to secure Buyer's obligation to make
the Certification Payment.
2.3 OBLIGATIONS AND LIABILITIES TO BE ASSUMED. Upon the terms and
subject to the conditions contained herein, at the Closing, Buyer shall, by an
instrument of assumption to be executed and delivered at the Closing
substantially in the form of Exhibit B hereto (the "ASSIGNMENT AND ASSUMPTION
---------
AGREEMENT"), assume the liabilities (the "ASSUMED LIABILITIES") of the School
other than the Excluded Liabilities (as defined in Section 2.4 hereof),
including, without limitation, the obligation to operate or dispose of the
School (whether through teachout, sale or other disposition) if after the
Closing Buyer is not able to obtain certification of eligibility for Title IV
funding for the School. Buyer's teachout obligation after the Closing with
respect to the School shall include the obligation to perform all obligations in
order for the teachout to comply with the requirements of all governmental
entities and regulatory authorities.
2.4 EXCLUDED LIABILITIES. Buyer shall not assume, or otherwise be
responsible for, any liabilities or obligations (whether actual or contingent,
matured or unmatured, liquidated or unliquidated, or known or unknown) of
Seller, any other owner or operator of the School prior to the Closing Date, or
any affiliate of any of the foregoing, which consist of, relate to, are
connected with, are based upon or arise out of the following: (i) regulatory
liabilities imposed by the U.S. Department of Education ("USED") and the
applicable state regulatory agencies for periods prior to the Closing Date and
identified by USED or any such state regulatory agency prior to or within 18
months after the Closing Date, (ii) liabilities relating to employees of the
School prior to the Closing Date (other than vacation and sick pay benefits of
employees to be hired by Buyer as contemplated by Section 2.6 hereof which
accrued prior to the Closing Date and which remained unpaid in the ordinary
course of business on the Closing Date), (iii) liabilities with respect to
accounts payable incurred on or before the Closing Date that are more than 45
days old as of the Closing Date and are set forth on Schedule 2.4, (iv)
------------
liabilities and costs (including those incurred post-Closing) associated with or
caused by a determination by the USED that the School has not demonstrated
compliance with 34 CFR 668.15 (Factors of Financial Responsibility) and 34 CFR
668.16 (Standards of Administrative Capability), provided that Seller shall be
permitted to assume all negotiations with USED arising out of any such
determination and Buyer shall be permitted to participate in all such
negotiations, and (v) liabilities with respect to the claims referenced on
Schedule 5.14 hereto (collectively, the "EXCLUDED LIABILITIES").
4
<PAGE>
2.5 ALLOCATION OF PURCHASE PRICE. Buyer and Seller agree that the
Purchase Price shall be allocated among the Purchased Assets in accordance with
the allocation set forth in Schedule 2.5 attached hereto. Buyer and Seller
------------
agree that each will report the federal, state and local income tax and other
tax consequences of the purchase and sale contemplated hereby in a manner
consistent with such allocation and that neither will take any position
inconsistent therewith upon examination of any tax return, in any refund claim,
in any litigation or otherwise.
2.6 Employees. Buyer shall offer employment on an at will basis to
those employees of the School which Buyer deems necessary, in its sole and
absolute discretion, to the operation of the School. Such employment shall be
effective as of the Closing. Schedule 2.6 hereto sets forth the accrued but
------------
unpaid vacation and sick pay benefits of all employees of the School as of the
date of this Agreement.
ARTICLE III
CLOSING
3.1 CLOSING. The Closing shall take place at the offices of
O'Melveny & Myers LLP, 610 Newport Center Drive, Suite 1700, Newport Beach,
California 92660. The Closing shall be declared effective at 11:59 p.m. on the
Closing Date.
3.2 DELIVERIES BY SELLER AT CLOSING. At the Closing, Seller shall
deliver or cause to be delivered to Buyer the following:
(1) Certified resolutions of Seller's Board of Directors
authorizing the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein;
(2) Duly executed License Agreement;
(3) Duly executed Bill of Sale substantially in the form of
Exhibit C hereto (the "BILL OF SALE") and such other instruments of
---------
conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary to vest in Buyer title to the Purchased Assets;
(4) Duly executed Assignment and Assumption Agreement;
(5) One or more opinions of counsel to Seller, in form and
substance reasonably acceptable to Buyer, containing the opinions set forth
on Exhibit D, along with usual and customary exceptions and qualifications;
---------
(6) An officers' certificate signed by the President and the
Chief Financial Officer of Seller, or such other officer reasonably
acceptable
5
<PAGE>
to Buyer, certifying as to the representations, warranties and covenants of
Seller made herein as provided in Sections 8.1.1 and 8.1.2; and
(7) Any other documents reasonably necessary to effectuate the
transactions contemplated hereby.
3.3 DELIVERIES BY BUYER AT CLOSING. At the Closing Buyer shall
deliver or cause to be delivered to Seller the following:
(1) The Closing Payment and Letter of Credit;
(2) Certified resolutions of the Board of Directors of Buyer
authorizing the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein;
(3) Duly executed License Agreement;
(4) Duly executed Assignment and Assumption Agreement;
(5) An officers' certificate signed by the President and the
Chief Financial Officer of Buyer, or such other officer reasonably
acceptable to Seller, certifying as to the representations, warranties and
covenants of Buyer made herein as provided in Sections 8.2.1 and 8.2.2; and
(6) Any other documents reasonably necessary to effectuate the
transactions contemplated hereby.
ARTICLE IV
TERMINATION
4.1 TERMINATION. This Agreement may be terminated only as follows
and in each case only by written notice:
(1) At any time by mutual written consent of Seller and Buyer;
(2) Prior to the Closing, by Seller on the one hand or Buyer on
the other, if the other party shall be in breach of any covenant,
undertaking or representation contained herein in any material respect and
such breach has not been cured within ten business days after the giving of
written notice to the breaching party of such breach;
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(3) Prior to the Closing, by Buyer if USED, the California
Student Aid Commission, the State of California or any of its agencies, any
guaranty agency or any accreditation agency determine that the School or
the program will not be certified as eligible for Title IV funds;
(4) Prior to the Closing, by Seller if (i) Seller's Board of
Directors receives a written opinion from its legal counsel that Seller's
Board of Directors has a fiduciary duty to consider a proposal by a
potential buyer of the School, (ii) the Seller's Board of Directors decides
to enter into a definitive agreement with respect to such proposal and
(iii) Seller pays to Buyer a termination fee of $25,000 (the "TERMINATION
FEE") and reimburses Buyer for all of its reasonable costs and expenses
(including, without limitation, attorneys' fees and expenses) incurred by
Buyer in connection with the transactions contemplated by this Agreement,
provided that Seller's reimbursement obligation hereunder shall not exceed
$35,000 (excluding the Termination Fee); and
(5) On August 31, 1996, by either party if the Closing has not
yet occurred.
4.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Buyer or Seller in accordance with the applicable provisions
above, this Agreement shall forthwith terminate upon notice thereof duly given
in accordance with the provisions hereof, and there shall be no liability of any
nature on the part of either Buyer or Seller (or their respective officers or
directors) to the other, except for liabilities arising from a breach of this
Agreement prior to such termination; provided, however, that this Section 4.2 in
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no way limits the obligations of the parties set forth in Sections 9.12
(Indemnification by Seller), 9.13 (Indemnification by Buyer) and 9.14 (Procedure
for Indemnification) hereof, which obligations shall survive the termination.
If this Agreement is terminated as provided herein, each of Buyer and Seller
shall, and shall cause its respective representatives to, either destroy or
redeliver all documents, work papers and other materials relating to the
transaction contemplated hereby or to the business or operations of the other
party, whether so obtained before or after the execution hereof, to such other
party, and all such information received by Buyer or Seller, as the case may be,
(other than information which is in or becomes part of the public domain by
publication or otherwise or which has heretofore been or is hereafter filed or
available as public information with any governmental authority) shall be kept
confidential, except as required by law. In addition, each of Buyer and Seller
shall cooperate in good faith following termination of this Agreement to provide
any information or documents reasonably required by the other party in
connection with preparation of such party's financial statements and tax
returns.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to Buyer to enter into this Agreement, to
purchase the Assets and assume the Assumed Liabilities, Seller hereby represents
and warrants (a) as of the date hereof and (b) as of the Closing Date, that:
5.1 ORGANIZATION AND CORPORATE POWER. Seller is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware, the jurisdiction in which it is incorporated. Seller has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted, to enter into this Agreement and to
consummate the transactions contemplated hereunder. Seller is duly qualified to
do business in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the operation of the School. The copies of
Seller's articles of incorporation and bylaws which have been furnished to Buyer
reflect all amendments made thereto at any time prior to the date of this
Agreement and are correct and complete.
5.2 CAPACITY; AUTHORIZATION; BINDING EFFECT. Seller has the power,
legal capacity and authority to execute, deliver and perform this Agreement and
each other document being executed in connection herewith to which it is a
party. Seller has the power, legal capacity and authority to transfer, convey
and deliver the Purchased Assets, free and clear of all liens, claims,
encumbrances, options, rights and restrictions, except as otherwise disclosed in
Schedule 5.8(b). All corporate and other proceedings required to be taken by or
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on the part of Seller, including all action required to be taken by the
directors or stockholders of Seller, to authorize Seller to enter into and carry
out this Agreement and the related documents contemplated herein, have been duly
and properly taken. This Agreement has been, and each of the related documents
will be at Closing, duly executed and delivered by Seller and constitute, or
will when delivered constitute, the valid and binding obligations of Seller,
enforceable against Seller, in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.3 OWNERSHIP OF SCHOOL. The School is owned and operated by Seller
directly, and no other Person has any ownership interest in the School. No
other Person has any right, option, subscription or other arrangement to
purchase or otherwise acquire any interest in the School.
5.4 NO CONFLICTS. The execution, delivery and performance of this
Agreement and each other document being executed by Seller in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby will not: (a) violate any provisions of law applicable to Seller; (b)
with or without the giving of notice or the passage of time, or both, conflict
with or result in the breach of any provision of the articles of incorporation
or bylaws of Seller, any material instrument, license, agreement or
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commitment to which Seller is a party or by which any of its assets or
properties is bound, including the Assumed Contracts (as defined in Section 5.9
hereof); (c) constitute a violation of any order, judgment or decree to which
Seller is a party or by which any of its assets or properties is bound; or (d)
require any approval of, or filing or registration with, any governmental entity
or regulatory authority other than those which will be effected by Buyer with
the cooperation of Seller prior to the Closing Date as set forth on Schedule 5.4
------------
attached hereto.
5.5 COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Seller is not in
violation of any law or any regulation or requirement which violation might
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, accreditation or business prospects of the School,
and Seller has not received notice of any such violation. Seller currently
maintains all material licenses, accreditation, certificates, permits, consents,
authorizations and other governmental or regulatory approvals (the "LICENSES AND
PERMITS") necessary for Seller to conduct the business and operations of the
School as presently being conducted. Seller has duly filed all material reports
and returns required to be filed by it with respect to the School with
governmental authorities and accrediting bodies. The Licenses and Permits for
the School are in full force and effect, and no proceedings for the suspension
or cancellation of any of them is pending or, to the best of Seller's knowledge,
threatened. No application made by Seller for any Licenses and Permits during
the last five years has been denied. Schedule 5.5(a) attached hereto is a true,
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correct and complete list of all Licenses and Permits held by Seller with
respect to the School and the governmental authority or accrediting body
granting such Licenses and Permits. Seller has delivered to Buyer copies of all
such Licenses and Permits. Seller has received no notice that any of the
Licenses and Permits will not be renewed and to the best of Seller's knowledge,
there is no basis for nonrenewal. The School is accredited as set forth on
Schedule 5.5(b) attached hereto, is certified by USED as a qualified institution
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under Title IV and is a party to, and in compliance with, valid program
participation agreements with USED with respect to the School's operations.
Seller has not received any notice, not previously complied with, in respect of
any alleged violation of the rules or regulations of USED or any applicable
accrediting body in respect of the School, including sales and marketing
activities, or the terms of any program participation agreement to which it is
or was a party. If any such notices have been received and complied with,
Seller has disclosed in writing their receipt and disposition to Buyer prior to
the execution of this Agreement. Other than as set forth on Schedule 5.5(c)
---------------
attached hereto, Seller is not aware of any investigation or review of Seller's
student financial aid programs or any review of the accreditation of the School
by any person.
5.6 RECRUITMENT; ADMISSIONS PROCEDURES; ATTENDANCE; REPORTS.
Schedule 5.6(a) attached hereto is a complete list of all policy manuals and
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other statements of procedures or instruction relating to recruitment of
students for the School, including (a) procedures for assisting in the
application by prospective students for direct or indirect state or federal
financial assistance; (b) admissions procedures, including any
descriptions of procedures for insuring compliance with state or federal or
other appropriate standards or tests of eligibility; and (c) procedures for
encouraging and verifying attendance, minimum
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required attendance policies, and other relevant criteria relating to course
completion and certification (collectively, the "POLICY GUIDELINES"). Schedule
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5.6(b) attached hereto sets forth a list of the Policy Guidelines in which Buyer
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has an interest with respect to those students continuing in the School after
the Closing (the "DISCLOSED GUIDELINES"). Seller has delivered to Buyer true,
correct and complete copies of all Disclosed Guidelines and all documents and
other information disseminated to students or prospective students. Seller's
operations with respect to the School have, in all material respects, been
conducted in accordance with the Policy Guidelines and all relevant standards
imposed by applicable accrediting bodies, agencies administering state or
federal governmental programs in which Seller participates, and other applicable
laws or regulations. Seller has submitted all reports, audits, and other
information, whether periodic in nature or pursuant to specific requests, for
the School ("COMPLIANCE REPORTS") to all agencies or other entities with which
such filings are required relating to its compliance with (i) applicable
accreditation standards governing its activities and (ii) laws or regulations
governing programs pursuant to which Seller or its students receive funding.
Seller does not have any articulation agreements with degree-granting colleges
and universities in effect as of the date of this Agreement. Complete and
accurate records in all material respects for all present and past students
attending the School have been maintained consistent with the operations of a
school business. All forms and records with respect to the School have been
prepared, completed, maintained and filed in all material respects in accordance
with all applicable federal and state laws and regulations, and are true and
correct in all material respects. All financial aid grants and loans,
disbursements and record keeping relating thereto have been completed in
compliance with all federal and state requirements, and there are no material
deficiencies in respect thereto. The School and Seller have complied in all
material respects with the legal requirements that no student at the School be
funded prior to the date for which such student was eligible for funding;
provided, however, that Seller shall reimburse Buyer for and indemnify Buyer
against any fines, penalties, expenses, costs and other losses Buyer may incur
as a result of any pre-eligibility funding prior to the Closing Date. The
records of each student at the School conform in form and substance to all
relevant regulatory requirements.
5.7 COHORT DEFAULT RATE. Schedule 5.7 attached hereto sets forth the
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cohort default rate for the School, calculated in the manner prescribed by USED,
of all students attending the School receiving assistance pursuant to Title IV
programs for the years ended December 31, 1990 through 1995. To the best
knowledge of Seller, such schedule is materially accurate in all respects.
5.8 TITLE TO AND CONDITION OF THE PURCHASED ASSETS.
5.8.1 LEASED FACILITIES. The leased facilities set forth on
Schedule 5.8(a) (the "FACILITIES") constitute the only real property used in
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connection with the operation of the School which is leased by Seller.
5.8.2 LAWS AND REGULATIONS; RECORDS. All of Seller's operations
with respect to the School are conducted at the Facilities, and all of the
tangible Purchased Assets and records relating to intangible Purchased Assets of
the School are, or as of the
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Closing will be, located at the Facilities. Seller is not under any contractual
or other legal obligation and has not entered into any commitment to make
capital improvements or alterations to the Facilities. The Facilities are not
subject to any zoning ordinance or other restrictions which would prohibit the
use and enjoyment of the Facilities in the manner in which the Facilities are
currently used. Seller has no knowledge of any condemnation proceedings relating
to any Facility. To the best of Seller's knowledge, each Facility and Seller's
use thereof is in compliance in all material respects with all laws, including,
without limitation, the Americans with Disabilities Act.
5.8.3 TITLE. Seller owns outright, and has good and marketable
title to, all of the Purchased Assets of the School, free and clear of all
liens, claims and encumbrances, options, rights, and restrictions, other than as
set forth on Schedule 5.8(b) and liens for current taxes not yet due and
---------------
payable. All leases for tangible personal property used by Seller in connection
with the operation of the School are valid and in full force and effect and are
enforceable in all material respects in accordance with their terms. Neither
Seller nor, to the best of Seller's knowledge, any of the other parties thereto,
is in default under any such lease, and no event, act or omission has occurred
which (with or without notice, the passage of time or the happening or
occurrence of any other event) would result in a default thereunder.
5.8.4 CONDITION OF PURCHASED ASSETS. The tangible Purchased
Assets and properties of the School which are owned or leased by Seller and used
in connection with the operation of the School are in good operating condition,
order and repair, useable in the ordinary course of business consistent with
past practice, subject to ordinary wear and tear, and are sufficient and
adequate for all current operations. Seller has not received notice of any
violation of or default under any law, ordinance, order, regulation or
requirement relating to any of the Purchased Assets of the School which remains
uncured or has not been resolved.
5.9 ASSUMED CONTRACTS. Schedule 5.9 attached hereto lists each
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assumed contract of Seller (the "ASSUMED CONTRACTS") relating to the School or
to which any of the Purchased Assets is subject or bound that individually, or
together as a series of related Assumed Contracts involving the same party or
parties, or the successors to such party or parties: (a) obligates Seller or its
Affiliates to pay an amount of $2,500 or more, (b) has an unexpired term as of
the date of this Agreement in excess of six months, (c) was not made in the
ordinary course of business, or (d) is in any way otherwise material to the
operation of the School. To the best of Seller's knowledge, each Assumed
Contract is valid and existing. Seller has duly performed all its obligations
under the Assumed Contracts in all material respects to the extent that such
obligations to perform have accrued. Seller has not received written notice of
any alleged breach or default, and to Seller's knowledge, no event which would
(with the passage of time, notice or both) constitute a material breach or
default by Seller or any other party or obligor with respect thereto, has
occurred. True and correct copies of the Assumed Contracts, including all
amendments and supplements thereto, have been delivered to Purchaser or
Purchaser's counsel or are attached to Schedule 5.9. For purposes of this
Agreement, the term "AFFILIATE" of any person or entity means any
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corporation, partnership or other entity of which more than 50% of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect more than 50% of the board of directors or others
performing similar functions with respect to such corporation, partnership or
other entity, directly or indirectly, controls, is controlled by, or is under
common control with such person or entity.
5.10 TRADENAMES; CONFIDENTIAL INFORMATION. All tradenames, trademarks
or service marks and all forms, derivatives and graphic presentations thereof of
Seller (other than the name Concorde Career Institute) having any material value
to the operation of the School are set forth on Schedule 5.10 attached hereto
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(collectively, the "TRADENAMES"). Seller has exclusive right to the use of each
Tradename as an assumed business name in the states in which such Tradename is
used, and Schedule 5.10 sets forth all registrations of each Tradename as a
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trademark, servicemark or assumed name. Seller has not licensed any other
Person to use any Tradename. Seller has not been sued or threatened with suit
for infringement, violation or breach with respect to any Tradename, and to the
best of Seller's knowledge, no basis exists for any such suit. Except as
disclosed on Schedule 5.10, Seller is not on notice of any infringement,
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violation or breach of the Tradename by any other Person. Seller has the right
to use and license, free and clear of any claims or rights of any third party,
all trade secrets, customer lists, know-how, curricula and any other
confidential information required for or used in the operation of the School.
Seller is not in any way making any unlawful or wrongful use of any trade
secrets, customer lists, know-how, curricula or any other confidential
information of any third party, including, without limitation, any former
employer of any present or past employee of Seller in connection with the
operation of the School.
5.11 FINANCIAL STATEMENTS; INDEBTEDNESS. Attached hereto as Schedule
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5.11(a) are the following audited financial statements of Seller: Consolidated
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Balance Sheets at December 31, 1995, 1994 and 1993; Consolidated Statements of
Operation and Consolidated Statements of Cash Flows for the three years in the
period ended December 31, 1995 (including, for fiscal years ending December 31,
1994 and 1995, consolidating schedules containing corresponding Statements of
Assets and Liabilities and Statements of Revenue and Expenses of the School in
the form appropriate for filing with the USED, and for the fiscal year ending
December 31, 1993, unaudited internal management reports of the Statement of
Assets and Liabilities and Statement of Operations of the School) (collectively,
the "Financial Statements"). The basis of presentation of the financial
statements of the School is disclosed on Schedule 5.11(b) attached hereto.
Except as disclosed on Schedule 5.11(b), the balance sheets included in the
Financial Statements present fairly in accordance with generally accepted
accounting principles ("GAAP") the assets and liabilities of the School as of
the respective dates thereof, and the related statements of revenue and expenses
present fairly in accordance with GAAP the results of operations of the School
for the respective periods covered thereby. The Financial Statements for the
School (i) have been prepared based upon the books and records of Seller in a
manner consistent with Seller's standard internal accounting practices,
consistently applied and (ii) fairly present the financial position of the
School as of the dates of such Financial Statements, and the results of
operations for the periods covered by such Financial Statements. Except as
disclosed on
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Schedule 5.11(b), Seller has maintained the books and records of the School in
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accordance with applicable laws, rules and regulations and with GAAP, and such
books and records are, and during the periods covered by the Financial
Statements were, materially correct and complete, fairly reflecting the income,
expenses, assets and liabilities of the School. On the date hereof, the School
does not have any material liabilities required to be set forth in a balance
sheet prepared in accordance with GAAP, that were not included in the
consolidating balance sheets schedule of the School included in the Financial
Statements. Except as provided in Schedule 5.11(c), Seller is not required to
----------------
provide any letters of credit, guaranty or other financial security arrangements
in connection with any transactions, approvals or licenses in the ordinary
course of the School's business. As of the date hereof, the School has no
indebtedness, liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, other than:
(i) those set forth or reserved against in the consolidating
balance sheets schedule of the School included in the Financial Statements
for the fiscal years then ended to the extent set forth, reserved against
or disclosed;
(ii) those set forth or reserved against in the unaudited
interim balance sheet of the School as of May 31, 1996, a copy of which is
attached hereto as a part of Schedule 5.11(d), to the extent set forth,
----------------
reserved against or disclosed;
(iii) those incurred since May 31, 1996, in the ordinary course
of business of the School and consistent in nature with past practice; and
(iv) those set forth in the Schedules attached hereto.
To the best of Seller's knowledge, there exists no condition relating to the
School, whether absolute, accrued, contingent or otherwise, which could have a
material adverse effect on the properties, business, Purchased Assets, results
of operations or condition (financial or otherwise) of the School or which would
prevent the operations of the School from being carried on in the future in
substantially the same manner as they are presently being conducted. Except as
set forth on Schedule 5.11(e) attached hereto, there are no long-term fixed or
----------------
contractual liabilities relating to the operation of the School which are
required to be assumed by Buyer in order to continue to operate the School as
presently operated by Seller, the annual expense of which are not reflected in
the Financial Statements or which are not otherwise disclosed in this Agreement
or any schedule hereto.
5.12 RECEIVABLES. The tuition receivable, and accounts receivable,
notes receivable and other receivables of the School, except to the extent of
the allowance for cancellations and doubtful accounts set forth in the Financial
Statements, are bona fide receivables, arose out of arms' length transactions in
the normal and usual practices of Seller and the School, are recorded correctly
on the books and records of Seller and the School, and, to the best of Seller's
knowledge, will be collected in full in the ordinary course of
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business, within the ordinary time frame for such receivables, subject in the
case of certain receivables to reserves established for such receivables in the
Financial Statements. Such receivables are not subject to any defense,
counterclaim or setoff or trade discounts or credits not reflected in the
Financial Statements (other than tuition refund policies administered in
accordance with all applicable legal requirements and the applicable Policy
Guidelines), and Seller has no knowledge of any facts or circumstances which
would cause any of such receivables to have to be written down or written off.
5.13 INVENTORIES. The only inventories maintained by Seller in
connection with the operation of the School consist of supplies used in the
ordinary course of business of the School and are reflected on the Financial
Statements as "inventories." Such supplies are reflected at cost, are usable in
the ordinary and regular course of business, are fit and sufficient for the
purpose for which they were purchased, and, at the date of this Agreement, are
in customary amounts appropriate to Seller's operations of the School. All
excess or obsolete items have been written down to net realizable value or
written off.
5.14 LITIGATION. Except as set forth in Schedule 5.14 attached
-------------
hereto, (i) there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of Seller's knowledge, threatened against or
affecting the School or its operations at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality or
accrediting body pertaining to or affecting Seller or the School, (ii) to the
best of Seller's knowledge, Seller is not the subject of any governmental
investigations or inquiries (including inquiries as to the qualification to hold
or receive any of the Licenses and Permits with respect to the School) and (iii)
to the best of Seller's knowledge, there is no basis for any of the foregoing.
5.15 INSURANCE. Schedule 5.15 attached hereto sets forth the
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insurance coverages maintained by Seller on the Facilities, the Purchased Assets
and the operations of the School, including all policies or binders of fire,
extended coverage, general and vehicular, fidelity and fiduciary liability,
workers' compensation, key-man life and other insurance held by Seller and all
binders for insurance to be purchased on or before Closing, in order to replace
policies expiring prior to the Closing or otherwise. Such policies and binders
are in full force and effect, and there is no material breach or default with
respect to any provision contained in any such policy or binder, and all
premiums, to the extent due and payable, have been paid or the liability
therefor properly accrued. The insurance coverage maintained by Seller for the
School is sufficient and is customary for an adequately insured School of
similar size, engaged in similar lines of business. Except for amounts
deductible under such policies of insurance, Seller is not and has not been,
prior to the date hereof, subject to liability as a self-insurer for the School.
There are no claims pending or threatened under any of said policies pertaining
to the School or disputes with underwriters regarding coverage under such
policies pertaining to the School. Except as set forth on Schedule 5.15, neither
-------------
the execution, delivery and performance of this Agreement, nor the consummation
of the transactions contemplated hereby, will result in the loss to Seller of
any of the insurance policies listed or impair the rights of Seller with respect
to liabilities arising in connection with the operation of the School prior to
the Closing. Within the five years
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prior to the date hereof, Seller has not been denied insurance for the School,
or been offered insurance for the School only at a commercially prohibitive
premium.
5.16 ENVIRONMENTAL MATTERS. In connection with the operations of the
School, Seller has not generated, transported, stored, treated or disposed, nor
has Seller, to the best of its knowledge, allowed or arranged for any third
persons to transport, store, treat or dispose, any hazardous substance to or at:
(a) any location other than a site lawfully permitted to receive such hazardous
substance for such purposes or (b) any location designated for remedial action
pursuant to federal, state or local statute and relating to the environment or
waste disposal; nor has Seller performed or, to the best of Seller's knowledge,
arranged for or allowed by any method or procedure such transportation or
disposal in contravention of any laws or regulations or in any other manner
which may result in liability for contamination or threat of contamination of
the environment. No generation, use, handling, storage, treatment, release,
threat of release, discharge, spillage or disposal of any hazardous substance,
has occurred or is occurring at the Facilities or any other facilities or
properties owned or operated by Seller in connection with its operation of the
School. Seller has not received notification, nor is it aware of, any past or
present failure by Seller to comply with any environmental laws, regulations,
permits, franchises, licenses or orders applicable to the School or its
operations. Seller has not received any notification, nor is it aware of, any
past or present failure to comply with any environmental laws, regulations,
permits, franchises, licenses or orders applicable to its operations other than
the School which may result in judicial, regulatory or other legal proceedings
having a material adverse impact on the operations of the School or result in
the imposition of any lien, claim, assessment or other encumbrance against the
Purchased Assets. To the best of Seller's knowledge, the Facilities do not
contain asbestos or polychlorinated biphenyls or any underground storage tanks.
5.17 EMPLOYEE BENEFIT PLANS. Schedule 5.17 attached hereto sets forth
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a complete accurate and detailed description of all of Seller's employee welfare
and benefit plans ("PLANS"). Buyer is assuming none of the Plans. Seller has
never sponsored, administered or contributed to any employee benefit plan within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1976, as amended ("ERISA"), that is subject to Title IV of ERISA. There are no
accrued liabilities under any Plans, programs or practices maintained on behalf
of the employees of the School which are not provided for on its books or in the
Financial Statements or which have not been fully provided for by contributions
to such Plans, programs or practices. As of the date hereof, Seller does not
maintain any employee welfare benefit plans, as defined in Section 3(1) of
ERISA, which provide post-retirement benefits to former employees of the School
and to current employees of the School after their termination of employment
(including, without limitation, medical and life insurance benefits), other than
as may be required by the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended and interpreted by regulations thereunder ("COBRA"). Seller
shall provide any notices required under COBRA for events occurring on or prior
to the Closing Date and shall provide all benefits required pursuant to COBRA in
connection therewith.
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5.18 EMPLOYMENT MATTERS. Seller and the School are in compliance in
all material respects with all federal, state and local laws, rules and
regulations affecting employment and employment practices with respect to the
School, including terms and conditions of employment, employment discrimination
and wages and hours, and Seller is not engaged in any unfair labor practices
with respect to employees of the School; there are no complaints against Seller
with respect to employees of the School pending before the National Labor
Relations Board or any similar state or local labor agency; there are no labor
strikes, slow-downs or stoppages or other labor troubles pending or, to the best
of Seller's knowledge, threatened with respect to any employees of the School;
no labor organization activities have occurred with respect to employees of the
School during the past three years; there are no collective bargaining
agreements binding on Seller relating to the operation of the School; no
grievances have been asserted against Seller with respect to employees of the
School; and Seller has not experienced any work stoppage by its employees at the
School during the last three years.
5.19 TAX MATTERS. Seller has completed and filed on or before the due
dates thereof or within applicable extension periods all returns for taxes
required to be filed with respect to the operations of the School, and such
returns are true and correct in all material respects. Seller has paid all
taxes shown to be due and payable on such returns to the extent that the same
have become due and payable on or before the Closing. Seller is not a party to,
nor to the best of Seller's knowledge, expected to become a party to, any
pending or threatened action or proceeding, assessment or collection of taxes by
any governmental authority relating to the operations of the School.
5.20 BROKERS OR FINDERS. Seller represents that no agent, broker,
investment banker or other firm or person retained by Seller is or will be
entitled to any broker's or finder's fee or any similar commission or fee in
connection with any of the transactions contemplated by this Agreement. Seller
agrees to defend and hold harmless Buyer and its affiliates from and against any
and all claims arising in connection with its discussions and/or use of the
services of any finder or broker.
5.21 ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or as set forth on Schedule 5.21 attached hereto, since May 31, 1996,
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there has not been, occurred or arisen with respect to the School:
(1) any sale, lease, transfer, abandonment or other disposition
of any right, title or interest in or to any of the properties or assets of
Seller used in connection with the operations of the School (tangible or
intangible), except in the ordinary course of business;
(2) (i) any approval or action to put into effect any increase in
any compensation or benefits payable to any employee, agent or officer of
Seller employed or providing services in connection with the operation of
the School or any payment, grant or accrual to or for the benefit of any
such employee, agent or officer of any bonus, service award, percentage
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compensation or other benefit, (ii) any adoption or amendment of any Plans,
or any severance agreement or employment contract to which any such
employee, agent or officer of the School is a party or (iii) any entering
into of any employment, deferred compensation or other agreements with
respect to bonuses, service awards, percentage compensation or other
benefits with any such employee, agent or officer;
(3) any material adverse change in the financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves
or operations of the School;
(4) any damage, destruction or loss, whether or not covered by
insurance, materially adverse to the assets, business or operations of the
School;
(5) any change in any material respect in the business policies
or practices of the School or a failure to operate the business of the
School in the ordinary course with a view to preserving such business
intact, to retaining the services of the present officers, employees and
agents of Seller employed or providing services in connection with the
operation of the School and with a view to preserving the business
relationships of the School with, and the goodwill of, students, sales
representatives, suppliers, accrediting bodies, governmental authorities
and others; or
(6) any agreement, whether in writing or otherwise, to take any
action described in this Section 5.21.
5.22 DELIVERY OF DOCUMENTS. True, correct and complete copies of all
material documents, instruments, agreements and records of Seller relating to
the Purchased Assets, the Assumed Liabilities, the representations and
warranties of Seller contained in this Agreement and/or the operation of the
School have been delivered or made available to Buyer.
5.23 DISCLOSURE. Neither this Agreement nor any of the schedules,
exhibits, attachments, documents, certificates or other items prepared or
supplied to Buyer in writing by or on behalf of Seller with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make such statements not misleading in
light of the circumstances in which such statements were made. There is no fact
which Seller has not disclosed to Buyer in writing and of which any of Seller's
Executive Employees (as defined below) is aware which has had or is reasonably
likely to have a material adverse effect upon the existing or expected financial
condition, operating results, assets, employee relations, accreditation,
reputation or business of the School. "Executive Employee" shall mean only Jack
L. Brozman, Michael Savely, Gregg Gimlin and Vickey Cook.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Seller to enter into this Agreement, Buyer
hereby represents and warrants (a) as of the date hereof and (b) as of the
Closing Date, that:
6.1 ORGANIZATION AND CORPORATE POWER. Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware, the jurisdiction in which it is incorporated. Buyer has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereunder.
6.2 CAPACITY; AUTHORIZATION; BINDING EFFECT. Buyer has the power,
legal capacity and authority to execute, deliver and perform this Agreement and
each other document being executed in connection herewith to which it is a
party. All corporate and other proceedings required to be taken by or on the
part of Buyer, including all actions required to be taken by the directors or
stockholders of Buyer, to authorize Buyer to enter into and carry out this
Agreement and the related documents contemplated herein, have been duly and
properly taken. This Agreement has been, and each of the related documents will
be at Closing, duly executed and delivered by Buyer and constitute, or will when
delivered constitute, the valid and binding obligations of Buyer, enforceable
against Buyer, in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
6.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement and each other document being executed by Buyer in connection
herewith, and the consummation by Buyer of the transactions contemplated hereby
and thereby will not: (a) violate any provisions of law applicable to Buyer;
(b) with or without the giving of notice or the passage of time, or both,
conflict with or result in the breach of any provision of the Restated
Certificate of Incorporation or bylaws of Buyer, any material instrument,
license, agreement or commitment to which Buyer is a party or by which any of
its assets or properties is bound; (c) constitute a violation of any order,
judgment or decree to which Buyer is a party or by which any of its assets or
properties is bound; or (d) require any approval of, or filing or registration
with, any governmental entity or regulating authority other than those set forth
on Schedule 5.4 attached hereto.
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6.4 BROKERS OR FINDERS. Buyer represents that, except for the
retention of Trenwith South Coast Capital Group ("TRENWITH") by Buyer, whom
Buyer shall pay at Buyer's sole cost and expense, no agent, broker, investment
banker or other firm or person retained by Buyer is or will be entitled to any
broker's or finder's fee or any similar commission or fee in connection with any
of the transactions contemplated by this Agreement. Buyer agrees to defend and
hold harmless Seller and its affiliates from and against any and all claims
arising in connection with its discussions and/or use of the services of any
finder or broker, including, without limitation, Trenwith.
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6.5 DISCLOSURE. Neither this Agreement nor any of the schedules,
exhibits, attachments, documents, certificates or other items prepared or
supplied to Seller in writing by or on behalf of Buyer with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make such statements not misleading in
light of the circumstances in which such statements were made.
ARTICLE VII
COVENANTS
7.1 COVENANTS OF SELLER PENDING CLOSING. Seller covenants and agrees
with Buyer that from and after the date hereof and until the earlier of the
Closing Date or the termination of this Agreement pursuant to Article IV hereof,
Seller (i) shall use its best efforts to fulfill or satisfy, or cause to be
fulfilled or satisfied, all of the conditions precedent to Seller's obligations
to consummate and complete the sale provided herein and to take all other steps
and do all other things reasonably required to consummate this Agreement in
accordance with its terms, (ii) shall not interfere with the performance by
Buyer of its obligations under this Agreement, (iii) shall not fail to pay prior
to delinquency any taxes, assessments, governmental charges or levies imposed
upon it or its income, profits or assets or otherwise required to be paid by it,
(iv) shall not make or authorize the making of any capital expenditure in excess
of $1,000 without Buyer's prior written consent except for the performance of
obligations previously incurred, or for the replacement of equipment or tangible
property necessary to the operations of the business of Seller, (v) shall not
engage in any sale of its Accounts Receivable, (vi) shall promptly notify Buyer
of any notice from any governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement, or any fact or
circumstance of which Seller has knowledge which would make any representation
or warranty set forth herein materially untrue or inaccurate as of the Closing
Date or as of the date of this Agreement, or any planned or threatened labor
dispute, organization efforts, strike or collective work stoppage affecting the
employees of Seller and (vii) shall not take any action outside the ordinary
course of business that would cause Buyer to be unable to obtain good and
marketable title to the Purchased Assets to be transferred to Buyer at the
Closing. Subject to Section 4.1(4), until the earlier of July 31, 1996 or the
termination of this Agreement, Seller will not directly or indirectly solicit,
respond to or negotiate with or release any information relative to the School
to any potential buyer other than Buyer.
7.2 COVENANTS OF BUYER PENDING CLOSING. Buyer covenants and agrees
with Seller that from and after the date hereof and until the earlier of the
Closing Date or the termination of this Agreement pursuant to Article IV hereof,
Buyer (i) shall use its best efforts to fulfill or satisfy, or cause to be
fulfilled or satisfied, all of the conditions precedent to Buyer's obligations
to consummate and complete the sale provided herein and to take all other steps
and do all other things reasonably required to consummate this Agreement in
accordance with its terms and (ii) shall not interfere with the performance by
Seller of its obligations under this Agreement.
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7.3 CLOSING AND POST-CLOSING COVENANTS.
7.3.1 FURTHER ASSURANCES. From time to time after the Closing,
(i) Seller will use reasonable efforts for as long as it continues its corporate
existence to execute and deliver such instruments of conveyance, sale or
assignment as Buyer may reasonably request, to more effectively vest, confirm or
evidence Buyer's title to or rights in any of the Purchased Assets and to
otherwise carry out the purpose and intent of this Agreement, and (ii) Buyer
will execute and deliver such instruments as Seller may reasonably request to
more effectively assure the assignment to and assumption by Buyer of the
obligations and liabilities of Seller to be assumed by Buyer pursuant to this
Agreement and to otherwise carry out the purpose and intent of this Agreement.
7.3.2 MUTUAL COOPERATION. The parties shall use reasonable
efforts to cooperate fully with each other and with their respective counsel and
accountants in connection with any steps required to be taken to consummate the
transactions contemplated hereby and transition management and ownership of the
School from Seller to Buyer. Before and after the Closing, Seller shall use its
best efforts to assist Buyer in obtaining any required accreditation reasonably
necessary for Buyer's operation of the School, including furnishing Buyer such
necessary information and reasonable assistance as Buyer may request in
connection with its preparation of necessary filings, submissions or
accreditation applications to any governmental agency in connection with the
transactions contemplated hereby.
7.3.3 ACCESS TO EMPLOYEES. From and after the Closing, each of
Buyer and Seller shall afford to the other party (the "REQUESTING PARTY"), its
officers, counsel, accountants and other authorized representatives reasonable
access to its employees who formerly were or currently are employed by Seller,
as the case may be, without cost to the Requesting Party (other than payment of
out-of-pocket costs not including personnel costs) and as reasonably required by
the Requesting Party in connection with any claim, action, litigation or other
proceeding involving Seller or the School. Each party shall use its best efforts
to cause such employees to cooperate with and assist the Requesting Party in its
prosecution or defense of such claims, actions, litigations and other
proceedings, which cooperation shall include, without limitation, preparing and
providing written and oral discovery and attending and testifying at
depositions, hearings, motions and trials, all as necessary in the reasonable
opinion of the Requesting Party or its counsel. Any such access shall take place
only during normal business hours in such a manner as not to interfere
unreasonably with the operation of the business of the other party.
7.3.4 CERTIFICATION. Prior to and after the Closing, Seller and
Buyer shall provide to the USED and to all state regulatory agencies and
accrediting bodies all information required or reasonably requested by any of
them, and Buyer shall use its reasonable efforts to satisfy all requirements and
demands of the USED or any such agency or body requisite to obtaining
certification. Without limiting the foregoing, Buyer shall submit to USED a
completed application for certification of the School conveyed to Buyer at the
Closing within a reasonable time after Closing.
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7.3.5 RETURN OF DISCLOSED GUIDELINES. As soon as reasonably
practicable after the completion of the educational program of the School by all
students of the School on the Closing Date, Buyer shall return all copies, notes
and derivative materials of the Disclosed Guidelines to Seller or, at Seller's
request, destroy such materials. Buyer shall not disclose any of the Disclosed
Guidelines to any person not employed by Buyer unless required by law or in
connection with regulatory proceedings.
7.4 EXCISE AND PROPERTY TAXES. Buyer and Seller shall each pay fifty
percent (50%) of all sales and use taxes arising out of the transfer of the
Purchased Assets. Each of Buyer and Seller and shall pay its respective
portion, prorated as of the Closing, of state and local real and personal
property taxes of the business.
7.5 ADMINISTRATION IN ACCORDANCE WITH ACCREDITATIONS. From and after
the date of this Agreement, Seller, at Seller's sole cost and expense, shall
administer and operate the School in accordance in all material respects with
all federal and state laws, statutes, rules and regulations and in accordance in
all material respects with all permits, accreditations, authorizations and
agreements issued by or entered into with any federal, state or local
governmental or quasi-governmental entity in any way regulating or otherwise
relating to the administration and operation of the School, or any of them.
Subject to the terms and provisions of this Agreement, Buyer and Seller shall
work together cooperatively and in good faith to obtain any and all approvals
from the USED, any state education regulatory authority and any other
governmental or quasi-governmental entity that may be necessary or appropriate
to vest in Buyer at the Closing the right and authority in all material respects
to administer and operate the School and to release Seller from further
liability or obligations in connection with the administration or operation of
the School.
7.6 ACCESS AND MAINTENANCE OF RECORDS. From and after the Closing,
each of Buyer and Seller shall afford to the Requesting Party, its officers,
counsel, accountants and other authorized representatives and regulatory
authorities access to its properties, books and records, including those
maintained by its accountants, at any time and from time to time upon reasonable
notice from the Requesting Party, as reasonably required by the Requesting Party
in connection with (i) performance by the Requesting Party of any of its
obligations under the terms and conditions of this Agreement, including, without
limitation, any liability or obligation of Seller not assumed by Buyer pursuant
to this Agreement, (ii) any claim, action, litigation or other proceeding
involving the Requesting Party or the School and (iii) the Requesting Party's
preparation of its financial statements and tax returns. In addition, the
Requesting Party, at its expense, may make copies of any such records as may be
necessary or appropriate for the Requesting Party's use. Each party shall
maintain all such records in accordance with, and subject to all restrictions
imposed by, all laws, rules and regulations. Each party shall not destroy or
otherwise dispose of any of such records without prior notice to the other
party, which party shall have the option, at such party's expense, to take
possession of any such records which the other party elects to destroy or
otherwise dispose of. Any such access shall take place only during normal
business hours in such a manner as not to interfere unreasonably with the
operation of the business of the other party. Notwithstanding the foregoing,
Buyer shall preserve and protect
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all books, documents, papers, computer programs and records pertaining in any
manner to the administration by Seller of the Federal student financial
assistance programs pursuant to Title IV of the Higher Education Act of 1965, as
amended, for the period of time specified under applicable law and regulation.
Any document or other information obtained from a party hereunder that is
designated by such party as confidential shall be maintained in confidence by
the other party, except to the extent Seller is required by law or regulation to
disclose part or all of such documents or information.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligation of
Buyer to complete the purchase of Purchased Assets as provided for herein is
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Buyer in
writing.
(1) All representations and warranties of Seller contained in
this Agreement or in any certificate or other document delivered to Buyer
pursuant hereto shall be complete, true and correct in all material
respects as of the Closing Date (except to the extent such representations
and warranties speak as of a particular date), and Buyer shall have
received a certificate signed by the chief executive officer of Seller to
such effect;
(2) Seller shall have performed all of the obligations, covenants
and agreements contained in this Agreement to be performed by Seller on or
before the Closing Date, and Buyer shall have received a certificate signed
by the chief executive officer of Seller to such effect;
(3) All instruments and documents required on Seller's part to
effectuate and consummate the transactions contemplated hereby as of the
Closing, including those set forth in Section 3.2, shall be delivered by
Seller and shall be in form and substance reasonably satisfactory to Buyer
and its counsel;
(4) No law or order shall have been enacted, entered, issued,
promulgated or entered by any governmental entity which prohibits or
restricts the transactions contemplated hereby, and there shall not have
been threatened, nor shall there be pending, any action or proceeding by or
before any court or governmental agency or other regulatory or
administrative agency or commission, challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions;
(5) Buyer shall have satisfactorily completed its due diligence
investigation of the School;
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(6) Seller shall have obtained all registrations, licenses,
permits and approvals (other than those set forth on Schedule 5.4 attached
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hereto, which shall be obtained by Buyer with the cooperation of Seller)
required by any governmental entity or agency or other regulatory body to
operate the School in the State of California and all local jurisdictions
contained therein;
(7) The School shall have received all required accreditation
approvals;
(8) Seller shall have provided evidence satisfactory to Buyer
that all debts incurred through the Closing Date relating to the School,
including lender payables, regulatory fines, repayment, refunds, and all
known obligations or liens have been satisfied and paid in full; and
(9) Buyer shall have received satisfactory evidence that all
liens (other than the Permitted Exceptions) on the Purchased Assets have
been terminated and completely released of record.
8.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations
of Seller to complete the sale of Purchased Assets as provided for herein are
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Seller in
writing.
(1) All representations and warranties of Buyer contained in this
Agreement or in any certificate or other document delivered to Seller
pursuant hereto shall be complete, true and correct in all material
respects as of the Closing Date (except to the extent such representations
and warranties speak as of a particular date), and Seller shall have
received a certificate signed by the chief executive officer of Buyer to
such effect;
(2) Buyer shall have performed all of the obligations, covenants
and agreements contained in this Agreement to be performed by Buyer on or
before the Closing Date, and Seller shall have received a certificate
signed by the chief executive officer of Buyer to such effect;
(3) All instruments and documents required on Buyer's part to
effectuate and consummate the transactions contemplated hereby including
those set forth in Section 3.3 shall be delivered by Buyer and shall be in
form and substance reasonably satisfactory to Seller and its counsel; and
(4) No law or order shall have been enacted, entered, issued,
promulgated or entered by any governmental entity which prohibits or
restricts the transactions contemplated hereby, and there shall not have
been threatened, nor shall there be pending, any action or proceeding by or
before any court or governmental agency or other regulatory or
administrative agency or commission, challenging any
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of the transactions contemplated by this Agreement or seeking monetary
relief by reason of the consummation of such transactions.
ARTICLE IX
MISCELLANEOUS
9.1 BINDING EFFECT. All terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement, nor the obligations of either party hereunder, shall be
assignable or transferable by either such party without the prior written
consent of all parties hereto. If Buyer desires to assign its right to acquire
a portion of the School to an affiliated entity, Seller will consider such
request in good faith and will not unreasonably withhold its consent.
9.2 NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be given or made by personal
delivery, by a nationally recognized courier service for overnight delivery or
by registered or certified mail, postage prepaid, return receipt requested,
addressed
if to Buyer, at:
Corinthian Schools, Inc.
1932 East Deere Avenue, Suite 210
Santa Ana, California 92705
Attention: David Moore, President
with each such notice to Buyer, a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
if to Seller, at:
Concorde Career Colleges, Inc.
City Center Square
1100 Main Street, Suite 416
Kansas City, Missouri 64105
Attention: Jack Brozman, President
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with each such notice to Seller, a copy to:
Bryan Cave LLP
7500 College Boulevard
Overland Park, Kansas 66210
Attention: Thomas W. Van Dyke, Esq.
or at such other place as the party to whom such notice of communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 9.2. Notices shall be deemed effective and received (i) on the
actual receipt in the case of hand delivery, (ii) on the next business day after
deposit in the case of notices by nationally recognized overnight courier
services, or (iii) on the third business day after the date of mailing in the
manner set forth herein. As used herein, notice to a party shall include
concurrent notice to that party's counsel as set forth herein.
9.3 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations,
representations, warranties and discussions of the parties, whether oral or
written; and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
9.4 NATURE AND SURVIVAL OF REPRESENTATIONS. The representations,
warranties, covenants and agreements of Buyer and Seller contained in this
Agreement, and all statements contained in this Agreement or any Exhibit or
Schedule hereto or any certificate or financial statement delivered pursuant to
this Agreement shall be deemed to constitute representations, warranties,
covenants and agreements of the respective party delivering the same. All such
representations, warranties, covenants and agreements shall survive the Closing;
provided, however, the representations and warranties contained in Articles V
and VI shall terminate 24 months after the Closing Date.
9.5 RISK OF LOSS OR DAMAGE; INSURANCE. It is understood and agreed
that all right, title and interest in and to the Purchased Assets and all risk
of loss or damage thereto shall not pass from Seller to Buyer unless and until
the Closing occurs whereupon all risk of loss or damage shall pass to Buyer. In
the event of a casualty or condemnation in respect of the Purchased Assets prior
to the Closing, Buyer shall have the right, at its sole option, to elect to
either terminate this Agreement or to accept the insurance proceeds in respect
of such casualty or condemnation and proceed to close otherwise in accordance
with the terms and conditions of this Agreement. Seller agrees to maintain the
insurance currently carried with respect to the Purchased Assets until the
Closing.
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9.6 WAIVER. No waiver shall be deemed to have been made by any party
of any of its rights hereunder unless the same shall be in writing and shall be
signed by the waiving party. Such a waiver, if any, shall be a waiver only in
respect to the specific instance involved and shall in no way impair the rights
of the waiving party or the obligations of any other party in any other respect
at any other time.
9.7 GOVERNING LAW. This Agreement shall be construed and interpreted
according to the substantive laws of the State of California without giving
effect to the principles of conflicts of law thereof.
9.8 HEADINGS. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
9.9 COUNTERPARTS. This Agreement may be executed by the parties in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.10 SEVERABILITY. In the event that any one or more terms or
provisions hereof shall be held void or unenforceable by any court or
arbitrator, all remaining terms and provisions hereof shall remain in full force
and effect.
9.11 TIME IS OF THE ESSENCE. Seller and Buyer agree that time is of
the essence in connection with the implementation and performance by the parties
of all terms, conditions and obligations of this Agreement.
9.12 INDEMNIFICATION BY SELLER. Seller hereby indemnifies, defends
and holds harmless Buyer and its affiliates and their respective officers,
directors, shareholders, employees, agents, successors and assigns from and
against any and all claims, liabilities, obligations, losses, costs, expenses
(including, without limitation, interest, penalties and reasonable attorneys'
fees), fines, or damages of any kind or nature (collectively "LOSSES"), as a
result of, or based upon or arising out of:
(1) any breach of, or any inaccuracy or misrepresentation in, any
of the representations or warranties made by Seller in this Agreement or
any other agreement, statement or certificate delivered pursuant hereto;
(2) any breach of or violation by Seller of any of the covenants
made by Seller in this Agreement or any other agreement, statement or
certificate delivered pursuant hereto;
(3) all Losses arising out of or resulting from any claim related
to or arising out of Seller's operation of the School prior to the Closing
Date that are asserted with respect to any liabilities that are not Assumed
Liabilities;
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(4) all Losses arising out of or resulting from the Excluded
Liabilities; and
(5) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses
incurred in investigating, preparing or defending any litigation or
proceeding, commenced or threatened) incident to any of the foregoing or
the enforcement of this Section 9.12.
9.13 INDEMNIFICATION BY BUYER. Buyer hereby indemnifies, defends and
holds harmless Seller and its affiliates and their respective officers,
directors, shareholders, employees, agents, successors and assigns from and
against:
(1) any breach of, or any inaccuracy or misrepresentation in, any
of the representations or warranties made by Buyer in this Agreement or any
other agreement, statement or certificate delivered pursuant hereto;
(2) any breach of or violation by Buyer of any of the covenants
made by Buyer in this Agreement or any other agreement, statement or
certificate delivered pursuant hereto;
(3) all Losses arising out of or resulting from any claim related
to or arising out of Buyer's operation of the School after the Closing Date
that are asserted with respect to any liabilities that are not Excluded
Liabilities;
(4) all Losses resulting from or arising out of the failure by
Buyer to pay, perform or discharge, or cause to be paid, performed or
discharged, any of the Assumed Liabilities; and
(5) all actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses
incurred in investigating, preparing or defending any litigation or
proceeding, commenced or threatened) incident to any of the foregoing or
the enforcement of this Section 9.13.
9.14 PROCEDURE FOR INDEMNIFICATION. The provisions of this Section
9.14 shall govern any claim for indemnification of Buyer, pursuant to Section
9.12, or of Seller, pursuant to Section 9.13 (each such party an "INDEMNITEE")
against the party agreeing to provide indemnification hereunder (the
"INDEMNITOR"). The Indemnitee shall promptly give notice hereunder to the
Indemnitor, after obtaining notice of any claim as to which recovery may be
sought against the Indemnitor because of the indemnity in Sections 9.12 or 9.13,
and, if such indemnity shall arise from the claim of a third party, the
Indemnitee shall consent to the Indemnitor assuming the defense of any such
claim; provided that the Indemnitee shall not be required to permit the
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Indemnitor to assume the defense of any third party claim (x) which, if not
first paid, discharged or otherwise complied with, would result in a material
interruption or cessation of the conduct of the business of the Indemnitee, or
(y) if the Indemnitee reasonably concludes that there may be a conflict of
interest between
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the Indemnitor, on the one hand, and the Indemnitee, on the other hand, in the
conduct of the defense of such action. Failure by the Indemnitor to notify the
Indemnitee of its election to defend any such claim or action within 14 days of
the date of notice from the Indemnitee shall be deemed to constitute its consent
to the Indemnitee's assumption of such defense. If the Indemnitor assumes the
defense of such claim or litigation resulting therefrom, the obligations of the
Indemnitor hereunder as to such claim shall include taking all steps necessary
in the defense or settlement of such claim or litigation resulting therefrom
including the retention of counsel, which counsel must be to the Indemnitee's
reasonable satisfaction, and holding the Indemnitee harmless from and against
any and all Losses resulting from, arising out of, or incurred with respect to
any settlement approved by the Indemnitor or any judgment in connection with
such claim or litigation resulting therefrom. The Indemnitor shall not, in the
defense of such claim or litigation, (i) consent to the entry of any judgment
(other than a judgment of dismissal on the merits without costs) except with the
written consent of the Indemnitee, which consent shall not be unreasonably
withheld or (ii) enter into any settlement (except with the written consent of
the Indemnitee, which consent shall not be unreasonably withheld), unless the
Indemnitee is released and held harmless from and against any and all Losses
resulting from, arising out of or incurred with respect to such judgment or
settlement. If the Indemnitor shall not assume the defense of any such claim by
a third party or litigation resulting therefrom, the Indemnitee may defend
against such claim or litigation in such manner as it deems appropriate, and the
Indemnitee may settle such claim or litigation on such terms as it may deem
appropriate and the Indemnitor shall promptly reimburse the Indemnitee for the
amount of such settlement and for all Losses incurred by the Indemnitee in
connection with the defense against or settlement of such claim or litigation.
9.15 DISPUTE RESOLUTION AND ARBITRATION.
9.15.1 NEGOTIATION BETWEEN EXECUTIVES. The parties shall attempt
in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the controversy and who are at a higher level of management (if any) than
the persons with direct responsibility for administration of this Agreement.
Any party may give the other party written notice of any dispute not resolved in
the normal course of business. Within 15 days after delivery of the notice the
receiving party shall submit to the other a written response. The notice and
the response shall include (i) a statement of each party's position and a
summary of arguments supporting that position, and (ii) the name and title of
the executive who represents that party and of any other person who will
accompany the executive. Within 10 days after delivery of the disputing party's
notice, the executives of both parties shall meet at a mutually acceptable time
and place, and thereafter as often as they reasonably deem necessary, to attempt
to resolve the dispute. All reasonable requests for information made by one
party to the other will be honored. If the matter has not been resolved within
45 days of the disputing party's notice, or if the parties fail to meet within
10 days, either party may initiate arbitration of the controversy or claim as
provided hereinafter. All negotiations pursuant to this clause are confidential
and shall be treated as compromise and settlement negotiations for purposes of
the Federal Rules of Evidence of California and other states' Rules of Evidence.
28
<PAGE>
9.15.2 ARBITRATION. Any dispute arising out of or relating to
this Agreement or the breach, termination or the validity hereof, which has not
been resolved by the nonbinding meet and confer provisions provided in Section
9.15.1 within 90 days of the initiation of such procedure, shall be settled by
arbitration in accordance with the then-current End Dispute-Judicial Arbitration
and Mediation Services (JAMS) rules for arbitration of business disputes by a
sole arbitrator who shall be a former superior court or appellate court judge or
justice with significant experience in resolving business disputes. If
available, the arbitrator should have familiarity or experience in Title IV
funding matters. The arbitration shall be governed by the California Code of
Civil Procedure Section 1280 et seq. and the parties intend this procedure to be
-- ---
specifically enforceable in accordance with such provisions. Judgment upon the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Orange County, California. The
arbitrator may award equitable relief in those circumstances where monetary
damages would be inadequate. The arbitrator shall be required to follow the
applicable law as set forth in the governing law section of this Agreement.
9.15.3 SATISFACTION OF DAMAGES. In the event that an arbitrator
awards damages to Buyer hereunder, or Seller admits in writing liability for
damages hereunder, and if there is then outstanding any amount owed by Buyer to
Seller hereunder, then the amount of such damages shall first be satisfied by
offset against such outstanding amounts.
9.16 THIRD PARTY BENEFICIARIES. This Agreement shall be binding upon,
be enforceable against, and inure to the benefit of the parties and their
respective successors and permitted assigns; otherwise, this Agreement shall
not, and shall not be deemed to, inure to the benefit of or be enforceable by
any third party.
9.17 Expenses. Except as contemplated by Sections 4.1(4) and 7.4
hereof, each party hereto shall bear its own expenses relating to the
transactions contemplated by this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of this 11th day of July, 1996.
"BUYER"
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: /s/ David G. Moore
-----------------------------
Name: David G. Moore
---------------------------
Title: President - CEO
--------------------------
"SELLER"
CONCORDE CAREER COLLEGES, INC.,
a Delaware corporation
By: [SIGNATURE ILLEGIBLE]
-----------------------------
Name: [SIGNATURE ILLEGIBLE]
---------------------------
Title: President - CEO 7/11/96
--------------------------
30
<PAGE>
EXHIBIT 2.4
AMENDMENT TO
ASSET PURCHASE AGREEMENT
THIS AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Amendment") is made
as of August 29, 1996 by and between Corinthian Schools, Inc., a Delaware
corporation ("Buyer"), and Concorde Career Colleges, Inc., a Delaware
corporation ("Seller").
BACKGROUND
A. Buyer and Seller are parties to an Asset Purchase Agreement dated
as of July 11, 1996 (the "Agreement"); and
B. Buyer and Seller wish to amend certain of the terms and conditions
of the Agreement as more fully set forth below.
AGREEMENT
In consideration of the foregoing, the parties hereto agree as
follows:
1. SECTION 2.2. Section 2.2 of the Agreement is hereby amended by
-----------
deleting it in its entirety and replacing it with the following:
"2.2 CASH CONSIDERATION. The cash consideration portion of the
Purchase Price shall be $350,000, payable as follows:
2.2.1 CLOSING. On August 30, 1996, Buyer shall pay to
Seller in cash by wire transfer $50,000 (the "CLOSING PAYMENT"),
which Closing Payment will be held in escrow by Seller pending
the closing being declared effective at 11:59 p.m. on August 31,
1996 (the "CLOSING" or "CLOSING DATE").
2.2.2 CERTIFICATION. On February 28, 1997, Buyer shall pay
to Seller in cash by wire transfer $300,000 (the "CERTIFICATION
PAYMENT"). On the Closing Date, Buyer shall provide Seller with a
promissory note evidencing Buyer's obligation to make the
Certification Payment, which promissory note shall be in the form
attached hereto as Exhibit A (the "PROMISSORY NOTE")."
2. SECTION 3.3. Clause (1) of Section 3.3 of the Agreement is
-----------
hereby amended by deleting it in its entirety and replacing it with the
following:
"(1) The Closing Payment and Promissory Note;"
<PAGE>
3. OTHER PROVISIONS. All other provisions of the Agreement shall
----------------
remain in full force and effect.
4. DEFINED TERMS. Capitalized terms used in this Amendment and not
-------------
otherwise defined shall have the meanings set forth in the Agreement.
5. COUNTERPARTS. This Amendment may be executed in two or more
------------
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Fax signature pages shall constitute originally signed signature pages for all
purposes of this Amendment.
6. GOVERNING LAW. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws.
IN WITNESS WHEREOF, Buyer and Seller have caused this Amendment to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
"BUYER"
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: /s/ Frank J. McCord
-------------------------------
Name: FRANK J. MCCORD
-----------------------------
Title: VP & CFO
----------------------------
"SELLER"
CONCORDE CAREER COLLEGES, INC.,
a Delaware corporation
By: /s/ Jack L. Brozman
-------------------------------
Name: Jack L. Brozman
-----------------------------
Title: President
----------------------------
2
<PAGE>
EXHIBIT 2.5
MASTER ASSET PURCHASE AGREEMENT
BETWEEN
CORINTHIAN COLLEGES, INC.
AS BUYER,
AND
PHILLIPS COLLEGES, INC.
AND CERTAIN OF ITS SUBSIDIARIES
AS SELLING PARTIES
DATED AS OF OCTOBER 17, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
ARTICLE I SALE AND PURCHASE OF ASSETS................................ 1
1.1 Purchased Assets to be Transferred......................... 1
1.1.1 Intellectual Property............................... 2
1.1.2 Goodwill............................................ 2
1.1.3 Curriculum.......................................... 2
1.1.4 Promotional Material................................ 2
1.1.5 Other Intangible Assets............................. 2
1.2 Excluded Assets............................................ 2
1.3 Timing of Transfer of Purchased Assets..................... 2
ARTICLE II CONSIDERATION.............................................. 3
2.1 Purchase Price............................................. 3
2.2 Cash Consideration......................................... 3
2.2.1 Tier I.............................................. 3
2.2.2 Tier II............................................. 3
2.2.3 ................................................... 3
2.2.4 Adjustment of Final Payment......................... 6
2.3 Obligations and Liabilities to be Assumed.................. 6
2.4 Excluded Liabilities....................................... 7
2.5 Allocation of Purchase Price............................... 7
2.6 Excise and Property Taxes.................................. 7
2.7 Employees.................................................. 7
2.8 Use of "Phillips Colleges, Inc." Name Marked on Inventories 8
2.9 No Option or Right to Offset............................... 8
ARTICLE III CLOSING.................................................... 8
3.1 Tier I Closing............................................. 8
3.2 Tier II Closing............................................ 8
3.3 Deliveries by Selling Parties at each Tier Closing......... 8
3.4 Deliveries by Selling Parties at the Tier I Closing Only... 9
3.5 Deliveries by Buyer at each Tier Closing................... 10
3.6 Deliveries by Buyer at the Tier I Closing Only............. 10
3.7 Delivery by Buyer at the Tier II Closing Only.............. 11
ARTICLE IV TERMINATION................................................ 11
4.1 Termination................................................ 11
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C>
4.2 Effect of Termination..................................... 11
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLING
PARTIES................................................... 12
5.1 Corporate Power........................................... 12
5.2 Capacity; Authorization; Binding Effect................... 12
5.3 No Conflicts.............................................. 12
5.4 Title to the Purchased Assets............................. 13
5.5 Tradenames; Confidential Information...................... 13
5.6 Insurance................................................. 13
5.7 Absence of Certain Changes................................ 14
5.8 Solvency.................................................. 14
5.9 Delivery of Documents..................................... 14
5.10 Disclosure................................................ 15
5.11 Incorporation by Reference................................ 15
5.12 Survival of Representations and Warranties................ 15
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER................... 15
6.1 Incorporation; Authority.................................. 15
6.2 Due Authorization; Binding Agreement...................... 15
6.3 No Violation or Conflict.................................. 16
6.4 No Undisclosed Liabilities................................ 16
6.5 Consents and Approvals.................................... 16
6.6 Disclosure................................................ 16
6.7 Capitalization............................................ 16
6.8 Survival of Representations and Warranties................ 17
ARTICLE VII COVENANTS................................................. 17
7.1 Covenants of the Selling Parties Pending Tier II Closing.. 17
7.2 Support Services Covenants................................ 18
7.3 Covenants of Buyer Pending Tier II Closing................ 18
7.4 Closing and Post-Closing Covenants........................ 18
7.4.1 Further Assurances................................. 18
7.4.2 Mutual Cooperation................................. 18
7.4.3 Access to Employees................................ 18
7.5 Access and Maintenance of Records......................... 19
7.6 Coordination of Agreements................................ 19
7.7 Guaranty ................................................. 20
7.8 Limitation on Dividends................................... 20
</TABLE>
ii
<PAGE>
<TABLE>
Page
----
<S> <C>
ARTICLE VIII CONDITIONS 20
8.1 Conditions Precedent to Obligations of Buyer................. 20
8.3 Conditions Precedent to Obligations of Buyer at the Tier II
Closing...................................................... 21
8.4 Conditions Precedent to Obligations of Selling Parties....... 21
ARTICLE IX MISCELLANEOUS................................................ 23
9.1 Binding Effect............................................... 23
9.2 Notices...................................................... 23
9.3 Entire Agreement............................................. 24
9.4 Risk of Loss or Damage; Insurance............................ 25
9.5 Waiver....................................................... 25
9.6 Governing Law................................................ 25
9.7 Headings..................................................... 25
9.8 Counterparts................................................. 25
9.9 Severability................................................. 25
9.10 Time is of the Essence....................................... 25
9.11 Brokers or Finders........................................... 25
9.12 Indemnification by........................................... 26
9.13 Indemnification by Buyer..................................... 26
9.14 Procedure for Indemnification................................ 27
9.14.1....................................................... 27
9.14.2....................................................... 27
9.14.3 ...................................................... 27
9.14.4 Indemnification Floor................................ 28
9.14.5 Payments from Escrow................................. 28
9.14.6 Maximum Liabilities.................................. 28
9.14.7 Definition........................................... 28
9.14.8 Indemnification Time Limit........................... 29
9.14.9 Definition........................................... 29
9.15 Exclusive Remedy............................................. 29
9.16 Limitation................................................... 29
9.17 No Double Indemnification.................................... 29
9.18 Dispute Resolution and Arbitration........................... 30
9.18.1 Negotiation Between Executives....................... 30
9.18.2 Arbitration.......................................... 30
9.19 Third Party Beneficiaries.................................... 30
9.20 Bulk Transfers............................................... 30
9.21 Expenses..................................................... 31
</TABLE>
iii
<PAGE>
SCHEDULES
---------
SCHEDULE 2.5 Allocation of Purchase Price Among the Purchased Assets
- --------
SCHEDULE 2.7 Employees
- --------
SCHEDULE 5.3 No Conflicts
- --------
SCHEDULE 5.4 Permitted Exceptions
- --------
SCHEDULE 5.5 Intellectual Property
- --------
SCHEDULE 5.6 Insurance
- --------
SCHEDULE 5.7 Absence of Certain Changes
- --------
SCHEDULE 6.5 Consents and Approvals
- --------
iv
<PAGE>
EXHIBITS
--------
EXHIBIT A List of Subsidiaries of Phillips
- -------
EXHIBIT B Bid Prices
- -------
EXHIBIT C Assignment and Assumption Agreement
- -------
EXHIBIT D Bill of Sale
- -------
EXHIBIT E-1 Buyer's Officers' Certificate
- -------
EXHIBIT E-2 Sellers' Officers' Certificate
- -------
EXHIBIT F-1 Form of Opinion of Buyer's Counsel
- -------
EXHIBIT F-2 Form of Opinion of Sellers' Counsel
- -------
EXHIBIT G Trademark License Agreement
- -------
EXHIBIT H Tier I Escrow Agreement
- -------
EXHIBIT I Support Services Agreement
- -------
EXHIBIT J Real Property Agreement
- -------
EXHIBIT K Value Prices
- -------
EXHIBIT L Interim Note
- -------
EXHIBIT M Escrow Funding Note
- -------
EXHIBIT N Guaranty
- -------
v
<PAGE>
MASTER ASSET PURCHASE AGREEMENT
This Master Asset Purchase Agreement, dated as of October 17, 1996
(the "Agreement"), is entered into by and among Corinthian Colleges, Inc., a
Delaware corporation ("Buyer"), on the one hand, and Phillips Colleges, Inc., a
Mississippi corporation ("Phillips"), and certain subsidiaries of Phillips as
identified on EXHIBIT A (the "Sellers" and, together with Phillips, the "Selling
-------
Parties"), on the other hand.
P R E A M B L E :
WHEREAS, Sellers own, operate and administer, among other things,
those certain post-secondary, vocational training schools listed on EXHIBIT B
-------
attached hereto and made a part hereof by this reference (the "Schools");
WHEREAS, for purposes of this Agreement, the parties have separated
the Schools into two groups, designated as the "Tier I Schools" and the "Tier II
Schools" as specified on EXHIBIT B;
-------
WHEREAS, Buyer desires to buy, through the payment of cash, the
assumption of liabilities of the Selling Parties and other valuable
consideration, and the Selling Parties desire to sell, all intangible assets and
certain other assets and property owned by the Selling Parties and used directly
in the business of the Schools, and certain related assets as specified herein,
upon the terms and conditions hereinafter set forth; and
WHEREAS, concurrently herewith, affiliates of Buyer, namely, Rhodes
Colleges, Inc., a Delaware corporation ("Rhodes"), Rhodes Business Group, Inc.,
a Delaware corporation ("Rhodes Group"), and Florida Metropolitan University,
Inc., a Florida corporation ("FMU"), and the Selling Parties are entering into
that certain Schools Acquisition Agreement (the "Secondary Agreement"), pursuant
to which Buyer or its affiliates is purchasing all of the tangible assets and
property and certain other assets owned by the Selling Parties used directly in
the business of the Schools specified therein;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained in this Agreement and intending to be legally bound hereby,
agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Purchased Assets to be Transferred. Subject to the terms and
----------------------------------
conditions of this Agreement, the Selling Parties hereby agree to sell, assign,
convey, transfer and deliver to Buyer and Buyer hereby agrees to assume the
Assumed Liabilities (as defined in Section 2.3 below) from the Selling Parties
and to purchase from the Selling Parties all of the Selling Parties' right,
title and interest in and to the following assets (the "Purchased Assets"),
subject to all existing mortgages, pledges, liens, claims, restrictions,
encumbrances, options, rights and
1
<PAGE>
security interests of any kind or nature, including the Permitted Exceptions (as
defined in Section 5.4 below), and except for the Excluded Assets (as defined in
Section 1.2 below):
1.1.1 Intellectual Property. All patents, trademarks, service
---------------------
marks, licenses and copyrights (whether or not registered) and all applications
and registrations therefor, owned by the Selling Parties and used directly in
connection with the operation of the Schools, and all computer programs and
software owned by the Selling Parties and used directly in the operation of the
Schools, including those described in SCHEDULE 5.5 (the "Intellectual
--------
Property"), but excluding the name "Phillips" or "Phillips Colleges" and any
derivatives thereof, and any trademarks, tradenames, logotypes or servicemarks
related thereto and any trademarks, tradenames, logotypes or servicemarks
licensed to Buyer in accordance with the Trademark License Agreement (as defined
in Section 3.4.1 below);
1.1.2 Goodwill. All of the goodwill and going concern value of
--------
the Selling Parties related exclusively to the Schools;
1.1.3 Curriculum. Copies of all curricula both owned and/or
----------
licensed by the Selling Parties (and which the Selling Parties have a right to
transfer) and currently being taught or which has been taught in the two most
recent academic years at the Schools and, with respect to any such curricula
licensed by the Selling Parties, the right to use, on a royalty free basis, all
such curricula (in accordance with the terms of the applicable license);
1.1.4 Promotional Material. All of Phillips' right, title and
--------------------
interest in and to the promotional and marketing materials related exclusively
to the Schools; and
1.1.5 Other Intangible Assets. All other intangible assets
-----------------------
of the Sellers used exclusively by the Schools not covered in the foregoing
provisions of this Section 1.1.
1.2 Excluded Assets. The Excluded Assets shall not be conveyed
---------------
hereunder. The "Excluded Assets" are all assets of the Selling Parties not sold
in accordance with Section 1.1, above, including, but not limited to, all assets
being transferred to Buyer or its affiliates pursuant to the Secondary Agreement
and any assets of the Selling Parties not included in the Purchased Assets as
defined hereunder or as defined in the Secondary Agreement.
1.3 Timing of Transfer of Purchased Assets. The Purchased Assets
--------------------------------------
related to the Tier I Schools shall be purchased, and the Assumed Liabilities
related to the Tier I Schools shall be assumed, at the Tier I Closing (as
defined in Section 3.1 below); the Purchased Assets related to the Tier II
Schools shall be purchased, and the Assumed Liabilities related to the Tier II
Schools shall be assumed, at the Tier II Closing (as defined in Section 3.2
below).
2
<PAGE>
ARTICLE II
CONSIDERATION
2.1 Purchase Price. In consideration of the sale of the Purchased
--------------
Assets by the Selling Parties to the Buyer, the Buyer shall pay the Purchase
Price (as hereinafter defined) to Phillips for itself and/or as agent for the
Sellers or any other parties as designated by Phillips (in such capacities, the
"Phillips Payee"), in the manner and at the times set forth below, subject to
adjustment as hereinafter set forth, and assume the Assumed Liabilities pursuant
to the Assignment and Assumption Agreement (as hereinafter defined).
2.2 Cash Consideration. The Purchase Price shall be equal to the sum
------------------
of the Tier I Payment, the Tier II Payment and the Final Payment, subject to
adjustment as set forth herein and in the escrow agreements, payable as follows:
2.2.1 Tier I. At the Tier I Closing, Buyer shall pay to the
------
Phillips Payee in cash by wire transfer of immediately available funds
$14,000,000 (the "Tier I Payment").
2.2.2 Tier II. At the Tier II Closing, Buyer shall pay to the
-------
Phillips Payee in cash by wire transfer of immediately available funds an amount
calculated in accordance with Section 8.3 hereof (the "Tier II Payment");
provided, however, thirteen and one-third percent (13 1/3%) of such Tier II
Payment (the "Tier II Escrow Amount") shall be paid and held in escrow pursuant
to the terms of an escrow agreement in form and substance reasonably
satisfactory to the parties hereto (the "Tier II Escrow Agreement").
2.2.3
(a) Final Payment. On the earlier of (i) the last date
-------------
on which: (1) the U.S. Department of Education ("ED") has certified all of the
Tier I Schools as eligible to participate in the programs of student financial
assistance administered pursuant to Title IV of the Higher Education Act of 1965
as amended ("Title IV"); and (2) some or all of the guaranty agencies which
guarantee Federal Family Education Loan ("FFEL") program loans for the Schools
resume such activities such that any combination of Schools with an aggregate
value of $17,600,000 (based on the Tier I Bid Prices set forth in EXHIBIT B) are
-------
able to receive FFEL program funds; or (ii) 60 days after the Tier I Closing
(the "Final Payment Date"), Buyer shall pay $4,000,000 (the "Final Payment") as
follows: (y) $1,100,000 ("Payment Amount") to the Phillips Payee pursuant to the
terms of the Interim Note attached hereto as EXHIBIT L, and (z) subject to
-------
Section 2.2.4, $2,900,000 of the Final Payment (the "Tier I Escrow Amount")
shall be paid in accordance with the terms of the Escrow Funding Note attached
hereto as EXHIBIT M ("Escrow Funding Note"). Pursuant to the terms of the Escrow
-------
Funding Note, the Tier I Escrow Amount shall be paid and held in escrow pursuant
to the terms thereof and of the escrow agreement in the form attached hereto as
EXHIBIT H and to be executed by the parties at the Tier I Closing (the "Tier I
- -------
Escrow Agreement"). The Final Payment shall be paid in accordance with the
provisions of this Section 2.2.3(a) without any right or option of offset by
Buyer against any amounts which Buyer claims are owed to it hereunder, under the
Secondary Agreement, the Real
3
<PAGE>
Property Agreement, any note issued pursuant hereto or thereto or any other
agreement, certificate, instrument or document related hereto or thereto or
otherwise by the Selling Parties as of the Final Payment Date.
(b) Escrow. The Tier I Escrow Agreement shall provide for
------
the distribution of escrow funds in the following amounts and upon the following
occurrences:
(i) $800,000 of the escrow funds, together with all
interest earned since the Tier I Closing Date on that amount, shall be disbursed
to the Phillips Payee upon completion and filing with ED of compliance audits
for each of the Tier I Schools covering the period July 1, 1995 through June 30,
1996, as required by the provisions of 34 C.F.R. (SEC.) 668.23, which Buyer
agrees to seek to file not later than 120 days but shall file no later than 150
days following the Tier I Closing Date; provided, however, if such compliance
audits reflect potential liabilities in excess of $10,000 for any Tier I School,
Buyer shall provide the Selling Parties with the opportunity to review and
comment on a draft of such audits prior to the filing thereof and shall
cooperate in good faith with the Selling Parties to incorporate any comments the
Selling Parties may have with respect to such audits. In the event that any such
compliance audits establish a claim for indemnification under Section 9.12 of
this Agreement, the escrow agent will continue to retain an amount sufficient to
satisfy such claims up to $800,000 of the escrow funds, which retained amount
shall be released to the Phillips Payee, together with all interest earned on
such funds since the Tier I Closing Date, upon resolution of the compliance
audits and payment of any such claim, if any, by Selling Parties once such
indemnification claim is Definitively Resolved. At the option of the Phillips
Payee, the Phillips Payee may execute an instruction in accordance with the Tier
I Escrow Agreement directing the escrow agent to pay to the applicable creditors
that amount of the funds in the escrow account necessary to satisfy the
liabilities of the Selling Parties with respect to such compliance audits
(together with all interest earned since the Tier I Closing Date on the funds so
released) and to release to the Phillips Payee the difference between such
amount and $800,000 of the funds in the escrow account, together with all
interest earned since the Tier I Closing Date on the funds so released to the
Phillips Payee.
(ii) the difference between $800,000 of the escrow funds
less the amount of the Final TFC Payment (as defined below) (the "Reduced
Release Amount"), together with all interest earned since the Tier I Closing
Date on that amount, shall be released to the Phillips Payee on the second (2d)
anniversary of the Tier I Closing Date; provided, however, the escrow agent will
continue to retain an amount therefrom sufficient to satisfy any indemnification
claims under Section 9.12 which have been noticed in accordance with Section
9.14 of this Agreement up to the Reduced Release Amount of the escrow funds,
which retained amount shall be released, together with all interest earned on
such funds since the Tier I Closing Date, upon resolution of the pending
indemnification claims and payment of any liability amounts owed by Selling
Parties once such claim is Definitively Resolved. At the option of the Phillips
Payee, the Phillips Payee may execute an instruction in accordance with the Tier
I Escrow Agreement directing the escrow agent to pay to the applicable
creditor(s), up to the amount of Reduced Release Amount, that amount of the
funds in the escrow account necessary to satisfy the resolved indemnification
claims and to release to the Phillips Payee the difference
4
<PAGE>
between such amount and the Reduced Release Amount in the escrow account, in
each case, together with all interest earned since the Tier I Closing Date on
the funds so released, to such creditor(s) and to the Selling Parties, as
applicable.
(iii) $800,000 of the escrow funds, together with all
interest earned since the Tier I Closing Date on that amount, shall be released
to the Phillips Payee on the earlier of the following ("Release Date"): (1)
conduct of a program review by ED with respect to at least nine (9) of the
Schools pursuant to which ED does not assert Title IV liabilities in an
aggregate amount in excess of $800,000, for periods prior to the Tier I Closing
Date; or (2) the second (2d) anniversary of the Tier I Closing Date; provided,
however, the escrow agent will continue to retain an amount sufficient to
satisfy any indemnification claims under Section 9.12 which have been noticed in
accordance with Section 9.14 of this Agreement prior to the Release Date up to
$800,000 of the escrow funds, which retained amount shall be released to the
Phillips Payee, together with all interest earned on such funds since the Tier I
Closing Date, upon resolution of the pending indemnification claims and payment
of any liability amounts owed by Selling Parties in connection therewith once
such claims are Definitively Resolved (as defined herein). At the option of the
Phillips Payee, the Phillips Payee may execute an instruction in accordance with
the Tier I Escrow Agreement directing the escrow agent to pay to the applicable
creditor(s) that amount of the funds in the escrow account necessary to satisfy
the resolved indemnification claims and to release to the Phillips Payee the
difference between such amount and $800,000 of the funds in the escrow account,
in each case, together with all interest earned since the Tier I Closing Date on
the funds so released to creditors and to the Selling Parties, as applicable.
(iv) Buyer shall receive a reduction to the Purchase
Price equal to 40% of the Bid Price for any Florida School as listed on EXHIBIT
-------
B ("CDR Adjustment Amount") if any such School's official cohort default rate
for FY 1995 and FY 1996 exceeds 25%, up to an aggregate maximum CDR Adjustment
Amount of $1,000,000 for all such Schools, upon the following conditions: After
the Tier I Closing, in the event that Buyer receives notice that the official FY
1995 cohort default rate for any Florida School listed on EXHIBIT B is greater
-------
than 25%, (a) if the aggregate CDR Adjustment Amount is greater than $500,000,
the escrow agent will retain the CDR Adjustment Amount up to an aggregate
maximum amount of $1,000,000 for all such Schools, and (b) if the aggregate CDR
Adjustment Amount is less than $500,000, the escrow agent will release to the
Phillips Payee the difference between $500,000 and the CDR Adjustment Amount, if
any. In the event that any Florida School in respect of which the escrow agent
is retaining the CDR Adjustment Amount receives notice that the official FY 1996
cohort default rate for such School is greater than 25%, then the escrow agent
will pay the CDR Adjustment Amount with respect to such School to the Buyer, in
accordance with the provisions of the Tier I Escrow Agreement and will release
to the Phillips Payee the difference between the CDR Adjustment Amount retained
and the amount so released to Buyer. If, however, any Florida School in respect
of which the escrow agent is retaining the CDR Adjustment Amount receives notice
that the official FY 1996 cohort default rate for such School is less than 25%,
the escrow agent will pay such CDR Adjustment Amount to the Phillips Payee;
provided, however, that the aggregate amount so paid to the Phillips Payee will
not exceed $500,000. Notwithstanding the foregoing, in the event that all of
the Florida Schools listed on
5
<PAGE>
EXHIBIT B have received notice of their pre-publication cohort default rate for
- -------
FY 1995 and one or more of such Schools' pre-publication cohort default rates
for FY 1995 is less than 12%, the escrow agent shall pay the Phillips Payee the
lesser of (A) $500,000 or (B) the amount equal to the potential CDR Adjustment
Amount for such School or Schools with pre-publication cohort default rates less
than 12%; provided, however, that the Selling Parties will be required to repay
that amount to Buyer in the event that Buyer receives notice that the official
cohort default rate for FY 1995 for such School or Schools is greater than 25%.
In the event that the official cohort default rate for 1995 for any Florida
School listed on EXHIBIT B is greater than 25% and such School receives notice
-------
that its pre-publication cohort default rate for FY 1996 is less than 12%, an
amount equal to the potential CDR Adjustment Amount for that School will be
released to the Phillips Payee; provided, however, that the amount so paid to
the Phillips' Payee shall not exceed the amount equal to (y) $500,000 less (z)
the aggregate amount previously released to the Phillips Payee under this
Section 2.2.3(b)(iv) and, provided, further that the Selling Parties will be
required to repay that amount to Buyer in the event that Buyer receives notice
that the official cohort default rate for FY 1996 for that School is greater
than 25%.
(v) On the second (2d) anniversary of the Tier I Closing
Date, the Final TFC Payment shall be released to Buyer from the Escrow Amount.
For purposes of this Section 2.2.3(b)(v) only, if the Final TFC Payment exceeds
the amount of escrow funds remaining in the Escrow Account at such second (2d)
anniversary, Buyer shall have full recourse to collect from Phillips the amount
of such excess. The term "Final TFC Payment" means an amount equal to one-half
(1/2) of the difference between (y) the TFC Adjustment (as defined in Section
2.8(c) of the Secondary Agreement) less (z) $800,000.
2.2.4 Adjustment of Final Payment. If under Section 6(f) of the
---------------------------
on or before the thirtieth day after the Tier I Closing by reason of the failure
of any condition within the control of the Selling Parties, including, without
limitation, any failure by Selling Parties to give good and marketable title to
the real estate to be sold to Buyer in accordance with the Real Property
Agreement, (1) the Tier I Escrow Amount shall be reduced to $2,100,000, thereby
canceling $800,000 of the principal amount of the Escrow Funding Note and
adjusting the amount of the Final Payment to $3,200,000, (2) notwithstanding
Section 2.2.3 above, on the Final Payment Date the principal amount of the
Escrow Funding Note, as so reduced, plus all accrued interest thereon, if any,
shall be paid to the Escrow Agent and held in escrow pursuant to the Escrow
Agreement in complete satisfaction of the Escrow Funding Note, and (3) no
amounts shall be released to the Phillips Payee from escrow pursuant to
subparagraph (iii) of Section 2.2.3(b).
2.3 Obligations and Liabilities to be Assumed. Upon each of the Tier I
-----------------------------------------
Closing and the Tier II Closing (each, a "Tier Closing"), with respect to the
applicable Schools, Buyer shall, by an appropriate instrument of assumption to
be executed and delivered at each Tier Closing substantially in the form of
EXHIBIT C hereto (the "Assignment and Assumption Agreement"), assume and agree
- -------
to perform, pay or discharge, when due, to the extent not theretofore performed,
paid or discharged, all of the following obligations, commitments and
liabilities of Phillips relating to or arising from the Tier I Schools or Tier
II Schools, as
6
<PAGE>
applicable (collectively, the "Assumed Liabilities"): (i) with respect to the
Intellectual Property; and (ii) otherwise arising directly from the Purchased
Assets.
2.4 Excluded Liabilities. No obligations and liabilities of the
--------------------
Selling Parties other than the Assumed Liabilities (collectively, the "Excluded
Liabilities") and the Assumed Liabilities as defined under the Secondary
Agreement will be assumed by Buyer or its affiliates pursuant to this Agreement
or the Secondary Agreement.
2.5 Allocation of Purchase Price. Buyer and the Selling Parties
----------------------------
agree that the Purchase Price shall be allocated among the Purchased Assets in
accordance with the allocation set forth in SCHEDULE 2.5 attached hereto. Buyer
--------
and the Selling Parties agree that each will report the federal, state and local
income tax and other tax consequences of the purchase and sale contemplated
hereby in a manner consistent with such allocation and that neither will take
any position inconsistent therewith upon examination of any tax return, in any
refund claim, in any litigation, or otherwise; provided that in the reasonable
opinion of the Selling Parties, Buyer's allocation complies with Section 1060
of the Internal Revenue Code of 1986, as amended (the "IRC"), and relevant
Treasury regulations thereunder and Buyer has provided information required
pursuant to Section 1060(b) of the IRC and other relevant authority in written
form reasonably satisfactory to the Selling Parties on or before November 30,
1996. Buyer agrees to provide to the Selling Parties specific allocations of
the Purchase Price to intangible personal property within ten (10) business days
of the Tier I Closing or Tier II Closing, as applicable, together with a
certificate of the Selling Parties representing that the allocation to
intangible personal property constitutes Buyer's representation regarding the
fair market value of such intangible personal property and that Buyer will use
such allocation for all financial reporting and will not take any position
inconsistent with such allocation upon examination of any tax return, in any
refund claim, in litigation or otherwise.
2.6 Excise and Property Taxes. Selling Parties shall prepare and
-------------------------
file all required sales and use tax returns reporting the sale of the Purchased
Assets. Buyer shall pay seventy-five percent (75%), and the Selling Parties
shall pay twenty-five percent (25%) of all sales and use taxes arising out of
the transfer of the Purchased Assets. Each of Buyer and the Selling Parties
shall pay its respective portion, prorated as of the applicable Tier Closing, of
state and local personal property taxes related to the Purchased Assets.
2.7 Employees. SCHEDULE 2.7 contains a list of employees at
--------- --------
Phillips' headquarters to be offered employment by Buyer including each
employee's title, base salary and earned vacation time and sick leave as of
August 31, 1996. Buyer may, in its sole discretion, extend an offer of
employment to any of such employees (except for those employees whose employment
is severed or terminated in the ordinary course of business prior to the Tier I
Closing or the Tier II Closing, as applicable) from and after the Tier I Closing
or Tier II Closing, as applicable. Notwithstanding the foregoing, until the
later of the Tier II Closing or December 31, 1996, all of Buyer's offers of
employment to employees employed at Phillips' headquarters must be approved in
advance by Phillips. Buyer shall pay, perform and assume the Selling Parties'
obligations for vacation and sick pay benefits of employees hired by Buyer which
accrue prior to the date on which such employee becomes an employee of Buyer and
7
<PAGE>
remain unpaid in the ordinary course of business on such date, and shall include
such employees in a medical plan which provides for a waiver of waiting time and
pre-existing conditions.
2.8 Use of "Phillips Colleges, Inc." Name Marked on Inventories. In
-----------------------------------------------------------
recognition of the fact that certain of the Purchased Assets constituting
inventories may have imprinted or otherwise marked thereon the name "Phillips
Colleges, Inc." or derivatives thereof, and trademarks and servicemarks relating
thereto and certain associated logotypes, the Selling Parties hereby agree that
Buyer may use and distribute such inventories until they have been exhausted and
hereby grant to Buyer a non-exclusive, royalty-free license to use such names,
trademarks, servicemarks and logotypes in connection therewith, pursuant to the
terms of the Trademark License Agreement.
2.9 No Option or Right to Offset. Buyer shall have no right or
----------------------------
option to offset any amounts which Buyer claims are owed to it under this
Agreement or under the Secondary Agreement, the Real Property Agreement, any
note issued pursuant hereto or thereto any other agreement, certificate,
instrument or document related hereto or thereto or otherwise by the Selling
Parties against any amounts which Buyer owes to the Selling Parties under this
Agreement or under the Secondary Agreement, the Real Property Agreement, any
note issued pursuant hereto or thereto, or any other agreement, certificate,
instrument or document related hereto or thereto, provided, however, that Buyer
may offset amounts it owes to the Phillips Payee pursuant to the Escrow Funding
Note or the Interim Note if any of the Selling Parties owe Buyer any amount
pursuant to Section 2.8 of the Secondary Agreement.
ARTICLE III
CLOSING
3.1 Tier I Closing. The closing of the transactions related to the
--------------
Tier I Schools contemplated by this Agreement (the "Tier I Closing") will take
place at the offices of O'Melveny & Myers LLP, 610 Newport Center Drive, Suite
1700, Newport Beach, California 92660, simultaneously with the execution and
delivery of this Agreement (the "Tier I Closing Date"). The Tier I Closing
shall be effective as of 12:01 a.m. Central Standard Time on the Tier I Closing
Date.
3.2 Tier II Closing. Subject to the satisfaction of the conditions
---------------
precedent listed in Article VIII, the closing of the transactions related to the
Tier II Schools contemplated by this Agreement (the "Tier II Closing" and,
together with the Tier I Closing, the "Tier Closings") will take place at the
offices of O'Melveny & Myers LLP, 610 Newport Center Drive, Suite 1700, Newport
Beach, California 92660, on the last business day of the calendar month
immediately following the date which is sixty (60) days following Buyer's
receipt of an official written determination from ED of each Tier II School's
official 1994 cohort default rate ("CDR"), or within five (5) business days
after such later date as all the conditions to the Tier II Closing set forth in
Article VIII have been satisfied (the "Tier II Closing Date"), but in no event
later than December 31, 1996, subject to the provisions of this Agreement. The
Tier II Closing shall be effective as of 12:01 a.m. Central Standard Time on the
Tier II Closing Date.
8
<PAGE>
3.3 Deliveries by Selling Parties at each Tier Closing. At each Tier
--------------------------------------------------
Closing, the Selling Parties shall deliver or cause to be delivered to Buyer the
following:
3.3.1 The following documents of transfer and assignment duly
executed by the Selling Parties relating to that portion of the Purchased Assets
to be conveyed to Buyer at such Tier Closing:
(i) Bill of Sale substantially in the form of EXHIBIT D
-------
hereto;
(ii) Assignment and Assumption Agreement substantially in
the form of EXHIBIT C hereto; and
-------
(iii) Such other instruments of conveyance as shall, in
the reasonable opinion of Buyer and its counsel, be necessary to vest in Buyer
marketable title to that portion of the Purchased Assets to be conveyed to Buyer
at such Tier Closing.
3.3.2 Certified resolutions of the Boards of Directors and
shareholders of the Selling Parties authorizing the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein;
3.3.3 An opinion of Dow, Lohnes & Albertson, counsel to the
Selling Parties, in form and substance reasonably acceptable to Buyer containing
the opinions set forth on EXHIBIT F-2, along with usual and customary exceptions
-------
and qualifications;
3.3.4 An officers' certificate signed by the President and the
Chief Executive Officer of Phillips, or such other officer reasonably acceptable
to Buyer, dated as of the date of such Tier Closing, in the form attached hereto
as EXHIBIT E-2; and
-------
3.3.5 The Tier I Escrow Agreement or the Tier II Escrow
Agreement, as applicable.
3.4 Deliveries by Selling Parties at the Tier I Closing Only. At the
--------------------------------------------------------
Tier I Closing only, the Selling Parties shall duly execute and deliver or cause
to be duly executed and delivered to Buyer the following:
3.4.1 A license agreement permitting the Buyer to use the name
"Phillips" and the Phillips Colleges, Inc. logo for a period of one year in the
form of that attached hereto as EXHIBIT G (the "Trademark License Agreement");
-------
3.4.2 A support services agreement in the form of EXHIBIT I
-------
obligating Phillips to provide to Buyer certain administrative and computer
support services (the "Support Services Agreement") as set forth therein; and
3.4.3 A real estate purchase agreement in the form of that
attached hereto as EXHIBIT J ("Real Property Agreement") obligating Buyer or its
-------
designee to purchase
9
<PAGE>
certain real estate owned by the Sellers (the consideration to be paid under the
Real Property Agreement is in addition to the Purchase Price payable for the
Purchased Assets hereunder).
3.5 Deliveries by Buyer at each Tier Closing. At each Tier Closing,
----------------------------------------
Buyer shall deliver or cause to be delivered to the Selling Parties the
following duly executed documents:
3.5.1 The Assignment and Assumption Agreement substantially in
the form of EXHIBIT C hereto;
-------
3.5.2 Certified resolutions of the Board of Directors of Buyer
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein;
3.5.3 An opinion of O'Melveny & Myers, counsel to the Buyer, in
form and substance reasonably acceptable to the Selling Parties containing the
opinions set forth on EXHIBIT F-1, along with usual and customary exceptions and
-------
qualifications;
3.5.4 An officers' certificate signed by the President of Buyer,
or such other officer reasonably acceptable to Selling Parties, dated as of the
date of such Tier Closing, in the form attached hereto as EXHIBIT E-1; and
-------
3.5.5 The Tier I Escrow Agreement or the Tier II Escrow
Agreement, as applicable.
3.6 Deliveries by Buyer at the Tier I Closing Only. At the Tier I
----------------------------------------------
Closing only, the Buyer shall deliver or cause to be delivered to the Phillips
Payee the following:
3.6.1 The Tier I Payment by wire transfer of immediately
available funds payable to the Phillips Payee in the amount of $14,000,000.
3.6.2 The following agreements duly executed by Buyer:
(i) The Trademark License Agreement;
(ii) The Support Services Agreement;
(iii) The Real Property Agreement;
(iv) The Promissory Note in the principal amount of
$1,100,000 substantially in the form attached hereto as EXHIBIT L ("Interim
-------
Note");
(v) The Escrow Funding Note; and
10
<PAGE>
(vi) The Guaranty substantially in the form attached
hereto as EXHIBIT N, pursuant to which Buyer guarantees the obligations of
-------
Rhodes, Rhodes Group and FMU under the Secondary Agreement.
3.7 Delivery by Buyer at the Tier II Closing Only. At the Tier
---------------------------------------------
II Closing only, Buyer shall deliver or cause to be delivered (a) to the
Phillips Payee the Tier II Payment (less the Tier II Escrow Amount), by wire
transfer of immediately available funds and (b) to the escrow agent pursuant to
the Tier II Escrow Agreement, the Tier II Escrow Amount, by wire transfer of
immediately available funds.
ARTICLE IV
TERMINATION
4.1 Termination. This Agreement may be terminated only as
-----------
follows and in each case only by written notice:
4.1.1 At any time by mutual written consent of the
Selling Parties and Buyer; and
4.1.2 With respect to the provisions of this Agreement
relating to the purchase of the Tier II Schools only, on December 31, 1996 by
either party if the Tier II Closing has not occurred.
4.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Buyer or the Selling Parties in accordance with Section 4.1
above, this Agreement shall forthwith terminate upon notice thereof duly given
in accordance with the provisions hereof, and there shall be no liability of any
nature on the part of either Buyer or the Selling Parties (or their respective
officers or directors) to the other; provided, however, that this Section 4.2 in
-------- -------
no way limits the obligations of the parties set forth in Sections 9.12, 9.13,
9.14, 9.15, 9.16, 9.17 and 9.18 hereof, which obligations shall survive the
termination. If this Agreement is terminated as provided in Section 4.1 above,
each of Buyer and the Selling Parties shall, and shall cause its respective
representatives to, either destroy or redeliver to such other party all
documents, work papers and other materials relating to the transactions
contemplated hereby or to the business or operations of the other party, whether
so obtained before or after the execution hereof, and all such information
received by Buyer or the Selling Parties, as the case may be, (other than
information which is in or becomes part of the public domain by publication or
otherwise through no fault of such party or which has heretofore been or is
hereafter filed or available as public information with any governmental
authority) shall be kept confidential, except as required by law. In addition,
each of Buyer and the Selling Parties shall cooperate in good faith following
termination of this Agreement to provide any information or documents reasonably
required by the other party in connection with preparation of such party's
financial statements and tax returns.
11
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES
As a material inducement to Buyer to enter into this Agreement,
to purchase the Purchased Assets and assume the Assumed Liabilities, the Selling
Parties hereby represent and warrant with respect to the Purchased Assets
related to the Tier I Schools as of the date hereof, that:
5.1 Corporate Power. The Selling Parties have all requisite
---------------
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereunder.
5.2 Capacity; Authorization; Binding Effect. Each of the Selling
---------------------------------------
Parties has the power, legal capacity and authority to execute, deliver and
perform this Agreement and each other document being executed in connection
herewith to which it is a party. Each of the Selling Parties has the power,
legal capacity and authority to transfer, convey and deliver the Purchased
Assets, free and clear of all liens, claims, encumbrances, options, rights and
restrictions, except for the Permitted Exceptions (as defined in Section 5.4
below). All corporate and other proceedings required to be taken by or on the
part of the Selling Parties, including all action required to be taken by the
directors or stockholders of the Selling Parties, to authorize the Selling
Parties to enter into and carry out this Agreement and the related documents
contemplated herein, have been duly and properly taken. This Agreement has been,
and each of the related documents will be at each Tier Closing, duly executed
and delivered by the Selling Parties and constitute, or will when delivered
constitute, the valid and binding obligations of the Selling Parties,
enforceable against the Selling Parties, in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity or otherwise).
5.3 No Conflicts. Except as set forth on SCHEDULE 5.3, the
------------ --------
execution, delivery and performance of this Agreement and each other document
being executed by the Selling Parties in connection herewith, and the
consummation of the transactions contemplated hereby and thereby will not: (a)
violate any provisions of law applicable to the Selling Parties; (b) with or
without the giving of notice or the passage of time, or both, conflict with or
result in the breach of any provision of the articles of incorporation or bylaws
of the Selling Parties, any material instrument, license, agreement or
commitment to which a Selling Party is a party or by which any of its assets or
properties is bound, which breach might reasonably be expected to have a
material adverse effect on the Purchased Assets; (c) constitute a violation of
any order, judgment or decree to which a Selling Party is a party or by which
any of its assets or properties is bound; or (d) require any approval of, or
filing or registration with, any governmental entity or regulatory authority
other than those which will be effected by the Selling Parties prior to the Tier
I Closing.
12
<PAGE>
5.4 Title to the Purchased Assets. The Selling Parties own
-----------------------------
outright, and have good and marketable title to, all of the Purchased Assets,
free and clear of all liens, claims and encumbrances, options, rights, and
restrictions, other than the Assumed Liabilities, liens for current taxes not
yet due and payable and as otherwise disclosed in SCHEDULE 5.4 hereto
--------
(collectively, the "Permitted Exceptions").
5.5 Tradenames; Confidential Information. All tradenames,
------------------------------------
trademarks or service marks and all forms, derivatives and graphic presentations
thereof of Selling Parties having any material value to the operation of any
Tier I School are set forth on SCHEDULE 5.5 attached hereto (collectively, the
--------
"Tradenames"). Selling Parties have the exclusive right to the use of each
Tradename as an assumed business name in the states in which such Tradename is
used, and SCHEDULE 5.5 sets forth all registrations of each Tradename as a
--------
trademark, servicemark or assumed name. Except for the Trademark License
Agreement and except as otherwise set forth on SCHEDULE 5.5, Selling Parties
--------
have not licensed any other person or entity to use any Tradename. Selling
Parties have not been sued or threatened with suit for infringement, violation
or breach with respect to any Tradename, and to the best of Selling Parties'
knowledge, no basis exists for any such suit. Except as disclosed on SCHEDULE
--------
5.5, Selling Parties are not on notice of any infringement, violation or breach
of the Tradename by any other person or entity. Except as otherwise set forth on
SCHEDULE 5.5, Selling Parties have the right to use and license, free and clear
- --------
of any claims or rights of any third party, all trade secrets, customer lists,
know-how, curricula and any other confidential information required for or used
in the operation of any Tier I School. Selling Parties are not in any way making
any unlawful or wrongful use of any trade secrets, customer lists, know-how,
curricula or any other confidential information of any third party, including,
without limitation, any former employer of any present or past employee of
Selling Parties in connection with the operation of any Tier I School.
5.6 Insurance. SCHEDULE 5.6 attached hereto sets forth the
--------- --------
insurance coverages maintained by Sellers on the Purchased Assets including all
policies or binders of fire, extended coverage, general and vehicular, fidelity
and fiduciary liability, workers' compensation, key-man life and other insurance
held by Sellers and all binders for insurance to be purchased on or before the
date of the Tier I Closing, in order to replace policies expiring prior to the
date of the Tier I Closing. Such policies and binders are in full force and
effect, and, except as set forth on SCHEDULE 5.6, there is no material breach or
--------
default with respect to any provision contained in any such policy or binder,
and all premiums, to the extent due and payable, have been paid or the liability
therefor properly accrued. Except for amounts deductible under such policies of
insurance and except as otherwise set forth on SCHEDULE 5.6, Sellers are not and
--------
have not been, prior to the date hereof, subject to liability as a self-insurer
for the Tier I Schools. Except as set forth on SCHEDULE 5.6, there are no claims
--------
pending or threatened under any of said policies pertaining to any Tier I School
or disputes with underwriters regarding coverage under such policies pertaining
to any Tier I School. Except as set forth on SCHEDULE 5.6, to the best of
--------
Selling Parties' knowledge, the execution and delivery of this Agreement will
not result in the loss to Sellers of any of the insurance policies listed or
impair the rights of Sellers with respect to liabilities arising in connection
with the operation of any Tier I School prior to the Tier Closings. To the
extent that the Purchased Assets are of a type which are generally
13
<PAGE>
insured, then such Purchased Assets are insurable. Within the five years prior
to the date hereof, Sellers have not been denied insurance for any Tier I
School, or been offered insurance for any Tier I School only at a commercially
prohibitive premium.
5.7 Absence of Certain Changes. Except as contemplated by this
--------------------------
Agreement or as set forth on SCHEDULE 5.7 attached hereto, since August 31,
--------
1996, there has not been, occurred or arisen:
5.7.1 any sale, lease, transfer, abandonment or other
disposition of any right, title or interest in or to any of the properties
or assets of the Selling Parties used in connection with the operations of
any Tier I School (tangible or intangible), except in the ordinary course
of business;
5.7.2 any material adverse change in the financial
condition, assets, liabilities (absolute, accrued or contingent) reserves
or operations of any of the following (each a "Material Asset"): (i)
Orlando College - South; (ii) Tampa College - Main; (iii) Tampa College -
Pinellas; (iv) all Florida Schools listed on EXHIBIT B, taken as a whole,
-------
but not including the Schools listed in clauses (i)-(iii) above; or (v) all
Rhodes Schools and Rhodes Group Schools listed on EXHIBIT B, taken as a
-------
whole, or any one thereof;
5.7.3 any damage, destruction or loss, whether or not
covered by insurance, materially adverse to the Purchased Assets;
5.7.4 any change in any material respect in the business
policies or practices of any Tier I School or a failure to operate the
business of any Tier I School in the ordinary course with a view to
preserving such business intact, to retaining the services of the present
officers, employees and agents of Sellers employed or providing services in
connection with the operation of such Tier I School and with a view to
preserving the business relationships of such Tier I School with, and the
goodwill of, students, sales representatives, suppliers, accrediting
bodies, governmental authorities and others; or
5.7.5 any agreement, whether in writing or otherwise, to
take any action described in this Section 5.7.
5.8 Solvency. As of the date of this Agreement, none of the
--------
Selling Parties has any intention of filing a petition under any chapter of the
United States Bankruptcy Code, nor does any Selling Party have any knowledge of
any person or entity threatening or having any intention of filing an
involuntary petition under any chapter of the United States Bankruptcy Code
against any of the Selling Parties.
5.9 Delivery of Documents. All material documents, instruments,
---------------------
agreements and records of Sellers relating to the Purchased Assets, the Assumed
Liabilities, the representations and warranties of the Selling Parties contained
in this Agreement and/or the
14
<PAGE>
operation of the Tier I Schools which have been delivered or made available to
Buyer are true, correct and complete in all material respects.
5.10 Disclosure. Neither this Agreement, the Secondary Agreement
----------
nor any of the schedules, exhibits, attachments, documents, certificates or
other items prepared or supplied to Buyer in writing by or on behalf of the
Selling Parties with respect to the transactions contemplated hereby or thereby
contain any untrue statement of a material fact or omit a material fact
necessary to make such statements not misleading in light of the circumstances
in which such statements were made. There is no fact which the Selling Parties
have not disclosed to Buyer pursuant to this Agreement, the Secondary Agreement
or otherwise in writing and of which any of Joseph A. Bondi, Cynthia R. Cofield,
C. Ronald Kimberling, Arthur Galaskewicz and any of the presidents of the Tier I
Schools is aware which has had or may reasonably be anticipated to have a
material adverse effect upon the existing or expected financial condition,
operating results, assets, employee relations, accreditation or reputation of
the Tier I Schools.
5.11 Incorporation by Reference. All representations and
--------------------------
warranties of the Selling Parties made in the Secondary Agreement are hereby
incorporated by reference.
5.12 Survival of Representations and Warranties. Subject to the
------------------------------------------
limitations in Sections 9.12 and 9.14 hereof, the representations and warranties
of the Selling Parties contained in this Agreement shall survive the Tier
Closings through the second (2nd) anniversary of the Tier I Closing Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to the Selling Parties to enter into
this Agreement, and to sell the Purchased Assets, Buyer hereby represents and
warrants as of the date hereof, that:
6.1 Incorporation; Authority. Buyer is a corporation, duly
------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has all requisite corporate power and authority to execute,
deliver and perform this Agreement and all other agreements and instruments to
be executed by Buyer in connection with or pursuant hereto (the "Ancillary
Documents") and to consummate the transactions contemplated hereunder.
6.2 Due Authorization; Binding Agreement. Buyer has the power,
------------------------------------
legal capacity and authority to execute, deliver and perform this Agreement. The
execution and delivery by Buyer of this Agreement and all Ancillary Documents
and the performance by Buyer of its obligations hereunder and thereunder have
been duly authorized by all necessary corporate action on the part of Buyer.
This Agreement and the Ancillary Documents have been duly executed and delivered
by Buyer. This Agreement and all Ancillary Documents constitute the legal, valid
and binding obligation and act of Buyer enforceable in accordance with the
respective terms hereof and thereof, subject to applicable bankruptcy,
insolvency, fraudulent
15
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conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or equity).
6.3 No Violation or Conflict. The execution, delivery and
------------------------
performance of this Agreement and the Ancillary Documents, the consummation of
the transactions provided for herein and therein, and the fulfillment of the
terms hereof and thereof by Buyer will not violate any material provision of law
applicable to Buyer, with or without the giving of notice or the passage of
time, or both, conflict with or result in the breach of any provision of the
Certificate of Incorporation or Bylaws of Buyer, or result in the breach of any
of the terms and provisions of, or constitute a default under, or conflict with,
or cause an acceleration of, any obligation of Buyer under any material
agreement, license, indenture, commitment or other instrument to which it is a
party or by which any of its assets or properties is bound, or constitute a
violation of any judgment, decree, or order, or award of any court, governmental
body, or arbitrator, or applicable law, rule or regulation applicable to Buyer,
its assets or properties, or require any approval of, or filing or registration
with any governmental entity or regulatory authority.
6.4 No Undisclosed Liabilities. Buyer has no liability or
--------------------------
obligation of any nature, whether due or to become due, absolute, contingent or
otherwise, including liabilities for or in respect of federal, state and local
taxes and any interest or penalties relating thereto, except (i) liabilities
incurred in the ordinary course of Buyer's business prior to date of the Tier I
Closing or Tier II Closing, as applicable, and (ii) liabilities and obligations
created by this Agreement and the Ancillary Documents.
6.5 Consents and Approvals. No consent, approval or
----------------------
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority, or any third person or entity, is required to be made
or obtained by Buyer in connection with the execution, delivery or performance
of this Agreement and the Ancillary Documents and the consummation of the
transactions contemplated hereby and thereby other than those set forth in
SCHEDULE 6.5, all of which shall have been obtained by Buyer prior to the
- --------
applicable Tier Closing to which such approval relates.
6.6 Disclosure. Neither this Agreement nor any representation or
----------
warranty by Buyer in this Agreement or the Ancillary Documents, nor any exhibit,
certificate, schedule attachment or document furnished or to be furnished by
Buyer pursuant hereto or thereto contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary to
make the statements or facts contained herein or therein, in light of the
circumstances under which they were made, not misleading.
6.7 Capitalization. Each of Buyer and, by their joinder in the
--------------
execution hereof, Rhodes, Rhodes Group, FMU and Corinthian Schools, Inc. hereby
represents and warrants as of the date hereof that Buyer is the legal and
beneficial owner of all of the capital stock of each of Rhodes and Corinthian
Schools, Inc., and Rhodes is the legal and beneficial owner of all of the
capital stock of FMU and Rhodes Group. For purposes hereof, Rhodes, the
16
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Rhodes Group, Corinthian Schools, Inc. and FMU are hereinafter collectively
referred to as the "Buyer Parties".
6.8 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of the Buyer contained in this Agreement shall
survive the Tier Closings through the second (2nd) anniversary of the Tier I
Closing Date, subject to the limitations in Sections 9.13 and 9.14 hereof.
ARTICLE VII
COVENANTS
7.1 Covenants of the Selling Parties Pending Tier II Closing.
--------------------------------------------------------
With respect to the Tier II Schools, the Selling Parties covenant and agree with
Buyer that from and after the date hereof and until the Tier II Closing or the
termination of this Agreement pursuant to Article IV hereof, the Selling Parties
(i) shall use their best efforts to fulfill or satisfy, or cause to be fulfilled
or satisfied, all of the conditions precedent to Buyer's obligations to
consummate and complete the sale provided herein including, without limitation,
satisfaction of the conditions set forth in Article VIII, hereof and to take all
other steps and do all other things reasonably required to consummate this
Agreement in accordance with its terms, (ii) shall not interfere with the
performance by Buyer of its obligations under this Agreement, (iii) shall not
fail to pay prior to delinquency any taxes, assessments, governmental charges or
levies imposed upon it or its income, profits or assets, (iv) shall not make or
authorize the making of any capital expenditure except for the performance of
obligations previously incurred, or expenditures in the ordinary course or the
replacement of equipment or tangible property necessary to the operations of the
business of Sellers, (v) shall promptly notify Buyer of any notice from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement, or any fact or circumstance of
which Sellers have knowledge which would make any representation or warranty set
forth herein materially untrue or inaccurate as of the applicable date of the
Tier II Closing, or any planned or threatened labor dispute, organization
efforts, strike or collective work stoppage affecting the employees of Sellers,
(vi) shall not take any action outside the ordinary course of business that
would adversely affect any Selling Party's title to the Purchased Assets to be
transferred to Buyer at the Tier II Closing and (vii) until the earlier of the
Tier II Closing or termination of this Agreement, shall not directly or
indirectly solicit, respond to or negotiate with or release any information
relative to the Tier II Schools to any potential buyer other than Buyer. In
addition, from and after the date hereof until the termination of this Agreement
in accordance with Article IV hereof, Sellers shall (a) operate the Tier II
Schools in the ordinary course of business consistent with past practices,
including processing of accounts receivable and accounts payable in accordance
with past practices, and processing and paying refunds to students at the Tier
II Schools in the ordinary course of business consistent with Sellers' past
practices, and (b) will use their commercially reasonable efforts to cause any
employee of any Seller to whom Buyer has proposed to extend an offer of
employment to continue to perform and exercise his or her duties (including the
duty of loyalty) to such Seller during such period.
17
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7.2 Support Services Covenants. Phillips covenants that it will
--------------------------
maintain its corporate existence during the term of the Support Services
Agreement.
7.3 Covenants of Buyer Pending Tier II Closing. Buyer covenants
------------------------------------------
and agrees with the Selling Parties that from and after the date hereof and
until the termination of this Agreement pursuant to Article IV hereof, Buyer (i)
shall use its best efforts to fulfill or satisfy, or cause to be fulfilled or
satisfied, all of the conditions precedent to Sellers' obligations to consummate
and complete the sale provided herein and to take all other steps and do all
other things reasonably required to consummate this Agreement in accordance with
its terms; (ii) shall not interfere with the performance by Sellers of their
obligations under this Agreement; and (iii) shall secure financing sufficient to
allow Buyer to consummate the purchase of the Purchased Assets in accordance
with the terms of this Agreement. Subject to and in accordance with the terms of
the Real Property Agreement (as defined in Section 3.4.3), Buyer shall purchase
from Sellers the real property located at Blair Junior College, Parks College
(Denver North), Parks College (Denver South), Orlando College -Melbourne, and
Tampa College -Main, for an aggregate purchase price of $3,393,600.
7.4 Closing and Post-Closing Covenants.
----------------------------------
7.4.1 Further Assurances. From time to time after each
------------------
Tier Closing, (i) each of the Selling Parties will use its reasonable efforts
for as long as it continues its corporate existence to execute and deliver such
instruments of conveyance, sale or assignment as Buyer may reasonably request,
to more effectively vest, confirm or evidence Buyer's title to or rights in any
of the Purchased Assets and to otherwise carry out the purpose and intent of
this Agreement, and (ii) Buyer will execute and deliver such instruments as
Selling Parties may reasonably request to more effectively assure the assignment
to and assumption by Buyer of the obligations and liabilities of the Selling
Parties to be assumed by Buyer pursuant to this Agreement and the Assignment and
Assumption Agreement and to otherwise carry out the purpose and intent of this
Agreement.
7.4.2 Mutual Cooperation. The parties shall use reasonable
------------------
efforts to cooperate fully with each other and with their respective counsel and
accountants in connection with any steps required to be taken to consummate the
transactions contemplated hereby and transition ownership of the Schools from
Sellers to Buyer. Before and after each Tier Closing, the Selling Parties shall
use their best efforts to assist Buyer in obtaining any required accreditation
reasonably necessary for Buyer's operation of the Schools, including furnishing
Buyer such necessary information and reasonable assistance as Buyer may request
in connection with its preparation of necessary filings, submissions or
applications to any Regulatory Agency in connection with the transactions
contemplated hereby.
7.4.3 Access to Employees. From and after the Tier I
-------------------
Closing, each of Buyer and the Selling Parties shall afford to the other party,
its officers, counsel, accountants and other authorized representatives (the
"Requesting Party") access to the other party's employees who currently are
employed by the Selling Parties, without cost to the Requesting Party (other
than payment of out-of-pocket costs not including personnel costs) and as
reasonably
18
<PAGE>
required by the Requesting Party in connection with any claim, action,
litigation, program review, audit or other proceeding involving the Selling
Parties, a School or any other school previously owned or operated by the
Selling Parties, except where such claim, action, litigation or other proceeding
is between the parties to this Agreement. Each party shall use its reasonable
efforts to cause such employees to cooperate with and assist the Requesting
Party in its prosecution or defense of such claims, actions, litigations,
program reviews, audits and other proceedings, which cooperation shall include,
without limitation, preparing and providing written and oral discovery and
attending and testifying at depositions, hearings, motions and trials, all as
necessary in the reasonable opinion of the Requesting Party or its counsel. Any
such access shall take place only during normal business hours in such a manner
as not to interfere unreasonably with the operation of the business of the other
party.
7.5 Access and Maintenance of Records. From and after the Tier I
---------------------------------
Closing, each party shall afford the other party, its officers, counsel,
accountants and other authorized representatives and any Regulatory Agency (the
"Reviewing Party") access to the other party's properties, books, records, files
or documents, at any time and from time to time upon reasonable notice from the
Reviewing Party, as reasonably required by the Reviewing Party. Until seven
years after the Tier I Closing or until the expiration of the record retention
period under relevant Regulatory Agency requirements, if longer, no party to
this Agreement will destroy or otherwise dispose of or change the storage format
of any of the properties, books, records, files or documents relating to the
Purchased Assets without giving the parties on the other hand thirty (30) days'
prior written notice and an opportunity to take possession or make extracts or
copies thereof. "Properties, books, records, files or documents" shall include,
but not be limited to, copies of any insurance policies, testing logs,
application forms, all student records, including academic and financial aid
records and files, attendance records, all accounting records, including student
accounts, accreditation reports, personnel files, financial statements,
operational reports, school policies, correspondence, all reports prepared for
or provided to any Regulatory Agency, all records that the Schools retained
pursuant to relevant Regulatory Agency requirements and any other properties,
books, records, files or documents that are provided to Buyer pursuant to
Section 1 of this Agreement. The Buyer shall permit the Secretary of Education
or the Secretary's authorized representatives to have access to and examine and
make copies of any properties, books, records, files or documents of Buyer in
accordance with applicable statutory or regulatory requirements. Any document or
other information obtained from a party hereunder that is designated by such
party as confidential shall be maintained in confidence by the Reviewing Party,
except to the extent that the Reviewing Party is required by law or regulation
to disclose all or part of such document or information or deems it appropriate
to do so in connection with any administrative, regulatory or judicial process.
7.6 Coordination of Agreements. In determining whether the
--------------------------
representations and warranties of the Selling Parties are true and correct in
all material respects or whether the Selling Parties shall have performed in all
material respects all of the obligations, covenants and agreements in this
Agreement to be performed by it, the Purchased Assets, the Material Assets and
the transactions contemplated by this Agreement and the Secondary Agreement and
any other agreements, notes or documents executed in connection with the
transactions contemplated
19
<PAGE>
by this Agreement and the Secondary Agreement must be considered in combination
as if the Purchased Assets as defined in this Agreement and the Secondary
Agreement were to be conveyed pursuant to a single agreement.
7.7 Guaranty. Buyer hereby agrees that as long as any amounts
--------
are outstanding, due or owing to any of the Selling Parties by any of the Buyer
Parties pursuant to this Agreement, the Secondary Agreement, the Ancillary
Documents (as defined hereunder and under the Secondary Agreement), the Real
Property Agreement, the Interim Note, the Escrow Funding Note and any other
agreement, certificate, instrument, deed of trust, promissory note or document
related hereto or thereto or otherwise, (a) Buyer shall provide written notice
to the Selling Parties of any change in the Ultimate Parent of any of the Buyer
Parties or if its capital stock becomes owned by an Ultimate Parent and (b) upon
any person or entity becoming an Ultimate Parent of any of the Buyer Parties,
Buyer shall cause such person or entity to execute and deliver to the Selling
Parties a guaranty in the form of EXHIBIT N hereto and shall cause such guaranty
-------
to remain the legal, valid and binding obligation of such person or entity,
enforceable against such person or entity in accordance with its terms. For
purposes hereof, an "Ultimate Parent" of any of the Buyer Parties is the Parent,
which, from time to time, controls, directly or indirectly, every other Parent
of such Buyer Party. For purposes hereof, a "Parent" is any entity or person
that, from time to time, directly or indirectly, owns any equity or voting
interest in an entity or person, other than in the capacity as a stockholder of
a public company.
7.8 Limitation on Dividends. So long as any amounts are
-----------------------
outstanding, due or owing to any of the Selling Parties by any of the Buyer
Parties pursuant to this Agreement, the Secondary Agreement, the Ancillary
Documents (as defined hereunder and under the Secondary Agreement), the Real
Property Agreement, the Interim Note, the Escrow Promissory Note and any other
agreement, certificate, instrument, deed of trust, promissory note or document
related hereto or thereto or otherwise, the Buyer shall not (i) declare or pay
any dividends upon the Buyer's common stock, whether in cash, in-kind property
or otherwise; (ii) allocate or otherwise set apart any sum for the payment of
any dividend on any shares of the Buyer's common stock; (iii) redeem any of
Buyer's common stock on a pro-rata basis; or (iv) sell more than thirty percent
(30%) of the fair market value of its assets in any twelve-month period.
ARTICLE VIII
CONDITIONS
8.1 Conditions Precedent to Obligations of Buyer at Each Tier
---------------------------------------------------------
Closing. The obligation of Buyer to complete the purchase of Purchased Assets
- -------
at the Tier II Closing as provided for herein is subject to the fulfillment or
satisfaction on or before the Tier II Closing of each of the conditions set
forth below, any of which may be waived by Buyer in writing.
8.1.1 All representations and warranties of each of the
Selling Parties contained in this Agreement shall be true and correct in all
material respects with respect to the Tier II Schools as of the date of the Tier
II Closing (except to the extent such representations and warranties speak of a
particular date), and Buyer shall have received a certificate signed by
20
<PAGE>
one executive officer of Phillips, substantially in the form as set forth in
EXHIBIT E-2, to such effect;
- -------
8.1.2 Each of the Selling Parties shall have performed in all
material respects all of the obligations, covenants and agreements contained in
this Agreement to be performed by it on or before the date of the Tier II
Closing with respect to the Tier II Schools, and Buyer shall have received a
certificate signed by one executive officer of Phillips, substantially in the
form as set forth in EXHIBIT E-2, to such effect;
-------
8.1.3 All instruments and documents required on the part of each
of the Selling Parties to effectuate and consummate the transactions
contemplated hereby as of the Tier II Closing including those set forth in
Article III, shall be delivered by the appropriate Selling Party and shall be in
form and substance reasonably satisfactory to Buyer and its counsel;
8.1.4 No law or order shall have been enacted, entered, issued,
or promulgated by any governmental entity which prohibits or restricts the
transactions contemplated hereby, and there shall not have been threatened, nor
shall there be pending, any action or proceeding by or before any court or
governmental agency or other regulatory or administrative agency or commission,
challenging any of the transactions contemplated by this Agreement or seeking
monetary relief by reason of the consummation of such transactions; and
8.1.5 Buyer shall have received satisfactory evidence that all
liens (other than the Permitted Exceptions) on the Purchased Assets have been
terminated and completely released of record.
8.2 Intentionally Omitted.
8.3 Conditions Precedent to Obligations of Buyer at the Tier II
-----------------------------------------------------------
Closing. Buyer shall have no obligation to purchase the Purchased Assets
- -------
related to any Tier II School unless, prior to October 31, 1996, Buyer receives
official written determination from the ED that such Tier II School's official
1994 CDR is less than 25% (a "CDR Verification"). The Tier II Payment shall
equal the sum of the Tier II Value Prices listed on EXHIBIT K for all Tier II
-------
Schools for which Buyer receives CDR Verifications. In the event any such
official written notification from the ED provides that the official 1994 CDR
for any Tier II School is less than 20%, then the Tier II Payment (and, as a
result, the Purchase Price) shall be increased by an amount equal to the excess
of such School's Alternate Tier II Value Price over such School's Tier II Value
Price, all as listed on EXHIBIT K.
-------
8.4 Conditions Precedent to Obligations of Selling Parties. The
------------------------------------------------------
obligations of the Selling Parties to complete the sale of Purchased Assets
related to the Tier II Schools as provided for herein are subject to the
fulfillment or satisfaction on or before the date of the Tier II Closing of each
of the conditions set forth below, any of which may be waived by the Selling
Parties in writing.
21
<PAGE>
8.4.1 All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects as of the date of
the Tier II Closing with the same force and effect as if the same had been made
on and as of the date of the Tier II Closing (except to the extent such
representations and warranties speak of a particular date), and the Selling
Parties shall have received a certificate signed by two executive officers of
Buyer, substantially in the form as set forth in EXHIBIT E-1, to such effect;
-------
8.4.2 Buyer shall have performed in all material respects all of
the obligations, covenants and agreements contained in this Agreement to be
performed by Buyer on or before the date of the Tier II Closing, and the Selling
Parties shall have received a certificate signed by two executive officers of
Buyer, substantially in the form as set forth in EXHIBIT E-1, to such effect;
-------
8.4.3 All instruments and documents required on Buyer's part to
effectuate and consummate the transactions contemplated hereby including those
set forth in Article III shall be delivered by Buyer and shall be in form and
substance reasonably satisfactory to the Selling Parties and their counsel;
8.4.4 No law or order shall have been enacted, entered, issued,
or promulgated by any governmental entity which prohibits or restricts the
transactions contemplated hereby and there shall not have been threatened, nor
shall there be pending, any action or proceeding by or before any court or
governmental agency or other regulatory or administrative agency or commission,
challenging any of the transactions contemplated by this Agreement or seeking
monetary relief by reason of the consummation of such transactions; and
8.4.5 The Selling Parties shall have received from counsel of
Buyer the opinion referenced in Section 3.5.3 above dated as of the date of the
Tier II Closing.
8.4.6 Additional Conditions - Simultaneous Closing and
------------------------------------------------
Coordination with Secondary Agreement. Notwithstanding any other provision of
- -------------------------------------
this Agreement or the Secondary Agreement, the Selling Parties, Buyer and, by
their joinder in the execution hereof, Rhodes, the Rhodes Group and FMU, agree
as follows:
(a) (i) that the Tier I Closing under the Secondary
Agreement shall occur simultaneously with the Tier I Closing under this
Agreement, and (ii) that the obligations of the Selling Parties to complete the
sale of the Purchased Assets related to the Tier II Schools under this Agreement
and the obligations of the Selling Parties to consummate the transactions
related to the Tier II Schools contemplated by the Secondary Agreement are
subject to the condition that the Tier II Closing under the Secondary Agreement
shall occur simultaneously with the Tier II Closing under this Agreement;
provided, however, that Selling Parties may not assert such conditions precedent
as a basis to fail to close, if the failure of such conditions results from the
breach by the Selling Parties of their agreements, representations, warranties
or covenants hereunder or under the Secondary Agreement;
22
<PAGE>
(b) (i) that the Tier I Closing under the Secondary Agreement
shall occur simultaneously with the Tier I Closing under this Agreement, and
(ii) that the obligations of Buyer to complete the purchase of the Purchased
Assets related to the Tier II Schools under this Agreement and the obligations
of Rhodes, the Rhodes Group, and FMU to consummate the transactions related to
the Tier II Schools contemplated by the Secondary Agreement are subject to the
condition that the Tier II Closing under the Secondary Agreement shall occur
simultaneously with the Tier II Closing under this Agreement; provided, however,
that Buyer, FMU, the Rhodes Group or Rhodes may not assert such conditions
precedent as a basis to fail to close, if the failure of such conditions results
from the breach by Buyer, Rhodes, the Rhodes Group or FMU of their agreements
hereunder or under the Secondary Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Binding Effect. All terms and provisions of this Agreement shall
--------------
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement, nor the obligations of any party hereunder, shall be assignable
or transferable by any party without the prior written consent of all parties
hereto. If Buyer desires to assign its right to acquire a portion of the
Purchased Assets to an affiliated entity, the Selling Parties will consider such
request in good faith and will not unreasonably withhold consent; provided,
however, that Buyer shall remain liable for the payment of the entire Purchase
Price notwithstanding such assignment or transfer. Without limiting the Selling
Parties' rights of approval, the parties acknowledge that approval may be
withheld if the Selling Parties believe such assignment may impair or otherwise
negatively affect Buyer's ability to obtain timely all accreditations, approvals
and consents (including, without limitation, ED certification of the Schools to
participate in the Title IV Programs under the ownership of Buyer) contemplated
in this Agreement.
9.2 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be given or made by personal
delivery, or by a nationally recognized courier service for overnight delivery.
if to Buyer, Rhodes, the Rhodes Group or FMU, at:
Corinthian Colleges, Inc.
1932 East Deere, Suite 210
Santa Ana, California 92705
Attention: David Moore, President
23
<PAGE>
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
if to any of the Selling Parties, at:
Phillips Colleges, Inc.
One Hancock Plaza, Suite 1408
Gulfport, Mississippi 39501
Attention: Joseph A. Bondi, Chief Executive Officer
with a copy to:
Alvarez & Marsal, Inc.
885 Third Avenue
Suite 1700
New York, New York 10022-4802
Attention: Joseph A. Bondi
with a copy to:
Dow, Lohnes & Albertson PLLC
1200 New Hampshire Avenue, N.W., Suite 800
Washington, D.C. 20036-6802
Attention: Lisa C. Bureau, Esq.
or at such other place as the party to whom such notice or communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 9.2. Notices shall be deemed effective and received (i) on the
actual receipt thereof in the case of hand delivery, or (ii) on the next
business day after deposit in the case of notices by nationally recognized
overnight courier services. As used herein, notice to a party shall include
concurrent notice to that party's counsel as set forth herein.
9.3 Entire Agreement. This Agreement and the Secondary Agreement and
----------------
the documents referred to herein and therein and to be delivered pursuant hereto
and thereto constitute the entire agreement between the parties pertaining to
the subject matter hereof, and supersede all prior agreements, understandings,
negotiations, representations, warranties and discussions of the parties,
whether oral or written; and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof,
except as specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby.
24
<PAGE>
9.4 Risk of Loss or Damage; Insurance. It is understood and agreed
---------------------------------
that all right, title and interest in and to the Purchased Assets and all risk
of loss or damage thereto shall not pass from the Selling Parties to Buyer
unless and until the Tier I Closing whereupon all risk of loss or damage shall
pass to Buyer. In the event of a casualty or condemnation in respect of the
Purchased Assets prior to the Tier I Closing, Buyer shall have the right, at its
sole option, to elect to either terminate this Agreement or to accept the
insurance proceeds in respect of such casualty or condemnation and proceed to
close otherwise in accordance with the terms and conditions of this Agreement.
9.5 Waiver. No waiver shall be deemed to have been made by any party
------
of any of its rights hereunder unless the same shall be in writing and shall be
signed by the waiving party. Such a waiver, if any, shall be a waiver only in
respect to the specific instance involved and shall in no way impair the rights
of the waiving party or the obligations of any other party in any other respect
at any other time. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provision of this Agreement,
whether or not similar, nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
9.6 Governing Law. This Agreement shall be construed and interpreted
-------------
according to the substantive laws of the State of California without giving
effect to the principles of conflicts of law thereof.
9.7 Headings. The headings of the articles and sections of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
9.8 Counterparts. This Agreement may be executed by the parties in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.9 Severability. In the event that any one or more terms or
------------
provisions hereof shall be held void or unenforceable by any court or
arbitrator, all remaining terms and provisions hereof shall remain in full force
and effect.
9.10 Time is of the Essence. The Selling Parties and Buyer agree that
----------------------
time is of the essence in connection with the implementation and performance by
the parties of all terms, conditions and obligations of this Agreement.
9.11 Brokers or Finders. None of the Selling Parties has retained any
------------------
broker or finder and is not and will not be obligated to pay any brokers' or
finders' fee in connection with the negotiation or consummation of the
transactions contemplated by this Agreement, except for the retention of the
management consulting firm of Alvarez & Marsal, Inc. ("A&M") by Phillips.
Phillips is responsible for fees payable to A&M in respect of the transactions
contemplated by this Agreement. The Buyer has not retained any broker or finder
and is not and will not be obligated to pay any brokers' or finders' fee in
connection with the negotiation or consummation of the transactions contemplated
by this Agreement, except for the retention
25
<PAGE>
of Banc One Capital Group by Buyer. Buyer is responsible for fees payable to
Banc One Capital Group in respect of the transactions contemplated by this
Agreement.
9.12 Indemnification by Selling Parties. The Selling Parties, jointly
----------------------------------
and severally, hereby indemnify, defend and hold harmless Buyer and its
Affiliates and their respective officers and directors from and against:
(a) any loss, liability, claim, obligation, damage or deficiency
arising out of or resulting from any material breach of any representation or
warranty or nonfulfillment of any covenant or agreement on the part of the
Selling Parties contained in this Agreement, the Secondary Agreement or any
other agreement, statement or certificate furnished or to be furnished by the
Selling Parties in connection with the transactions contemplated hereby and
thereby which is not cured within twenty (20) calendar days of written notice
thereof from Buyer to the Selling Parties;
(b) any loss, liability, claim, obligation, damage or deficiency
arising out of or resulting from any claim related to or arising out of the
operation of the Schools prior to the Tier I Closing that are asserted with
respect to any liabilities that are not Assumed Liabilities in this Agreement or
in the Secondary Agreement; and
(c) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.12.
9.13 Indemnification by Buyer. Buyer hereby indemnifies, defends and
------------------------
holds harmless each of the Selling Parties and their Affiliates and their
respective officers and directors from and against:
(a) any loss, liability, claim, obligation, damage or deficiency
arising out of or resulting from any material breach of any representation or
warranty or nonfulfillment of any covenant or agreement on the part of Buyer
contained in this Agreement, the Secondary Agreement or any other agreement,
statement or certificate furnished or to be furnished by Buyer in connection
with the transactions contemplated hereby and thereby which is not cured within
twenty (20) calendar days of written notice thereof from the Selling Parties to
Buyer;
(b) any loss, liability, claim, obligation, damage or deficiency
resulting from or arising out of the failure by Buyer to pay, perform or
discharge, or cause to be paid, performed or discharged, any of the Assumed
Liabilities in this Agreement or in the Secondary Agreement; and
(c) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.13.
26
<PAGE>
9.14 Procedure for Indemnification.
-----------------------------
9.14.1 The provisions of this Section 9.14 shall govern any
claim for indemnification of Buyer and its Affiliates, pursuant to Section 9.12,
or of the Selling Parties and their Affiliates, pursuant to Section 9.13 (each
such party an "Indemnitee") against the party agreeing to provide
indemnification hereunder (the "Indemnitor").
9.14.2 The Indemnitee shall promptly give notice hereunder to
the Indemnitor, but in no event more than the lesser of thirty (30) days or,
with respect to third party claims, one-half (1/2) of the response time required
with respect to the third party's notice to the Indemnitee, after obtaining
notice of any claim as to which recovery may be sought against the Indemnitor
because of the indemnity in Sections 9.12 or 9.13, and, if such indemnity shall
arise from the claim of a third party, the Indemnitee shall consent to the
Indemnitor assuming the defense of any such claim; provided that the Indemnitee
--------
shall not be required to permit the Indemnitor to assume the defense of any
third party claim (x) which, if not first paid, discharged or otherwise complied
with, would result in a material interruption or cessation of the conduct of the
business of the Indemnitee, or (y) if the Indemnitee reasonably concludes that
there may be a conflict of interest between the Indemnitor, on the one hand, and
the Indemnitee, on the other hand, in the conduct of the defense of such action.
Failure by the Indemnitor to notify the Indemnitee of its election to defend any
such claim or action within 14 days of the date of notice from the Indemnitee
shall be deemed to constitute its consent to the Indemnitee's assumption of such
defense. If the Indemnitor assumes the defense of such claim or litigation
resulting therefrom, the obligations of the Indemnitor hereunder as to such
claim shall include taking all steps necessary in the defense or settlement of
such claim or litigation resulting therefrom including the retention of counsel,
which counsel must be to the Indemnitee's reasonable satisfaction, and holding
the Indemnitee harmless from and against any and all damages resulting from,
arising out of, or incurred with respect to any settlement approved by the
Indemnitor or any judgment in connection with such claim or litigation resulting
therefrom. The Indemnitor shall not, in the defense of such claim or litigation,
(i) consent to the entry of any judgment (other than a judgment of dismissal on
the merits without costs) except with the written consent of the Indemnitee,
which consent shall not be unreasonably withheld or (ii) enter into any
settlement (except with the written consent of the Indemnitee, which consent
shall not be unreasonably withheld), unless the Indemnitee is released and held
harmless from and against any and all damages resulting from, arising out of or
incurred with respect to such judgment or settlement.
9.14.3 If the Indemnitor is offered the opportunity, but does
not assume the defense of any such claim by a third party or litigation
resulting therefrom, the Indemnitee may defend against such claim or litigation
in such manner as it deems appropriate, and the Indemnitee may settle such claim
or litigation on such terms as it may deem appropriate and the Indemnitor shall
promptly reimburse the Indemnitee for the amount of such settlement and for all
damages incurred by the Indemnitee in connection with the defense against or
settlement of such claim or litigation.
27
<PAGE>
9.14.4 Indemnification Floor. Notwithstanding anything to the
---------------------
contrary herein, any claim by an Indemnitee against an Indemnitor under this
Agreement that has been Definitively Resolved (as hereinafter defined) against
the Indemnitor, shall be payable by the Indemnitor only in the event and to the
extent that the accumulated amount of all such Settled Claims, as hereinafter
defined, shall exceed the amount of One Hundred Thousand Dollars ($100,000) in
the aggregate, including any amounts claimed under any other agreement
(including, without limitation, the Secondary Agreement) executed in connection
with this Agreement (the "Basket Amount"). At such time as the aggregate amount
of Settled Claims of an Indemnitor shall exceed the Basket Amount, such
Indemnitor shall thereafter be liable on a dollar-for-dollar basis for all
Settled Claims, including the Basket Amount.
9.14.5 Payments from Escrow. The parties acknowledge and agree
--------------------
that all Settled Claims for which any of the Selling Parties is the Indemnitor
shall initially be payable from amounts held pursuant to the Escrow Agreement in
accordance with the provisions thereof. To the extent that the amount of a
Settled Claim for which a Selling Party is the Indemnitor exceeds the amount in
the escrow account, such Selling Party shall be liable for such Payable Claim.
9.14.6 Maximum Liabilities. In no event shall the maximum
-------------------
aggregate liability of the Selling Parties with respect to all claims under this
Article IX exceed the aggregate amount of the Purchase Price.
9.14.7 Definition. For purposes hereof, any claim for
----------
indemnification hereunder shall be deemed to have been "Definitively Resolved"
when any of the following has occurred:
(a) a claim is settled by mutual agreement of the
parties;
(b) forty-five (45) days have elapsed since the receipt
by the party against which indemnification has been claimed and the claiming
party has not received on or before such date, a written notice disputing such
claim; or
(c) a judgment, order or award of a court of competent
jurisdiction or arbitrator (pursuant to Section 9.18.2 or otherwise) or
administrative judge deciding such claim has been rendered, as evidenced by a
certified copy of such judgment, order or award ("Original Judgment"); provided,
however, if the Original Judgment is reversed or modified on appeal, the
Indemnitee shall repay the Indemnitor any amounts received by the Indemnitee
from the Indemnitor as a result of the Original Judgment (with the Indemnitor
remaining responsible for any amounts awarded to the Indemnitee in connection
with a modification of the Original Judgment in excess of those amounts already
paid); provided, however, that the Indemnitee must continue to appeal or
challenge the Original Judgment in accordance with its rights if there is a
reasonable basis to conclude that such Original Judgment could be reversed or
modified on appeal.
28
<PAGE>
Any indemnity claim that has been Definitively Resolved against an
Indemnitor is referred to herein as a "Settled Claim."
9.14.8 Indemnification Time Limit. Notwithstanding any provision
--------------------------
of this Agreement to the contrary, no party shall be entitled to indemnification
hereunder for any claim which is not asserted against such party within two (2)
years of the Tier I Closing, if such claim relates to a Tier I School or the
Tier I Closing or within two (2) years of the Tier II Closing, if such claim
relates to a Tier II School or the Tier II Closing.
9.14.9 Definition. For purposes of this Agreement, the term
----------
"Affiliate" of any person or entity means any corporation, partnership or other
entity of which more than 50% of the securities or other ownership interests
having by the terms thereof ordinary voting power to elect more than 50% of the
board of directors or others performing similar functions with respect to such
Corporation, partnership or other entity, directly or indirectly, controls, is
controlled by, or is under common control with such person or entity.
9.15 Exclusive Remedy. After the Tier I Closing, indemnification
----------------
pursuant to Sections 9.12 and 9.13 shall be the sole and exclusive remedies of
the parties to this Agreement and the parties to the Secondary Agreement for any
claims of any nature whatsoever, arising out of or relating to the transactions
contemplated by this Agreement, the Secondary Agreement or the Ancillary
Documents (except the Interim Note and the Escrow Funding Note), whether such
claims may be asserted as a breach of contract, tort or otherwise.
9.16 Limitation. Notwithstanding anything in this Agreement to the
----------
contrary, no shareholder, partner, director, officer, employee, agent, manager
or Affiliate of the Selling Parties (or any direct or indirect shareholder,
partner, director, officer, employee, agent, manager or affiliate of any of
them) shall have any liability of any nature whatsoever to Buyer as a result of
a breach of any representation, warranty, covenant or agreement contained in
this Agreement, the Secondary Agreement or the Ancillary Documents or otherwise
arising out of the transactions contemplated hereby or thereby.
9.17 No Double Indemnification. In no event shall Buyer or its
-------------------------
Affiliates be entitled to indemnification hereunder for claims based upon any
matters which were also the basis for any claims pursuant to which Buyer or its
Affiliates received indemnification under the Secondary Agreement. In no event
shall Buyer or its Affiliates be entitled to indemnification under the Secondary
Agreement for claims based upon any matters which were also the basis for any
claims pursuant to which Buyer or its Affiliates received indemnification under
this Agreement. In no event shall the Selling Parties or their Affiliates be
entitled to indemnification hereunder for claims for which the Selling Parties
or their Affiliates received indemnification under the Secondary Agreement. In
no event shall the Selling Parties or their Affiliates be entitled to
indemnification under the Secondary Agreement for claims for which the Selling
Parties or their Affiliates received indemnification under this Agreement.
29
<PAGE>
9.18 Dispute Resolution and Arbitration.
----------------------------------
9.18.1 Negotiation Between Executives. The parties shall attempt
------------------------------
in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the controversy and who are at a higher level of management (if any) than
the persons with direct responsibility for administration of this Agreement. Any
party may give the other party written notice of any dispute not resolved in the
normal course of business. Within 15 days after delivery of the notice the
receiving party shall submit to the other a written response. The notice and the
response shall include (i) a statement of each party's position and a summary of
arguments supporting that position, and (ii) the name and title of the executive
who represents that party and of any other person who will accompany the
executive. Within 10 days after delivery of the disputing party's notice, the
executives of both parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to attempt to resolve
the dispute. All reasonable requests for information made by one party to the
other will be honored. If the matter has not been resolved within 45 days of the
disputing party's notice, or if the parties fail to meet within 10 days of such
notice, either party may initiate arbitration of the controversy or claim as
provided hereinafter. All negotiations pursuant to this clause are confidential
and shall be treated as compromise and settlement negotiations for purposes of
the Federal Rules of Evidence of California and other states' Rules of Evidence.
9.18.2 Arbitration. Any dispute arising out of or relating to
-----------
this Agreement or the breach, termination or the validity thereof, which has not
been resolved by the nonbinding meet and confer provisions provided in Section
9.18.1 within 90 days of the initiation of such procedure, shall be settled by
arbitration in accordance with the then-current End Dispute-Judicial Arbitration
and Mediation Services (JAMS) rules for arbitration of business disputes by a
sole arbitrator who shall be a former superior court or appellate court judge or
justice with significant experience in resolving business disputes. If
available, the arbitrator should have familiarity or experience in Title IV
funding matters. The arbitration shall be governed by the California Code of
Civil Procedure Section 1280 et seq. and the parties intend this procedure to be
------
specifically enforceable in accordance with such provisions. Judgment upon the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Orange County, California. The
arbitrator may award equitable relief in those circumstances where monetary
damages would be inadequate. The arbitrator shall be required to follow the
applicable law as set forth in the governing law section of this Agreement.
9.19 Third Party Beneficiaries. This Agreement shall be binding upon,
-------------------------
be enforceable against, and inure to the benefit of the parties and their
respective successors and permitted assigns; otherwise, this Agreement shall
not, and shall not be deemed to, inure to the benefit of or be enforceable by
any third party.
9.20 Bulk Transfers. If Buyer requests, Selling Parties will comply
--------------
with any applicable bulk transfer laws. If Buyer does not so request, Buyer and
Selling Parties each hereby waives compliance with any applicable bulk transfer
laws in connection with the sale of
30
<PAGE>
the Purchased Assets hereunder and Selling Parties hereby agree to indemnify
Buyer against and hold Buyer harmless from any and all damages and liabilities
(including reasonable attorneys' fees) relating to or resulting from such non-
compliance.
9.21 Expenses. Except as otherwise provided in this Agreement, each
--------
party shall pay its own expenses incurred in connection with the authorization,
preparation, execution, and performance of this Agreement and the Ancillary
Documents, including all fees and expenses of counsel, accountants, agents and
representatives.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of this 17th day of October, 1996.
CORINTHIAN COLLEGES, INC.
/s/ David G. Moore
By: --------------------------------
Name: ______________________________
Title: _____________________________
CORINTHIAN SCHOOLS, INC.
/s/ David G. Moore
By: ---------------------------------
Name: _______________________________
Title: ______________________________
RHODES COLLEGES, INC.
/s/ David G. Moore
By: ---------------------------------
Name: _______________________________
Title: ______________________________
RHODES BUSINESS GROUP, INC.
/s/ David G. Moore
By: ---------------------------------
Name: _______________________________
Title: ______________________________
FLORIDA METROPOLITAN UNIVERSITY, INC.
/s/ David G. Moore
By: ---------------------------------
Name: _______________________________
Title: ______________________________
<PAGE>
FLORIDA METROPOLITAN UNIVERSITY, INC.
/s/ David G. Moore
By: ---------------------------------
Name: _______________________________
Title: ______________________________
PHILLIPS COLLEGES, INC.
[SIGNATURE ILLEGIBLE]
By: ---------------------------------
Name ________________________________
Title _______________________________
BLAIR BUSINESS COLLEGE, INC.
[SIGNATURE ILLEGIBLE]
By: ----------------------------------
Name: ________________________________
Title: _______________________________
PHILLIPS COLLEGE OF DENVER, INC.
[SIGNATURE ILLEGIBLE]
By:----------------------------------
Name: _______________________________
Title: ______________________________
TO-BA CORPORATION
[SIGNATURE ILLEGIBLE]
By:-----------------------------------
Name:_________________________________
Title:________________________________
<PAGE>
PHILLIPS COLLEGE OF LOS ANGELES, INC.
[SIGNATURE ILLEGIBLE]
By:-----------------------------------
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL SERVICES OF NEW
YORK CITY, INC.
[SIGNATURE ILLEGIBLE]
By:-----------------------------------
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF
PENNSYLVANIA, INC.
[SIGNATURE ILLEGIBLE]
By:-----------------------------------
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF
PORTLAND, INC.
[SIGNATURE ILLEGIBLE]
By:-----------------------------------
Name: ________________________________
Title:________________________________
<PAGE>
ROCHESTER BUSINESS INSTITUTE, INC.
[SIGNATURE ILLEGIBLE]
By:----------------------------------
Name:________________________________
Title:_______________________________
PHILLIPS EDUCATIONAL GROUP OF UTAH,
INC.
[SIGNATURE ILLEGIBLE]
By:-----------------------------------
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF
MISSOURI, INC.
[SIGNATURE ILLEGIBLE]
By:-----------------------------------
Name:_________________________________
Title: _______________________________
PHILLIPS EDUCATIONAL GROUP OF CENTRAL
FLORIDA, INC.
[SIGNATURE ILLEGIBLE]
By:----------------------------------
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT A
-------
LIST OF SUBSIDIARIES OF PHILLIPS
1. Blair Business College, Inc. (a Colorado corporation)
2. Phillips College of Denver, Inc. (a Colorado corporation)
3. TO-BA Corporation (a Nevada corporation)
4. Phillips College of Los Angeles, Inc. (a California corporation)
5. Phillips Educational Services of New York City, Inc. (a New York
corporation)
6. Phillips Educational Group of Pennsylvania, Inc. (a Pennsylvania
corporation)
7. Phillips Educational Group of Portland, Inc. (an Oregon corporation)
8. Rochester Business Institute, Inc. (a New York corporation)
9. Phillips Educational Group of Utah, Inc. (a Utah corporation)
10. Phillips Educational Group of Missouri, Inc. (a Missouri corporation)
11. Phillips Educational Group of Central Florida, Inc. (a Florida corporation)
A-1
<PAGE>
EXHIBIT B
-------
BID PRICES
TIER I SCHOOLS
<TABLE>
<CAPTION>
NAME; LOCATION STATE TIER I BID PRICE
-------------- ----- ----------------
<S> <C> <C>
RHODES SCHOOLS:
Western Business College; Portland OR $ 1,600,000
Blair Junior College; Colorado Springs CO $ 700,000
Parks College (North); Denver CO $ 100,000
Parks College (South); Aurora CO $ 300,000
Phillips College; Las Vegas NV $ 200,000
Phillips Junior College of Salt Lake City; Salt UT $ 400,000
Lake City
Phillips Junior College; Springfield MO $ 500,000
RHODES GROUP SCHOOLS:
Duff's Business Institute; Pittsburgh PA $ 400,000
Rochester Business Institute; Rochester NY $ 300,000
FLORIDA SCHOOLS:
FMUS* - Ft. Lauderdale College; Ft. FL $ 225,000
Lauderdale
FMUS* - Orlando College (North); Orlando FL $ 1,700,000
FMUS* - Orlando College (South); Orlando FL $ 2,800,000
FMUS* - Orlando College (Melbourne); FL $ 325,000
Melbourne
FMUS* - Tampa College (Main); Tampa FL $ 6,500,000
FMUS* - Tampa College (Brandon); Tampa FL $ 1,500,000
FMUS* - Tampa College (Pinellas); Clearwater FL $ 3,800,000
FMUS* - Tampa College; Lakeland FL $ 650,000
- --------------------------------------------------------------------------
Aggregate Tier I Bid Price $22,000,000
</TABLE>
_________________
* FMUS means the Florida Metropolitan University System.
B-1
<PAGE>
Tier II Schools
<TABLE>
<CAPTION>
ALTERNATE
LOCATION STATE TIER II BID PRICE TIER II BID PRICE
- -------------------------------------------------------------------
<S> <C> <C> <C>
RHODES SCHOOLS:
Phillips Junior CA $1,200,000 $2,400,000
College (Van Nuys);
Northridge
RHODES GROUP
Taylor Business NY $1,200,000 $1,200,000
Institute; New York
</TABLE>
B-2
<PAGE>
EXHIBIT K
-------
VALUE PRICES
TIER I SCHOOLS
<TABLE>
<CAPTION>
NAME; LOCATION STATE TIER I VALUE PRICE
-------------- ----- ------------------
<S> <C> <C>
RHODES SCHOOLS:
Western Business College; Portland OR $ 1,200,000
Blair Junior College; Colorado Springs CO $ 525,000
Parks College (North); Denver CO $ 75,000
Parks College (South); Aurora CO $ 225,000
Phillips College; Las Vegas NV $ 150,000
Phillips Junior College of Salt Lake City; UT $ 300,000
Salt Lake City
Phillips Junior College; Springfield MO $ 375,000
RHODES GROUP SCHOOLS:
Duff's Business Institute; Pittsburgh PA $ 300,000
Rochester Business Institute; Rochester NY $ 225,000
FLORIDA SCHOOLS:
FMUS - Ft. Lauderdale College; Ft. FL $ 168,750
Lauderdale
FMUS - Orlando College (North); Orlando FL $ 1,275,000
FMUS - Orlando College (South); Orlando FL $ 2,100,000
FMUS - Orlando College (Melbourne); FL $ 243,750
Melbourne
FMUS - Tampa College (Main); Tampa FL $ 4,875,000
FMUS - Tampa College (Brandon); Tampa FL $ 1,125,000
FMUS - Tampa College (Pinellas); FL $ 2,850,000
Clearwater
FMUS - Tampa College; Lakeland FL $ 487,500
- -----------------------------------------------------------------------
Aggregate Tier I Value Price $16,500,000
</TABLE>
K-1
<PAGE>
TIER II SCHOOLS
<TABLE>
<CAPTION>
ALTERNATE
LOCATION STATE TIER II VALUE PRICE TIER II VALUE PRICE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Phillips Junior CA $900,000 $1,800,000
College (Van Nuys);
Northridge
RHODES GROUP
Taylor Business NY $900,000 $ 900,000
Institute; New York
</TABLE>
K-2
<PAGE>
EXHIBIT 2.6
SCHOOLS ACQUISITION AGREEMENT
AMONG
RHODES COLLEGES, INC.,
RHODES BUSINESS GROUP, INC.
AND
FLORIDA METROPOLITAN UNIVERSITY, INC.
AS BUYER,
AND
PHILLIPS COLLEGES, INC.
AND CERTAIN OF ITS SUBSIDIARIES
AS SELLING PARTIES
DATED AS OF OCTOBER 17, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
ARTICLE I SALE AND PURCHASE OF ASSETS............................................................. 1
1.1 Purchased Assets to be Transferred...................................................... 1
1.1.1 Accounts Receivable............................................................. 1
1.1.2 Inventory....................................................................... 2
1.1.3 Equipment....................................................................... 2
1.1.4 Records......................................................................... 2
1.1.5 Contracts and Leases............................................................ 2
1.1.6 Warranty Rights................................................................. 2
1.1.7 Prepaid Expenses................................................................ 2
1.1.8 Permits......................................................................... 2
1.1.9 Promotional Material............................................................ 3
1.1.10 Other Assets.................................................................... 3
1.2 Excluded Assets......................................................................... 3
1.2.1 Cash............................................................................ 3
1.2.2 Earned Accounts Receivable...................................................... 3
1.2.3 Nontransferable Rights.......................................................... 3
1.2.4 Other Excluded Assets .......................................................... 3
1.3 Timing of Transfer of Purchased Assets.................................................. 3
1.4 Allocation of Purchased Assets.......................................................... 4
ARTICLE II CONSIDERATION........................................................................... 4
2.1 Purchase Price.......................................................................... 4
2.2 Cash Consideration...................................................................... 4
2.2.1 Tier I.......................................................................... 4
2.2.2 Tier II......................................................................... 4
2.2.3 No Option or Right to Offset.................................................... 4
2.3 Obligations and Liabilities to be Assumed............................................... 4
2.4 Excluded Liabilities.................................................................... 5
2.5 Allocation of Purchase Price............................................................ 6
2.6 Excise and Property Taxes............................................................... 6
2.7 Employees............................................................................... 6
2.8 Additional Payments..................................................................... 7
ARTICLE III CLOSING................................................................................. 8
3.1 Tier I Closing.......................................................................... 8
3.2 Tier II Closing......................................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C>
3.3 Deliveries by Selling Parties at each Tier Closing..................................... 8
3.4 Deliveries by Buyer at each Tier Closing............................................... 9
3.5 Deliveries by Buyer at the Tier I Closing Only......................................... 9
3.6 Delivery by Buyer at the Tier II Closing Only.......................................... 9
ARTICLE IV TERMINATION............................................................................ 9
4.1 Termination............................................................................ 9
4.2 Effect of Termination.................................................................. 10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES.................................. 10
5.1 Organization and Corporate Power....................................................... 10
5.2 Capacity; Authorization; Binding Effect................................................ 10
5.3 Ownership of Schools................................................................... 11
5.4 No Conflicts........................................................................... 11
5.5 Compliance with Laws; Licenses and Permits............................................. 11
5.6 Recruitment; Admissions Procedures; Attendance; Reports................................ 12
5.7 Cohort Default Rate.................................................................... 13
5.8 Title to and Condition of the Purchased Assets......................................... 13
5.8.1 Leased Facilities............................................................... 13
5.8.2 Laws and Regulations; Records................................................... 13
5.8.3 Title........................................................................... 13
5.8.4 Purchased Assets................................................................ 13
5.9 Assumed Contracts...................................................................... 14
5.10 Intentionally Omitted.................................................................. 14
5.11 Financial Statements; Indebtedness..................................................... 14
5.12 Receivables............................................................................ 15
5.13 Inventories............................................................................ 16
5.14 Litigation............................................................................. 16
5.15 Insurance.............................................................................. 16
5.16 Environmental Matters.................................................................. 17
5.17 Employee Benefit Plans................................................................. 17
5.18 Employment Matters..................................................................... 18
5.19 Tax Matters............................................................................ 18
5.20 Absence of Certain Changes............................................................. 18
5.21 Delivery of Documents.................................................................. 19
5.22 Disclosure............................................................................. 19
</TABLE>
ii
<PAGE>
<TABLE>
Page
----
<S> <C>
5.23 Survival of Representations and Warranties...................................... 19
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER............................................... 20
6.1 Incorporation; Authority......................................................... 20
6.2 Due Authorization; Binding Agreement............................................. 20
6.3 No Violation or Conflict......................................................... 20
6.4 No Undisclosed Liabilities....................................................... 20
6.5 Consents and Approvals........................................................... 21
6.6 Disclosure....................................................................... 21
6.7 Survival of Representations and Warranties....................................... 21
ARTICLE VII COVENANTS.............................................................................. 21
7.1 Covenants of the Selling Parties Pending Tier II Closing.......................... 21
7.2 Covenants of Buyer Pending Tier II Closing........................................ 22
7.3 Closing and Post-Closing Covenants................................................ 22
7.3.1 Further Assurances......................................................... 22
7.3.2 Mutual Cooperation......................................................... 22
7.3.3 Access to Employees........................................................ 23
7.3.4 Best Efforts to Satisfy Conditions......................................... 23
7.3.5 Eligibility to Participate in Federal Student Financial Assistance
Programs................................................................... 23
7.3.6 Refunds/Enrollment Contracts............................................... 23
7.3.7 Income Statement........................................................... 23
7.4 Administration of the Schools..................................................... 24
7.5 Access and Maintenance of Records................................................. 24
ARTICLE VIII CONDITIONS............................................................................. 25
8.1 Conditions Precedent to Obligations of Buyer...................................... 25
8.2 Intentionally Omitted............................................................. 25
8.3 Conditions Precedent to Obligations of Buyer at the Tier II Closing............... 26
8.4 Conditions Precedent to Obligations of Selling Parties............................ 26
ARTICLE IX MISCELLANEOUS.......................................................................... 27
9.1 Binding Effect.................................................................... 27
9.2 Notices........................................................................... 27
9.3 Entire Agreement.................................................................. 28
</TABLE>
iii
<PAGE>
<TABLE>
Page
----
<S> <C>
9.4 Risk of Loss or Damage; Insurance............................................... 28
9.5 Waiver.......................................................................... 28
9.6 Governing Law................................................................... 29
9.7 Headings........................................................................ 29
9.8 Counterparts.................................................................... 29
9.9 Severability.................................................................... 29
9.10 Time is of the Essence.......................................................... 29
9.11 Brokers or Finders.............................................................. 29
9.12 Indemnification by.............................................................. 29
9.13 Indemnification by Buyer........................................................ 30
9.14 Procedure for Indemnification................................................... 30
9.14.1.......................................................................... 30
9.14.2.......................................................................... 30
9.14.3.......................................................................... 31
9.14.4 Indemnification Floor................................................... 31
9.14.5 Intentionally Omitted................................................... 31
9.14.6 Maximum Liabilities..................................................... 31
9.14.7 Definition.............................................................. 32
9.14.8 Indemnification Time Limit.............................................. 32
9.15 Exclusive Remedy................................................................ 32
9.16 Limitation...................................................................... 32
9.17 Dispute Resolution and Arbitration.............................................. 33
9.17.1 Negotiation Between Executives.......................................... 33
9.17.2 Arbitration............................................................. 33
9.18 Third Party Beneficiaries....................................................... 33
9.19 Bulk Transfers.................................................................. 33
9.20 Expenses........................................................................ 34
</TABLE>
iv
<PAGE>
SCHEDULES
---------
SCHEDULE 1.1.3 Equipment
- --------
SCHEDULE 1.1.7(a) Prepaid Deposits and Prepaid Expenses
- --------
SCHEDULE 1.1.7(b) Excepted Prepaid Deposits and Prepaid Expenses
- --------
SCHEDULE 1.2.2 Calculation of Earned Accounts Receivable
- --------
SCHEDULE 1.2.4 Excluded Assets
- --------
SCHEDULE 2.5 Allocation of Purchase Price Among the Purchased Assets
- --------
SCHEDULE 2.7 Employees
- --------
SCHEDULE 5.4 Conflicts
- --------
SCHEDULE 5.5(a) Compliance With Applicable Laws
- --------
SCHEDULE 5.5(b) Exceptions to Licenses and Permits
- --------
SCHEDULE 5.5(c) Applications
- --------
SCHEDULE 5.5(d) Licenses and Permits
- --------
SCHEDULE 5.5(e) Notices of Non-Renewal
- --------
SCHEDULE 5.5(f) Accreditation
- --------
SCHEDULE 5.5(g) Notice of Violation
- --------
SCHEDULE 5.5(h) Regulatory Review
- --------
SCHEDULE 5.6(a) Recruitment; Admissions Procedures; Attendance; Reports
- --------
SCHEDULE 5.6(b) Noncompliance with Policy Guidelines
- --------
SCHEDULE 5.7 Cohort Default Rates
- --------
SCHEDULE 5.8.1 Leased Facilities
- --------
SCHEDULE 5.8.2 Laws and Regulations; Records
- --------
SCHEDULE 5.8.3 Title
- --------
SCHEDULE 5.8.4 Purchased Assets
- --------
SCHEDULE 5.9 Assumed Contracts
- --------
SCHEDULE 5.11(a) Financial Statements
- --------
SCHEDULE 5.11(b) Indebtedness
- --------
SCHEDULE 5.11(c) Unaudited Interim Balance Sheet as of August 31, 1996
- --------
SCHEDULE 5.14 Litigation
- --------
SCHEDULE 5.15 Insurance
- --------
SCHEDULE 5.16 Environmental Matters
- --------
SCHEDULE 5.18 Employment Matters
- --------
SCHEDULE 5.20 Absence of Certain Changes
- --------
SCHEDULE 6.5 Consents and Approvals
- --------
v
<PAGE>
EXHIBITS
--------
EXHIBIT A List of Certain Subsidiaries of Phillips
- -------
EXHIBIT B List of Schools and Tier I Bid Prices
- -------
EXHIBIT C Assignment and Assumption Agreement
- -------
EXHIBIT D Bill of Sale
- -------
EXHIBIT E-1 Buyer's Officer's Certificate
- -------
EXHIBIT E-2 Phillip's Officer's Certificate
- -------
vi
<PAGE>
SCHOOLS ACQUISITION AGREEMENT
This Schools Acquisition Agreement, dated as of October 17, 1996 (the
"Agreement"), is entered into by and between Rhodes Colleges, Inc., a Delaware
corporation ("Rhodes"), Rhodes Business Group, Inc., a Delaware corporation
("Rhodes Group"), and Florida Metropolitan University, Inc., a Florida
corporation ("FMU" and collectively with Rhodes and Rhodes Group, "Buyer"), on
the one hand, and Phillips Colleges, Inc., a Mississippi corporation
("Phillips"), and certain subsidiaries of Phillips as identified on EXHIBIT A
-------
(the "Sellers" and, together with Phillips, the "Selling Parties"), on the other
hand.
P R E A M B L E :
WHEREAS, Sellers own, operate and administer, among other things,
those certain post-secondary, vocational training schools listed on EXHIBIT B
-------
attached hereto and made a part hereof by this reference (the "Schools");
WHEREAS, for purposes of this Agreement, the parties have separated
the Schools into two groups, designated as the "Tier I Schools" and the "Tier II
Schools" as specified on EXHIBIT B; and
-------
WHEREAS, Buyer desires to buy, through the payment of cash, the
assumption of liabilities of Sellers and other valuable consideration, and the
Selling Parties desire to sell, substantially all assets and property owned by
Sellers and used directly in the business of the Schools and certain related
assets as specified herein, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained in this Agreement and intending to be legally bound hereby,
agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Purchased Assets to be Transferred. Subject to the terms and
----------------------------------
conditions of this Agreement, the Selling Parties hereby agree to sell, assign,
convey, transfer and deliver to Buyer, and Buyer hereby agrees to assume the
Assumed Liabilities (as defined in Section 2.3 below) from the Selling Parties
and to purchase from the Selling Parties, all of the Selling Parties' right,
title and interest in and to the following assets (the "Purchased Assets"),
subject to all existing mortgages, pledges, liens, claims, restrictions,
encumbrances, options, rights and security interests of any kind or nature,
including the Permitted Exceptions (as defined in Section 5.8.3 below), and
except for the Excluded Assets (as defined in Section 1.2 below):
1.1.1 Accounts Receivable. All accounts receivable, notes
-------------------
receivable and other receivables (and causes of action related thereto) of
Sellers arising from operations of
1
<PAGE>
the Schools, other than Earned Accounts Receivable (as defined in Section 1.2.2)
("Accounts Receivable");
1.1.2 Inventory. All of the Selling Parties' inventory of
---------
textbooks, materials and supplies on hand at the Tier I Schools at the Tier I
Closing (as defined in Section 3.1 below), and on hand at the Tier II Schools at
the Tier II Closing (as defined in Section 3.2 below);
1.1.3 Equipment. All computer hardware, printers, other data
---------
processing equipment, other machinery and equipment, furniture, fixtures,
leasehold improvements, furnishings and other tangible personal property owned
by the Selling Parties and used directly at the Schools, as described in
SCHEDULE 1.1.3 ("Equipment");
- --------
1.1.4 Records. All of Sellers' records existing on the Tier I
-------
Closing Date or the Tier II Closing Date, as applicable, pertaining to the
Purchased Assets, including without limitation, all student records, ledgers,
copies of financial statements, copies of correspondence, copies of employment
records, copies of placement records, copies of marketing materials and copies
of all documents filed by any Seller with any state, federal or local government
authority or any guaranty or accrediting agency (the "Records"), but excluding
any records that relate in whole or in part to the Excluded Assets or the
Excluded Liabilities (as such terms are hereinafter defined), any corporate
minute books or corporate records, tax returns and similar reports or the
original form of general ledgers and supporting documentation including, without
limitation, original invoices and personnel records and subject to the
provisions of Section 7.5 below;
1.1.5 Contracts and Leases. To the extent transferable, all
--------------------
student enrollment contracts and all contracts and leases applicable to one or
more of the Schools to which a Seller is a party entered into in the course of
such Seller's business, including without limitation those identified in
SCHEDULE 5.9 (collectively, the "Assumed Contracts");
- --------
1.1.6 Warranty Rights. To the extent transferable, all rights of
---------------
Sellers relating to or arising out of express or implied warranties,
representations or guarantees from suppliers with respect to any of the
Purchased Assets, and all causes of action arising therefrom;
1.1.7 Prepaid Expenses. Sellers' prepaid deposits and prepaid
----------------
expenses related to the Purchased Assets, as described in SCHEDULE 1.1.7(a),
--------
except for the prepaid deposits and prepaid expenses described on SCHEDULE
--------
1.1.7(b) which shall be reimbursed to the Selling Parties by Buyer, with such
reimbursable deposits and expenses to include any prepayment with respect to
real property leases to be prorated between Buyer and Sellers as of the
applicable Tier Closing.
1.1.8 Permits. To the extent transferable, Sellers' licenses,
-------
permits, certifications, approvals and other governmental and regulatory
authorizations required under all laws, rules and regulations applicable to or
affecting the Schools or the Purchased Assets,
2
<PAGE>
including, without limitation, to the extent transferable, those described in
SCHEDULE 5.5(d) ("Sellers' Permits");
- --------
1.1.9 Promotional Material. All of Sellers' right, title and
--------------------
interest in and to the promotional and marketing materials related exclusively
to the Schools;
1.1.10 Other Assets. All other tangible assets and property of
------------
Sellers (excluding intangible assets and real property) used in connection with
the operation of the Schools.
1.2 Excluded Assets. The Excluded Assets shall not be conveyed
---------------
hereunder. The "Excluded Assets" are all assets of the Selling Parties not sold
in accordance with Section 1.1, above, including, but not limited to, the
following:
1.2.1 Cash. All of the Selling Parties' cash, cash equivalents,
----
bank account balances, escrow account balances and bank account credit balances
(including cash arising from prepaid tuition and all collected accounts
receivable) on hand at the Tier I Closing or the Tier II Closing, as applicable;
1.2.2 Earned Accounts Receivable. Any accounts receivable of the
--------------------------
Selling Parties relating to (i) the business conducted at the Tier I Schools
prior to the Tier I Closing and (ii) the business conducted at the Tier II
Schools prior to the Tier II Closing ("Earned Accounts Receivable"). Earned
Accounts Receivable include, without limitation, (a) the amount calculated in
accordance with SCHEDULE 1.2.2, which includes any unpaid amounts of student
--------
financial assistance funds from any governmental or nongovernmental sources,
including funds administered under Title IV of the Higher Education Act of 1965,
as amended ("Title IV"), due to Sellers, Phillips or the Schools for periods of
instruction occurring prior to the Tier I Closing or Tier II Closing, as
applicable, (b) all Federal Work-Study reimbursement receivables, (c) out-of-
school receivables (i.e., amounts due from students who have withdrawn from a
----
School as of the Tier I Closing or Tier II Closing, as applicable), and (d) any
intercompany accounts receivable.
1.2.3 Nontransferable Rights. Any license, permit,
----------------------
certification, approval and governmental or regulatory authorization or
accreditation of any of the Selling Parties that is not transferable; and
1.2.4 Other Excluded Assets. All assets and rights listed on
---------------------
SCHEDULE 1.2.4 and any assets of the Selling Parties not located at the Schools
- --------
and not included in the Purchased Assets.
1.3 Timing of Transfer of Purchased Assets. The Purchased Assets
--------------------------------------
related to the Tier I Schools shall be purchased, and the Assumed Liabilities
related to the Tier I Schools shall be assumed at the Tier I Closing; and the
Purchased Assets related to the Tier II Schools shall be purchased, and the
Assumed Liabilities related to the Tier II Schools shall be assumed at the Tier
II Closing.
3
<PAGE>
1.4 Allocation of Purchased Assets and Assumed Liabilities. Rhodes
------------------------------------------------------
shall assume title to all Purchased Assets relating to the Rhodes Schools (as
listed on EXHIBIT B hereto) and shall assume all Assumed Liabilities relating to
-------
the Rhodes Schools on the Tier I Closing or the Tier II Closing, as applicable.
The Rhodes Group shall assume title to all Purchased Assets relating to the
Rhodes Group Schools (as listed on EXHIBIT B hereto) and shall assume all
-------
Assumed Liabilities relating to the Rhodes Group Schools on the Tier I Closing
or Tier II Closing, as applicable. FMU shall assume title to all Purchased
Assets relating to the Florida Schools (as listed on EXHIBIT B hereto) and shall
-------
assume all Assumed Liabilities relating to the Florida Schools on the Tier I
Closing.
ARTICLE II
CONSIDERATION
2.1 Purchase Price. In consideration of the sale of the Purchased
--------------
Assets by the Selling Parties to the Buyer, the Buyer shall pay the Purchase
Price (as hereinafter defined) to Phillips for itself and/or as agent for the
Sellers or any other parties as designated by Phillips (collectively, the
"Phillips Payee") in the manner and at the times set forth below, subject to
adjustment as hereinafter set forth, and assume the Assumed Liabilities pursuant
to the Assignment and Assumption Agreement (as hereinafter defined).
2.2 Cash Consideration. The Purchase Price shall be equal to the sum
------------------
of the Tier I Payment and the Tier II Payment, subject to adjustment as set
forth herein, payable as follows:
2.2.1 Tier I. At the Tier I Closing, Buyer shall pay to the
------
Phillips Payee in cash by wire transfer of immediately available funds
$6,000,000 (the "Tier I Payment").
2.2.2 Tier II. At the Tier II Closing, Buyer shall pay to the
-------
Phillips Payee in cash by wire transfer of immediately available funds an amount
calculated in accordance with Section 8.3 hereof (the "Tier II Payment").
2.2.3 No Option or Right to Offset. Buyer shall have no right of
----------------------------
or option to offset against any amounts which Buyer claims are owed to it under
this Agreement or any other agreement, certificate, instrument or document
related hereto or thereto or otherwise by the Selling Parties.
2.3 Obligations and Liabilities to be Assumed. Upon each of the Tier
-----------------------------------------
I Closing and the Tier II Closing (each, a "Tier Closing"), with respect to the
applicable Schools, each Buyer shall, by an appropriate instrument of assumption
to be executed and delivered on the Tier Closing substantially in the form of
EXHIBIT C hereto (the "Assignment and Assumption Agreement"), assume and agree
- -------
to perform, pay or discharge, when due, to the extent not theretofore performed,
paid or discharged, all of the following obligations, commitments and
liabilities of Sellers relating to or arising from the Tier I Schools or Tier II
Schools, as
4
<PAGE>
applicable (collectively, the "Assumed Liabilities"), subject to the allocation
of such Assumed Liabilities among Rhodes, the Rhodes Group and FMU as described
in Section 1.4 hereof:
2.3.1 All accounts payable of the Selling Parties relating to
the business or operations of such Schools existing at the applicable Tier
Closing and which shall have been entered into in the ordinary course of the
business of those Schools, except for those accounts payable relating to (i)
invoices dated prior to the Tier I Closing with respect to the Tier I Schools
and (ii) invoices dated prior to the Tier II Closing with respect to the Tier II
Schools; and all accounts payable for textbooks for the Schools for the October
or later starts with invoices dated after August 17, 1996 and for any media or
print advertising to be paid prior to the Tier I Closing Date or Tier II Closing
Date, as applicable, but published or disseminated subsequent to the Tier I
Closing Date or Tier II Closing Date, as applicable; and all accounts payable
for accrediting agency fees related to the sale of the Purchased Assets to Buyer
and all accounts payable for annual accrediting agency fees or dues, prorated
based on the time remaining in the period for which the fees or dues were paid
or are owed; provided, however, in the event that Selling Parties have paid any
invoices to be included in the Assumed Liabilities, Selling Parties shall be
reimbursed for such amounts in accordance with the provisions of Section 2.8(a)
below;
2.3.2 All obligations of and restrictions on the Selling Parties
with respect to the applicable Schools: (i) under the Assumed Contracts
(including assumption of the liabilities, duties and obligations under
enrollment contracts between students and Sellers which Sellers are obligated to
perform (a) on or after the Tier I Closing with respect to the Tier I Schools,
and (b) on or after the Tier II Closing with respect to the Tier II Schools),
but not including liabilities for breaches by Sellers under Assumed Contracts as
of the Tier I Closing or Tier II Closing, as applicable; (ii) with respect to
the Records; and (iii) otherwise directly arising from the Purchased Assets;
2.3.3 All liabilities imposed by ED, any applicable accrediting
body, any applicable state regulatory agency, any applicable guaranty agency or
any other governmental or non-governmental entity (each a "Regulatory Agency"
and collectively, the "Regulatory Agencies") for periods from and after the Tier
I Closing;
2.3.4 All other obligations, commitments and liabilities of the
Sellers and the Schools, except for the Excluded Liabilities (as defined in
Section 2.4 below).
2.4 Excluded Liabilities. The following obligations and liabilities
--------------------
of the Selling Parties (collectively, the "Excluded Liabilities") will not be
assumed by Buyer: (i) liabilities imposed by the Regulatory Agencies,
including, without limitation, liabilities for Title IV funds related to periods
prior to the Tier I Closing, (ii) liabilities relating to employees of the
Schools incurred prior to the Tier I Closing or the Tier II Closing, as
applicable (other than vacation and sick pay benefits of employees to be hired
by Buyer as contemplated by Section 2.7 hereof which accrued prior to the date
of employment of such employees by the Buyer and which remained unpaid in the
ordinary course of business on the date of the Tier I Closing or the Tier II
Closing, as applicable), (iii) liabilities with respect to accounts payable
other than
5
<PAGE>
those assumed by Buyer under Section 2.3.1 above, (iv) liabilities with respect
to the matters set forth on SCHEDULE 5.14 attached hereto, and (v) any
--------
environmental liabilities incurred prior to the Tier I Closing or Tier II
Closing, as applicable, with respect to any real property owned or leased by any
of the Selling Parties.
2.5 Allocation of Purchase Price. Buyer and the Selling Parties
----------------------------
agree that the Purchase Price shall be allocated among the Purchased Assets in
accordance with the allocation set forth in SCHEDULE 2.5 attached hereto. Buyer
--------
and the Selling Parties agree that each will report the federal, state and local
income tax and other tax consequences of the purchase and sale contemplated
hereby in a manner consistent with such allocation and that neither will take
any position inconsistent therewith upon examination of any tax return, in any
refund claim, in any litigation, or otherwise; provided that in the reasonable
opinion of the Selling Parties, Buyer's allocation complies with Section 1060 of
the Internal Revenue Code of 1986, as amended (the "IRC"), and relevant Treasury
regulations thereunder and Buyer has provided information required pursuant to
Section 1060(b) of the IRC and other relevant authority in written form
reasonably satisfactory to the Selling Parties on or before November 30, 1996.
Buyer agrees to provide to the Selling Parties specific allocations of the
Purchase Price to tangible personal property within ten (10) business days of
the Tier I Closing or Tier II Closing, as applicable, together with a
certificate of the Selling Parties representing that the allocation to tangible
personal property constitutes Buyer's representation regarding the fair market
value of such tangible personal property and that Buyer will use such allocation
for all financial reporting and will not take any position inconsistent with
such allocation upon examination of any tax return, in any refund claim, in any
litigation or otherwise.
2.6 Excise and Property Taxes. Buyer shall pay seventy-five percent
-------------------------
(75%) and the Selling Parties shall pay twenty-five percent (25%) of all sales
and use taxes arising out of the transfer of the Purchased Assets. Each of
Buyer and the Selling Parties shall pay its respective portion, prorated as of
the applicable Tier Closing, of state and local personal property taxes related
to the Schools.
2.7 Employees. Attached in SCHEDULE 2.7 are lists of employees at
--------- --------
Sellers' Schools, including each employee's title, base salary and earned
vacation time and sick leave. Buyer may, in its sole discretion, extend an
offer of employment to any of such employees (except for those employees whose
employment is severed or terminated in the ordinary course of business prior to
the Tier I Closing or Tier II Closing, as applicable) from and after the Tier I
Closing or Tier II Closing, as applicable. Buyer shall pay, perform and assume
Sellers' obligations for vacation and sick pay benefits of employees hired by
Buyer which accrue prior to the Tier I Closing or Tier II Closing, as
applicable, and remain unpaid in the ordinary course of business at the Tier I
Closing or Tier II Closing, as applicable, and shall include such employees in a
medical plan which provides for a waiver of waiting time and pre-existing
conditions.
6
<PAGE>
2.8 Additional Payments.
-------------------
(a) As soon as possible following the Tier I Closing, and in any
event not later than twenty (20) days after the Tier I Closing, the Selling
Parties shall deliver a certificate to Buyer, setting forth the "Additional
Payment Amount" which shall include: (1) the amount of prepaid deposits and
prepaid expenses related to the Tier I Schools, pursuant to Section 1.1.7, which
shall be reimbursed to Sellers, and (2) the amounts of accounts payable related
to the Tier I Schools, pursuant to Section 2.3.1, which shall be reimbursed to
Sellers. Within ten (10) days of receipt of such certificate, the Buyer shall
pay to Selling Parties in immediately available funds the Additional Payment
Amount. Such certificate shall be deemed to have been accepted by, and be
binding upon, Buyer if Buyer fails to deliver written objections to the Selling
Parties concerning such certificates within ten (10) business days after Buyer's
receipt of such certificate. If Buyer objects to such certificate, and such
objections are not resolved to Buyer's satisfaction within five (5) business
days after delivery of such written objections to the Selling Parties, then
Buyer shall pay to Selling Parties that amount of the Additional Payment Amount
which is undisputed, and Price Waterhouse, L.L.P., or another nationally
recognized certified public accounting firm not otherwise engaged by either the
Selling Parties or Buyer or their affiliates mutually selected by the Selling
Parties and Buyer (the "Independent Auditor"), shall review such certificate and
all related work papers with respect to the amount of the Additional Payment
Amount that is disputed. Such review shall be completed by the Independent
Auditor within ten (10) business days following its engagement, and the
determinations of the Independent Auditor shall be final and binding upon all
parties. The costs of the engagement of the Independent Auditor shall be borne
equally by Buyer and Selling Parties.
(b) As soon as possible following the Tier I Closing and in any event
not later than thirty (30) days after the Tier I Closing, the Selling Parties
shall deliver a certificate to Buyer, setting forth the calculation of Earned
Accounts Receivable (the "EAR Calculation"). If the EAR Calculation results in
an amount due to Sellers (i.e., Deferred Tuition is less than Total Student-
----
Related Receivables), Sellers shall be entitled to retain the U.S. Department of
Education ("ED") reimbursement receivable up to the amount of the Earned
Accounts Receivable owed to Sellers, and Buyer shall pay to Sellers in
immediately available funds the difference between the ED reimbursement
receivable and the amount due to Sellers based on the EAR Calculation, such
amount to be paid on the later of (i) forty-five (45) days following the Tier I
Closing or (ii) the last date on which (1) the ED has certified all of the Tier
I Schools as eligible for Title IV funding; and (2) some or all of the guaranty
agencies which guarantee Federal Family Education Loan ("FFEL") program loans
for the Schools resume such activities such that any combination of the Schools
with an aggregate value of $4,400,000 (based on the Tier I Bid Prices set forth
in EXHIBIT B hereto) are able to receive FFEL loan program funds (the "Payment
-------
Date"). In the event that the EAR Calculation results in an amount due to Buyer
(i.e., if Deferred Tuition is greater than Total Student-Related Receivables),
----
Sellers shall pay that amount to Buyer in immediately available funds on the
later of forty-five (45) days following the Tier I Closing or the Payment Date.
(c) In calculating Earned Accounts Receivable, there shall be
included a bad debt reserve equal to one-half ( 1/2) of the difference between
(i) the TFC Adjustment less
7
<PAGE>
(ii) $800,000. The term "TFC Adjustment" shall mean (A) forty-three percent
(43%) of (x) the outstanding principal balance of the institutional loans which
the TFC Credit Corporation is processing and servicing for the Selling Parties
("TFC Notes") as of the Tier I Closing Date as identified on the TFC Credit
Corporation Accounts Receivable Report for the period ending on the Tier I
Closing Date less (y) the principal balance of such TFC Notes included thereon
which were issued subsequent to September 30, 1996 (the "October TFC Notes")
plus (B) 25% of the October TFC Notes.
ARTICLE III
CLOSING
3.1 Tier I Closing. The closing of the transactions related to the
--------------
Tier I Schools contemplated by this Agreement (the "Tier I Closing") will take
place at the offices of O'Melveny & Myers LLP, 610 Newport Center Drive, Suite
1700, Newport Beach, California 92660, simultaneously with the execution and
delivery of this Agreement (the "Tier I Closing Date"), but in no event later
than December 31, 1996, subject to the provisions of this Agreement. The Tier I
Closing shall be effective as of 12:01 a.m. Central Standard Time on the Tier I
Closing Date.
3.2 Tier II Closing. Subject to the satisfaction of the conditions
---------------
precedent listed in Article VIII, the closing of the transactions related to the
Tier II Schools contemplated by this Agreement (the "Tier II Closing" and,
together with the Tier I Closing, the "Tier Closings") will take place at the
offices of O'Melveny & Myers LLP, 610 Newport Center Drive, Suite 1700, Newport
Beach, California 92660, on the last business day of the calendar month
immediately following the date which is sixty (60) days following Buyer's
receipt of an official written determination from ED of each Tier II School's
official 1994 cohort default rate ("CDR"), or within five (5) business days
after such later date as all the conditions to the Tier II Closing set forth in
Article VIII have been satisfied (the "Tier II Closing Date"), but in no event
later than December 31, 1996, subject to the provisions of this Agreement. The
Tier II Closing shall be effective as of 12:01 a.m. Central Standard Time on the
Tier II Closing Date.
3.3 Deliveries by Selling Parties at each Tier Closing. At each Tier
--------------------------------------------------
Closing, the Selling Parties shall deliver or cause to be delivered to Buyer the
following:
3.3.1 The following documents of transfer and assignment duly
executed by Sellers relating to that portion of the Purchased Assets to be
conveyed to Buyer at such Tier Closing:
(i) Bill of Sale substantially in the form of EXHIBIT D
-------
hereto;
(ii) Assignment and Assumption Agreement substantially in
the form of EXHIBIT C hereto;
-------
8
<PAGE>
(iii) Such other instruments of conveyance as shall, in
the reasonable opinion of Buyer and its counsel, be necessary to vest in Buyer
title to that portion of the Purchased Assets to be conveyed to Buyer at such
Tier Closing.
3.3.2 Certified resolutions of the Boards of Directors and
shareholders of the Selling Parties authorizing the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein;
3.3.3 An officers' certificate signed by the President and the
Chief Executive Officer of Phillips, or such other officer reasonably acceptable
to Buyer, certifying with respect to the Selling Parties, dated as of the date
of such Tier Closing, which officers' certificate shall be in the form attached
hereto as EXHIBIT E-2.
-------
3.4 Deliveries by Buyer at each Tier Closing. At each Tier Closing,
----------------------------------------
Buyer shall deliver or cause to be delivered to the Selling Parties the
following duly executed documents:
3.4.1 The Assignment and Assumption Agreement substantially in
the form of EXHIBIT C hereto;
-------
3.4.2 Certified resolutions of the Board of Directors of each
Buyer authorizing the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein; and
3.4.3 An officers' certificate signed by the President of Buyer,
dated as of the date of such Tier Closing, in the form attached hereto as
EXHIBIT E-1.
- -------
3.5 Deliveries by Buyer at the Tier I Closing Only. At the Tier I
----------------------------------------------
Closing only, the Buyer shall deliver or cause to be delivered the Tier I
Payment by wire transfer of immediately available funds payable to the Phillips
Payee in the amount of $6,000,000.
3.6 Delivery by Buyer at the Tier II Closing Only. At the Tier II
---------------------------------------------
Closing only, Buyer shall deliver or cause to be delivered to the Phillips Payee
prior to the Tier II Closing the Tier II Payment, by wire transfer of
immediately available funds.
ARTICLE IV
TERMINATION
4.1 Termination. This Agreement may be terminated only as follows
-----------
and in each case only by written notice:
4.1.1 At any time by mutual written consent of the Selling
Parties and Buyer;
9
<PAGE>
4.1.2 With respect to the provisions of this Agreement relating
to the purchase of the Tier II Schools only, on December 31, 1996 by either
party if the Tier II Closing has not occurred.
4.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Buyer or the Selling Parties in accordance with Section 4.1
above, this Agreement shall forthwith terminate upon notice thereof duly given
in accordance with the provisions hereof, and there shall be no liability of any
nature on the part of either Buyer or the Selling Parties (or their respective
officers or directors) to the other; provided, however, that this Section 4.2 in
-------- -------
no way limits the obligations of the parties set forth in Sections 9.12, 9.13,
9.14, 9.15, 9.16, 9.17 and 9.18 hereof, which obligations shall survive the
termination. If this Agreement is terminated as provided in Section 4.1 above,
each of Buyer and the Selling Parties shall, and shall cause its respective
representatives to, either destroy or redeliver to such other party all
documents, work papers and other materials relating to the transactions
contemplated hereby or to the business or operations of the other party, whether
so obtained before or after the execution hereof, and all such information
received by Buyer or the Selling Parties, as the case may be, (other than
information which is in or becomes part of the public domain by publication or
otherwise through no fault of such party or which has heretofore been or is
hereafter filed or available as public information with any governmental
authority) shall be kept confidential, except as required by law. In addition,
each of Buyer and the Selling Parties shall cooperate in good faith following
termination of this Agreement to provide any information or documents reasonably
required by the other party in connection with preparation of such party's
financial statements and tax returns.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES
As a material inducement to Buyer to enter into this Agreement, to
purchase the Purchased Assets and assume the Assumed Liabilities, the Selling
Parties, hereby represent and warrant with respect to the Purchased Assets
related to the Tier I Schools, as of the date hereof, that:
5.1 Organization and Corporate Power. The Selling Parties are
--------------------------------
corporations, duly organized, validly existing and in good standing under the
laws of the jurisdiction in which they are incorporated. The Selling Parties
have all requisite corporate power and authority to own and operate their
properties, to carry on their business as now conducted, to enter into this
Agreement and to consummate the transactions contemplated hereunder. The
Selling Parties are duly qualified to do business in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
operation of any Tier I School. The copies of Phillips' articles of
incorporation and bylaws which have been furnished to Buyer reflect all
amendments made thereto at any time prior to the date of this Agreement and are
correct and complete.
5.2 Capacity; Authorization; Binding Effect. Each of the Selling
---------------------------------------
Parties has the corporate power, legal capacity and authority to execute,
deliver and perform this Agreement
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and each other document being executed in connection herewith to which it is a
party. Each of the Selling Parties has the corporate power, legal capacity and
authority to transfer, convey and deliver the Purchased Assets, free and clear
of all liens, claims, encumbrances, options, rights and restrictions, except for
the Permitted Exceptions (as defined in Section 5.8.3 below). All corporate and
other proceedings required to be taken by or on the part of the Selling Parties,
including all action required to be taken by the directors or stockholders of
the Selling Parties, to authorize the Selling Parties to enter into and carry
out this Agreement and the related documents contemplated herein, have been duly
and properly taken. This Agreement has been, and each of the related documents
will be at each Tier Closing, duly executed and delivered by the Selling Parties
and constitute, or will when delivered constitute, the valid and binding
obligations of the Selling Parties, enforceable against the Selling Parties in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity or otherwise).
5.3 Ownership of Schools. The Tier I Schools are owned and operated
--------------------
by Sellers directly, and each Seller is a wholly-owned subsidiary of Phillips.
No other person or entity has any right, option, subscription or other
arrangement to purchase or otherwise acquire any interest in any Tier I School,
other than in connection with the Permitted Exceptions.
5.4 No Conflicts. Except as set forth on SCHEDULE 5.4, the
------------ --------
execution, delivery and performance of this Agreement and each other document
being executed by the Selling Parties in connection herewith, and the
consummation of the transactions contemplated hereby and thereby will not: (a)
violate any provisions of law applicable to the Selling Parties; (b) with or
without the giving of notice or the passage of time, or both, conflict with or
result in the breach of any provision of the articles of incorporation or bylaws
of the Selling Parties, any material instrument, license, agreement or
commitment to which a Selling Party is a party or by which any of its assets or
properties is bound, which breach might reasonably be expected to have a
material adverse effect on the Purchased Assets; (c) constitute a violation of
any order, judgment or decree to which a Selling Party is a party or by which
any of its assets or properties is bound; or (d) require any approval of, or
filing or registration with, any governmental entity or regulatory authority
other than those which will be effected by the Selling Parties prior to the Tier
I Closing.
5.5 Compliance with Laws; Licenses and Permits. Except as set forth
------------------------------------------
in SCHEDULE 5.5(a), Sellers are not in violation of any law or any regulation or
--------
requirement (including, without limitation, all relevant standards imposed by
applicable accrediting bodies or agencies administering state or federal
government programs) which violation might reasonably be expected to have a
material adverse effect upon the financial condition, operating results,
accreditation or business of the Tier I Schools, and Sellers have not received
notice of any such violation. Sellers currently maintain all licenses,
accreditations, certificates, permits, consents, authorizations and other
governmental or regulatory approvals (the "Licenses and Permits") necessary for
Sellers to conduct the business and operations of each Tier I School as
presently being conducted. Except as set forth in SCHEDULE 5.5(b), the Licenses
--------
and Permits for
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each Tier I School are in full force and effect, and no proceedings for the
suspension or cancellation of any of them is pending or, to the best of the
Selling Parties' knowledge, threatened. Except as set forth in SCHEDULE 5.5(c),
--------
to the knowledge of the Selling Parties, no application made by Sellers for any
Licenses and Permits during the last five years has been denied. SCHEDULE
--------
5.5(d) attached hereto is a true, correct and complete list of all Licenses and
Permits held by the Sellers with respect to the operation of each Tier I School
and the governmental authority or accrediting body granting such Licenses and
Permits. Sellers have delivered or made available to Buyer copies of all such
Licenses and Permits. Except as set forth in SCHEDULE 5.5(e), Sellers have
--------
received no notice that any of the Licenses and Permits will not be renewed and
to the best of the Selling Parties' knowledge, there is no basis for nonrenewal.
Except as set forth in SCHEDULE 5.5(f), each Tier I School is accredited, is
--------
certified by ED as an eligible institution under Title IV and is a party to, and
in compliance with, valid program participation agreements with ED with respect
to such Tier I School's operations. Except as set forth in SCHEDULE 5.5(g),
--------
Sellers have not received any notice, not previously responded to, in respect of
any alleged violation of the rules or regulations of any Regulatory Agency in
respect of any Tier I School, including sales and marketing activities, or the
terms of any program participation agreement to which they are or were a party.
If any such notices have been received and responded to, but not resolved,
Sellers have disclosed to Buyer in writing their receipt and response prior to
the execution of this Agreement. Except as set forth in SCHEDULE 5.5(h), the
--------
Selling Parties are not aware of any investigation or review of Sellers' student
financial assistance programs by any Regulatory Agency or any review of the
accreditation of any Tier I School by any Regulatory Agency.
5.6 Recruitment; Admissions Procedures; Attendance; Reports.
-------------------------------------------------------
SCHEDULE 5.6(a) attached hereto is a complete list of all policy manuals and
- --------
other statements of procedures or instruction relating to recruitment of
students for each Tier I School, including (a) procedures for assisting in the
application by prospective students for direct or indirect state or federal
student financial assistance; (b) admissions procedures, including any
descriptions of procedures for insuring compliance with federal, state or
accrediting agency requirements applicable to such procedures; and (c)
procedures for encouraging and verifying attendance, minimum required attendance
policies, and other relevant criteria relating to course completion
(collectively, the "Policy Guidelines"). Sellers have delivered or made
available to Buyer true, correct and complete copies of all Policy Guidelines
and all documents and other information disseminated to students or prospective
students concerning such Policy Guidelines. Except as set forth in SCHEDULE
--------
5.6(b), Sellers' operations with respect to each Tier I School have, in all
material respects, been conducted in accordance with the Policy Guidelines.
Sellers have submitted all reports, audits, and other information, whether
periodic in nature or pursuant to specific requests, for each Tier I School
("Compliance Reports") to all Regulatory Agencies with which such filings are
required relating to its compliance with (i) applicable accreditation standards
governing its activities, and (ii) laws or regulations governing programs
pursuant to which Sellers or their students receive student financial
assistance. Complete and accurate records in all material respects for all
present and former students attending each Tier I School have been maintained
consistent with the operations of each Tier I School's business. All forms,
records, reports and returns with respect to each Tier I School have been
prepared, completed, maintained and filed in all material respects in accordance
with all applicable federal and state
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laws and regulations and requirements of any Regulatory Agency, and are true and
correct in all material respects.
5.7 Cohort Default Rate. SCHEDULE 5.7 attached hereto sets forth the
------------------- --------
cohort default rate for each Tier I School, calculated in the manner prescribed
by ED, for fiscal years 1992, 1993 and 1994. To the best knowledge of the
Selling Parties, such schedule is accurate in all material respects.
5.8 Title to and Condition of the Purchased Assets.
----------------------------------------------
5.8.1 Leased Facilities. The leased facilities set forth on
-----------------
SCHEDULE 5.8.1 (the "Facilities") constitute the only real property used in
- --------
connection with the operation of any Tier I School which is leased by Sellers.
5.8.2 Laws and Regulations; Records. Except as set forth on
-----------------------------
SCHEDULE 5.8.2, all of Sellers' operations with respect to each Tier I School
- --------
are conducted at the Facilities, and all of the Purchased Assets of each Tier I
School are, or as of the Tier Closings will be, located at the Facilities;
provided, however, that certain records are in the possession of Global
Financial Aid Services, Inc. ("Global") as agent for Sellers and will remain in
the possession of Global, which will retain the records as agent for Buyer.
Sellers are not under any contractual or other legal obligation and have not
entered into any commitment to make capital improvements or alterations to the
Facilities. The Facilities are not subject to any zoning ordinance or other
restrictions which would prohibit the use and enjoyment of the Facilities in any
material respects in the manner in which the Facilities are currently used. The
Selling Parties have no knowledge of any condemnation proceedings relating to
any Facility. To the best of Selling Parties' knowledge, each Facility and
Sellers' use thereof is in compliance in all material respects with all laws,
including, without limitation, the Americans with Disabilities Act.
5.8.3 Title. Sellers own outright, and have good and marketable
-----
title to, all of the Purchased Assets of the Tier I Schools, free and clear of
all liens, claims and encumbrances, options, rights, and restrictions, other
than the Assumed Liabilities, liens for current taxes not yet due and payable
and as otherwise disclosed in SCHEDULE 5.8.3 hereto (collectively, the
--------
"Permitted Exceptions"). All leases for tangible personal property used by
Sellers in connection with the operation of any Tier I School are valid and in
full force and effect and are enforceable in all material respects in accordance
with their terms. Except as set forth in SCHEDULE 5.8.3, neither Sellers nor,
--------
to the best of Selling Parties' knowledge, any of the other parties thereto, are
in material default under any lease for tangible personal property, and no
event, act or omission has occurred which (with or without notice, the passage
of time or the happening or occurrence of any other event) would result in such
a default thereunder.
5.8.4 Purchased Assets. The tangible Purchased Assets which are
----------------
owned or leased by Sellers and used in connection with the operation of the Tier
I Schools are in useable condition in the ordinary course of business consistent
with past practice, subject to ordinary wear and tear, and are adequate for all
current operations of the Tier I Schools in all
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material respects. Except as set forth on SCHEDULE 5.8.4, the Selling Parties
--------
have not received notice of any violation of or default under any law, or
government ordinance or regulation relating to any of the Purchased Assets of
the Tier I Schools, which if uncured or unresolved would have a material adverse
effect on the Purchased Assets, taken as a whole or on any Material Asset (as
defined in Section 5.11 below).
5.9 Assumed Contracts. Except for student enrollment or maintenance
-----------------
contracts, SCHEDULE 5.9 attached hereto lists each of the Assumed Contracts
--------
relating to any Tier I School or to which any of the Purchased Assets is subject
or bound that individually, or together as a series of related Assumed Contracts
involving the same party or parties, or the successors to such party or parties:
(a) obligates Sellers or their Affiliates to pay an amount of $10,000 or more in
any fiscal year, (b) has an unexpired term as of the date of this Agreement in
excess of twenty-four (24) months, (c) was not made in the ordinary course of
business, or (d) is in any way otherwise material to the operation of any Tier I
School. To the best of the Selling Parties' knowledge, each Assumed Contract
listed on SCHEDULE 5.9 is valid and existing. Except as set forth on SCHEDULE
-------- --------
5.9, Sellers have duly performed all obligations under the Assumed Contracts
listed on SCHEDULE 5.9 in all material respects to the extent that such
--------
obligations to perform have accrued. Except as set forth on SCHEDULE 5.9,
--------
Sellers have not received written notice of any alleged breach or default, and
to the Selling Parties' knowledge, no event which would (with the passage of
time, notice or both) constitute a material breach or default by Sellers or any
other party or obligor with respect thereto, has occurred. True and correct
copies of the Assumed Contracts listed on SCHEDULE 5.9, including all amendments
--------
and supplements thereto, have been made available to Buyer or Buyer's counsel.
For purposes of this Agreement, the term "Affiliate" of any person or entity
means any corporation, partnership or other entity of which more than 50% of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect more than 50% of the board of directors or others
performing similar functions with respect to such corporation, partnership or
other entity, directly or indirectly, controls, is controlled by, or is under
common control with such person or entity.
5.10 Intentionally Omitted.
---------------------
5.11 Financial Statements; Indebtedness. Attached hereto as SCHEDULE
---------------------------------- --------
5.11(a) are the following financial statements of the Tier I Schools: Balance
Sheets at the end of fiscal years 1993, 1994 and 1995 and Income Statements for
the fiscal years ended 1993, 1994 and 1995, which have been prepared from the
detailed subsidiary schedules which support the audited consolidated financial
statements of Phillips for the fiscal years ended 1993, 1994 and 1995
(collectively, the "Financial Statements"). The balance sheets included in the
Financial Statements present fairly in accordance with generally accepted
accounting principles ("GAAP") the assets and liabilities of the Tier I Schools
as of the respective dates thereof, and the related Income Statements present
fairly in accordance with GAAP the results of operations of the Tier I Schools
for the respective periods covered thereby. The Financial Statements (i) have
been prepared based upon the books and records maintained by Sellers in a manner
consistent with the Selling Parties' standard internal accounting practices,
consistently applied, except as noted on SCHEDULE 5.11(a), (ii) are
--------
substantially correct and complete, and (iii) fairly present the
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<PAGE>
financial position of the Tier I Schools as of the dates of such Financial
Statements, and the results of operations for the periods covered by such
Financial Statements. Sellers have maintained the books and records of the Tier
I Schools in accordance with applicable laws, rules and regulations and with
GAAP, and such books and records are, and during the periods covered by the
Financial Statements were, correct and complete in all material respects, fairly
reflecting the income, expenses, assets and liabilities of the Tier I Schools.
Upon each Tier Closing, Buyer and the Purchased Assets shall not be subject to
any liabilities with respect to any letters of credit, guaranty or other
financial security arrangements provided by the Selling Parties in connection
with any transactions, approvals or licenses in the ordinary course of the Tier
I Schools' business. As of the date hereof, none of the Tier I Schools has any
indebtedness, liability or obligation of any nature in excess of $25,000,
whether absolute, accrued, or contingent, except as previously disclosed to
Buyer and listed on SCHEDULE 5.11(b), and except for:
--------
(i) those set forth or reserved for in the unaudited interim
balance sheet of the Tier I Schools as of August 31, 1996, a copy of which
is attached hereto as a part of SCHEDULE 5.11(c), to the extent set forth,
--------
reserved against or disclosed; and
(ii) those incurred since August 31, 1996, in the ordinary
course of business and consistent in nature with past practice.
To the best of the Selling Parties' knowledge, there exists no condition
relating to any Tier I School, whether absolute, accrued or contingent, which is
reasonably likely to have a material adverse effect on the Purchased Assets
taken as a whole or on the transactions contemplated by this Agreement taken as
a whole or on the results of operations of any of the following (each a
"Material Asset"): (i) Orlando College - South; (ii) Tampa College - Main;
(iii) Tampa College - Pinellas; (iv) all Florida Schools listed on EXHIBIT B,
-------
taken as a whole, but not including the Schools listed in clauses (i)-(iii)
above; or (v) all Rhodes Schools and Rhodes Group Schools listed on EXHIBIT B,
-------
taken as a whole, or which is reasonably likely to prevent the operations of any
of the Material Assets from being carried on in the future in substantially the
same manner as they are presently being conducted. There are no long-term fixed
or contractual liabilities relating to the operation of any Tier I School which
are required to be assumed by Buyer in order to continue to operate any Tier I
School as presently operated by Seller, the annual expense of which are not
reflected in the Financial Statements where required by GAAP or which are not
otherwise disclosed or set forth in this Agreement or any schedule hereto or the
Assignment and Assumption Agreement.
5.12 Receivables. The tuition receivable, and accounts receivable,
-----------
notes receivable and other receivables of each Tier I School, except to the
extent of the allowance for cancellations and doubtful accounts set forth in the
Financial Statements, are bona fide receivables, arose out of arms' length
transactions in the normal and usual practices of Sellers and such Tier I
School, and are recorded correctly on the books and records of Sellers and such
Tier I School, and to the best of the Selling Parties' knowledge, are in the
aggregate collectible at their full amount (net of allowances for doubtful
accounts established in accordance with consistently applied prior practice).
To the best knowledge of the Selling Parties, such
15
<PAGE>
receivables are not subject to any defense, counterclaim or setoff or trade
discounts or credits not reflected in the Financial Statements (other than
tuition refund policies administered in accordance with all applicable legal
requirements and the applicable Policy Guidelines), and Sellers have no
knowledge of any facts or circumstances which would cause any material amount of
such receivables to have to be written down or written off. Notwithstanding
anything to the contrary in this Section 5.12, it is recognized that the
allowance for doubtful accounts with respect to the TFC Notes is being adjusted
subsequent to the information set forth in the Financial Statements.
5.13 Inventories. The only inventories maintained by Sellers in
-----------
connection with the operation of the Tier I Schools consist of supplies used in
the ordinary course of business of the Tier I Schools. Such supplies are in all
material respects usable in the ordinary and regular course of business, are in
all material respects fit for the purpose for which they were purchased, and, at
the date of this Agreement, are in customary amounts maintained by Sellers for
operations of the Tier I Schools.
5.14 Litigation. Except as set forth in SCHEDULE 5.14 attached
---------- --------
hereto, (i) there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Selling Parties' knowledge, threatened
against or affecting any Tier I School at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality or
accrediting body pertaining to or affecting any Tier I School, (ii) to the best
of the Selling Parties' knowledge, no Tier I School is the subject of any
governmental investigations or inquiries (including inquiries as to the
qualification to hold or receive any of the Licenses and Permits) and (iii) to
the best of Selling Parties' knowledge, there is no basis for any of the
foregoing.
5.15 Insurance. To the best of the Selling Parties' knowledge, the
---------
Facilities and the Purchased Assets are insurable, and SCHEDULE 5.15 attached
--------
hereto sets forth the insurance coverages maintained by Sellers on the
Facilities and the Purchased Assets, including all policies or binders of fire,
extended coverage, general and vehicular, fidelity and fiduciary liability,
workers' compensation, key-man life and other insurance held by Sellers and all
binders for insurance to be purchased on or before the date of the Tier I
Closing, in order to replace policies expiring prior to the date of the Tier I
Closing. Such policies and binders are in full force and effect, and, except as
set forth on SCHEDULE 5.15, there is no material breach or default with respect
--------
to any provision contained in any such policy or binder, and all premiums, to
the extent due and payable, have been paid or the liability therefor properly
accrued. Except for amounts deductible under such policies of insurance and
except as otherwise set forth on SCHEDULE 5.15, Sellers are not and have not
--------
been, prior to the date hereof, subject to liability as a self-insurer for the
Tier I Schools. Except as set forth on SCHEDULE 5.15, there are no claims
--------
pending or threatened under any of said policies pertaining to any Tier I School
or disputes with underwriters regarding coverage under such policies pertaining
to any Tier I School. Except as set forth on SCHEDULE 5.15, to the best of the
--------
Selling Parties' knowledge, the execution and delivery of this Agreement, will
not result in the loss to Sellers of any of the insurance policies listed or
impair the rights of Sellers with respect to liabilities arising in connection
with the operation of any Tier I School prior to the Tier I Closing. Within the
five years prior to the
16
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date hereof, Sellers have not been denied insurance for any Tier I School, or
been offered insurance for any Tier I School only at a commercially prohibitive
premium.
5.16 Environmental Matters. Except as set forth in SCHEDULE 5.16, in
--------------------- --------
connection with the operations of the Tier I Schools, Sellers have not
generated, transported, stored, treated or disposed of, nor have they allowed or
arranged for any third persons to transport, store, treat or dispose of, any
hazardous substance to or at: (a) any location other than a site lawfully
permitted to receive such hazardous substance for such purposes or (b) any
location designated for remedial action pursuant to federal, state or local
statute and relating to the environment or waste disposal; nor has any Seller
performed, arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any laws or regulations or in any
other manner which may result in liability for contamination or threat of
contamination of the environment. Except as set forth in SCHEDULE 5.16, no
--------
generation, use, handling, storage, treatment, release, threat of release,
discharge, spillage or disposal of any hazardous substance, has occurred or is
occurring at the Facilities or any other facilities or properties owned or
operated by such Seller in connection with its operation of the Tier I Schools.
Except as set forth in SCHEDULE 5.16, no Seller has received notification, nor
--------
is any Seller aware of, any past or present failure by it to comply with any
environmental laws, regulations, permits, franchises, licenses or orders
applicable to the Tier I Schools or their operations. Except as set forth in
SCHEDULE 5.16, no Seller has received any notification, nor is it aware of, any
- --------
past or present failure to comply, with any environmental laws, regulations,
permits, franchises, licenses or orders applicable to its operations other than
the Tier I Schools which may result in judicial, regulatory or other legal
proceedings having a material adverse impact on the operations of the Tier I
Schools or result in the imposition of any lien, claim, assessment or other
encumbrance against the Purchased Assets. To the best of the Selling Parties'
knowledge, the Facilities do not contain asbestos or polychlorinated biphenyls
or any underground storage tanks.
5.17 Employee Benefit Plans. Each "employee benefit plan" as such
----------------------
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") ("Plans"), and related trust agreement (as
applicable) sponsored, contributed to or operated by any Selling Party has been
administered and operated in all material respects in accordance with its terms
and applicable law. Other than claims for benefit payments in the ordinary
course under the Plans, there are no actions, suits, claims or proceedings,
pending or, to the best of the Selling Parties' knowledge, threatened. No
Selling Party is now, nor has ever been a participant in, any Multiemployer Plan
within the meaning of Section 3(37) of ERISA. Accrued liabilities under the
Plans maintained for the employees of the Tier I Schools are provided for on the
books or in the Financial Statements or have been fully provided for by
contributions to such Plans. No liabilities exist under any Plan which shall
become liabilities of Buyer by operation of law or otherwise. As of the date
hereof, no Seller maintains any employee welfare benefit plan, as defined in
Section 3(1) of ERISA, which provides post-retirement benefits to former
employees of the Tier I Schools and to current employees of the Tier I Schools
after their termination of employment (including, without limitation, medical
and life insurance benefits), other than as may be required by the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended and interpreted by
regulations thereunder ("COBRA").
17
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The Selling Parties shall provide any notices required under COBRA for events
occurring on or prior to the date of the Tier I Closing and shall provide all
benefits required pursuant to COBRA in connection therewith.
5.18 Employment Matters. Other than as disclosed in SCHEDULE 5.18:
------------------ --------
Sellers and the Tier I Schools are in compliance in all material respects with
all federal, state and local laws, rules and regulations affecting employment
and employment practices with respect to the Tier I Schools, including terms and
conditions of employment, employment discrimination and wages and hours, and
Sellers are not engaged in any unfair labor practices with respect to employees
of the Tier I Schools; there are no complaints against any Seller with respect
to employees of the Tier I Schools pending before the National Labor Relations
Board or any similar state or local labor agency; there are no labor strikes,
slow-downs or stoppages or other labor troubles pending or, to the best of the
Selling Parties' knowledge, threatened with respect to any employees of the Tier
I Schools; no labor organization activities have occurred with respect to
employees of the Tier I Schools during the past three years; there are no
collective bargaining agreements binding on Sellers relating to the operation of
the Tier I Schools; no grievances have been asserted against Sellers with
respect to employees of the Tier I Schools; and Sellers have not experienced any
work stoppage by their employees at the Tier I Schools during the last three
years.
5.19 Tax Matters. Sellers have completed and filed on or before the
-----------
due dates thereof or within applicable extension periods all returns for taxes
required to be filed, and such returns are true and correct in all material
respects. Sellers have paid all taxes shown to be due and payable on such
returns to the extent that the same have become due and payable on or before the
Tier I Closing. Sellers are not parties to, nor to the best of the Selling
Parties' knowledge, expected to become a party to, any pending or threatened
action or proceeding, assessment or collection of taxes by any governmental
authority relating to the business and operations of Sellers.
5.20 Absence of Certain Changes. Except as contemplated by this
--------------------------
Agreement or as set forth on SCHEDULE 5.20 attached hereto, since August 31,
--------
1996, there has not been, occurred or arisen:
5.20.1 any sale, lease, transfer, abandonment or other
disposition of any right, title or interest in or to any of the properties
or assets of Sellers used in connection with the operations of any Tier I
School (tangible or intangible), except in the ordinary course of business;
5.20.2 (i) any approval or action to put into effect any
increase in any compensation or benefits payable to any employee, agent or
officer of Sellers employed or providing services in connection with the
operation of any Tier I School or such Seller or any payment, grant or
accrual to or for the benefit of any such employee, agent or officer of any
bonus, service award, percentage compensation or other benefit, (ii) any
adoption or amendment of any Plans, or any severance agreement or
employment contract to which any such employee,
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agent or officer of any Tier I School is a party or (iii) any entering into
of any employment, deferred compensation or other agreements with respect
to bonuses, service awards, percentage compensation or other benefits with
any such employee, agent or officer in every case except in the ordinary
course of business;
5.20.3 any material adverse change in the financial condition,
assets, liabilities (absolute, accrued or contingent), reserves or
operations of any of the Material Assets taken as a whole, or any one
thereof;
5.20.4 any damage, destruction or loss, whether or not covered
by insurance, materially adverse to the Purchased Assets;
5.20.5 any change in any material respect in the business
policies or practices of any Tier I School or a failure to operate the
business of any Tier I School in the ordinary course with a view to
preserving such business intact, to retaining the services of the present
officers, employees and agents of Sellers employed or providing services in
connection with the operation of such Tier I School and with a view to
preserving the business relationships of such Tier I School with, and the
goodwill of, students, sales representatives, suppliers, accrediting
bodies, governmental authorities and others; or
5.20.6 any agreement, whether in writing or otherwise, to take
any action described in this Section 5.20.
5.21 Delivery of Documents. All material documents, instruments,
---------------------
agreements and records of Sellers relating to the Purchased Assets, the Assumed
Liabilities, the representations and warranties of Sellers contained in this
Agreement and/or the operation of the Tier I Schools which have been delivered
or made available to Buyer are true, correct and complete in all material
respects.
5.22 Disclosure. Neither this Agreement nor any of the schedules,
----------
exhibits, attachments, documents, certificates or other items prepared or
supplied to Buyer in writing by or on behalf of Phillips with respect to the
transactions contemplated hereby or thereby contain any untrue statement of a
material fact or omit a material fact necessary to make such statements not
misleading in light of the circumstances in which such statements were made.
There is no fact which Phillips has not disclosed to Buyer in writing and of
which any of Joseph A. Bondi, Cynthia R. Cofield, C. Ronald Kimberling, Arthur
Galaskewicz and any of the presidents of the Tier I Schools is aware which has
had or may reasonably be anticipated to have a material adverse effect upon the
existing or expected financial condition, operating results, assets, employee
relations, accreditation or reputation of any of the Tier I Schools.
5.23 Survival of Representations and Warranties. Subject to the
------------------------------------------
limitations in Sections 9.12 and 9.14 hereof, the representations and warranties
of the Selling Parties contained
19
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in this Agreement shall survive the Tier Closings through the second (2nd)
anniversary of the Tier I Closing Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to the Selling Parties to enter into this
Agreement, and to sell the Purchased Assets, Buyer hereby represents and
warrants as of the date hereof, that:
6.1 Incorporation; Authority. Each of Rhodes, the Rhodes Group and
------------------------
FMU is a corporation, duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, and has all
requisite corporate power and authority to execute, deliver and perform this
Agreement and all other agreements and instruments to be executed by it in
connection with or pursuant hereto (the "Ancillary Documents") and to consummate
the transactions contemplated hereunder.
6.2 Due Authorization; Binding Agreement. Each Buyer has the power,
------------------------------------
legal capacity and authority to execute, deliver and perform this Agreement.
The execution and delivery by each Buyer of this Agreement and all Ancillary
Documents and the performance by each Buyer of its obligations hereunder and
thereunder have been duly authorized by all necessary corporate action on the
part of each Buyer. This Agreement and the Ancillary Documents have been duly
executed and delivered by each Buyer. This Agreement and all Ancillary
Documents constitute the legal, valid and binding obligation and act of each
Buyer enforceable in accordance with the respective terms hereof and thereof,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or equity).
6.3 No Violation or Conflict. The execution, delivery and
------------------------
performance of this Agreement and the Ancillary Documents, the consummation of
the transactions provided for herein and therein, and the fulfillment of the
terms hereof and thereof by each Buyer will not violate any material provision
of law applicable to Buyer, with or without the giving of notice or the passage
of time, or both, conflict with or result in the breach of any provision of the
Certificate of Incorporation or Bylaws of either Buyer, or result in the breach
of any of the terms and provisions of, or constitute a default under, or
conflict with, or cause an acceleration of, any obligation of either Buyer under
any material agreement, license, indenture, commitment or other instrument to
which it is a party or by which any of its assets or properties is bound, or
constitute a violation of any judgment, decree, or order, or award of any court,
governmental body, or arbitrator, or applicable law, rule or regulation
applicable to Buyer, its assets or properties, or require any approval of, or
filing or registration with any governmental entity or regulatory authority.
6.4 No Undisclosed Liabilities. Each Buyer has no liability or
--------------------------
obligation of any nature, whether due or to become due, absolute, contingent or
otherwise, including liabilities for or in respect of federal, state and local
taxes and any interest or penalties relating thereto,
20
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except (i) liabilities incurred in the ordinary course of either Buyer's
business prior to the date of the Tier I Closing or Tier II Closing, as
applicable, and (ii) liabilities and obligations created by this Agreement and
the Ancillary Documents.
6.5 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any governmental or regulatory
authority, or any third person or entity, is required to be made or obtained by
either Buyer in connection with the execution, delivery or performance of this
Agreement and the Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby other than those set forth in SCHEDULE 6.5, all
--------
of which shall have been obtained by Buyer prior to the applicable Tier Closing
to which such approval relates.
6.6 Disclosure. Neither this Agreement nor any representation or
----------
warranty by Buyer in this Agreement or the Ancillary Documents, nor any exhibit,
certificate, schedule attachment or document furnished or to be furnished by
either Buyer pursuant hereto or thereto contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements or facts contained herein or therein, in light
of the circumstances under which they were made, not misleading.
6.7 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of the Buyer contained in this Agreement shall survive the Tier
Closings through the second (2nd) anniversary of the Tier I Closing Date,
subject to the limitations in Sections 9.13 and 9.14 hereof.
ARTICLE VII
COVENANTS
7.1 Covenants of the Selling Parties Pending Tier II Closing. With
--------------------------------------------------------
respect to the Tier II Schools, the Selling Parties covenant and agree with
Buyer that from and after the date hereof and until the Tier II Closing or the
termination of this Agreement pursuant to Article IV hereof, Sellers (i) shall
use their best efforts to fulfill or satisfy, or cause to be fulfilled or
satisfied, all of the conditions precedent to Buyer's obligations to consummate
and complete the sale provided herein including, without limitation,
satisfaction of the conditions set forth in Article VIII, hereof and to take all
other steps and do all other things reasonably required to consummate this
Agreement in accordance with its terms, (ii) shall not interfere with the
performance by Buyer of its obligations under this Agreement, (iii) shall not
fail to pay prior to delinquency any taxes, assessments, governmental charges or
levies imposed upon it or its income, profits or assets, (iv) shall not make or
authorize the making of any capital expenditure except for the performance of
obligations previously incurred, or expenditures in the ordinary course or the
replacement of equipment or tangible property necessary to the operations of the
business of Sellers, (v) shall promptly notify Buyer of any notice from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement, or any fact or circumstance of
which the Selling Parties have knowledge which would make any representation or
warranty set forth herein materially untrue or inaccurate as
21
<PAGE>
of the applicable date of the Tier II Closing, or any planned or threatened
labor dispute, organization efforts, strike or collective work stoppage
affecting the employees of Sellers, (vi) shall not take any action outside the
ordinary course of business that would adversely affect any Selling Party's
title to the Purchased Assets to be transferred to Buyer at the Tier II Closing
and (vii) until the earlier of the Tier II Closing or termination of this
Agreement, shall not directly or indirectly solicit, respond to or negotiate
with or release any information relative to the Tier II Schools to any potential
buyer other than Buyer. In addition, from and after the date hereof until the
earlier of the Tier II Closing or termination of this Agreement in accordance
with Article IV hereof, Sellers shall (a) operate the Tier II Schools in the
ordinary course of business consistent with past practices, including processing
of accounts receivable and accounts payable in accordance with past practices,
and processing and paying refunds to students at the Tier II Schools in the
ordinary course of business consistent with Sellers' past practices, and (b)
will use their commercially reasonable efforts to cause any employee of any
Seller to whom Buyer has proposed to extend an offer of employment to continue
to perform and exercise his or her duties (including the duty of loyalty) to
such Seller during such period.
7.2 Covenants of Buyer Pending Tier II Closing. Buyer covenants and
------------------------------------------
agrees with the Selling Parties that from and after the date hereof and until
the termination of this Agreement pursuant to Article IV hereof, each Buyer (i)
shall use its best efforts to fulfill or satisfy, or cause to be fulfilled or
satisfied, all of the conditions precedent to Selling Parties' obligations to
consummate and complete the sale provided herein and to take all other steps and
do all other things reasonably required to consummate this Agreement in
accordance with its terms; (ii) shall not interfere with the performance by
Selling Parties of their obligations under this Agreement; and (iii) shall
secure financing sufficient to allow Buyer to consummate the purchase of the
Purchased Assets in accordance with the terms of this Agreement.
7.3 Closing and Post-Closing Covenants.
----------------------------------
7.3.1 Further Assurances. From time to time after each Tier
------------------
Closing, (i) each of the Selling Parties will use its reasonable efforts for as
long as it continues its corporate existence to execute and deliver such
instruments of conveyance, sale or assignment as Buyer may reasonably request,
to more effectively vest, confirm or evidence Buyer's title to or rights in any
of the Purchased Assets and to otherwise carry out the purpose and intent of
this Agreement, and (ii) Buyer will execute and deliver such instruments as
Selling Parties may reasonably request to more effectively assure the assignment
to and assumption by Buyer of the obligations and liabilities of the Selling
Parties to be assumed by Buyer pursuant to this Agreement and the Assignment and
Assumption Agreement and to otherwise carry out the purpose and intent of this
Agreement.
7.3.2 Mutual Cooperation. The parties shall use reasonable
------------------
efforts to cooperate fully with each other and with their respective counsel and
accountants in connection with any steps required to be taken to consummate the
transactions contemplated hereby and transition management and ownership of the
Schools from Sellers to Buyer. Before and after each Tier Closing, Sellers
shall use their best efforts to assist Buyer in obtaining any required
accreditation reasonably necessary for Buyer's operation of the Schools,
including furnishing
22
<PAGE>
Buyer such necessary information and reasonable assistance as Buyer may request
in connection with its preparation of necessary filings, submissions or
accreditation applications to any Regulatory Agency in connection with the
transactions contemplated hereby.
7.3.3 Access to Employees. From and after the Tier I Closing,
-------------------
each of Buyer and the Selling Parties shall afford to the other party, its
officers, counsel, accountants and other authorized representatives (the
"Requesting Party") access to the other party's employees who currently are
employed by the Selling Parties without cost to the Requesting Party (other than
payment of out-of-pocket costs not including personnel costs) and as reasonably
required by the Requesting Party in connection with any claim, action,
litigation, program review, audit or other proceeding involving the Selling
Parties, a School or any other school previously owned or operated by the
Selling Parties, except where such claim, action, litigation or other proceeding
is between the parties to this Agreement. Each party shall use its reasonable
efforts to cause such employees to cooperate with and assist the Requesting
Party in its prosecution or defense of such claims, actions, litigations,
program reviews, audits and other proceedings, which cooperation shall include,
without limitation, preparing and providing written and oral discovery and
attending and testifying at depositions, hearings, motions and trials, all as
necessary in the reasonable opinion of the Requesting Party or its counsel. Any
such access shall take place only during normal business hours in such a manner
as not to interfere unreasonably with the operation of the business of the other
party.
7.3.4 Best Efforts to Satisfy Conditions. After each Tier
----------------------------------
Closing, Buyer shall provide to any of the Regulatory Agencies all information
required or reasonably requested by any of them, and Buyer shall use its best
efforts to satisfy promptly all requirements and demands of ED or any other
Regulatory Agency requisite to obtaining certification. Without limiting the
foregoing, Buyer shall submit to ED promptly a completed Application for
Approval to Participate in Federal Student Aid Programs or other application for
certification for the Schools after the Tier I Closing or Tier II Closing, as
applicable.
7.3.5 Eligibility to Participate in Federal Student Financial
-------------------------------------------------------
Assistance Programs. Buyer expressly acknowledges that documentation
- -------------------
establishing each School's eligibility and certification to participate in the
programs administered under Title IV under Buyer's ownership must be issued by
the U.S. Department of Education before any such School may participate in the
Federal student financial assistance programs under such Title.
7.3.6 Refunds/Enrollment Contracts. Buyer agrees to (a) abide
----------------------------
by the refund policy in effect at each School for students enrolled prior to the
Tier I Closing Date, except to the extent such policy must be modified in
conformance with requirements of any Regulatory Agency, and (b) honor student
enrollment contracts entered into prior to the Tier I Closing Date with respect
to students at the Tier I Schools and the Tier II Closing Date with respect to
students at the Tier II Schools and assumed by the Buyer in accordance with this
Agreement and the Assignment and Assumption Agreement.
7.3.7 Income Statement. Phillips agrees to provide to Buyer,
----------------
within 90 days of the Tier I Closing, a compiled combining income statement of
the Tier I Schools
23
<PAGE>
combined, detailing each Tier I School on a separate schedule, for the current
fiscal year through the Tier I Closing.
7.4 Administration of the Schools. From and after the Tier I
-----------------------------
Closing, or Tier II Closing, as applicable, Buyer, at Buyer's sole cost and
expense, shall administer and operate the Schools in accordance with all federal
and state laws, statutes, rules and regulations and in accordance with all
licenses, permits, accreditations, authorizations and agreements issued by or
entered into with any Regulatory Agency in any way regulating or otherwise
relating to the administration and operation of the Schools, or any of them.
Subject to the terms and provisions of this Agreement, Buyer and Sellers shall
work together cooperatively and in good faith to obtain any and all approvals
from any Regulatory Agency that may be necessary or appropriate to vest in Buyer
the right and authority to administer and operate the Schools and to release
Selling Parties from further liability or obligations in connection with the
administration or operation of the Schools.
7.5 Access and Maintenance of Records. From and after the Tier I
---------------------------------
Closing, each party shall afford the other party, its officers, counsel,
accountants and other authorized representatives and any Regulatory Agency (the
"Reviewing Party") access to the other party's properties, books, records, files
or documents, at any time and from time to time upon reasonable notice from the
Reviewing Party, as reasonably required by the Reviewing Party. Until seven
years after the Tier I Closing or until the expiration of the record retention
period under relevant Regulatory Agency requirements, if longer, no party to
this Agreement will destroy or otherwise dispose of or change the storage format
of any of the properties, books, records, files or documents relating to the
Purchased Assets without giving the parties on the other hand thirty (30) days'
prior written notice and an opportunity to take possession or make extracts or
copies thereof. "Properties, books, records, files or documents" shall include,
but not be limited to, copies of any insurance policies, testing logs,
application forms, all student records, including academic and financial aid
records and files, attendance records, all accounting records, including student
accounts, accreditation reports, personnel files, financial statements,
operational reports, school policies, correspondence, all reports prepared for
or provided to any Regulatory Agency, all records that the Schools retained
pursuant to relevant Regulatory Agency requirements and any other properties,
books, records, files or documents that are provided to Buyer pursuant to
Section 1.1.4 of this Agreement. The Buyer shall permit the Secretary of
Education or the Secretary's authorized representatives to have access to and
examine and make copies of any books, records, files or documents of Buyer in
accordance with applicable statutory or regulatory requirements. Any document
or other information obtained from a party hereunder that is designated by such
party as confidential shall be maintained in confidence by the Reviewing Party,
except to the extent that the Reviewing Party is required by law or regulation
to disclose all or part of such document or information or deems it appropriate
to do so in connection with any administrative, regulatory or judicial process.
Notwithstanding any of the foregoing, upon the reasonable request of any of the
Selling Parties, the Buyer agrees to provide access to any purchaser or proposed
purchaser of any school or schools currently owned, directly or indirectly, by
any of the Selling Parties to any properties, books, records, files or documents
provided to Buyer pursuant to Section 1.1.4 of this Agreement which relate to
the school or schools sold or to be sold to such purchaser.
24
<PAGE>
ARTICLE VIII
CONDITIONS
8.1 Conditions Precedent to Obligations of Buyer at the Tier II
-----------------------------------------------------------
Closing. The obligation of Buyer to complete the purchase of Purchased Assets
- -------
of the Tier II Schools as provided for herein is subject to the fulfillment or
satisfaction on or before the Tier II Closing of each of the conditions set
forth below, any of which may be waived by Buyer in writing.
8.1.1 All representations and warranties of each of the Selling
Parties contained in this Agreement shall be true and correct in all material
respects as of the date of the Tier II Closing (except to the extent such
representations and warranties speak of a particular date), and Buyer shall have
received a certificate signed by one executive officer of Phillips,
substantially in the form as set forth in EXHIBIT E-2, to such effect;
-------
8.1.2 Each of the Selling Parties shall have performed in all
material respects all of the obligations, covenants and agreements contained in
this Agreement to be performed by it on or before the date of the Tier II
Closing, as applicable, and Buyer shall have received a certificate signed by
one executive officer of Phillips, substantially in the form as set forth in
EXHIBIT E-2, to such effect;
- -------
8.1.3 All instruments and documents required on the part of each
of the Selling Parties to effectuate and consummate the transactions
contemplated hereby as of the Tier II Closing, as applicable, including those
set forth in Section 3.3, shall be delivered by the appropriate Selling Party
and shall be in form and substance reasonably satisfactory to Buyer and its
counsel;
8.1.4 No law or order shall have been enacted, entered, issued,
or promulgated by any governmental entity which prohibits or restricts the
transactions contemplated hereby, and there shall not have been threatened, nor
shall there be pending, any action or proceeding by or before any court or
governmental agency or other regulatory or administrative agency or commission,
challenging any of the transactions contemplated by this Agreement or seeking
monetary relief by reason of the consummation of such transactions;
8.1.5 Sellers shall have provided evidence satisfactory to Buyer
that all obligations due under the leases and refunds due more than thirty days
prior to the Tier II Closing have been satisfied, released and/or paid in full
with such evidence with respect to the refunds to consist of copies of checks
payable to ED or to the appropriate lender in the amount of the refunds; and
8.1.6 Buyer shall have received satisfactory evidence that all
liens (other than the Permitted Exceptions) on the Purchased Assets have been
terminated and completely released of record.
8.2 Intentionally Omitted.
---------------------
25
<PAGE>
8.3 Conditions Precedent to Obligations of Buyer at the Tier II
-----------------------------------------------------------
Closing. Buyer shall have no obligation to purchase the Purchased Assets
- -------
related to any Tier II School unless, prior to October 31, 1996, Buyer receives
official written determination from the ED that such Tier II School's official
1994 CDR is less than 25% (a "CDR Verification"). The Tier II Payment shall
equal the sum of the Tier II Bid Prices listed on EXHIBIT B for all Tier II
-------
Schools for which Buyer receives CDR Verifications. In the event any such
official written notification from the ED provides that the official 1994 CDR
for any Tier II School is less than 20%, then the Tier II Payment (and, as a
result, the Purchase Price) shall be increased by an amount equal to the excess
of such School's Alternate Tier II Bid Price over such School's Tier II Bid
Price, all as listed on EXHIBIT B.
-------
8.4 Conditions Precedent to Obligations of Selling Parties. The
------------------------------------------------------
obligations of the Selling Parties to complete the sale of Purchased Assets as
provided for herein are subject to the fulfillment or satisfaction on or before
the date of the Tier II Closing of each of the conditions set forth below, any
of which may be waived by the Selling Parties in writing.
8.4.1 All representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects as of the date
of the Tier II Closing with the same force and effect as if the same had been
made on and as of the date of the Tier II Closing (except to the extent such
representations and warranties speak of a particular date), and the Selling
Parties shall have received a certificate signed by two executive officers of
Buyer, substantially in the form as set forth in EXHIBIT E-1, to such effect;
-------
8.4.2 Buyer shall have performed in all material respects all of
the obligations, covenants and agreements contained in this Agreement to be
performed by Buyer on or before the date of the Tier II Closing and the Selling
Parties shall have received a certificate signed by two executive officers of
Buyer, substantially in the form as set forth in EXHIBIT E-1, to such effect;
-------
8.4.3 All instruments and documents required on Buyer's part to
effectuate and consummate the transactions contemplated hereby including those
set forth in Section 3.4 shall be delivered by Buyer and shall be in form and
substance reasonably satisfactory to the Selling Parties and their counsel;
8.4.4 No law or order shall have been enacted, entered, issued,
or promulgated by any governmental entity which prohibits or restricts the
transactions contemplated hereby and there shall not have been threatened, nor
shall there be pending, any action or proceeding by or before any court or
governmental agency or other regulatory or administrative agency or commission,
challenging any of the transactions contemplated by this Agreement or seeking
monetary relief by reason of the consummation of such transactions.
26
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1 Binding Effect. All terms and provisions of this Agreement shall
--------------
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement, nor the obligations of any party hereunder, shall be assignable
or transferable by any party without the prior written consent of all parties
hereto. If Buyer desires to assign its right to acquire a portion of the
Purchased Assets to an affiliated entity, the Selling Parties will consider such
request in good faith and will not unreasonably withhold consent; provided,
however, that Buyer shall remain liable for the payment of the entire Purchase
Price notwithstanding such assignment or transfer. Without limiting the Selling
Parties' rights of approval, the parties acknowledge that approval may be
withheld if the Selling Parties believe such assignment may impair or otherwise
negatively affect Buyer's ability to obtain timely all accreditations, approvals
and consents (including, without limitation, ED certification of the Schools to
participate in the Title IV Programs under the ownership of Buyer) contemplated
in this Agreement.
9.2 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be given or made by personal
delivery, or by a nationally recognized courier service for overnight delivery.
if to Buyer, at:
Corinthian Colleges, Inc.
1932 East Deere, Suite 210
Santa Ana, California 92705
Attention: David Moore, President
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
if to any of the Selling Parties, at:
Phillips Colleges, Inc.
One Hancock Plaza, Suite 1408
Gulfport, Mississippi 39501
Attention: Joseph A. Bondi, Chief Executive Officer
27
<PAGE>
with a copy to:
Alvarez & Marsal, Inc.
885 Third Avenue
Suite 1700
New York, New York 10022-4802
Attention: Joseph A. Bondi
with a copy to:
Dow, Lohnes & Albertson PLLC
1200 New Hampshire Avenue, N.W., Suite 800
Washington, D.C. 20036-6802
Attention: Lisa C. Bureau, Esq.
or at such other place as the party to whom such notice or communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 9.2. Notices shall be deemed effective and received (i) on the
actual receipt thereof in the case of hand delivery, or (ii) on the next
business day after deposit in the case of notices by nationally recognized
overnight courier services. As used herein, notice to a party shall include
concurrent notice to that party's counsel as set forth herein.
9.3 Entire Agreement. This Agreement and the documents referred to
----------------
herein and therein and to be delivered in connection herewith constitute the
entire agreement between the parties pertaining to the subject matter hereof,
and supersede all prior agreements, understandings, negotiations,
representations, warranties and discussions of the parties, whether oral or
written; and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby.
9.4 Risk of Loss or Damage; Insurance. It is understood and agreed
---------------------------------
that all right, title and interest in and to the Purchased Assets and all risk
of loss or damage thereto shall not pass from the Selling Parties to Buyer
unless and until the Tier I Closing whereupon all risk of loss or damage shall
pass to Buyer. In the event of a casualty or condemnation in respect of the
Purchased Assets prior to the Tier I Closing, Buyer shall have the right, at its
sole option, to elect to either terminate this Agreement or to accept the
insurance proceeds in respect of such casualty or condemnation and proceed to
close otherwise in accordance with the terms and conditions of this Agreement.
9.5 Waiver. No waiver shall be deemed to have been made by any party
------
of any of its rights hereunder unless the same shall be in writing and shall be
signed by the waiving party. Such a waiver, if any, shall be a waiver only in
respect to the specific instance involved and shall in no way impair the rights
of the waiving party or the obligations of any other party in any other respect
at any other time. No waiver of any of the provisions of this Agreement
28
<PAGE>
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
9.6 Governing Law. This Agreement shall be construed and interpreted
-------------
according to the substantive laws of the State of California without giving
effect to the principles of conflicts of law thereof.
9.7 Headings. The headings of the articles and sections of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
9.8 Counterparts. This Agreement may be executed by the parties in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.9 Severability. In the event that any one or more terms or
------------
provisions hereof shall be held void or unenforceable by any court or
arbitrator, all remaining terms and provisions hereof shall remain in full force
and effect.
9.10 Time is of the Essence. The Selling Parties and Buyer agree that
----------------------
time is of the essence in connection with the implementation and performance by
the parties of all terms, conditions and obligations of this Agreement.
9.11 Brokers or Finders. None of the Selling Parties has retained any
------------------
broker or finder and is not and will not be obligated to pay any brokers' or
finders' fee in connection with the negotiation or consummation of the
transactions contemplated by this Agreement, except for the retention of the
management consulting firm of Alvarez & Marsal, Inc. ("A&M") by Phillips.
Phillips is responsible for fees payable to A&M in respect of the transactions
contemplated by this Agreement. The Buyer has not retained any broker or finder
and is not and will not be obligated to pay any brokers' or finders' fee in
connection with the negotiation or consummation of the transactions contemplated
by this Agreement, except for the retention of Banc-One Capital Group by Buyer.
Buyer is responsible for fees payable to Banc-One Capital Group in respect of
the transactions contemplated by this Agreement.
9.12 Indemnification by Selling Parties. The Selling Parties, jointly
----------------------------------
and severally, hereby indemnify, defend and hold harmless Buyer and its
Affiliates and their respective officers and directors from and against:
(a) any loss, liability, claim, obligation, damage or deficiency
arising out of or resulting from any material breach of any representation or
warranty or nonfulfillment of any covenant or agreement on the part of the
Selling Parties contained in this Agreement or any other agreement, statement or
certificate furnished or to be furnished by the Selling Parties in connection
with the transactions contemplated hereby which is not cured within twenty (20)
calendar days of written notice thereof from Buyer to the Selling Parties;
29
<PAGE>
(b) any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any claim related to or arising out
of the operation of the Schools prior to the Tier I Closing that are asserted
with respect to any liabilities that are not Assumed Liabilities; and
(c) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.12.
9.13 Indemnification by Buyer. Rhodes, the Rhodes Group and FMU,
------------------------
jointly and severally, hereby indemnify, defend and hold harmless each of the
Selling Parties and their Affiliates and their respective officers and directors
from and against:
(a) any loss, liability, claim, obligation, damage or
deficiency arising out of or resulting from any material breach of any
representation or warranty or nonfulfillment of any covenant or agreement on the
part of Buyer contained in this Agreement or any other agreement, statement or
certificate furnished or to be furnished by Buyer in connection with the
transactions contemplated hereby which is not cured within twenty (20) calendar
days of written notice thereof from the Selling Parties to the Buyer;
(b) any loss, liability, claim, obligation, damage or
deficiency resulting from or arising out of the failure by Buyer to pay, perform
or discharge, or cause to be paid, performed or discharged, any of the Assumed
Liabilities; and
(c) any actions, judgments, costs and expenses (including
reasonable attorneys' fees, expert witness fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) incident to any of the foregoing or the enforcement of this
Section 9.13.
9.14 Procedure for Indemnification.
-----------------------------
9.14.1 The provisions of this Section 9.14 shall govern any
claim for indemnification of Buyer and its Affiliates, pursuant to Section 9.12,
or of the Selling Parties and their Affiliates, pursuant to Section 9.13 (each
such party an "Indemnitee") against the party agreeing to provide
indemnification hereunder (the "Indemnitor").
9.14.2 The Indemnitee shall promptly give notice hereunder to
the Indemnitor, but in no event more than the lesser of 30 days or, with respect
to third party claims, one-half (1/2) of the response time required with respect
to the third party's notice to the Indemnitee, after obtaining notice of any
claim as to which recovery may be sought against the Indemnitor because of the
indemnity in Sections 9.12 or 9.13, and, if such indemnity shall arise from the
claim of a third party, the Indemnitee shall consent to the Indemnitor assuming
the defense of any such claim; provided that the Indemnitee shall not be
--------
required to permit the Indemnitor to assume the defense of any third party claim
(x) which, if not first paid, discharged
30
<PAGE>
or otherwise complied with, would result in a material interruption or cessation
of the conduct of the business of the Indemnitee, or (y) if the Indemnitee
reasonably concludes that there may be a conflict of interest between the
Indemnitor, on the one hand, and the Indemnitee, on the other hand, in the
conduct of the defense of such action. Failure by the Indemnitor to notify the
Indemnitee of its election to defend any such claim or action within 14 days of
the date of notice from the Indemnitee shall be deemed to constitute its consent
to the Indemnitee's assumption of such defense. If the Indemnitor assumes the
defense of such claim or litigation resulting therefrom, the obligations of the
Indemnitor hereunder as to such claim shall include taking all steps necessary
in the defense or settlement of such claim or litigation resulting therefrom
including the retention of counsel, which counsel must be to the Indemnitee's
reasonable satisfaction, and holding the Indemnitee harmless from and against
any and all damages resulting from, arising out of, or incurred with respect to
any settlement approved by the Indemnitor or any judgment in connection with
such claim or litigation resulting therefrom. The Indemnitor shall not, in the
defense of such claim or litigation, (i) consent to the entry of any judgment
(other than a judgment of dismissal on the merits without costs) except with the
written consent of the Indemnitee, which consent shall not be unreasonably
withheld or (ii) enter into any settlement (except with the written consent of
the Indemnitee, which consent shall not be unreasonably withheld), unless the
Indemnitee is released and held harmless from and against any and all damages
resulting from, arising out of or incurred with respect to such judgment or
settlement.
9.14.3 If the Indemnitor is offered the opportunity to, but
shall not assume the defense of any such claim by a third party or litigation
resulting therefrom, the Indemnitee may defend against such claim or litigation
in such manner as it deems appropriate, and the Indemnitee may settle such claim
or litigation on such terms as it may deem appropriate and the Indemnitor shall
promptly reimburse the Indemnitee for the amount of such settlement and for all
damages incurred by the Indemnitee in connection with the defense against or
settlement of such claim or litigation.
9.14.4 Indemnification Floor. Notwithstanding anything to the
---------------------
contrary herein, any claim by an Indemnitee against an Indemnitor under this
Agreement that has been Definitively Resolved (as hereinafter defined) against
the Indemnitor, shall be payable by the Indemnitor only in the event and to the
extent that the accumulated amount of all such Settled Claims (as hereinafter
defined) shall exceed the amount of One Hundred Thousand Dollars ($100,000) in
the aggregate, including any amounts claimed under any other agreement executed
in connection with this Agreement (the "Basket Amount"). At such time as the
aggregate amount of Settled Claims of an Indemnitor shall exceed the Basket
Amount, such Indemnitor shall thereafter be liable on a dollar-for-dollar basis
for all Settled Claims, including the Basket Amount.
9.14.5 Intentionally Omitted.
---------------------
9.14.6 Maximum Liabilities. In no event shall the maximum
-------------------
aggregate liability of the Selling Parties with respect to all claims under this
Article IX exceed the aggregate amount of the Purchase Price.
31
<PAGE>
9.14.7 Definition. For purposes hereof, any claim for
----------
indemnification hereunder shall be deemed to have been "Definitively Resolved"
when any of the following has occurred:
(a) a claim is settled by mutual agreement of the
parties;
(b) forty-five (45) days have elapsed since the receipt
by the party against which indemnification has been claimed and the claiming
party has not received on or before such date, a written notice disputing such
claim; or
(c) a judgment, order or award of a court of competent
jurisdiction or arbitrator or administrative judge deciding such claim has been
rendered, as evidenced by a certified copy of such judgment, order or award
("Original Judgment"); provided, however, if the Original Judgment is reversed
or modified on appeal, the Indemnitee shall repay the Indemnitor any amounts
received by the Indemnitee from the Indemnitor as a result of the Original
Judgment (with the Indemnitor remaining responsible for any amounts awarded to
the Indemnitee in connection with modification of the Original Judgment);
provided, however, that the Indemnitee must continue to appeal or challenge the
Original Judgment in accordance with its rights if there is a reasonable basis
to conclude that such Original Judgment could be reversed or modified on appeal.
Any indemnity claim that has been Definitively Resolved against an
Indemnitor is referred to herein as a "Settled Claim."
9.14.8 Indemnification Time Limit. Notwithstanding any provision
--------------------------
of this Agreement to the contrary, no party shall be entitled to indemnification
hereunder for any claim which is not asserted against such party within two (2)
years of the Tier I Closing, if such claim relates to a Tier I School or the
Tier I Closing or within two (2) years of the Tier II Closing, if such claim
relates to a Tier II School or the Tier II Closing.
9.15 Exclusive Remedy. After the Tier I Closing, indemnification
----------------
pursuant to Sections 9.12 and 9.13 shall be the sole and exclusive remedies of
the parties to this Agreement for any claims of any nature whatsoever, arising
out of or relating to the transactions contemplated by this Agreement or the
Ancillary Documents, whether such claims may be asserted as a breach of
contract, tort or otherwise.
9.16 Limitation. Notwithstanding anything in this Agreement to the
----------
contrary, no shareholder, partner, director, officer, employee, agent, manager
or Affiliate of the Selling Parties (or any direct or indirect shareholder,
partner, director, officer, employee, agent, manager or affiliate of any of
them) shall have any liability of any nature whatsoever to Buyer as a result of
a breach of any representation, warranty, covenant or agreement contained in
this Agreement or the Ancillary Documents or otherwise arising out of the
transactions contemplated hereby or thereby.
32
<PAGE>
9.17 Dispute Resolution and Arbitration.
----------------------------------
9.17.1 Negotiation Between Executives. The parties shall
------------------------------
attempt in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the controversy and who are at a higher level of management (if any) than
the persons with direct responsibility for administration of this Agreement. Any
party may give the other party written notice of any dispute not resolved in the
normal course of business. Within 15 days after delivery of the notice the
receiving party shall submit to the other a written response. The notice and the
response shall include (i) a statement of each party's position and a summary of
arguments supporting that position, and (ii) the name and title of the executive
who represents that party and of any other person who will accompany the
executive. Within 10 days after delivery of the disputing party's notice, the
executives of both parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to attempt to resolve
the dispute. All reasonable requests for information made by one party to the
other will be honored. If the matter has not been resolved within 45 days of the
disputing party's notice, or if the parties fail to meet within 10 days of such
notice, either party may initiate arbitration of the controversy or claim as
provided hereinafter. All negotiations pursuant to this clause are confidential
and shall be treated as compromise and settlement negotiations for purposes of
the Federal Rules of Evidence of California and other states' Rules of Evidence.
9.17.2 Arbitration. Any dispute arising out of or relating to
-----------
this Agreement or the breach, termination or the validity thereof, which has not
been resolved by the nonbinding meet and confer provisions provided in Section
9.17.1 within 90 days of the initiation of such procedure, shall be settled by
arbitration in accordance with the then-current End Dispute-Judicial Arbitration
and Mediation Services (JAMS) rules for arbitration of business disputes by a
sole arbitrator who shall be a former superior court or appellate court judge or
justice with significant experience in resolving business disputes. If
available, the arbitrator should have familiarity or experience in Title IV
funding matters. The arbitration shall be governed by the California Code of
Civil Procedure Section 1280 et seq. and the parties intend this procedure to be
------
specifically enforceable in accordance with such provisions. Judgment upon the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Orange County, California. The
arbitrator may award equitable relief in those circumstances where monetary
damages would be inadequate. The arbitrator shall be required to follow the
applicable law as set forth in the governing law section of this Agreement.
9.18 Third Party Beneficiaries. This Agreement shall be binding upon,
-------------------------
be enforceable against, and inure to the benefit of the parties and their
respective successors and permitted assigns; otherwise, this Agreement shall
not, and shall not be deemed to, inure to the benefit of or be enforceable by
any third party.
9.19 Bulk Transfers. If Buyer requests, Sellers will comply with any
--------------
applicable bulk transfer laws. If Buyer does not so request, Buyer and Sellers
each hereby waives compliance with any applicable bulk transfer laws in
connection with the sale of the Purchased
33
<PAGE>
Assets hereunder and Selling Parties hereby agree to indemnify Buyer against and
hold Buyer harmless from any and all damages and liabilities (including
reasonable attorneys' fees) relating to or resulting from such non-compliance.
9.20 Expenses. Except as otherwise provided in this Agreement, each
--------
party shall pay its own expenses incurred in connection with the authorization,
preparation, execution and performance of this Agreement and the Ancillary
Documents, including all fees and expenses of counsel, accountants, agents and
representatives.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of this ____ day of October, 1996.
RHODES COLLEGES, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
RHODES BUSINESS GROUP, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
FLORIDA METROPOLITAN UNIVERSITY, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
PHILLIPS COLLEGES, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
BLAIR BUSINESS COLLEGE, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
PHILLIPS COLLEGE OF DENVER, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
TO-BA CORPORATION
By:___________________________________
Name:_________________________________
Title:________________________________
PHILLIPS COLLEGE OF LOS ANGELES, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL SERVICES OF NEW
YORK CITY, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF
PENNSYLVANIA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
PHILLIPS EDUCATIONAL GROUP OF
PORTLAND, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
ROCHESTER BUSINESS INSTITUTE, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF UTAH,
INC.
By:___________________________________
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF
MISSOURI, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF CENTRAL
FLORIDA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
EXHIBIT A
-------
LIST OF SUBSIDIARIES OF PHILLIPS
1. Blair Business College, Inc. (a Colorado corporation)
2. Phillips College of Denver, Inc. (a Colorado corporation)
3. TO-BA Corporation (a Nevada corporation)
4. Phillips College of Los Angeles, Inc. (a California corporation)
5. Phillips Educational Services of New York City, Inc. (a New York
corporation)
6. Phillips Educational Group of Pennsylvania, Inc. (a Pennsylvania
corporation)
7. Phillips Educational Group of Portland, Inc. (an Oregon corporation)
8. Rochester Business Institute, Inc. (a New York corporation)
9. Phillips Educational Group of Utah, Inc. (a Utah corporation)
10. Phillips Educational Group of Missouri, Inc. (a Missouri corporation)
11. Phillips Educational Group of Central Florida, Inc. (a Florida corporation)
A-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
-------
SCHOOLS
TIER I SCHOOLS
NAME; LOCATION STATE TIER I BID PRICE
--------------- ----- ----------------
<S> <C> <C>
RHODES SCHOOLS:
Western Business College; OR $ 400,000
Portland
Blair Junior College; Colorado CO $ 175,000
Springs
Parks College (North); Denver CO $ 25,000
Parks College (South); Aurora CO $ 75,000
Phillips College; Las Vegas NV $ 50,000
Phillips Junior College of Salt UT $ 100,000
Lake City; Salt Lake City
Phillips Junior College; MO $ 125,000
Springfield
RHODES GROUP SCHOOLS:
Duff's Business Institute; PA $ 100,000
Pittsburgh
Rochester Business Institute; NY $ 75,000
Rochester
FLORIDA SCHOOLS:
FMUS - Ft. Lauderdale FL $ 56,250
College
FMUS - Orlando College FL $ 425,000
(North); Orlando
FMUS - Orlando College FL $ 700,000
(South); Orlando
FMUS - Orlando College FL $ 81,250
(Melbourne); Melbourne
FMUS - Tampa College FL $1,625,000
(Main); Tampa
FMUS - Tampa College FL $ 375,000
(Brandon); Tampa
Tampa College (Pinellas); FL $ 950,000
Clearwater
Tampa College; Lakeland FL $ 162,500
- ----------------------------------------------------------
Aggregate Tier I Bid Price $5,500,000
==========================================================
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
TIER II SCHOOLS
ALTERNATE
LOCATION STATE TIER II BID PRICE TIER II BID PRICE
- --------------------------------------------------------------------------
<S> <C> <C> <C>
RHODES SCHOOLS:
Phillips Junior CA $300,000 $600,000
College (Van Nuys);
Northridge
RHODES GROUP
SCHOOL:
Taylor Business NY $300,000 $300,000
Institute; New York
</TABLE>
B-2
<PAGE>
EXHIBIT 2.7
PROVISIONS CONCERNING PURCHASE AND SALE OF REAL ESTATE
THESE PROVISIONS CONCERNING PURCHASE AND SALE OF REAL ESTATE (this
"AGREEMENT") is entered into as of October 17, 1996, by and among BLAIR BUSINESS
COLLEGE, INC., a Colorado corporation, PHILLIPS COLLEGE OF DENVER, INC., a
Colorado corporation, and PHILLIPS EDUCATIONAL GROUP OF CENTRAL FLORIDA, INC., a
Florida corporation, (each a "SELLER" and collectively "SELLERS"), PHILLIPS
COLLEGES, INC., a Mississippi corporation ("PHILLIPS" and, together with
Sellers, "SELLING PARTIES") and CORINTHIAN COLLEGES, INC., a Delaware
corporation ("BUYER"). (Sellers, Phillips and Buyer are sometimes referred to
collectively herein as the "PARTIES.") All initially capitalized terms not
otherwise defined herein shall have the meaning ascribed to them in the Master
Asset Purchase Agreement dated October 17 1996, by and between Buyer, as buyer,
and Selling Parties, as seller, (the "MASTER PURCHASE AGREEMENT") and the
Schools Acquisition Agreement dated October 17 1996, by and between Buyer's
affiliates, namely Rhodes Colleges, Inc. ("RHODES") and Florida Metropolitan
University, Inc. ("FMU"), as buyer, and Selling Parties, as seller, (the
"SCHOOLS AGREEMENT"). (The Master Purchase Agreement and the Schools Agreement
are sometimes referred to collectively herein as the "ASSET PURCHASE
AGREEMENTS.")
R E C I T A L S
- - - - - - - -
A. Under the Asset Purchase Agreements, Buyer, Rhodes and FMU have agreed
to buy and Selling Parties have agreed to sell certain intangible assets and
personal property used by Selling Parties in operating post-secondary,
vocational training schools ("SCHOOLS").
B. Sellers, each of which is a subsidiary of Phillips, are the fee simple
owners of those tracts of real property commonly known as the Blair Junior
College Tract, the Parks College-Denver North Tract, the Parks College-Denver
South Tract, the Orlando College-Melbourne Tract, and the Tampa College-Main
Tract (each a "TRACT" and collectively the "TRACTS"). The legal description of
each Tract, and the identity of the respective owner of each Tract, are set
forth on Schedule 1 to this Agreement.
----------
C. The Tracts are improved with certain buildings and other improvements
(collectively the "IMPROVEMENTS") as to which Sellers hold fee simple title and
that comprise, generally
1
<PAGE>
speaking, buildings and facilities utilized in the operation of the particular
Schools located on and associated with the Tracts.
D. The term "PROPERTY" as used herein refers to a Tract, together with
all rights, privileges, easements, rights of way, mineral and water rights and
other appurtenances to such Tract; all Improvements thereon; all fixtures of a
permanent nature currently affixed to the Tract or its Improvements; and all of
the respective Seller's right, title and interest as lessor in all leases or
rental agreements affecting a Property under which the respective Seller of such
Property or Phillips is lessor (collectively, the "LEASES"). (The term
"PROPERTIES" as used herein refers to each Property collectively.)
E. In connection with the transaction to be consummated under the Asset
Purchase Agreements, Buyer and Sellers desire, respectively, to buy and sell the
Properties on the terms and conditions set forth in this Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing Recitals, and in further
consideration of the mutual covenants, agreements and conditions set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Selling Parties agree as
follows:
1. AGREEMENT TO PURCHASE AND SELL. Each Seller hereby agrees to sell,
------------------------------
convey and assign its respective Property or Properties to Buyer, and Buyer
hereby agrees to buy and accept the Properties from Sellers, under the terms and
conditions and for the purchase price hereinafter set forth.
2. PURCHASE PRICE. The purchase price to be paid at the Close of Escrow
--------------
by Buyer to each Seller for each Seller's respective Property (each an
"INDIVIDUAL REAL PROPERTY PURCHASE PRICE" and collectively the "AGGREGATE REAL
PROPERTY PURCHASE PRICE") is set forth below:
2
<PAGE>
<TABLE>
<CAPTION>
=====================================================================
INDIVIDUAL REAL
PROPERTY PURCHASE
SELLER TRACT PRICE
- ---------------------------------------------------------------------
<S> <C> <C>
Blair Business Blair Junior $ 633,600
College, Inc. College Tract
- ---------------------------------------------------------------------
Phillips College of Parks College- $ 880,000
Denver, Inc. Denver North Tract
- ---------------------------------------------------------------------
Phillips College of Parks College- $ 960,000
Denver, Inc. Denver South Tract
- ---------------------------------------------------------------------
Phillips Orlando College- $ 640,000
Educational Group Melbourne Tract
of Central Florida,
Inc.
- ---------------------------------------------------------------------
Phillips Tampa $1,080,000
Educational Group College-Main
of Central Florida, Tract
Inc.
- ---------------------------------------------------------------------
Aggregate Real Property Purchase Price
(before adjustment for Seller Cost Credit
and TFC Adjustment): $4,193,600
=====================================================================
</TABLE>
Each Individual Real Property Purchase Price (as adjusted for the Seller Cost
Credit and a pro rata share of the $800,000 credit pursuant to the TFC
Adjustment (as defined in the Asset Purchase Agreements)) shall be paid by Buyer
to the applicable Seller at the Close of Escrow. The terms and conditions of
payment of the Individual Real Property Purchase Prices (as so adjusted) are
completely and particularly described in the Real Property Purchase Money Notes
and the Purchase Money Mortgages (both as hereafter defined).
3. INTENTIONALLY OMITTED.
---------------------
4. INTENTIONALLY OMITTED.
---------------------
5. CONTINGENT RIGHTS AND OBLIGATIONS. Buyer's right and obligation to
---------------------------------
purchase the Properties, Sellers' rights and
3
<PAGE>
obligations to sell the Properties and the remainder of Parties' rights and
obligations under this Agreement shall be subject to the contingency, which is
hereby agreed to be a condition precedent to the Close of Escrow, that the Tier
I Closing must take place pursuant to the Asset Purchase Agreements. If for any
reason, except for a breach of the Asset Purchase Agreements by a Selling Party,
the Tier I Closing does not occur, Buyer shall have no right to purchase and
Sellers shall have no obligation to sell the Properties under this Agreement.
If for any reason, except for a breach of the Asset Purchase Agreements by
Buyer, Rhodes or FMU, the Tier I Closing does not occur, Sellers shall have no
right to sell and Buyer shall have no obligation to buy the Properties under
this Agreement. The foregoing shall not limit the right of any of the Parties
to recover damages arising out of the breach of this Agreement or the Asset
Purchase Agreements by any other person or entity.
6. ESCROW.
------
A. ESCROW HOLDER. An escrow for the purchase and sale of the
Properties (the "ESCROW") shall be established with First American Title
Insurance Company , 114 Fifth Street, Santa Ana, California, (the "ESCROW
HOLDER").
B. OPENING OF ESCROW. The Escrow shall be deemed open (the "OPENING
OF ESCROW") as of the date of this Agreement.
C. ESCROW INSTRUCTIONS. This Agreement, together with such further
instructions, if any, as the Parties shall provide to Escrow Holder by
mutually executed written agreement, shall constitute the escrow
instructions to the Escrow Holder. The General Provisions of Escrow Holder
attached hereto as Schedule 2 are incorporated herein by reference. In the
----------
event of any conflict between the General Provisions of Escrow Holder
attached as Schedule 2 and the provisions of this Agreement, the provisions
----------
of this Agreement shall control.
D. SELLER DEPOSITS INTO ESCROW. As a condition precedent to the
Close of Escrow in favor of Buyer, Sellers shall deliver or cause to be
delivered to Escrow Holder, in a timely manner (that is, to permit the
closing of the transaction contemplated hereunder by the Close of Escrow),
the following:
I. A duly executed and acknowledged special warranty deed for
each Property in the form attached hereto as Schedule 3 (for the
----------
Properties in Colorado) or Schedule 4 (for the Properties in Florida)
----------
(collectively the "DEEDS").
4
<PAGE>
II. A duly executed assignment of leases, in the form attached
hereto as Schedule 5, assigning to Buyer the entire right, title and
----------
interest of any of the Selling Parties, as lessor, under the Leases
(the "LEASE ASSIGNMENT").
III. A duly executed Non-Foreign Affidavit for each Seller in
the form attached hereto as Schedule 6 (collectively the "NON-FOREIGN
----------
AFFIDAVITS").
IV. Any executed, acknowledged or other documents reasonably
required by the Title Company or Escrow Holder to consummate this
transaction.
E. BUYER DEPOSITS INTO ESCROW. As a condition precedent to the Close
of Escrow in favor of Sellers, Buyer shall deliver or cause to be delivered
to Escrow Holder, in a timely manner (that is, to permit the closing of the
transaction contemplated hereby by the Close of Escrow), the following:
I. An amount, in cash or immediately available funds, equal to
all sums required for costs or prorations to be paid by Buyer pursuant
to the terms of this Agreement. At the Close of Escrow, Buyer shall
receive a credit in an amount equal to all costs and prorations to by
paid by Sellers hereunder (the "SELLER COST CREDIT"). The Seller Cost
Credit shall be allocated to the Individual Real Property Purchase
Price of the Properties giving rise to such cost or proration. Any
item comprising the Seller Cost Credit that is not specifically
allocable to a Property shall be allocated to the Individual Real
Property Purchase Prices of all Properties in proportion to their
respective Individual Real Property Purchase Prices.
II. A duly executed promissory note, in the form of Schedule 7
----------
(for Properties in Colorado) or Schedule 8 (for Properties in
----------
Florida), payable to the Seller of each Property in the original
principal amount of the Individual Real Property Purchase Price for
each Property (subject to reduction by a portion of the Seller Cost
Credit and by a pro rata share of the $800,000 credit pursuant to the
TFC Adjustment) (each a "REAL PROPERTY PURCHASE MONEY NOTE" and
collectively the "REAL PROPERTY PURCHASE MONEY NOTES").
III. A duly executed and recordable real property security
interest covering each Property, in the form attached hereto as
Schedule 9 (for Properties in Colorado) or Schedule 10 (for Properties
---------- -----------
in Florida) (each a "PURCHASE MONEY MORTGAGE" and collectively the
"PURCHASE MONEY MORTGAGES").
5
<PAGE>
IV. The duly executed Lease Assignment to evidence Buyer's
acceptance thereof and Buyer's assumption of all of Sellers'
obligations arising or accruing under the Leases from and after the
Close of Escrow.
V. A duly executed change of ownership statement for each
Property if required by applicable law in Colorado or Florida
(collectively, the "CHANGE OF OWNERSHIP STATEMENTS").
VI. Any executed, acknowledged or other documents reasonably
required by the Title Company or Escrow Holder to consummate this
transaction.
Notwithstanding Sections 6(e)(ii) and (iii) above, Buyer may in its
---------------------------
sole and absolute discretion deposit (or cause its lender to deposit) into
Escrow an amount in cash or immediately available funds equal to the Aggregate
Real Property Purchase Price (as the same may be adjusted hereunder with respect
to the Seller Cost Credit) in lieu of the Real Property Purchase Money Notes and
Purchase Money Mortgages.
F. CLOSE OF ESCROW. Escrow shall close concurrently with the Tier I
Closing (as defined in Section 3.1 of the Asset Purchase Agreements), or as
soon thereafter as Selling Parties are prepared to convey title to all of
the Properties subject only to the Permitted Exceptions and the Title
Company is prepared to issue the Title Policies (the "CLOSE OF ESCROW");
provided, however, that if the Close of Escrow has not occurred on or
before the thirtieth day after the Tier I Closing, this Agreement shall
terminate without further action by any of the Parties. The consummation
of the transaction contemplated by this Agreement shall take place at the
offices of O'Melveny & Myers LLP, 610 Newport Center Drive, Suite 1700,
Newport Beach, California 92660. The Close of Escrow shall be deemed to
have occurred on the day upon which the Deeds are filed for record in the
official records of the counties in which the respective Properties are
situated.
G. AUTHORIZATION TO CLOSE ESCROW. Provided that: (x) Escrow Holder
shall not have received written notice from Buyer or Sellers of the failure
of any conditions precedent or of the termination of the Escrow; (y) Buyer
and Sellers have deposited into the Escrow the items required by this
Agreement; and (z) Title Company can and will issue the Title Policies
concurrently with the Close of Escrow, Escrow Holder shall:
I. Deliver to Buyer each Deed by causing the same to be
recorded in the Official Records of the Office of the County Recorder
of the appropriate County
6
<PAGE>
and causing the Deeds to be mailed to Buyer after the same have been
recorded.
II. Deliver to Sellers the Purchase Money Mortgages by causing
the same to be recorded in the official records of the Office of the
County Recorder of each county in which each Property is located and
causing the Purchase Money Mortgages to be mailed to Sellers after the
same have been recorded.
III. Deliver to Buyer the Lease Assignment and the Non-Foreign
Affidavits.
IV. Deliver to Sellers the Real Property Purchase Money Notes.
V. Deliver to Buyer Sellers' share of liabilities and/or
expenses to be prorated by Escrow Holder to Sellers' account under
Section 8.
---------
VI. Deliver to Phillips Buyer's share of liability and/or
expenses to be prorated by Escrow Holder to Buyer's account under
Section 8.
---------
VII. Cause the Owner's Title Policies to be issued to Buyer and
the Lender's Policies to be issued to Sellers by the Title Company.
VIII. Cause each Change of Ownership Statement to be filed with
the Tax Assessor for the appropriate County or with any other
governmental official or agency as required by applicable law.
Notwithstanding Sections 6(g)(ii) and (iv), if Buyer makes the
--------------------------
election to deposit cash or immediately available funds pursuant to Section 6(e)
------------
above, Escrow Holder shall not deliver the Real Property Purchase Money Notes or
the Purchase Money Mortgages as provided above.
H. INTERPLEADER. The Parties expressly agree that if the Parties
give Escrow Holder contradictory instructions, Escrow Holder shall have the
right at its election to file an action in interpleader requiring the
Parties to answer and litigate their several claims and rights among
themselves and to deposit with the clerk of court all documents and funds
held in this Escrow. In the event such action is filed, the Parties agree
to pay Escrow Holder's cancellation charges and costs, expenses and
reasonable attorney's fees that Escrow Holder is required to expend or
incur in the interpleader action, the amount thereof to be fixed and
judgment therefor to be rendered by the court. Upon the filing of such an
action, Escrow Holder shall be fully released and discharged from all
obligations to
7
<PAGE>
further perform any duties or obligations otherwise imposed by the terms of
the Escrow.
I. U.S. TREASURY REGULATIONS. The purchase and sale of each Property
is the sale of "reportable real estate" within the meaning of U.S. Treasury
Regulations section 1.6045-4 (the "REGULATION"). Escrow Holder is the "real
estate reporting person" within the meaning of the Regulation and shall
make all reports to the federal government as required by the Regulation.
7. CLOSING COSTS.
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A. Sellers shall pay (i) twenty-five percent (25%) of (A) any
documentary transfer tax, revenue tax or excise tax (and any surtax
thereon) due in connection with the transfer of the Properties by Sellers
to Buyer and (B) any intangible tax, documentary tax or other mortgage tax
payable in connection with the recordation of the Purchase Money Mortgages;
and (ii) fifty percent (50%) of all escrow fees of the Escrow Holder.
B. Buyer shall pay (i) the fees for recording the Deeds and the
Purchase Money Mortgages; (ii) seventy-five percent (75%) of any (A)
documentary transfer tax, revenue tax or excise tax (and any surtax
thereon); and (B) any intangible tax, documentary tax or other mortgage tax
payable in connection with the recordation of the Purchase Money Mortgages;
and (iii) fifty percent (50%) of all escrow fees of the Escrow Holder.
C. The cost of the Title Policies shall be allocated between Buyer
and Sellers as described in Section 9(d).
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D. Any other costs of the Escrow or of closing pertaining to this
transaction not otherwise expressly allocated among Buyer and Seller under
this Agreement shall be attributed and allocated by Escrow Holder to the
Property or Properties giving rise to such other costs. These costs shall
then be apportioned in the manner customary in the County or Counties in
which such Property or Properties are situated.
E. Notwithstanding the provisions of this Section 7, if the Escrow
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fails to close for any reason (other than the breach of this Agreement by
one or more of the Parties), the costs incurred through the Escrow,
including the costs incurred by Buyer for any preliminary title reports
shall be borne fifty percent (50%) by Buyer and fifty percent (50%) by
Sellers. All other expenses incurred by any party in connection with the
transactions contemplated by this Agreement (including the costs of surveys
and environmental
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site assessments) shall be borne by the party who incurred such expense.
8. PRORATIONS AND ADJUSTMENTS. The following shall be prorated and
--------------------------
adjusted between Sellers and Buyer, as if the transaction contemplated hereby
involved one buyer and one seller, all as of the Close of Escrow (except as
otherwise specified):
A. Rents and other charges under the Leases ("RENTS"), other than
Delinquent Rents (as hereinafter defined), shall be prorated and Buyer's
share of such Rents shall be credited against the appropriate Individual
Real Property Purchase Price if such Rents are due and payable as of the
Close of Escrow, without regard to whether such Rents have actually been
collected by the appropriate Seller as of such time. Prepaid Rents
together with all interest earned thereon, if any, shall be credited
against the appropriate Individual Real Property Purchase Price. Rents
that, at the Close of Escrow, are thirty (30) or more days past due
("DELINQUENT RENTS") shall not be prorated. Buyer will cooperate with
Sellers in the collection of Delinquent Rents at Sellers' expense;
provided, however, that Buyer shall in no way be obligated to collect or be
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responsible for collecting such Delinquent Rents. Any Rents collected by
Buyer after the Close of Escrow will apply first to Rents that accrue after
the Close of Escrow and then to the Rents that have accrued prior to the
Close of Escrow. Notwithstanding the foregoing, if Buyer receives Rents
after the Close of Escrow that relate to the period prior to the Close of
Escrow to which Seller is entitled under this Section 8, Buyer shall
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promptly remit to Seller all of such amounts. Likewise, Seller shall
promptly remit to Buyer all Rents received by Seller after the Close of
Escrow to which Buyer is entitled under this Section 8.
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B. As used in the definition of Rents in this Section 8, the word
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"charges" shall include all charges paid by tenants under the Leases for
real estate taxes, insurance premiums, electricity, other utilities, sign
rents (if any) and other common area charges (collectively "CAM CHARGES").
As promptly as is reasonably possible after the Close of Escrow, Buyer, if
Sellers have not already done so, shall bill all tenants under the Leases
for any unpaid CAM Charges attributable to the period prior to the Close of
Escrow with respect to which Sellers claim that they are entitled to
reimbursement. Sellers shall present Buyer with copies of paid invoices
evidencing expenses for which Sellers claim reimbursement from such CAM
Charges. Buyer will cooperate with Sellers in the collection of such CAM
Charges attributable to the period prior to the Close of Escrow; provided,
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however, that Buyer is not obligated to pay
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Sellers for such CAM Charges if, for any reason, the tenants do not pay
such CAM Charges to Buyer. If any tenants are entitled to reimbursement
due to overpayment of CAM Charges previously paid to Sellers resulting from
estimated CAM Charges, Sellers shall pay such tenants, within ten (10) days
of notice thereof from Buyer and confirmation thereof by Sellers with the
tenant, the amount of any such overpayment for the period through the date
of the Close of Escrow. Buyer shall be responsible for any such
overpayment for the period after the Close of Escrow, provided said CAM
Charges were paid to Buyer. To the extent that Sellers have collected CAM
Charges from tenants prior to the Close of Escrow, but have not, prior to
such date, paid the expenses of the Property relating to such CAM Charges,
such CAM Charges shall be credited against the appropriate Individual Real
Property Purchase Price at the Close of Escrow.
C. An amount equal to the aggregate amount, as of the Close of
Escrow, of all security and other deposits to each Seller by tenants
(collectively the "TENANT DEPOSITS"), together with such interest thereon
as may be required by law or the terms of the applicable Lease, shall be
credited against the appropriate Individual Real Property Purchase Price at
the Close of Escrow. Sellers shall retain as Sellers' own funds any Tenant
Deposits held by Sellers, but such Tenant Deposits shall be deemed
transferred to Buyer as if a cash payment were made by Sellers to Buyer.
Sellers represent and warrant that: (i) all Tenant Deposits have or will be
accurately identified and disclosed to Buyer in writing and are held by
Seller in cash; and (ii) no tenant or any other party has any claim (other
than for customary refund at the expiration of a Lease) to all or any part
of any Tenant Deposit. Sellers hereby covenant that no tenant or any other
party shall have any claim (other than for refund at the expiration of a
Lease as required by law or the terms of the applicable lease) to all or
any part of any Tenant Deposit resulting from actions that occur prior to
the Close of Escrow. Sellers hereby agree to indemnify and hold harmless
Buyer from any and all losses, costs, expenses and damages (including
attorney's fees) incurred, suffered by or claimed against Buyer by reason
of any claim by any tenant or any other party to all or any part of any
Tenant Deposit resulting from actions which occur prior to the Close of
Escrow.
D. All real property taxes, personal property taxes and any premiums
for insurance policies on the Properties assumed by Buyer shall be prorated
as of the Close of Escrow. All assessments against the Properties,
including, without limitation, all installments of such assessments that
will become due and payable after the Close of Escrow shall be prepaid by
Seller or, at Buyer's option, such assessments may remain a lien against
the applicable
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Properties, with an amount equal to the aggregated amount of such
assessments to be credited against the appropriate Individual Real Property
Purchase Price at the Close of Escrow.
E. For purposes of calculating prorations, Buyer shall be deemed to
be vested with title to the Properties, and, therefore, entitled to the
income therefrom and responsible for the expenses thereof, for the entire
day upon which the Close of Escrow occurs. All such prorations shall be
made on the basis of the actual number of days of the month that shall have
elapsed as of the Close of Escrow and based upon a three hundred sixty-
five (365) day year. Sellers shall provide to Escrow Holder such operating
statements and other documents or information as may be reasonably required
by Escrow Holder and Buyer to calculate such prorations and to prepare a
closing statement for the transaction contemplated hereunder.
F. In the event that Buyer has occupied the Properties as a lessee
pursuant to Section 13 hereof, all adjustments, payments or charges to be
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made under the leases between Buyer, as lessee, and Sellers, as lessors,
shall be settled and paid at the Close of Escrow.
9. TITLE.
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A. POSSESSION. Each Seller shall deliver to Buyer actual possession
of such Seller's Property concurrently with the Close of Escrow, subject to
the rights of tenants in possession, as tenants only, under the Leases.
B. DEEDS. Title to the fee simple interest in each Property shall
be conveyed by Sellers to Buyer by the Deeds.
C. TITLE POLICIES. Title to each Property shall be insured by an
ALTA 1992 Standard Coverage Joint Protection Owner's/Lender's Policy of
Title Insurance, with standard regional exceptions ("STANDARD COVERAGE
POLICY"), and liability in the amount of the applicable Individual Real
Property Purchase Price, dated as of the Close of Escrow, issued by First
American Title Company (the "TITLE COMPANY"), insuring that title to the
fee estates and interests in the Property are vested in Buyer, subject only
to the title exceptions listed on Schedule 14 attached to this Agreement
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(collectively the "PERMITTED EXCEPTIONS"), together with the endorsements
as are listed on said Schedule 14 (collectively the "SCHEDULED
-----------
ENDORSEMENTS"). Each lender's policy or portion of each joint policy shall
insure, without limitation, the validity and priority of the lien created
by applicable Purchase Money Mortgage, with liability in the full amount of
the applicable Real Property Purchase Money Note, subject only to the
Permitted
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Exceptions and including the Scheduled Endorsements. For one or more of
the Properties, Buyer in its sole and absolute discretion may require in
lieu of the Standard Coverage Policy an ALTA Extended Coverage Owner's
Policy of Title Insurance, Form 1970B without modification (or its
equivalent by endorsement) (an "EXTENDED COVERAGE POLICY"). The Standard
Coverage Policy or Extended Coverage Policies, as applicable, shall
sometimes be referred to collectively herein as the "TITLE POLICIES."
D. COST OF TITLE POLICIES. Sellers shall pay the cost of the Title
Policies up to the amount of the premium for a Standard Coverage Policy
with liability in the amounts of the Individual Real Property Purchase
Prices, and 50% of the cost of any of the Scheduled Endorsements which are
not included in the premium for the Standard Coverage Policy. Buyer shall
pay (i) the additional cost, if any, of the lender's coverage insuring
Sellers and (ii) the cost differential of the premium for any Extended
Coverage Policy requested by Buyer over the cost of the premium paid for a
Standard Coverage Policy for the applicable Property, and (iii) 50% of the
cost of any of the Scheduled Endorsements which are not included in the
premium for the Standard Coverage Policy.
10. Representations and Warranties of Buyer. Buyer hereby represents and
---------------------------------------
warrants to Sellers that the following matters are true and correct as of the
execution of this Agreement and also will be true and correct as of the Close of
Escrow:
A. Buyer is a corporation, and is duly organized, validly existing
and in good standing under the laws of the state of Delaware; and
B. This Agreement and all the documents to be executed and delivered
by Buyer to Sellers pursuant to the terms of this Agreement: (i) have been
or will be duly authorized, executed and delivered by Buyer; (ii) are or
will be legal and binding obligations of Buyer as of the date of their
respective executions; (iii) are or will be enforceable in accordance with
their respective terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity)); and (iv) do not, and will not at the
Close of Escrow, violate any provisions of any material agreement to which
Buyer is a party.
C. Buyer is not a licensed real estate broker or salesperson.
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11. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers hereby represent
-----------------------------------------
and warrant to Buyer that the following matters are true and correct as of the
execution of this Agreement and also will be true and correct as of the Close of
Escrow:
A. Each of the Selling Parties is a corporation, duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated.
B. This Agreement and all the documents and items to be executed and
delivered by Sellers to Buyer pursuant to the terms of this Agreement: (i)
have been or will be duly authorized, executed and delivered by Sellers;
(ii) are or will be legal and binding obligations of Sellers as of the date
of their respective executions; (iii) are or will be enforceable in
accordance with their respective terms (except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium
and other principles relating to or limiting the rights of contracting
parties generally); (iv) do not and will not at the Close of Escrow,
violate any provisions of any agreement to which a Seller or Phillips is a
party; and (v) will be sufficient to convey title (to the extent they
purport to do so).
C. To Selling Parties' actual knowledge, there are no material
physical, structural, or mechanical defects in the Properties, including,
without limitation, the plumbing, heating, air conditioning and electrical
systems.
D. To Selling Parties' actual knowledge, the Selling Parties' use,
operation and sale of the Properties are in all material respects in
compliance with applicable building codes, environmental, zoning,
subdivision and land-use laws and other applicable local, state and federal
laws and regulations.
E. Except as disclosed in writing by the Selling Parties to Buyer
prior to the execution of the Asset Purchase Agreements or any schedule or
exhibit thereto, none of the Properties are burdened by or subject to any
leases, occupancy agreements, license agreements or other agreements
pursuant to which any third party has the right to use or occupy the
premises, and no amount is owed by any of the Sellers to any third party
with respect to leasing commissions, deposits, common area charges or other
charges under any of such agreements which may have previously existed as
to any of the Properties.
F. Intentionally Omitted.
G. As used in this Agreement, "SELLING PARTIES' ACTUAL KNOWLEDGE"
shall mean those matters within the present knowledge, at the time of
execution of this
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Agreement, of Joseph Bondi, Cindy Cofield, Robert C. Kimberling, Arthur
Glaskewicz and the Presidents of each of the Schools associated with the
Properties, provided that matters that could have been discovered through
sources providing record or constructive notice or through reasonable
diligence or investigation shall not be considered to be within Selling
Parties' actual knowledge. Selling Parties represent and warrant that the
Presidents of each of the Schools associated with the Properties are the
employees, officers, directors or principals of Selling Parties who are
most familiar with the subject matter of the representations and warranties
in this Section 11 with respect to their respective Schools.
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H. HAZARDOUS MATERIALS.
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I. Except as set forth in Schedule 11 or in a Phase I
-----------
environmental assessment listed on Schedule 12, to the best of each
-----------
Seller's knowledge: (A) no Seller uses or has used its Property or
permits or has permitted the use of its Property in a manner that
violates any Environmental Enactment (as hereinafter defined); (B) no
Seller knows of any violation of any Environmental Enactment on its
Property by any other prior owner of such Property; (C) no Seller
knows of any discharge, seepage or release of Hazardous Materials (as
hereinafter defined) onto its Property from any adjoining or
neighboring property; and (D) no Seller or any prior owner of its
Property has used or has permitted the use of its Property in a manner
that would require notice, disclosure or reporting to a governmental
agency of such use under any Environmental Enactment;
II. Without limiting the foregoing, except as set forth in
Schedule 11 or in a Phase I environmental assessment listed on
-----------
Schedule 12 and except for such ordinary and customary materials used
-----------
by Sellers in the normal course of Sellers' business operated on the
Properties in conformance with all Environmental Enactments, to the
best of each Seller's knowledge: (A) no asbestos, polychlorinated
biphenyls, radon, urea or formaldehyde is contained in or stored on
any Property; (B) no Hazardous Materials are stored on any Property in
violation of any Environmental Enactments; and (C) no storage tanks
containing or previously con taining Hazardous Materials are located
in or under any Property;
III. As used herein, "ENVIRONMENTAL ENACTMENT" shall mean any
federal, state or local law, regulation or ordinance or any judicial
decision, rule, regulation or publication promulgated thereunder, or
any common
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<PAGE>
law, authorization, judgment, decree, concession, grant, franchise,
agreement, or other governmental restriction or requirement, regarding
or related to the environment, environmental matters, human health and
safety or Hazardous Materials;
IV. As used herein, "HAZARDOUS MATERIALS" shall mean any
flammable substances, explosives, radioactive materials, pollutants,
contaminants, medical waste materials, petroleum, petroleum products,
hazardous or toxic materials or any related materials or substances
at, on or beneath the surface of the applicable real property,
including substances defined as "EXTREMELY HAZARDOUS SUBSTANCES,"
"HAZARDOUS SUBSTANCES," "HAZARDOUS WASTE," "HAZARDOUS MATERIALS,"
"TOXIC SUBSTANCES" or "INFECTIOUS WASTE" in any Environmental
Enactment or in the regulations adopted and publications promulgated
pursuant to said Environmental Enactments; and
V. As used herein, "A VIOLATION OF AN ENVIRONMENTAL ENACTMENT"
or words of similar import shall mean the existence, use, storage,
discharge, treatment, release, transportation or disposition of,
whether temporary or permanent, any Hazardous Materials other than in
compliance with the requirements of all applicable Environmental
Enactments.
I. No Seller is either a "foreign person" within the meaning of
section 1445(f)(3) of the United States Internal Revenue Code of 1986, as
may be amended, or a non-resident seller of a "California real property
interest" within the meaning of sections 18805 or 26131 of the California
Revenue and Taxation Code.
J. No Seller is a licensed real estate broker or salesperson.
No representation or warranty made by any Seller in this Agreement
shall merge into any instrument of conveyance delivered at the Close of
Escrow, and all such representations and warranties shall survive the Close
of Escrow for a period of one (1) year. The representations, warranties
and limited survival periods set forth in this Section 11 shall not be
----------
deemed or construed as limiting, waiving or relinquishing any statutory or
common law right or remedy, and, except as provide herein, the effect of
the representations and warranties made in this Agreement shall not be
diminished or deemed to be waived by any inspections, tests or
investigations made by Buyer or its agents. Moreover, the provisions of
this Section 11 with respect to Hazardous Materials and Environmental
----------
Enactments are not intended as, nor shall they be construed to be, a waiver
or
15
<PAGE>
release by Buyer of any rights that Buyer may have after the Close of
Escrow as to the Property or any Seller under any Environmental Enactments.
12. SELLERS' COVENANTS. Sellers hereby covenant with Buyer as follows:
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A. Each of the matters with respect to which a Seller has made a
representation and warranty to Buyer in Section 11 shall be continuing,
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shall be true and correct in all material respects as of the Close of
Escrow and shall be deemed remade by such Seller as of the Close of Escrow
with the same force and effect as if in fact made at that time.
B. Except as permitted by the Asset Purchase Agreements, no Seller
shall execute any new lease, occupancy or license agreement or any other
agreement respecting the use or occupancy of any Property.
C. Except as permitted by the Asset Purchase Agreements, no Seller
shall, without the prior written consent of Buyer, enter into any contract
with respect to any Property that will survive the Close of Escrow or will
otherwise affect the use, operation or enjoyment of the Property after the
Close of Escrow.
D. All existing insurance policies affecting the Properties, or
equivalent coverage, shall remain continuous ly in force through the Close
of Escrow.
E. Sellers shall promptly (and in any event prior to the Close of
Escrow) notify Buyer of any change in any condition with respect to the
Property or of any event or circumstance that makes any representation or
warranty of a Seller to Buyer under this Agreement materially untrue or
misleading.
The liability of a Seller or Sellers for a breach of any covenant
herein shall not be merged into any instrument of conveyance delivered at the
Close of Escrow and shall survive the Close of Escrow for a period of two (2)
years. The covenants and survival periods set forth herein shall not be deemed
or construed as limiting, waiving or relinquishing any statutory or common law
right or remedy, and, except as provided herein, the effect of the covenants
made in this Agreement shall not be diminished or deemed to be satisfied by any
inspections, tests or investigations made by Buyer or its agents.
13. INTERIM OCCUPANCY. Buyer shall commence occupancy of the Properties
-----------------
as of the Tier I Closing (as defined in the Asset Purchase Agreements), which
the Parties anticipate may occur before the Close of Escrow hereunder. If the
Close of Escrow occurs after the Tier I Closing, Buyer shall occupy each
Property
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<PAGE>
under a separate lease, each lease being in the form attached hereto as Schedule
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13, which shall provide, without limitation: that Buyer's occupancy is on a
- --
triple net basis; that no rent is payable during the first sixty (60) days of
the term; and that the lease shall terminate upon the Close of Escrow. The
execution of said Lease by Buyer as lessee and Seller as lessor shall be a
condition to the Tier I Closing.
14. LOSS BY FIRE, OTHER CASUALTY OR CONDEMNATION. Except as provided
--------------------------------------------
below, in the event that prior to the Close of Escrow, any Property, or any part
thereof, is destroyed or damaged by fire or other casualty, or is subject to a
taking by a public authority, then Buyer shall have the right, exercisable by
giving notice to the appropriate Seller within fifteen (15) days after receiving
written notice of such damage or destruction or taking either: (a) to terminate
this Agreement with respect to the affected Property, in which case neither
Party shall have any further rights or obligations hereunder with respect to
such Property and any money or documents in Escrow shall be returned to the
party depositing the same, except that Buyer and Sellers shall each be
responsible for one-half of any related title or Escrow cancellation fee; or (b)
to accept the affected Property in its then condition and proceed to close this
transaction with respect to such Property, provided that an abatement or
reduction shall be made in the appropriate Individual Real Property Purchase
Price in the amount of the deductible for any applicable insurance coverage and
further provided that Buyer shall be entitled to receive an assignment of all of
the respective Seller's and Phillips's rights to any insurance proceeds payable
by reason of such damage or destruction or any condemnation awards payable by
reason of such taking. If Buyer elects to proceed under the foregoing clause
(b), neither Seller nor Phillips shall compromise, settle or adjust any claims
to such proceeds or awards without Buyer's prior written consent. Sellers agree
to give Buyer prompt notice of any taking, damage or destruction of the
Properties. Notwithstanding the foregoing, if the cost of repairing any fire or
casualty damage to any individual Property does not exceed $50,000 (as
reasonably estimated by an architect of good reputation selected by Sellers), or
if no more than ten percent (10%) of the floor area of the Improvements to any
individual Property is taken by a public authority and the remainder of such
Improvements and Property is reasonably suitable for the operation of the School
thereon, then Buyer shall be deemed to have elected to proceed under the
foregoing clause (b) and shall have no right to terminate this Agreement.
15. INDEMNIFICATION. Phillips and Sellers, on the one hand, and Buyer, on
---------------
the other, hereby agree to indemnify and hold free and harmless the other from
and against any losses, damages, costs and expenses (including attorneys' fees)
resulting from any inaccuracy in or breach of any representation or warranty of
the indemnifying party or any breach or default by such indemnifying
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party under any of such indemnifying party's covenants or agreements contained
in this Agreement. The foregoing indemnities shall survive the Close of Escrow.
Without limiting the rights of Buyer hereunder, in the event that Buyer has a
claim against Sellers or Phillips under this Section 15, Buyer shall have the
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right to pursue such claim pursuant to Section 9.12 of the Master Purchase
Agreement.
16. NOTICES. All notices or other communications required or permitted
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hereunder shall be in writing and shall be given or made by personal delivery or
by a nationally recognized courier service for overnight delivery.
To Sellers Phillips Colleges, Inc.
and Phillips: One Hancock Plaza, Suite 1408
Gulfport, Mississippi 39501
Attention: Joseph A. Bondi, President
and Chief Executive Officer
Facsimile No.: 604/864-0519
With a Alvarez & Marsal, Inc.
copy to: 885 Third Avenue
New York, New York 10022
Attention: Joseph A. Bondi
Facsimile No.: 212/230-3307
With a Dow, Lohnes & Albertson
copy to: 1200 New Hampshire Avenue N.W.
Suite 800
Washington, D.C. 20036-6802
Attention: Lisa C. Bureau, Esq.
Facsimile No.: 202/776-2222
With a Sheinfeld, Maley & Kay
copy to: 1700 Pacific Avenue, Suite 4400
Dallas, Texas 75201-4618
Attention: E. Glenn Koury, Esq.
Facsimile No.: 214/953-1189
To Buyer: Corinthian Schools, Inc.
1932 East Deere Avenue, Suite 210
Santa Ana, California 92705-5735
Attention: David Moore, President
Facsimile No.: (714) 222-3529
With a O'Melveny & Myers
copy to: 610 Newport Center Drive
Suite 1700
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile No.: (714) 669-6994
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Notices or other communications may be given or made at such other place as the
party to whom such notice or communication is to be addressed may have
designated to the other Parties by notice conforming to this Section 16.
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Notices shall be deemed effective and received (a) on that actual receipt
thereof in the case of hand delivery, or (b) on the next business day after
deposit in the case of notices by nationally recognized overnight courier
services. As used herein, "NOTICE TO A PARTY" shall include concurrent notice
to that party's counsel as set forth herein.
17. MISCELLANEOUS PROVISIONS.
------------------------
A. INCORPORATION OF PRIOR AGREEMENTS. This Agreement and the Asset
Purchase Agreements and the documents referred to herein and therein and to
be delivered pursuant hereto and thereto contain the entire understanding
of Buyer, Phillips and Sellers with respect to the subject matter hereof,
and no prior or contemporaneous written or oral agreement or understanding
pertaining to any such matter shall be effective for any purpose. This
Agreement specifically supersedes any offers to purchase the Properties,
Tracts, or Improvements. No provision of this Agreement may be revised or
amended except by an agreement in writing, expressly stating that such
agreement is an amendment of this Agreement, signed by the Parties to this
Agreement or their respective successors in interest.
B. DISPUTE RESOLUTION AND ARBITRATION. Any dispute arising out of or
relating to this Agreement shall be resolved in accordance with the
procedure set forth in Section 9.18 of the Master Purchase Agreement.
C. TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
D. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
enure to the benefit of each of the Parties hereto and to their respective
transferees, successors, and assigns; provided, however, that Buyer may not
assign its rights under this Agreement except as permitted by, and subject
to complying with the requirements of, Section 9.1 of the Master Purchase
Agreement. Notwithstanding anything to the contrary herein, Buyer may
nominate any of its direct or indirect subsidiaries to take title to all of
the Properties or any Property at the Close of Escrow.
E. CALIFORNIA LAW; CHOICE OF FORUM. This Agreement shall be
construed in accordance with and governed by the internal laws of the State
of California without giving effect to any conflict of law or choice of law
rules of such or any other state.
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F. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which,
when taken together, shall constitute one and the same instrument.
G. INTERPRETATION. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be valid under
applicable law, but, if any provision of this Agreement shall be invalid or
prohibited thereunder, such invalidity or prohibition shall be construed as
if such invalid or prohibited provision had not been inserted herein and
shall not affect the remainder of such provision or the remaining
provisions of this Agreement.
H. CONSTRUCTION. The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not
strictly against the party who drafted such language. Additionally,
whenever the words "INCLUDING," "INCLUDE" or "INCLUDES" are used in this
Agreement, they are used and shall be interpreted in a non-exclusive
manner, as though either the phrase "but [is] not limited to" or the phrase
"without limitation" immediately followed the same.
I. JOINT AND SEVERAL OBLIGATIONS. This Agreement is between Buyer,
on the one hand, and Sellers and Phillips, jointly and severally, on the
other. Therefore, to the extent allowed by applicable law, each Seller and
Phillips are jointly and severally liable for performance of each and every
obligation under this Agreement.
J. HEADINGS. Section and paragraph headings of this Agreement are
solely for convenience of reference and shall not govern nor be relied upon
in the interpretation of any of the provisions of this Agreement.
K. EXHIBITS. All Exhibits, Schedules and Appendices attached hereto
are incorporated herein and made a part of this Agreement by this
reference.
L. WAIVER BY A PARTY. The waiver of any contingency, representation,
warranty, covenant, or other matter or provision hereof may only be made by
the Party benefitted by same, and the waiver must be in writing, must be
signed by the benefitted Party, must specifically state which matter is
being waived and shall not work as a waiver of any other contingency,
representation, warranty, covenant or other matter.
M. RECITALS VERIFIED. The Recitals to this Agreement are hereby
stated to be true and correct and are incorporated herein by this
reference.
20
<PAGE>
N. INJUNCTIVE AND EQUITABLE RELIEF. Seller, Phillips and Buyer hereby
agree that the Properties are of a special and unique character that gives
the Properties a peculiar value, and that Buyer cannot reasonably or
adequately be compensated in damages in an action at law in the event that
any Seller breaches its obligation to sell its Property to Buyer.
Therefore, Phillips and each Seller expressly agrees that Buyer shall be
entitled to injunctive and other equitable relief (including, without
limitation, the right to specifically enforce Sellers' obligation to sell
the Property to Buyer) in the event of such breach in addition to any other
rights or remedies that may be available to Buyer.
O. BUSINESS DAYS. As used in this Agreement, a "BUSINESS DAY" shall
mean a day other than Saturday, Sunday or any day on which banking
institutions in the city of Los Angeles are authorized by law or other
governmental action to close. All other references to "DAYS" or "CALENDAR
DAYS" in this Agreement shall refer to calendar days.
P. BROKERS OR FINDERS. Sellers, on the one hand, and Buyer, on the
other, shall each indemnify and hold the other harmless from and against
any and all claims of all brokers and finders claiming by, through or under
the indemnifying party and in any way related to the sale and purchase of
the Properties pursuant to this Agreement, including reasonable attorneys'
fees incurred by the party to be indemnified in connection with such
claims. Notwithstanding any provision herein to the contrary, such
indemnification shall survive the Close of Escrow or the termination of
this Agreement, as applicable. Without limiting the foregoing indemnities,
Sellers shall be responsible for fees payable to the management consulting
firm of Alvarez and Marsal, Inc. in connection with the transactions
contemplated by this Agreement. Buyer represents that there are no
brokers, finders or other similar fees payable to Bank One Capital Group or
The Keyes Company in connection with the transactions contemplated by this
Agreement.
21
<PAGE>
IN WITNESS WHEREOF, Buyer, Seller and Phillips have executed this
Agreement as of the day and year first above written.
"PHILLIPS"
PHILLIPS COLLEGES, INC.,
a Mississippi corporation
By:___________________________________
Name:____________________________
Title:___________________________
"SELLERS"
BLAIR BUSINESS COLLEGE, INC.,
a Colorado corporation
By:___________________________________
Name:____________________________
Title:___________________________
PHILLIPS COLLEGE OF DENVER, INC.,
a Colorado corporation
By:___________________________________
Name:____________________________
Title:___________________________
PHILLIPS EDUCATIONAL GROUP OF CENTRAL
FLORIDA, INC., a Florida corporation
By:___________________________________
Name:____________________________
Title:___________________________
22
<PAGE>
"BUYER"
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
By: /s/ David G. Moore
-----------------------------------
Name: DAVID G. MOORE
----------------------------
Title: PRESIDENT/CEO
---------------------------
23
<PAGE>
LIST OF SCHEDULES
Schedule 1 - Legal Descriptions of Tracts
Schedule 2 - General Provisions of Escrow Holder
Schedule 3 - Form of Deeds (Colorado)
Schedule 4 - Form of Deeds (Florida)
Schedule 5 - Form of Lease Assignment
Schedule 6 - Form of Non-Foreign Affidavits
Schedule 7 - Real Property Purchase Money Note
(Colorado)
Schedule 8 - Real Property Purchase Money Note
(Florida)
Schedule 9 - Purchase Money Mortgage (Colorado)
Schedule 10 - Purchase Money Mortgage (Florida)
Schedule 11 - Hazardous Materials Disclosure
Schedule 12 - Phase I Environmental Assessments
Schedule 13 - Form of Lease for Interim Occupancy
Schedule 14 - Permitted Exceptions and Scheduled
Endorsements
24
<PAGE>
EXHIBIT 2.8
AMENDMENT TO
PROVISIONS CONCERNING PURCHASE AND SALE OF REAL ESTATE
THIS AMENDMENT TO PROVISIONS CONCERNING PURCHASE AND SALE OF REAL
ESTATE (this "AMENDMENT") is entered into as of November 25, 1996, by and among
BLAIR BUSINESS COLLEGE, INC., a Colorado corporation, PHILLIPS COLLEGE OF
DENVER, INC., a Colorado corporation, and PHILLIPS EDUCATIONAL GROUP OF CENTRAL
FLORIDA, INC., a Florida corporation, (each a "SELLER" and collectively
"SELLERS"), PHILLIPS COLLEGES, INC., a Mississippi corporation ("PHILLIPS" and,
together with Sellers, "SELLING PARTIES") and CORINTHIAN COLLEGES, INC., a
Delaware corporation ("BUYER"). (Sellers, Phillips and Buyer are sometimes
referred to collectively herein as the "PARTIES.")
R E C I T A L S
- - - - - - - -
A. All initially capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Master Asset Purchase Agreement dated
October 17, 1996, by and between Buyer, as buyer, and Selling Parties, as
seller, (the "MASTER PURCHASE AGREEMENT") and the Schools Acquisition Agreement
dated October 17, 1996, by and between Buyer's affiliates, namely Rhodes
Colleges, Inc. ("RHODES") and Florida Metropolitan University, Inc. ("FMU"), as
buyer, and Selling Parties, as seller, (the "SCHOOLS AGREEMENT"). (The Master
Purchase Agreement and the Schools Agreement are sometimes referred to
collectively herein as the "ASSET PURCHASE AGREEMENTS.")
B. Under the Asset Purchase Agreements, Buyer, Rhodes and FMU have
purchased and Selling Parties have sold certain intangible assets and personal
property formerly owned and used by Selling Parties in operating post-secondary,
vocational training schools ("SCHOOLS").
C. Sellers are the fee simple owners of certain real properties
(collectively, the "PROPERTIES") that, generally speaking, comprise land,
buildings and facilities formerly utilized by Sellers in the operation of the
Schools located on and associated with the Properties.
D. In connection with the consummation of the transaction described in
the Asset Purchase Agreements, the Parties have entered into those certain
Provisions Concerning Purchase and Sale of Real Estate (the "REAL ESTATE
PURCHASE AGREEMENT") dated as of October 17, 1996, under which Buyer intends to
purchase and Sellers intend to sell the Properties. Pending the closing of the
transaction contemplated by the Real Estate Purchase Agreement, and pursuant to
Section 13 thereof, Buyer has occupied the Properties as lessee since the date
of the closing of the transaction described in the Asset Purchase Agreements.
<PAGE>
E. Close of Escrow on the Properties has been delayed in part by the
Parties' attempts to resolve certain concerns relating to asserted zoning
violations affecting the Blair Junior College Tract. These zoning violations are
generally described in the October 21, 1996 letter from Pam Brady, Zoning
Inspector for the City of Colorado Springs (the "CITY"), to First American
Heritage Title Company (the "ZONING LETTER"), a copy of which is attached as
Exhibit A.
- ---------
F. By this Amendment, the Parties desire to amend the Real Estate
Purchase Agreement by extending the Close of Escrow and by otherwise providing
for the manner in which the zoning violations mentioned above shall be resolved.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing Recitals, which by this
reference are incorporated herein, and in further consideration of the mutual
covenants, agreements and conditions set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Buyer and Selling Parties agree as follows:
1. CLOSE OF ESCROW. The Close of Escrow, as established in Section 6.f
of the Real Estate Purchase Agreement, is extended to and shall take place on
December 6, 1996. The Parties intend to close on all Properties at the Close of
Escrow, as so extended.
2. CURE OF ZONING VIOLATIONS. The zoning violations relating to the
Blair Junior College Tract shall be resolved, and the costs arising therefrom
shall be apportioned, in the following manner:
A. DEFINITION OF ZONING VIOLATIONS. As used herein, "ZONING
VIOLATIONS" shall mean those violations of local zoning ordinances or
regulations, or matters not in compliance therewith, that are based on the
composition and condition of the Blair Junior College Tract and associated
Property as such Tract and Property existed on October 17, 1996.
B. CURE OF ZONING VIOLATIONS. Buyer shall diligently prosecute the
cure and remediation of the Zoning Violations and shall take all action in
connection therewith as Buyer may reasonably consider necessary. Notwithstanding
the foregoing, Selling Parties shall retain the following rights and
obligations:
I. PRIOR APPROVAL. Buyer shall submit to Selling Parties, for
Selling Parties' approval and authorization, any individual bid, proposal,
contract and expense related to the cure and remediation of the Zoning
2
<PAGE>
Violations that is, or is reasonably expected to be, in excess of $3,000.
In the event that Buyer does not submit any such matter to Selling Parties
before Buyer becomes obligated therefor, Selling Parties shall have no
responsibility under Section 2.c to reimburse Buyer for the costs and
-----------
expenses of such matter. In the event that Selling Parties do not advise
Buyer of their approval or disapproval of any matter submitted to them in
accordance with this Section 2.b.i within seven (7) business days of
-------------
Buyer's submission of the same to Selling Parties, it shall be conclusively
deemed that Selling Parties have given their approval and authorization for
Buyer to become obligated for such matter. In the event that Selling
Parties disapprove any matter submitted to them in accordance with this
Section 2.b.i, the Parties shall resolve their differences in accordance
-------------
with Section 17.b of the Real Estate Purchase Agreement.
II. INTERCESSION. At any time and from time to time, but always
upon prior notice to and in cooperation with Buyer, Selling Parties may,
but need not unless required by law, intercede and participate in the
negotiations and proceedings between Buyer and the City relating to the
Zoning Violations. In all such events, Selling Parties shall coordinate
their efforts and strategies with Buyer and Buyer's counsel in advance of
any intercession or participation.
C. COSTS OF CURING ZONING VIOLATIONS. Except as expressly provided
herein, Selling Parties shall reimburse Buyer for all costs and expenses
incurred by Buyer (and approved or deemed approved by Selling Parties if
required by Section 2.b.i hereof) to cure and remediate the Zoning Violations.
-------------
Promptly upon receipt of the same, Buyer shall remit all invoices and statements
relating to such costs and expenses to Selling Parties. In the event that Buyer
has not received payment on any such invoice or statement within ten (10) days
of remitting the same to Selling Parties, or in the event that any payment by
Selling Parties on such an invoice or statement is returned, dishonored or the
like, Buyer may, without prior notice or consent, offset the amount then due and
owing from the next payment to be made by Buyer to any of the Selling Parties
pursuant to or in connection with the Asset Purchase Agreements, the Real Estate
Purchase Agreement or any related or ancillary document or instrument. Buyer
shall immediately provide notice to Selling Parties upon any exercise of this
right of offset.
D. TERMINATION OF OBLIGATIONS. Upon the City's issuance of a letter
or memorandum indicating that all Zoning Violations have been cured and
remediated (a "COMPLIANCE LETTER"), Selling Parties' obligations under this
Section 2 shall be deemed discharged, except to the extent that any sums are due
- ---------
and owing to Buyer in accordance with Section 2.c.
-----------
3
<PAGE>
Notwithstanding the foregoing, the City's unwillingness to issue a Compliance
Letter based on violations of zoning ordinances, if any, that do not qualify as
Zoning Violations shall not delay the discharge of Selling Parties' obligations
hereunder, provided that all Zoning Violations have been cured and remediated.
Notwithstanding anything herein to the contrary, Selling Parties' obligations
under this Section 2 shall be conclusively deemed discharged as of December 6,
---------
1997.
E. NOTICES. Except as expressly provided to the contrary herein,
all notices to be given and submissions to be made hereunder, and the effective
date thereof, shall be governed by and determined in accordance with Section 16
of the Real Estate Purchase Agreement.
F. ZONING ENDORSEMENT. Because of the alleged Zoning Violations,
Endorsement Form 123.2 (Zoning) will not be a Scheduled Endorsement to the Title
Policy insuring the Blair Junior College Tract; provided, that upon the City's
issuance of the Compliance Letter, Buyer may request such zoning endorsement
from the Title Company. If the Title Company issues the zoning endorsement to
Buyer, the Selling Parties will reimburse Buyer for the cost of such endorsement
(based on the premium in effect as of the Close of Escrow).
3. RATIFICATION. Except as expressly modified and amended herein, the
terms and provisions of the Real Estate Purchase Agreement remain in full force
and effect as set forth therein and are hereby ratified by the Parties.
[SIGNATURES BEGIN ON NEXT PAGE.]
4
<PAGE>
IN WITNESS WHEREOF, Buyer, Sellers and Phillips have executed this
Amendment as of the day and year first above written.
"PHILLIPS"
PHILLIPS COLLEGES, INC.,
a Mississippi corporation
By:________________________________________
Name:_________________________________
Title:________________________________
"SELLERS"
BLAIR BUSINESS COLLEGE, INC.,
a Colorado corporation
By:________________________________________
Name:_________________________________
Title:________________________________
PHILLIPS COLLEGE OF DENVER, INC.,
a Colorado corporation
By:________________________________________
Name:_________________________________
Title:________________________________
PHILLIPS EDUCATIONAL GROUP OF CENTRAL
FLORIDA, INC., a Florida corporation
By:________________________________________
Name:_________________________________
Title:________________________________
5
<PAGE>
"BUYER"
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
By:________________________________________
Name:_________________________________
Title:________________________________
6
<PAGE>
EXHIBIT A
COPY OF ZONING LETTER
---------------------
[ATTACHED]
A-1
<PAGE>
EXHIBIT 3.1
SECOND RESTATED CERTIFICATE OF INCORPORATION OF
CORINTHIAN COLLEGES, INC.
ARTICLE I: NAME
----
The name of this corporation (the "Corporation") is Corinthian
Colleges, Inc.
ARTICLE II: REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle, and the name of its registered agent at that address is Corporate
Agents, Inc.
ARTICLE III: PURPOSE
-------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV: CAPITAL STOCK
-------------
A. Authorized Stock
----------------
The total number of shares of capital stock which the Corporation has
authority to issue is 10,000,000 shares, consisting of;
(1) 500,000 shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock");
(2) 9,000,000 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common"); and
(3) 500,000 shares of Class B Common Stock, par value $.01 per share
(the "Class B Common").
The Class A Common and the Class B Common are hereafter collectively
referred to as the "Common Stock."
Upon the effectiveness of the first Restated Certificate of
Incorporation of the Corporation, filed with the Secretary of State of the State
of Delaware on September 24, 1996, each outstanding share of the Corporation's
common stock, par value $.01 per share, was without further action by the
Corporation or the holder thereof reclassified, changed and converted into one
share of Class A Common.
2
<PAGE>
B. Preferred Stock
---------------
Shares of Preferred Stock may be issued from time to time in one or
more series. The board of Directors of the Corporation is hereby authorized to
determine and alter all rights, preferences, privileges and qualifications,
limitations and restrictions thereof (including, without limitation, voting
rights and the limitation and exclusion thereof) granted to or imposed upon any
wholly unissued series of Preferred Stock and the number of shares constituting
any such series and the designation thereof, and to increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares of any series subsequent to the issue of shares of that series then
outstanding. In the event that the number of shares of any series is so
decreased, the shares constituting such reduction shall resume the status which
such shares had prior to the adoption of the resolution originally fixing the
number of shares of such series.
Pursuant to the provisions of this Article IV, there is hereby created
a series of Preferred Stock designated as "Class A Series 1 Preferred Stock"
consisting of 18,125 shares (the "Series 1 Preferred"), a series of Preferred
Stock designated a "Class A Series 2 Preferred Stock" consisting of 25,000
shares (the "Series 2 Preferred"), and a series of Preferred Stock designated as
"Class A Series 3 Preferred Stock" consisting of 25,000 shares (the "Series 3
Preferred" and together with the Series 2 Preferred, the "Convertible
Preferred"), in each case having designations, powers, rights and preferences as
follows (the Series 1 Preferred, Series 2 Preferred and the Series 3 Preferred
collectively referred to herein as the "Class A Preferred"):
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
board of directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends to the holders of
the Class A Preferred as provided in this Section 1. Except as otherwise
provided herein, dividends on each share of the Series 1 Preferred shall accrue
on a daily basis at the rate of 6% per annum until June 30, 2002 and 12% per
annum thereafter of the sum of the Liquidation Value thereof plus all
accumulated and unpaid dividends thereon, from and including the date of
issuance to and including the date on which the Liquidation Value of such share
of Series 1 Preferred (plus all accrued and unpaid dividends thereon) is paid.
Except as otherwise provided herein, dividends on each share of the Convertible
Preferred shall accrue on a daily basis at the rate of 8% per annum of the sum
of the Liquidation Value thereof plus all accumulated and unpaid dividends
thereon, from and including the date of issuance to and including the first to
occur of (i) the date on which the Liquidation Value of such share of
Convertible Preferred (plus all accrued and unpaid dividends thereon) is paid to
the holder thereof in connection with the liquidation of the Corporation or the
redemption of such share by the Corporation, (ii) the date on which such share
of Convertible Preferred is converted into shares of Conversion Stock hereunder
or (iii) the date on which such share of Convertible Preferred is otherwise
acquired by the Corporation. Such dividends shall accrue whether or not they
have been declared and whether or not there are profits, surplus or other funds
of the Corporation legally available for the payment of dividends. Such
dividends shall be cumulative such that all accrued and unpaid dividends shall
be fully paid or declared with funds irrevocably set apart for payment before
any dividend, distribution or payment may be made with respect to any Junior
Securities. The date on which the Corporation initially issues any share of
Class A Preferred (a "Share") shall be deemed to be its "date of
3
<PAGE>
issuance" regardless of the number of times transfer of such Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Share.
1B. Dividend Reference Dates. To the extent not paid on March 31,
------------------------
June 30, September 30 and December 31 of each year, beginning September 30, 1995
(the "Dividend Reference Dates"), all dividends which have accrued on each Share
outstanding during the three-month period (or other period in the case of the
initial Dividend Reference Date) ending upon each such Dividend Reference Date
shall be accumulated and shall remain accumulated dividends with respect to such
Share until paid.
1C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Class A Preferred, such payment
shall be distributed ratably among the holders of the Class A Preferred based
upon the aggregate accrued but unpaid dividends on the Shares held by each such
holder.
1D. Participating Dividends. In addition to the dividends accruing
-----------------------
on the Convertible Preferred under paragraph 1A above, in the event that the
Corporation declares or pays any dividends upon the Common Stock (whether
payable in cash, securities or other property) other than dividends payable
solely in shares of Common Stock, the Corporation shall also declare and pay to
the holders of the Convertible Preferred at the same time that it declares and
pays such dividends to the holders of the Common Stock, the dividends which
would have been declared and paid with respect to the Common Stock issuable upon
conversion of the Convertible Preferred had all of the outstanding Convertible
Preferred been converted immediately prior to the record date for such dividend,
or if no record date is fixed, the date as of which the record holders of Common
Stock entitled to such dividends are to be determined.
Section 2. Liquidation. Upon any liquidation, dissolution or winding
-----------
up of the Corporation, each holder of Series 1 Preferred shall be entitled to be
paid, pari passu with the holders of the Convertible Preferred pursuant to
clause (a) below and before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the aggregate Liquidation Value (plus all
accrued and unpaid dividends) of all shares of Series 1 Preferred held by such
holder, and the holders of Series 1 Preferred shall not be entitled to any
further payment. Upon any liquidation, dissolution or winding up of the
Corporation, each holder of Convertible Preferred shall be entitled to be paid
the greater of (a) an amount in cash equal to the aggregate Liquidation Value
(plus all accrued and unpaid dividends) of all Shares of Convertible Preferred
held by such holder, pari passu with the holders of the Series 1 Preferred and
before any distribution or payment is made upon any Junior Securities or (b) the
amount that such holder of the Convertible Preferred would receive on an "as if"
converted basis with the holders of the Common Stock as a single class in the
distribution of assets of the Corporation with respect to the Common Stock after
payment of all amounts to the holders of Series 1 Preferred pursuant to this
Section 2, and the holders of Convertible Preferred shall not be entitled to any
further payment. If upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Class A Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid, then the entire assets to
be distributed shall be distributed
4
<PAGE>
ratably among such holders based upon the aggregate Liquidation Value (plus all
accrued and unpaid dividends) of the Class A Preferred held by each such holder.
The Corporation shall mail written notice of such liquidation, dissolution or
winding up, not less than 60 days prior to the payment date stated therein, to
each record holder of Class A Preferred. Neither the consolidation or merger of
the Corporation into or with any other entity or entities, nor the sale or
transfer by the Corporation of all or any part of its assets, nor the reduction
of the capital stock of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
2.
Section 3. Priority of Class A Preferred. So long as any Class A
-----------------------------
Preferred remains outstanding, neither the Corporation nor any Subsidiary shall
redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution upon any Junior Securities; provided that the
Corporation may purchase shares of Common Stock from present or former employees
of the Corporation and its Subsidiaries in accordance with the provisions of the
Executive Stock Agreement so long as no Event of Noncompliance is in existence
at the time of or immediately after such purchase.
Section 4. Redemptions.
-----------
4A. Scheduled Redemptions of Series 1 Preferred; Optional Redemption
----------------------------------------------------------------
by the Holders of the Series 1 Preferred. The Corporation shall redeem all
- ----------------------------------------
outstanding Shares of Series 1 Preferred on October 31, 2005 (the "Scheduled
Redemption Date") at a price per Share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). At any time and from time to
time after June 30, 2001, the holders of a majority of the outstanding Shares of
Series 1 Preferred may request redemption of all or any portion of their Shares
of Series 1 Preferred by delivering written notice of such request to the
Corporation; provided that such redemption would not conflict with the terms of
or constitute a default or event of default under the Note Agreement or the Sub-
Debt Agreement. Within five days after receipt of such request, the Corporation
shall give written notice of such request to all other holders of Series 1
Preferred, and such other holders may request redemption of all or any portion
of their Shares of Series 1 Preferred by delivering written notice to the
Corporation within ten days after receipt of the Corporation's notice. The
Corporation shall be required to redeem all Shares with respect to which such
redemption requests have been made pursuant to this paragraph 4A which would not
conflict with the terms of or constitute a default or event of default under the
Note Agreement or the Sub-Debt Agreement at a price per Share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon) within
60 days after receipt of the initial redemption request therefor. No
redemptions pursuant to this paragraph 4A shall be requested for less than an
aggregate of 100 Shares (or such lesser number of Shares of Series 1 Preferred
then outstanding), and redemptions made pursuant to this paragraph shall not
relieve the Corporation of its obligation to redeem Shares of the Series 1
Preferred on the Scheduled Redemption Date.
4B. Optional Redemptions by the Corporation of Series 1 Preferred.
-------------------------------------------------------------
The Corporation may at any time, and from time to time, redeem all or any
portion of the Series 1 Preferred then outstanding. In connection with any such
redemption, the Corporation shall pay a price per Share
5
<PAGE>
equal to the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon) if such redemption would not conflict with the terms of or constitute a
default or event of default under the Note Agreement or the Sub-Debt Agreement.
No redemption pursuant to this paragraph may be made for less than 100 Shares
(or such lesser number of Shares of Series 1 Preferred then outstanding), and
redemptions made pursuant to this paragraph shall not relieve the Corporation of
its obligation to redeem Shares of the Series 1 Preferred on the Scheduled
Redemption Date.
4C. Redemption of Series 1 Preferred After Public Offering. The
------------------------------------------------------
Corporation shall, at the request (by written notice given to the Corporation)
of the holders of a majority of the Series 1 Preferred, apply the net cash
proceeds from any Public Offering remaining after deduction of all discounts,
underwriters' commissions and other reasonable expenses to redeem Shares of
Series 1 Preferred at a price per Share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon) if such redemption would not
conflict with the terms of or constitute a default or event of default under the
Note Agreement or the Sub-Debt Agreement. Such redemption shall take place on a
date fixed by the Corporation, which date shall be not more than five days after
the Corporation's receipt of such proceeds. Redemptions of Shares of Series 1
Preferred pursuant to this paragraph shall not relieve the Corporation of its
obligation to redeem Shares of Series 1 Preferred on the Scheduled Redemption
Date.
4D. Optional Redemptions by the Holders of Convertible Preferred. At
------------------------------------------------------------
any time and from time to time after June 30, 2001, the holders of a majority of
the outstanding Convertible Preferred may request redemption of all or any
portion of their Shares of Convertible Preferred by delivering written notice of
such request to the Corporation; provided that in no event will the Corporation
redeem Shares of Convertible Preferred in connection with such request having a
Liquidation Value in excess of $4,000,000 (the "Optional Redemption Limit") and
-------------------------
in no event will the Corporation redeem Shares of Convertible Preferred in
connection with such request if such redemption would conflict with the terms of
or constitute a default or event of default under the Note Agreement or the Sub-
Debt Agreement. Within five days after receipt of such request, the Corporation
shall give written notice of such request to all other holders of Convertible
Preferred, and such other holders may request redemption of all or any portion
of their Shares of Convertible Preferred by delivering written notice to the
Corporation within ten days after receipt of the Corporation's notice. If the
Liquidation Value of the Shares requested to be included in such redemption
exceeds the Optional Redemption Limit, the Corporation shall include in such
redemption the number of Shares requested to be included pro rata among the
respective holders thereof based upon the aggregate Liquidation Value of such
Shares (plus all accrued and unpaid dividends thereon) held by such holder. At
any time and from time to time after October 17, 2004, the holders of a majority
of the outstanding Convertible Preferred may request redemption of all or any
portion of the remaining Shares of Convertible Preferred by delivering written
notice of such request to the Corporation if such redemption would not conflict
with the terms of or constitute a default or event of default under the Note
Agreement or the Sub-Debt Agreement. Within five days after receipt of such
request, the Corporation shall give written notice of such request to all other
holders of Convertible Preferred, and such other holders may request redemption
of all or any portion of their Shares of Convertible Preferred by delivering
written notice to the Corporation within ten days after receipt of the
Corporation's notice. The Corporation shall be required to redeem all Shares
with respect to which such redemption requests have been made pursuant to this
paragraph 4D at a price per Share equal to the Liquidation Value thereof (plus
all accrued and
6
<PAGE>
unpaid dividends thereon) within 60 days after receipt of the initial redemption
request therefor. No redemptions pursuant to this paragraph 4D shall be
requested for less than an aggregate of 100 Shares (or such lesser number of
Shares of Convertible Preferred then outstanding), and redemptions pursuant to
this paragraph 4D shall not relieve the Corporation of its obligation to redeem
Shares pursuant to paragraph 4K below.
4E. Redemption Payment. For each Share which is to be redeemed, the
------------------
Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such Share) an amount in immediately available
funds equal to the Liquidation Value of such Share (plus all accrued and unpaid
dividends thereon). If the funds of the Corporation legally available for
redemption of Share on any Redemption Date are insufficient to redeem the total
number of Shares to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of Shares ratably
among the holders of the Shares to be redeemed based upon the aggregate
Liquidation Value of such Shares (plus all accrued and unpaid dividends thereon)
held by each such holder. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares, such funds shall
immediately be used to redeem the balance of the Shares which the Corporation
has become obligated to redeem on any Redemption Date but which it has not
redeemed.
4F. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of the Class A
Preferred to each record holder of the Class A Preferred not more than 60 nor
less than 10 days prior to the date on which such redemption is to be made.
Upon mailing any notice of redemption which relates to a redemption at the
Corporation's option, the Corporation shall become obligated to redeem the total
number of Shares specified in such notice at the time of redemption specified
therein. In case fewer than the total number of Shares represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed Shares shall be issued to the holder thereof without cost to such
holder within three business days after surrender of the certificate
representing the redeemed Shares.
4G. Determination of the Number of Each Holder's Shares to be
---------------------------------------------------------
Redeemed. Except as otherwise proved herein, the number of Shares of Class A
- --------
Preferred to be redeemed from each holder thereof in redemptions hereunder shall
be the number of Shares determined by multiplying the total number of Shares to
be redeemed times a fraction, the numerator of which shall be the aggregate
Liquidation Value (plus all accrued but unpaid dividends thereon) of all Shares
then held by such holder and the denominator of which shall be the aggregate
Liquidation Value (plus all accrued but unpaid dividends thereon) of all Shares
then outstanding.
4H. Dividends After Redemption Date. No Share is entitled to any
-------------------------------
dividends accruing after the date on which the Liquidation Value of such Share
(plus all accrued and unpaid dividends thereon) is paid to the holder thereof.
On such date all rights of the holder of such Share shall cease, and such Share
shall not be deemed to be outstanding.
4I. Redeemed or Otherwise Acquired Shares. Any Shares which are
-------------------------------------
redeemed or otherwise acquired by the Corporation shall be canceled and shall
not be reissued, sold or transferred.
7
<PAGE>
4J. Other Redemptions or Acquisitions. Neither the Corporation nor
---------------------------------
any Subsidiary shall redeem or otherwise acquire any Class A Preferred, except
as expressly authorized herein.
4K. Special Redemptions.
-------------------
(i) If a Change in Ownership has occurred or the Corporation
obtains knowledge that a Change in Ownership is to occur, the Corporation shall
give prompt written notice of such Change in Ownership describing in reasonable
detail the definitive terms and date of consummation thereof to each holder of
Class A Preferred, but in any event such notice shall not be given later than
five days after the occurrence of such Change in Ownership. The holder or
holders of a majority of the Class A Preferred then outstanding may require the
Corporation to redeem all or any portion of the Class A Preferred owned by such
holder or holders at a price per Share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon) by giving written notice to the
Corporation of such election prior to the later of (a) 21 days after receipt of
the Corporation's notice and (b) five days prior to the consummation of the
Change in Ownership (the "Expiration Date"). The Corporation shall give prompt
written notice of any such election to all other holders of Class A Preferred
within five days after the receipt thereof, and each such holder shall have
until the later of (a) the Expiration Date or (b) 10 days after receipt of such
second notice to request redemption (by giving written notice to the
Corporation) of all or any portion of the Class A Preferred owed by such holder.
Upon receipt of such election(s), the Corporation shall be obligated to redeem
the aggregate number of Shares specified therein on the later of (a) the
occurrence of the Change in Ownership or (b) five days after the Corporation's
receipt of such election(s). If in any case a proposed Change in Ownership does
not occur, all requests for redemption in connection therewith shall be
automatically rescinded. The term "Change in Ownership" means any sale or
issuance or series of sales and/or issuances of Common Stock by the Corporation
or any holders thereof which results in any Person or group of affiliated
Persons (other than the owners of Common Stock as of the filing of this Second
Restated Certificate of Incorporation) owning more than 50% of the Common Stock
outstanding at the time of such sale or issuance or series of sales and/or
issuances.
(ii) If a Fundamental Change is proposed to occur, the
Corporation shall give written notice of such Fundamental Change describing in
reasonable detail the definitive terms and date of consummation thereof to each
holder of Class A Preferred not more than 45 days nor less than 10 days prior to
the consummation thereof. The holder or holders of a majority of the Class A
Preferred then outstanding may require the Corporation to redeem all or any
portion of the Class A Preferred owned by such holder or holders at a price per
share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon) by giving written notice to the Corporation of such election
prior to the later of (a) 10 days prior to consummation of the Fundamental
Change or (b) 10 days after receipt of notice from the Corporation. The
Corporation shall give prompt written notice of such election to all other
holders of Class A Preferred (but in any event within five days prior to the
consummation of the Fundamental Change), and each such holder shall have until
two days after the receipt of such notice to request redemption (by written
notice given to the Corporation) of all or any portion of the Class A Preferred
owned by such holder. Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Shares specified therein upon the
consummation of such Fundamental Change. If any proposed Fundamental Change does
not occur, all requests for redemption in connection therewith shall be
8
<PAGE>
automatically rescinded. The term "Fundamental Change" means (a) a sale or
transfer of more than 50% of the assets of the Corporation and its Subsidiaries
on a consolidated basis (measured by either book value in accordance with
generally accepted accounting principles consistently applied or fair market
value determined in the reasonable good faith judgment of the Corporation's
board of directors) in any transaction or series of transactions (other than
sales in the ordinary course of business) and (b) any merger or consolidation to
which the Corporation is a party, except for a merger in which the Corporation
is the surviving corporation and, after giving effect to such merger, the
holders of the Corporation's outstanding capital stock possessing the voting
power (under ordinary circumstances) to elect a majority of the Corporation's
board of directors immediately prior to the merger shall own the Corporation's
outstanding capital stock possessing the voting power (under ordinary
circumstances) to elect a majority of the Corporation's board of directors.
(iii) Redemptions made pursuant to this paragraph 4K shall not
relieve the Corporation of its obligation to redeem Series 1 Preferred on the
Scheduled Redemption Date pursuant to paragraph 4A hereof.
Section 5. Events of Noncompliance.
-----------------------
5A. Definition. An "Event of Noncompliance" shall be deemed to have
----------
occurred if:
(i) the Corporation (a) fails to pay on any Dividend Reference Date
(beginning with the Dividend Reference Date on December 31, 1998) the full
amount of dividends then accrued on the Series 1 Preferred, whether or not such
payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject or (b) fails to pay on any Dividend Reference Date
(beginning with the Dividend Reference Date on December 31, 1998) the full
amount of dividends then accrued on the Convertible Preferred, whether or not
such payment is legally permissible or is prohibited by any agreement to which
the Corporation is subject;
(ii) the Corporation fails to make any redemption payment with
respect to the Class A Preferred which it is obligated to make hereunder,
whether or not such payment is legally permissible or is prohibited by any
agreement to which the Corporation is subject;
(iii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Purchase
Agreements or the Registration Agreement;
(iv) any representation or warranty contained in the Purchase
Agreements or required to be furnished to any holder of Class A Preferred
pursuant to the Purchase Agreements, or any information contained in writing
furnished by the Corporation or any Subsidiary to any holder of Class A
Preferred, is false or misleading in any material respect on the date made or
furnished;
(v) the Corporation or any Subsidiary makes an assignment for the
benefit of creditors or admits in writing its ability to pay its debts generally
as they become due; or any order, judgment or decree is entered adjudicating the
Corporation or any Subsidiary bankrupt or insolvent; or any order for relief
with respect to the Corporation or any Subsidiary is entered under the Federal
Bankruptcy Code; or the Corporation or any Subsidiary petitions or applies to
any
9
<PAGE>
tribunal for the appointment of a custodian, trustee, receiver or liquidator of
the Corporation or any Subsidiary or of any substantial part of the assets of
the Corporation or any Subsidiary, or commences any proceeding (other than a
proceeding for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Corporation or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or any such petition or application is
filed, or any such proceeding is commenced, against the Corporation of any
Subsidiary and either (a) the Corporation or any such Subsidiary by any act
indicates its approval thereof, consent thereto or acquiescence therein or (b)
such petition, application or proceeding is not dismissed within 60 days;
(vi) a judgment in excess of $50,000 is rendered against the
Corporation or any Subsidiary and, within 60 days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not discharged;
(vii) the Corporation or any Subsidiary defaults in the performance
of any obligation or agreement if the effect of such default is to cause an
amount exceeding $50,000 to become due prior to its stated maturity or to permit
the holder or holders of any obligation to cause an amount exceeding $50,000 to
become due prior to its stated maturity; or
(viii) any of the provisions of the Executive Stock Agreements that
are for the benefit of the "Investors" (as such term is defined therein) are
violated by any of the "Executives" (as such term is defined therein).
Notwithstanding the foregoing, the foregoing clauses (i) through (iv) and (vi)
through (viii) of this paragraph 5A shall not be deemed Events of Non-Compliance
so long as the "Debt" (as defined in the Note Agreement) in outstanding
----
principal amounts, plus amounts which the Corporation is permitted to borrow
thereunder, aggregate to at least $2.5 million).
5B. Consequences of Events of Noncompliance.
---------------------------------------
(i) If any Event of Noncompliance has occurred, the holder or holders
of a majority of the Class A Preferred then outstanding may demand (by written
notice delivered to the Corporation) immediate redemption of all or any portion
of the Class A Preferred owned by such holder or holders at a price per Share
equal to the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon). The Corporation shall give prompt written notice of such election to
the other holders of Class A Preferred (but in any event within five days after
receipt of the initial demand for redemption), and each such other holder may
demand immediate redemption of all or any portion of such holder's Class A
Preferred by giving written notice thereof to the Corporation within seven days
after receipt of the Corporation's notice. The Corporation shall redeem all
Class A Preferred as to which rights under this paragraph have been exercised
within 15 days after receipt of the initial demand for redemption.
(ii) If any Event of Noncompliance exists, each holder of Class A
Preferred shall also have any other rights which such holder is entitled to
under any contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law.
10
<PAGE>
Section 6. Conversion.
----------
6A. Conversion Procedure.
--------------------
(i) At any time and from time to time, any holder of Convertible
Preferred may convert all or any portion of the Convertible Preferred held by
such holder into a number of shares of Conversion Stock computed by multiplying
the number of Shares to be converted by $100 and dividing the result by the
Conversion Price then in effect.
(ii) Except as otherwise provided herein, each conversion of
Convertible Preferred shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Convertible Preferred to be converted have been surrendered for conversion at
the principal office of the Corporation. At the time any such conversion has
been effected, the rights of the holder of the Shares converted as a holder of
Convertible Preferred shall cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Conversion Stock are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Conversion Stock represented thereby.
(iii) The conversion rights of any Share subject to redemption
hereunder shall terminate on the Redemption Date for such Share unless the
Corporation has failed to pay to the holder thereof the Liquidation Value of
such Share (plus all accrued and unpaid dividends thereon).
(iv) Notwithstanding any other provision hereof, if a conversion of
Convertible Preferred is to be made in connection with a Public Offering, a
Change in Ownership, a Fundamental Change or other transaction affecting the
Corporation, the conversion of any Shares of Convertible Preferred may, at the
election of the holder thereof, be conditioned upon the consummation of such
transaction, in which case such conversion shall not be deemed to be effective
until immediately prior to the consummation of such transaction.
(v) As soon as possible after a conversion has been effected (but
in any event within five business days in the case of subparagraph (a) below),
the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(b) payment in an amount equal to all accrued dividends with
respect to each Share converted which have not been paid prior thereto in
accordance with the provisions of subparagraph (vi) below, plus the amount
payable under subparagraph (x) below with respect to such conversion; and
(c) a certificate representing any Shares of Convertible
Preferred which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted.
11
<PAGE>
(vi) If the Corporation is not permitted under applicable law to pay
any portion of the accrued and unpaid dividends on the Convertible Preferred
being converted, the Corporation shall pay such dividends to the converting
holder as soon thereafter as funds of the Corporation are legally available for
such payment. At the request of any such converting holder, the Corporation
shall provide such holder with written evidence of its obligation to such
holder. Notwithstanding the foregoing provisions of this subparagraph (vi), if
for any reason the Corporation is unable to pay any portion of the accrued and
unpaid dividends on Convertible Preferred being converted, such dividends may,
at the converting holder's option, be converted into an additional number of
shares of Conversion Stock determined by dividing the amount of the unpaid
dividends to be applied for such purpose, by the Conversion Price then in
effect.
(vii) The issuance of certificates for shares of Conversion Stock
upon conversion of Convertible Preferred shall be made without charge to the
holders of such Convertible Preferred for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Conversion Stock. Upon conversion of each
Share of Convertible Preferred, the Corporation shall take all such actions as
are necessary in order to ensure that the Conversion Stock issuable with respect
to such conversion shall be validly issued, fully paid and nonassessable, free
and clear of all taxes (other than any taxes relating to any dividends paid with
respect thereto), liens, charges and encumbrances with respect to the issuance
thereof.
(viii) The Corporation shall not close its books against the transfer
of Convertible Preferred or of Conversion Stock issued or issuable upon
conversion of Convertible Preferred in any manner which interferes with the
timely conversion of Convertible Preferred. The Corporation shall assist and
cooperate with any holder of Shares required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of Shares hereunder (including, without limitation, making any filings required
to be made by the Corporation).
(ix) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Convertible Preferred, such
number of shares of Conversion Stock issuable upon the conversion of all
outstanding Convertible Preferred. All shares of Conversion Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Conversion Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Conversion Stock may be listed (except for official notice
of issuance which shall be immediately delivered by the Corporation upon each
such issuance). The Corporation shall not take any action which would cause the
number of authorized but unissued shares of Conversion Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
conversion of the Convertible Preferred.
(x) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph, be delivered upon any
conversion of the Convertible Preferred, the Corporation, in lieu of delivering
the fractional share therefor, shall pay an amount to the holder thereof equal
to the Market Price of such fractional interest as of the date of conversion.
12
<PAGE>
(xi) If the shares of Conversion Stock issuable by reason of
conversion of Convertible Preferred are convertible into or exchangeable for any
other stock or securities of the Corporation, the Corporation shall, at the
converting holder's option, upon surrender of the Shares to be converted by such
holder as provided herein together with any notice, statement or payment
required to effect such conversion or exchange of Conversion Stock, deliver to
such holder or as otherwise specified by such holder a certificate or
certificates representing the stock or securities into which the shares of
Conversion Stock issuable by reason of such conversion are so convertible or
exchangeable, registered in such name or names and in such denomination or
denominations as such holder has specified.
6B. Conversion Price.
----------------
(i) The initial Conversion Price shall be $254,975. In order to
prevent dilution of the conversion rights granted under this Section 6, the
Conversion Price shall be subject to adjustment from time to time pursuant to
this paragraph 6B.
(ii) If and whenever after the original date of issuance of the
Convertible Preferred the Corporation issues or sells, or in accordance with
paragraph 6C is deemed to have issued or sold, any share of Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to such time, then immediately upon such issue or sale or deemed issue or
sale the Conversion Price shall be reduced, except in cases where the second
sentence of subparagraph 6B(iii) is applicable or in cases where subparagraph
6C(ix) is applicable, to the lowest net price per share at which any such share
of Common Stock has been issued or sold or is deemed to have been issued or
sold.
(iii) For the purposes of this paragraph 6B and paragraph 6C, any
Class B Common purchased by the Executives pursuant to the Executive Stock
Agreements which will vest upon a Trigger Event (the "Earnback Shares") and any
---------------
Common Stock issuable upon exercise of the Contingent Warrants (the "Contingent
----------
Warrant Shares") shall not be deemed to be issued and outstanding on the date of
- --------------
issuance of the Convertible Preferred and shall be deemed to be issued at the
time of vesting of the Earnback Shares as a result of the occurrence of such
Trigger Event. Notwithstanding anything to the contrary set forth in this
paragraph 6B or in paragraph 6C, if the Earnback Shares vest and/or the
Contingent Warrant Shares are issuable, the Conversion Price shall be reduced to
the Conversion Price determined by dividing (a) the product derived by
multiplying the Conversion Price in effect immediately prior to such vesting by
the number of shares of Common Stock Deemed Outstanding immediately prior to
such vesting by (b) the number of shares of Common Stock Deemed Outstanding
(including Earnback Shares and shares issuable upon exercise of the Contingent
Warrants immediately after such vesting).
(iv) In the event the Corporation shall consummate a Qualified
Initial Public Offering on or prior to October 31, 1998, the Conversion Price
shall be increased to the Conversion Price determined by dividing:
(a) the product derived by multiplying (1) the Conversion Price
in effect immediately prior to such Qualified Initial Public Offering by (2) the
number of shares of
13
<PAGE>
Conversion Stock issuable to the holders of the Convertible Preferred at the
Conversion Price in effect immediately prior to such Qualified Initial Public
Offering by
(b) the difference of (1) the number of shares of Conversion Stock
issuable to the holders of the Convertible Preferred at the Conversion Price in
effect immediately prior to such Qualified Initial Public Offering and (2) the
product derived by multiplying the Maximum Conversion Adjustment by the
Percentage Conversion Adjustment.
6C. Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under paragraph 6B, the following
shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in any manner
-----------------------------
grants or sells any Option and the lowest price per share for which any one
share of Common Stock is issuable upon the exercise of any such Option, or upon
conversion or exchange of any Convertible Security issuable upon exercise of any
such Option, is less than the Conversion Price in effect immediately prior to
the time of the granting or sale of such Option, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the granting or sale of such Option for such price
per share. For purposes of this paragraph, the "lowest price per share for
which any one share of Common Stock is issuable" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock or such Convertible Security upon the exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Security.
(ii) Issuance of Convertible Securities. If the Corporation in any
----------------------------------
manner issues or sells any Convertible Security and the lowest price per share
for which any one share of Common Stock is issuable upon conversion or exchange
thereof is less than the Conversion Price in effect immediately prior to the
time of such issue or sale, then such share of Common Stock shall be deemed to
be outstanding and to have been issued and sold by the Corporation at the time
of the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "lowest price per share for which any
one share of Common Stock is issuable" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Corporation with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of any Convertible
Security, and if any such issue or sale of such Convertible Security is made
upon exercise of any Options for which adjustments of the Conversion Price had
been or are to be made pursuant to other provisions of this Section 6, no
further adjustment of the Conversion Price shall be made by reason of such issue
or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
-----------------------------------------
price provided for in any Option, the additional consideration (if any) payable
upon the issue, conversion or exchange of any Convertible Security or the rate
at which any Convertible Security is convertible
14
<PAGE>
into or exchangeable for Common Stock changes at any time, the Conversion Price
in effect at the time of such change shall be adjusted immediately to the
Conversion Price which would have been in effect at such time had such Option or
Convertible Security originally provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of paragraph 6C, if the terms of
any Option or Convertible Security which was outstanding as of the date of
issuance of the Convertible Preferred are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change; provided that no
change shall at any time cause the Conversion Price hereunder to be increased
above the Conversion Price in effect immediately prior to the issuance of such
Option or Convertible Security.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued. For purposes of paragraph 6C, the expiration or termination
of any Option or Convertible Security which was outstanding as of the date of
issuance of the Convertible Preferred shall not cause the Conversion Price
hereunder to be adjusted unless, and only to the extent that, a change in the
terms such Option or Convertible Security caused it to be deemed to have been
issued after the date of issuance of the Convertible Preferred.
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security is
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Corporation shall be the Market Price thereof as of the date of receipt. If any
Common Stock, Option or Convertible Security is issued to the owners of the non-
surviving entity in connection with any merger in which the Corporation is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the fair value of such portion of the net assets and business of the non-
surviving entity as is attributable to such Common Stock, Option or Convertible
Security, as the case may be. The fair value of any consideration other than
cash and securities shall be determined jointly by the corporation and the
holders of a majority of the outstanding Convertible Preferred. If such parties
are unable to reach agreement within a reasonable period of time, the fair value
of such consideration shall be determined by an independent appraiser
experienced in valuing such type of consideration jointly selected by the
Corporation and the holders of a majority of the outstanding Convertible
Preferred. The determination of such appraiser shall be final and binding upon
the parties, and the fees and expenses of such appraiser shall be borne equally
by the Corporation and the holders of the Convertible Preferred.
15
<PAGE>
(vi) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the holders
-----------
of Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
(ix) Notwithstanding the foregoing, there shall be no adjustment in
the Conversion Price as a result of (a) the issuance of any shares of Common
Stock upon the exercise of the Existing Warrants, (b) the issuance of any shares
of Common Stock upon the exercise of the New Warrants and (c) any issue or sale
(or deemed issue or sale) of shares of Common Stock to employees of the
Corporation and its Subsidiaries pursuant to stock option plans and stock
ownership plans approved by the Corporation's Board of Directors.
6D. Subdivision or Combination of Common Stock. If the Corporation at any
------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6E. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
---------------------------------------------------------------
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Corporation's assets or other transaction, in
each case which is effected in such a manner that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as an "Organic Change." Prior to the consummation of any
Organic Change, the Corporation shall make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the Convertible Preferred
then outstanding) to insure that each of the holders of Convertible Preferred
shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Convertible Preferred, such shares of stock, securities or assets as such holder
would have received in connection with such Organic Change if such holder had
converted its Convertible Preferred immediately prior to such Organic Change.
In each such case, the
16
<PAGE>
Corporation shall also make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the Convertible Preferred then
outstanding) to insure that the provisions of this Section 6 and Sections 7 and
8 shall thereafter be applicable to the Convertible Preferred (including, in the
case of any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Corporation, an appropriate adjustment of
the Conversion Price and a corresponding adjustment in the number of shares of
Conversion Stock acquirable and receivable upon conversion of Convertible
Preferred to reflect the treatment of the Common Stock in such consolidation,
merger or sale). The Corporation shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof, the successor entity (if
other than the Corporation) resulting from such consolidation or merger or the
entity purchasing such assets assumes by written instrument (in form and
substance satisfactory to the holders of a majority of the Convertible Preferred
then outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
6F. Certain Events. If any event occurs of the type contemplated by the
--------------
provisions of this Section 6 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Convertible
Preferred; provided that no such adjustment shall increase the Conversion Price
as otherwise determined pursuant to this Section 6 or decrease the number of
shares of Conversion Stock issuable upon conversion of each Share of Convertible
Preferred, except as a result of the subsequent cancellation or termination of
any such arrangements without such arrangements being exercised; provided,
further that such subsequent cancellation or termination of any such arrangement
shall not, under any circumstances, increase the Conversion Price above the
Conversion Price in effect immediately prior to the event which reduced the
Conversion Price as contemplated in this paragraph 6F.
6G. Notices.
-------
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Convertible
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Corporation shall give written notice to all holders of
Convertible Preferred at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders of
Convertible Preferred at least 20 days prior to the date on which any Organic
Change shall take place.
6H. Public Offering Conversion. At such time as the Corporation shall
--------------------------
effect a Qualified Initial Public Offering, the Corporation may, at its option
and by delivering 10 days' prior written notice to the holders of Convertible
Preferred, require the conversion of all Shares of the
17
<PAGE>
Convertible Preferred (including any fraction of a Share) into shares of
Conversion Stock. Any such conversion shall only be effected at the time of and
shall be subject to the closing of the sale of shares of Common Stock pursuant
to such Qualified Initial Public Offering.
6I. Limitation on Conversion. Notwithstanding any other provisions
------------------------
hereof, no holder of Shares of Convertible Preferred shall be entitled to
exercise the conversion rights under this Section 6 to acquire any share or
shares of Conversion Stock if, as a result of such conversion, such holder and
its affiliates, directly or indirectly, would own, control or have power to vote
a greater quantity of securities of any kind issued by the Corporation than such
holder and its affiliates is to be permitted to own, control or have power to
vote under any law or under any regulation, rules or other requirement of any
governmental authority at any time applicable to such holder and its affiliates.
For purposes of this paragraph, a written statement of the holder involved, to
the effect that such holder is legally entitled to exercise its conversion
rights under this Section 6 to acquire shares of Conversion Stock and that such
holder shall not violate the prohibitions set forth in the preceding sentence,
shall be sufficient evidence of the legality thereof and shall obligate the
Corporation to deliver certificates representing the shares of Conversion Stock
so purchased in accordance with the other provisions hereof.
Section 7. Liquidating Dividends.
---------------------
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Corporation shall pay to the holders of Convertible
Preferred at the time of payment thereof of the Liquidating Dividends which
would have been paid on the shares of Conversion Stock had such Convertible
Preferred been converted immediately prior to the date on which a record is
taken for such Liquidating Dividend, or, if no record is taken, the date of
which the record holders of Common Stock entitled to such dividends are to be
determined; provided that if the Liquidating Dividends consist of voting
securities, the Liquidating Dividends consisting of securities which are non-
voting (except as otherwise required by law), which are otherwise identical to
the Liquidating Dividends consisting of voting securities and which are
convertible into such voting securities on the same terms as Class B Common
Stock is convertible into Class A Common Stock.
Section 8. Purchase Rights.
---------------
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then each holder of Convertible Preferred shall be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Conversion Stock acquirable upon conversion of such
holder's Convertible Preferred immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights; provided
18
<PAGE>
that if the Purchase Rights involve voting securities, the Corporation shall
make available to each holder of Series 2 Preferred, at such holder's request,
Purchase Rights involving securities which are non-voting (except as otherwise
required by law), which are otherwise identical to the Purchase Rights involving
voting securities and which are convertible into such voting securities on the
same terms as Class B Common Stock is convertible into Class A Common Stock.
Section 9. Voting Rights.
-------------
Each holder of Class A Preferred shall be entitled to notice of all
stockholders meetings at the same time and in the same manner as notice is given
to the stockholders entitled to vote at such meeting. Except as otherwise
provided herein and as otherwise required by law, the holders of Class A
Preferred shall have no right to vote on any matters to be voted on by the
Stockholders of the Corporation; provided that the holders of Class A Preferred
shall have the right to vote as a separate class on any amendment to the
Certificate of Incorporation of the Corporation or any equivalent action by the
Corporation that alters the term of the Class A Preferred.
Section 10. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office a register for the
registration of Class A Preferred. Upon the surrender of any certificate
representing Class A Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Class A Preferred
represented by such new certificate from the date to which dividends have been
fully paid on such Class A Preferred represented by the surrendered certificate.
Section 11. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Shares
of Class A Preferred, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Corporation (provided
that if the holder is a financial institution or other institutional investor
its own agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like kind
representing the number of Shares represented by such lost, stolen, destroyed or
mutilated certificate and dated on the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Class A Preferred
represented by such new certificate from the date to which dividends have been
fully paid on such lost, stolen, destroyed or mutilated certificate.
19
<PAGE>
Section 12. Definitions.
-----------
"Common Stock" means, collectively, the Corporation's Class A Common Stock,
------------
the Corporation's Class B Common Stock and any capital stock of any class of the
Corporation hereafter authorized which is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the number of
-------------------------------
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to paragraph 6C hereof
whether or not the Options or Convertible Securities are actually exercisable at
such time, but excluding any shares of Common Stock issuable upon conversion of
the Convertible Preferred.
"Contingent Warrants" shall mean the Contingent Stock Warrants, dated
-------------------
October 17, 1996, issued to The Prudential Insurance Company of America, Primus
Capital Fund III Limited Partnership, Banc One Capital Partners II, Ltd. and
BOCP II, Limited Liability Company.
"Conversion Stock" means, (i) with respect to any holder of Series 2
----------------
Preferred, shares of the Corporation's Class B Common Stock and (ii) with
respect to any holder of Series 3 Preferred, shares of the Corporation's Class A
Common Stock; provided that if there is a change such that the securities
issuable upon conversion of the Convertible Preferred are issued by an entity
other than the Corporation or there is a change in the type or class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Convertible Preferred if such
security is issuable in shares, or shall mean the smallest unit in which such
security is issuable if such security is not issuable in shares; and provided
further that if such securities issuable on conversion of the Series 2 Preferred
involve voting securities, such entity or the Corporation, as the case may be,
shall make available to each holder of Series 2 Preferred, at such holder's
request, securities issuable upon conversion of the Series 2 Preferred which are
non-voting (except as otherwise required by law), which are otherwise identical
to the securities issuable upon conversion of the Series 2 Preferred which are
voting securities and which are convertible into such voting securities on the
same terms as Class B Common Stock is convertible into Class A Common Stock.
"Convertible Preferred Purchase Agreement" means the Purchase Agreement,
----------------------------------------
dated as of November 7, 1997, by and among the Corinthian Schools, Inc., Primus
Capital Fund III Limited Partnership and Banc One Capital Partners II, Limited
Liability Company, as such agreement may from time to time be amended in
accordance with its terms.
"Convertible Securities" means any stock or securities directly or
----------------------
indirectly convertible into or exchangeable for Common Stock.
"Executives" means the Executives as defined in the Purchase Agreements.
----------
20
<PAGE>
"Executive Stock Agreements" means the Executive Stock Agreements as
--------------------------
defined in the Purchase Agreements.
"Existing Warrants" means, collectively, the warrants to acquire shares of
-----------------
Common Stock; (i) issued in connection with the Note Purchase and Revolving
Credit Agreement, dated October 17, 1996, between the Corporation and
Prudential, (ii) issued in connection with the Subordinated Note and Warrant
Purchase Agreement, dated October 17, 1996, among the Corporation and the other
signatories thereto and (iii) any warrants or other rights to acquire shares of
Common Stock issued in exchange for or in replacement of such warrants, but in
each case excluding the Contingent Warrants.
"IPO Valuation" means 50% of the aggregate market value of the
-------------
Corporation's Common Stock immediately prior to the consummation of a Qualified
Initial Public Offering (with such aggregate market value being determined by
multiplying (i) the sum of (A) the number of shares of Common Stock issued
pursuant to the Purchase Agreements and the Executive Stock Agreements
(including the Earnback Shares) and (B) the number of shares of Common Stock
issued or issuable upon conversion of the Convertible Preferred and upon
exercise of all of the Existing Warrants, the Contingent Warrants and the New
Warrants (as each such number of shares shall be proportionally adjusted for any
stock split, stock combination or other recapitalization of the Corporation) by
(ii) the price per share of Common Stock paid by the public in connection with
such Qualified Initial Public Offering.
"Junior Securities" means any capital stock or other equity securities of
-----------------
the Corporation other than the Class A Preferred.
"Liquidation Value" of any Share as of any particular date shall be equal
-----------------
to $100.
"Market Price" of any security means the average of the closing prices of
------------
such security's sales on all securities exchanges on which such security may at
the time be listed, or, if there has been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the holders of a majority of the Class A Preferred. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Corporation and the holders of a
majority of the Class A Preferred. The determination of such appraiser shall be
final and binding upon the parties, and the Corporation and the holders of the
Class A Preferred shall pay the fees and expenses of such appraiser.
21
<PAGE>
"Maximum Conversion Adjustment" means 5,161.91, as such number may be
-----------------------------
proportionately adjusted to reflect any stock split, stock combination or other
recapitalization of the Corporation.
"New Warrants" means, collectively, the warrants to acquire shares of
------------
Common Stock: (i) issued to Prudential in connection with the Default Waiver and
Third Amendment under the Note Agreement, dated October 31, 1997, between the
Corporation and Prudential, (ii) issued in connection with the Convertible
Preferred Purchase Agreement and (iii) any warrants or other rights to acquire
shares of Common Stock issued in exchange for or in replacement of such
warrants.
"Note Agreement" means the Note Purchase and Revolving Credit Agreement,
--------------
dated October 17, 1996, between the Corporation and Prudential, as amended.
"Options" means any rights, warrants or options to subscribe for or
-------
purchase Common Stock or Convertible Securities.
"Percentage Conversion Adjustment" means the quotient determined by
--------------------------------
dividing the amount by which the IPO valuation exceeds $40,000,000 (as such
number is proportionally adjusted for any stock split, stock combination or
other recapitalization of the Corporation) by $10,000,000 (as such number is
proportionally adjusted for any stock split, stock combination or other
recapitalization of the Corporation); provided that in no event shall the
Percentage Conversion Adjustment be greater than one or less than zero.
For example, if the IPO Valuation at the time of the Qualified Initial
Public Offering is $48,000,000 then the Percentage Conversion Adjustment
shall be 80% (48,000,000 - 40,000,000) / 10,000,000).
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Prudential" means The Prudential Insurance Corporation of America.
----------
"Public Offering" means any offering by the Corporation of its equity
---------------
securities to the public pursuant to an effective registration statement under
the Securities Act of 1933, as then in effect, or any comparable statement under
any similar federal statute then in force provided that for purposes of
paragraph 4C or paragraph 6H hereof, a Public Offering shall not include an
offering made in connection with a business acquisition or combination or an
employee benefit plan.
"Purchase Agreements" means, collectively, (i) the Purchase Agreement,
-------------------
dated as of June 30, 1995, by and among the Corporation (the assignee of the
rights and obligations thereunder of Corinthian Schools, Inc.), Primus Capital
Fund III Limited Partnership and BOCP II, Limited Liability Company, an Ohio
limited liability company and successor-in-interest to Banc One Capital Partners
II, Limited Partnership, as such agreement may from time to time be amended in
accordance with its terms and (ii) the Convertible Preferred Purchase Agreement.
22
<PAGE>
"Qualified Initial Public Offering" means the sale by the Corporation, in
---------------------------------
an underwritten initial Public Offering of shares of the Corporation's Common
Stock having an aggregate offering value of at least $25 million and where the
aggregate market value of the Corporation's Common Stock immediately prior to
the consummation of such Public Offering shall be at least $80 million (with
such aggregate market value being determined by multiplying (A) the sum of (1)
the number of shares of Common Stock issued pursuant to the Purchase Agreements
and the Executive Stock Agreements (including the Earnback Shares) and (2) the
number of shares of Common Stock issued or issuable upon conversion of the
Convertible Preferred and upon exercise of all of the Existing Warrants, the
Contingent Warrants and the New Warrants (as each such number of shares shall be
proportionally adjusted for any stock split, stock combination or other
recapitalization of the Corporation) by (B) the price per share of Common Stock
paid by the public in connection with such Public Offering).
"Registration Agreement" means the Registration Agreement as defined in the
----------------------
Purchase Agreements.
"Redemption Date" as to any Share means the date specified in the notice of
---------------
any redemption at the Corporation's option or at the holder's option or the
applicable date specified herein in the case of any other redemption; provided
that no such date shall be a Redemption Date unless the Liquidation Value of
such Share (plus all accrued and unpaid dividends thereon) is actually paid in
full on such date, and if not so paid in full, the Redemption Date shall be the
date on which such amount is fully paid.
"Share" has the meaning specified in paragraph 1A of Section 1 of this Part
-----
B.
"Sub-Debt Agreement" means the Subordinated Note and Warrant Purchase
------------------
Agreement, dated October 17, 1996, among the Corporation and the other
signatories thereto, as amended.
"Subsidiary" means, with respect to any Person, any corporation, limited
----------
liability company, partnership, association or other business entity of which
(a) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (b) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed
to have a majority ownership interest in a partnership, association or other
business entity if such person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing general partner of such partnership, association or other
business entity.
"Trigger Event" means a Trigger Event as defined in the Executive Stock
-------------
Agreements.
23
<PAGE>
Section 13. Amendment and Waiver.
--------------------
No amendment, modification or waiver shall be binding or effective with
respect to any provision of this Part B without the prior written consent of the
holders of at least a majority of each Series of the Class A Preferred
outstanding at the time such action is taken.
Section 14. Notices.
-------
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
C. Common Stock
------------
Except as otherwise provided in this Part C or as otherwise required
by applicable law, all shares of Class A Common and Class B Common shall be
identical in all respects and shall entitle the holders thereof to the same
rights, preferences and privileges, subject to the same qualifications,
limitations and restrictions, as set forth herein.
Section 1. Voting Rights.
-------------
Except as otherwise provided in this part C or as otherwise required
by applicable law, the holders of Class A Common shall be entitled to one vote
per share on all matters to be voted on by the stockholders of the Corporation,
and the holders of Class B Common shall have no right to vote on any matters to
be voted on by the stockholders of the Corporation; provided that the holders of
Class B Common shall have the right to one vote per share together with the
Class A Common as one class on (i) any merger or consolidation of the
Corporation with or into another entity or entities, (ii) any sale of all or
substantially all of the Corporation's assets and (iii) any amendment to the
Corporation's Certificate of Incorporation.
Section 2. Dividends.
---------
As and when dividends are declared or paid with respect to shares of
Common Stock, whether in cash, property or securities of the Corporation, the
holders of Class A Common and the holders of Class B Common shall be entitled to
receive such dividends pro rata at the same rate per share of each class of
Common Stock; provided that (i) if dividends are declared or paid in shares of
Common Stock, the dividends payable to the holders of Class A Common shall be
payable in shares of Class A Common and the dividends payable to the holders of
Class B Common shall be payable in shares of Class B Common and (ii) if the
dividends consist of other voting securities of the Corporation, the Corporation
shall make available to each holder of Class B Common, at such holder's request,
dividends consisting of non-voting securities (except as otherwise required by
law) of the Corporation which are otherwise identical to the voting securities
and which are convertible into such voting securities on the same terms as the
Class B Common is convertible into the Class
24
<PAGE>
A Common. The right of the holders of Common Stock to receive dividends are
subject to the provisions of the Preferred Stock.
Section 3. Liquidation.
-----------
Subject to the provisions of the preferred Stock, the holders of the
Class A Common and the holders of the Class B Common shall be entitled to
participate pro rata at the same rate per share of each class of Common Stock in
all distributions to the holders of Common stock in any liquidation, dissolution
or winding up of the Corporation.
Section 4. Conversion.
----------
4A. Conversion of Class A Common. Each holder of Class A Common
----------------------------
shall be entitled at any time to convert any or all of the shares of such
holder's Class A Common into an equal number of shares of Class B Common.
4B. Conversion of Class B Common.
----------------------------
(i) In connection with the occurrence (or the expected occurrence
as described in (iii) below) of any Conversion Event, each holder of Class B
Common shall be entitled to convert into an equal number of shares of Class A
Common any or all of the shares of such holder's Class B Common being (or
expected to be) distributed, disposed of or sold in connection with such
Conversion Event.
(ii) For purposes of this paragraph 4B, a "Conversion Event"
shall mean (a) any public offering or public sale of securities of the
Corporation (including a public offering registered under the Securities Act of
1933 and a public sale pursuant to Rule 144 of the Securities and Exchange
Commission or any similar rule then in force), (b) any sale of securities of the
Corporation to a person or group of persons (within the meaning of the
Securities Exchange Act of 1934, as amended (the "1934 Act")), if, after such
sale, such person or group of persons in the aggregate would own or control
securities which possess in the aggregate the ordinary voting power to elect a
majority of the Corporation's directors (provided that such sale has been
approved by the Corporation's Board of Directors or a committee thereof), (c)
any sale of securities of the Corporation to a person or group of persons
(within the meaning of the 1934 Act) if, after such sale, such person or group
of persons in the aggregate would own or control securities of the Corporation
(excluding any Class B Common being converted and disposed of in connection with
such Conversion Event) which possess in the aggregate the ordinary voting power
to elect a majority of the Corporation's directors, (d) any sale of securities
of the Corporation to a person or group of persons (within the meaning of the
1934 Act) is, after such sale, such person or group of persons would not, in the
aggregate, own, control or have the right to acquire more than two percent (2%)
of the outstanding securities of any class of voting securities of the
Corporation, and (e) a merger, consolidation or similar transaction involving
the Corporation if, after such transaction, a person or group of persons (within
the meaning of the 1934 Act) in the aggregate would own or control securities
which possess in the aggregate the ordinary voting power to elect a majority of
the surviving corporation's directors (provided that the transaction has been
approved by the Corporation's Board of Directors or a committee thereof). For
purpose of this paragraph 4B,
25
<PAGE>
"person" shall include any natural person and any corporation, partnership,
joint venture, trust, unincorporated organization and any other entity or
organization.
(iii) Each holder of Class B Common shall be entitled to convert
shares of Class B Common in connection with any Conversion Event if such holder
reasonably believes that such Conversion Event shall be consummated, and a
written request for conversion from any holder of Class B Common to the
Corporation stating such holder's reasonable belief that a Conversion Event
shall occur shall be conclusive and shall obligate the Corporation to effect
such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation shall not cancel the
shares of Class B Common so converted before the tenth day following such
Conversion Event and shall reserve such shares until such tenth day for
reissuance in compliance with the next sentence. If any shares of Class B
Common are converted into shares of Class A Common in connection with a
Conversion Event and such shares of Class A Common are not actually distributed,
disposed of or sold pursuant to such Conversion Event, such shares of Class A
Common shall be promptly converted back into the same number of shares of Class
B Common.
4C. Conversion Procedure.
--------------------
(i) Unless otherwise provided in connection with a Conversion Event
with respect to the Class B Common, each conversion of shares of one class of
Common Stock into shares of the other class of Common Stock shall be effected by
the surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with a written notice by the holder of such Common
Stock stating that such holder desires to convert the shares, or a stated number
of the shares, of such Common Stock represented by such certificate or
certificates into shares of the other class of Common Stock. Unless otherwise
provided in connection with a Conversion Event, each conversion shall be deemed
to have been effected as of the close of business on the date on which such
certificate or certificates have been surrendered and such notice has been
received, and at such time the rights of the holder of the converted Class B
Common or Class A Common, as the case may be, as such holder shall cease and the
person or persons in whose name or names the certificate or certificates for
shares of Class A Common or Class B Common are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Class A Common or Class B Common represented thereby.
(ii) Promptly after the surrender of certificates and the receipt of
written notice, the Corporation shall issue and deliver in accordance with the
surrendering holder's instructions (a) the certificate or certificates for the
Class A Common or Class B Common issuable upon such conversion and (b) a
certificate representing any Class B Common or Class A Common which was
represented by the certificate or certificates delivered to the Corporation in
connection with such conversion but which was not converted.
(iii) The issuance of certificates for Class A Common upon conversion
of Class B Common and for Class B Common upon conversion of Class A Common shall
be made without charge to the holders of such shares for any issuance tax in
respect thereof or other cost incurred by
26
<PAGE>
the Corporation in connection with such conversion and the related issuance of
Class A Common or Class B Common, as the case may be.
(iv) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Class A Common and Class B Common,
solely for the purpose of issuance upon the conversion of the Class B Common and
Class A Common, respectively, such number of shares of Class B Common and Class
A Common issuable upon the conversion of all outstanding Class A Common and
Class B Common, as the case may be. All shares of Common Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately transmitted by the Corporation upon
issuance).
(v) The Corporation shall not close its books against the transfer of
shares of Common Stock in any manner which would interfere with the timely
conversion of any shares of Common Stock. The Corporation shall assist and
cooperate with any holder of Common Stock required to make any governmental
filings or obtain any governmental approval prior to or in connection with any
conversion of Common Stock hereunder (including without limitation, making any
filings required to be made by the Corporation).
Section 5. Stock Splits.
------------
If the Corporation in any manner subdivides or combines the
outstanding shares of one class of Common Stock, the outstanding shares of the
other class of Common stock shall be proportionately subdivided or combined in a
similar manner.
Section 6. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office (or such other
place as the Corporation reasonably designates) a register for the registration
of shares of Common Stock. Upon the surrender of any certificate representing
shares of any class of Common Stock at such place, the Corporation shall, at the
request of the registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of such class represented by the surrendered certificate,
and the Corporation forthwith shall cancel such surrendered certificate. Each
such new certificate shall be registered in such name and shall represent such
number of shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
27
<PAGE>
Section 7. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing one
or more shares of any class of Common Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 8. Notices.
-------
All notices referred to herein shall be in writing, shall be delivered
personally or by first class mail, postage prepaid, and shall be deemed to have
been given when so delivered or mailed to the Corporation at its principal
executive offices and to any stockholder at such holder's address as it appears
in the stock records of the Corporation (unless otherwise specified in a written
notice to the Corporation by such holder).
Section 9. Amendment and Waiver.
--------------------
No amendment or waiver of any provision of this Part C shall be
effective without the prior approval of (i) the holders of a majority of the
then outstanding Class A Common Stock voting as a separate class and (ii) the
holders of a majority of the then outstanding Class B Common Stock voting as a
separate class.
ARTICLE V: BOARD OF DIRECTORS
------------------
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors of the Corporation, which shall be
comprised of 5 members. All of the powers of the Corporation, insofar as the
same may be lawfully vested by this Certificate of Incorporation in the Board of
Directors, are hereby conferred upon the Board of Directors of the Corporation.
ARTICLE VI: LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
----------------------------------------------------
To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a director of this
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The liability of a
director of the Corporation to the Corporation or its stockholders for monetary
damages shall be eliminated to the fullest extent permissible under applicable
law in the event it is determined that Delaware law does not apply. The
Corporation shall, to the fullest extent permitted by law,
28
<PAGE>
indemnify its directors and officers against any liabilities, losses or related
expenses which they may incur by reason of serving or having served as directors
or officers of the Corporation, or serving or having served at the request of
the Corporation as directors, officers, trustees, partners, employees or agents
of any entity in which the Corporation has an interest. The Corporation is
authorized to provide by Bylaw, agreement or otherwise for indemnification of
directors, officers, employees and agents in excess of the indemnification
otherwise permitted by applicable law. Any repeal or modification of this
Article shall not result in any liability of a director, or any change or
reduction in the indemnification to which a director, officer, employee or agent
would otherwise be entitled, with respect to any action or omission occurring
prior to such repeal or modification.
ARTICLE VII: CALL OF SPECIAL MEETINGS
------------------------
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors, or by a
majority of the members of the Board.
ARTICLE VIII: DEFINITION OF VOTING STOCK
--------------------------
For the purposes of this Restated Certificate of Incorporation,
"Voting Stock" means all outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors of the Corporation, and
each reference to a percentage or portion of shares of Voting Stock shall refer
to such percentage or portion of the votes entitled to be cast by such shares.
ARTICLE IX: INAPPLICABILITY OF SECTION 203 OF THE
-------------------------------------
DELAWARE GENERAL CORPORATION LAW
--------------------------------
Notwithstanding any contrary provision in the Delaware General
Corporation Law, the Corporation shall not be governed by the provisions of
Section 203 of the Delaware General Corporation Law.
ARTICLE X: AMENDMENT OF CORPORATE DOCUMENTS
--------------------------------
Section 1. Restated Certificate of Incorporation. In addition to any
-------------------------------------
affirmative vote required by applicable law and any voting rights granted to or
held by the holders of Preferred Stock, any alteration, amendment, repeal or
rescission of any provision of this Restated Certificate of Incorporation must
be approved by a majority of the directors of the Corporation then in office and
by the affirmative vote of the holders of two-thirds of the outstanding Voting
Stock of the Corporation.
Subject to the foregoing, the Corporation reserves the right to amend,
alter, repeal or rescind any provision contained in this Restated Certificate of
Incorporation in the manner now or hereafter prescribed by law, and all rights
conferred on stockholders herein are granted subject to this reservation.
Section 2. Bylaws. The Board of Directors of the Corporation shall
------
have the power to adopt, amend, alter, change and repeal any Bylaws of the
Corporation by vote of a majority of the members of the Board of Directors of
the Corporation then in office.
29
<PAGE>
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
CORINTHIAN COLLEGES, INC.,
A DELAWARE CORPORATION
Corinthian Colleges, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
1. The name of the Corporation is Corinthian Colleges, Inc. The
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on July 24, 1996.
2. The Restated Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on September 24,
1996.
3. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, and having been duly adopted in accordance therewith,
this Second Restated Certificate of Incorporation restates and amends the
provisions of the Restated Certificate of Incorporation of this Corporation, as
it may have heretofore been amended or supplemented.
4. The text of the Restated Certificate of Incorporation of the
Corporation, as it may have heretofore been amended or supplemented, is hereby
further amended and restated to read in its entirety as follows:
<PAGE>
5. The foregoing Second Restated Certificate of Incorporation has
been approved by the Corporation's Board of Directors by written consent in
accordance with Section 141(f) of the Delaware General Corporation Law.
6. Pursuant to the provisions of Section 228 of the Delaware General
Corporation Law, the stockholders of this Corporation consented to the above
Second Restated Certificate of Incorporation.
IN WITNESS WHEREOF, Corinthian Colleges, Inc. has caused this Second
Restated Certificate of Incorporation to be signed by David Moore, its
President, and attested by Paul St. Pierre, its Secretary, this 21st day of
November, 1997.
CORINTHIAN COLLEGES, INC.
By: /s/ David Moore
----------------------------
David Moore
President
ATTEST:
By: /s/ Paul St. Pierre
---------------------------
Paul St. Pierre
Secretary
S-1
<PAGE>
EXHIBIT 3.3
BYLAWS OF
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I Offices............................................... 1
Section 1.1 Registered Office.................................. 1
Section 1.2 Principal Office................................... 1
Section 1.3 Other Offices...................................... 1
ARTICLE II Meetings of Stockholders.............................. 1
Section 2.1 Time and Place of Meetings......................... 1
Section 2.2 Annual Meetings.................................... 1
Section 2.3 Special Meetings................................... 1
Section 2.4 Stockholder Lists.................................. 2
Section 2.5 Notice of Meetings................................. 2
Section 2.6 Quorum and Adjournment............................. 2
Section 2.7 Voting............................................. 3
Section 2.8 Proxies............................................ 3
Section 2.9 Inspectors of Election............................. 3
Section 2.10 Action Without Meeting............................ 4
ARTICLE III Directors............................................. 4
Section 3.1 Powers............................................. 4
Section 3.2 Number, Election and Tenure........................ 4
Section 3.3 Vacancies and Newly Created Directorships.......... 4
Section 3.4 Meetings........................................... 5
Section 3.5 Annual Meeting..................................... 5
Section 3.6 Regular Meetings................................... 5
Section 3.7 Special Meetings................................... 5
Section 3.8 Quorum............................................. 5
Section 3.9 Fees and Compensation.............................. 5
Section 3.10 Meetings by Telephonic Communication............... 5
Section 3.11 Committees......................................... 6
Section 3.12 Action Without Meetings............................ 6
Section 3.13 Removal............................................ 7
ARTICLE IV Officers.............................................. 7
Section 4.1 Appointment and Salaries........................... 7
Section 4.2 Removal and Resignation............................ 7
Section 4.3 Chairman of the Board.............................. 7
Section 4.4 President.......................................... 7
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C>
Section 4.5 Vice President..................................... 7
Section 4.6 Secretary and Assistant Secretary.................. 8
Section 4.7 Treasurer.......................................... 8
Section 4.8 Assistant Officers................................. 8
ARTICLE V Seal............................................... 9
ARTICLE VI Form of Stock Certificate.......................... 9
ARTICLE VII Representation of Shares of Other Corporations..... 10
ARTICLE VIII Transfers of Stock................................. 10
ARTICLE IX Lost, Stolen or Destroyed Certificates............. 10
ARTICLE X Record Date........................................ 10
ARTICLE XI Registered Stockholders............................ 11
ARTICLE XII Fiscal Year........................................ 11
ARTICLE XIII Amendments......................................... 11
ARTICLE XIV Dividends.......................................... 11
Section 14.1 Declaration....................................... 11
Section 14.2 Set Aside Funds................................... 11
</TABLE>
ii
<PAGE>
<TABLE>
Page
----
<S> <C>
ARTICLE XV Indemnification and Insurance.................... 12
Section 15.1 Right to Indemnification......................... 12
Section 15.2 Right of Claimant to Bring Suit.................. 12
Section 15.3 Non-Exclusivity of Rights........................ 13
Section 15.4 Insurance........................................ 13
Section 15.5 Expenses as a Witness............................ 13
Section 15.6 Indemnity Agreements............................. 13
</TABLE>
iii
<PAGE>
BYLAWS
OF
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office of this
-----------------
Corporation shall be in the City of Dover, County of Kent, Delaware and the name
of the resident agent in charge thereof is the agent named in the Certificate of
Incorporation until changed by the Board of Directors (the "Board").
Section 1.2 Principal Office. The principal office for the
----------------
transaction of the business of the Corporation shall be at such place as may be
established by the Board. The Board is granted full power and authority to
change said principal office from one location to another.
Section 1.3 Other Offices. The Corporation may also have an office
-------------
or offices at such other places, either within or without the State of Delaware,
as the Board may from time to time designate or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Time and Place of Meetings. Meetings of stockholders
--------------------------
shall be held at such time and place, within or without the State of Delaware,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2.2 Annual Meetings. Annual meetings of the stockholders of
---------------
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
Section 2.3 Special Meetings. Special meetings of the stockholders
----------------
of the Corporation for any purpose or purposes may be called at any time by the
Board, or by a committee of the Board that has been duly designated by the Board
and whose powers and authority, as provided in a resolution of the Board or in
the Bylaws of the Corporation, include the power to call such meetings, and
shall be called by the president or secretary at the request in writing of a
majority of the Board, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote but such special meetings may not be called by
any other person or persons; provided, however, that if and to the extent that
any special meeting of stockholders may be called by any other person or persons
specified in any provisions of the Certificate of Incorporation or any amendment
thereto, or any certificate
1
<PAGE>
filed under Section 151(g) of the Delaware General Corporation Law (or its
successor statute as in effect from time to time hereafter), then such special
meeting may also be called by the person or persons in the manner, at the times
and for the purposes so specified. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
Section 2.4 Stockholder Lists. The officer who has charge of the
-----------------
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or at the place of the meeting, and the list shall also be available at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 2.5 Notice of Meetings. Notice of each meeting of
------------------
stockholders, whether annual or special, stating the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
such meeting has been called, shall be given to each stockholder of record
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
Whenever any notice is required to be given under the provisions of
the statutes or of the Certificate of Incorporation or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, except a
stockholder who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 2.6 Quorum and Adjournment. The holders of a majority of the
----------------------
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for holding all meetings of
stockholders, except as otherwise provided by applicable law or by the
Certificate of Incorporation; provided, however, that the stockholders present
at a duly called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. If it shall appear that such quorum is not present or
represented at any meeting of stockholders, the Chairman of the meeting shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
2
<PAGE>
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. The Chairman of the meeting may
determine that a quorum is present based upon any reasonable evidence of the
presence in person or by proxy of stockholders holding a majority of the
outstanding votes, including without limitation, evidence from any record of
stockholders who have signed a register indicating their presence at the
meeting.
Section 2.7 Voting. In all matters, when a quorum is present at any
------
meeting, the vote of the holders of a majority of the capital stock having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of applicable law or of the Certificate of Incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question. Such vote may be viva voce or by written ballot;
provided, however, that the Board may, in its discretion, require a written
ballot for any vote, and further provided that all elections for directors must
be by written ballot upon demand made by a stockholder at any election and
before the voting begins.
Unless otherwise provided in the Certificate of Incorporation each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder.
Section 2.8 Proxies. Each stockholder entitled to vote at a meeting
-------
of stockholders may authorize in writing another person or persons to act for
such holder by proxy, but no proxy shall be voted or acted upon after three
years from its date, unless the person executing the proxy specifies therein the
period of time for which it is to continue in force.
Section 2.9 Inspectors of Election. The Corporation shall, in
----------------------
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation or the Chairman
of the meeting shall appoint one or more alternate inspectors to replace any
inspector who fails to act. Each inspector, before undertaking his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of the proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. The inspector shall perform his or her duties and shall make all
determinations in accordance with the Delaware General Corporation Law
including, without limitation, Section 231 of the Delaware General Corporation
Law.
3
<PAGE>
The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.
The appointment of inspectors of election shall be in the discretion
of the Board until such time as the Corporation has a class of voting stock that
is (i) listed on a national securities exchange, (ii) authorized for quotation
on an interdealer quotation system of a registered national securities
association, or (iii) held of record by more than 2,000 stockholders, at which
time appointment of inspectors shall be obligatory.
Section 2.10 Action Without Meeting. Any action of the stockholders
----------------------
may be taken without a meeting, if a majority of the stockholders consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of stockholders, provided, that, prompt notice of the taking of
the action without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 3.1 Powers. The Board shall have the power to manage or
------
direct the management of the property, business and affairs of the Corporation,
and except as expressly limited by law, to exercise all of its corporate
powers. The Board may establish procedures and rules, or may authorize the
Chairman of any meeting of stockholders to establish procedures and rules, for
the fair and orderly conduct of any meeting including, without limitation,
registration of the stockholders attending the meeting, adoption of an agenda,
establishing the order of business at the meeting, recessing and adjourning the
meeting for the purposes of tabulating any votes and receiving the results
thereof, the timing of the opening and closing of the polls, and the physical
layout of the facilities for the meeting.
Section 3.2 Number, Election and Tenure. The Board shall consist of
---------------------------
one or more members. The exact number shall be determined from time to time by
resolution of the Board. Until otherwise determined by such resolution, the
Board shall consist of two persons. Directors shall be elected at the annual
meeting of stockholders and each director shall serve until such person's
successor is elected and qualified or until such person's death, retirement,
resignation or removal.
Section 3.3 Vacancies and Newly Created Directorships. Any newly
-----------------------------------------
created directorship resulting from an increase in the number of directors may
be filled by a majority of the Board of Directors then in office, provided that
a quorum is present, and any other vacancy on the Board of Directors may be
filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director.
4
<PAGE>
Section 3.4 Meetings. The Board may hold meetings, both regular and
--------
special, either within or outside the State of Delaware.
Section 3.5 Annual Meeting. The Board shall meet as soon as
--------------
practicable after each annual election of directors.
Section 3.6 Regular Meetings. Regular meetings of the Board shall
----------------
be held without call or notice at such time and place as shall from time to time
be determined by resolution of the Board.
Section 3.7 Special Meetings. Special meetings of the Board may be
----------------
called at any time, and for any purpose permitted by law, by the Chairman of the
Board (or, if the Board does not appoint a Chairman of the Board, the
President), or by the Secretary on the written request of any two members of the
Board unless the Board consists of only one director in which case the special
meeting shall be called on the written request of the sole director, which
meetings shall be held at the time and place designated by the person or persons
calling the meeting. Notice of the time, place and purpose of any such meeting
shall be given to the directors by the Secretary, or in case of the Secretary's
absence, refusal or inability to act, by any other officer. Any such notice may
be given by mail, by telegraph, by telephone, by personal service, or by any
combination thereof as to different directors. If the notice is by mail, then
it shall be deposited in a United States Post Office at least seventy-two hours
before the time of the meeting; if by telegraph, by deposit of the message with
the telegraph company at least twenty-four hours before the time of the meeting;
if by telephone or by personal service, communicated or delivered at least
twenty-four hours before the time of the meeting.
Section 3.8 Quorum. At all meetings of the Board, a majority of the
------
whole Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board, except as
may be otherwise specifically provided by applicable law or by the Certificate
of Incorporation or by these Bylaws. Any meeting of the Board may be adjourned
to meet again at a stated day and hour. Even though a quorum is not present, as
required in this Section, a majority of the directors present at any meeting of
the Board, either regular or special, may adjourn from time to time until a
quorum be had. Notice of any adjourned meeting need not be given.
Section 3.9 Fees and Compensation. Each director and each member of
---------------------
a committee of the Board shall receive such fees and reimbursement of expenses
incurred on behalf of the Corporation or in attending meetings as the Board may
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 3.10 Meetings by Telephonic Communication. Members of the
------------------------------------
Board or any committee thereof may participate in a regular or special meeting
of such Board or committee by means of conference telephone or similar
communications equipment by
5
<PAGE>
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section shall constitute presence in
person at such meeting.
Section 3.11 Committees. The Board may, by resolution passed by a
----------
majority of the whole Board, designate committees, each committee to consist of
one or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Upon the absence or
disqualification of a member of a committee, if the Board has not designated one
or more alternates (or if such alternate(s) are then absent or disqualified),
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member or alternate. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority in reference to: (a) amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board as provided in Section 151(a) of the Delaware
General Corporation Law fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series); (b) adopting an agreement of merger or
consolidation under Section 251 or 252 of the Delaware General Corporation Law;
(c) recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets; (d) recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution; or (e) amending the Bylaws of the Corporation. Unless the
resolution appointing such committee or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law. Each committee shall have such name as may be
determined from time to time by resolution adopted by the Board. Each committee
shall keep minutes of its meetings and report to the Board when required.
Section 3.12 Action Without Meetings. Unless otherwise restricted by
-----------------------
applicable law or by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
6
<PAGE>
Section 3.13 Removal. Unless otherwise restricted by the Certificate
-------
of Incorporation or by law, any director or the entire Board may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
OFFICERS
Section 4.1 Appointment and Salaries. The officers of the
------------------------
Corporation shall be appointed by the Board and shall be a President, a
Secretary and a Treasurer. The Board may also appoint a Chairman of the Board
and one or more Vice Presidents and the Board or the President may appoint such
other officers (including Assistant Secretaries and Financial Officers) as the
Board or the President may deem necessary or desirable. The officers shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board. The Board shall
fix the salaries of all officers appointed by it. Unless prohibited by
applicable law or by the Certificate of Incorporation or by these Bylaws, one
person may be elected or appointed to serve in more than one official capacity.
Any vacancy occurring in any office of the Corporation shall be filled by the
Board.
Section 4.2 Removal and Resignation. Any officer may be removed,
-----------------------
either with or without cause, by the Board or, in the case of an officer not
appointed by the Board, by the President. Any officer may resign at any time by
giving notice to the Board, the President or Secretary. Any such resignation
shall take effect at the date of receipt of such notice or at any later time
specified therein and, unless otherwise specified in such notice, the acceptance
of the resignation shall not be necessary to make it effective.
Section 4.3 Chairman of the Board. The Board may, at its election,
---------------------
appoint a Chairman of the Board. If such an officer be elected, he or she
shall, if present, preside at all meetings of the stockholders and of the Board
and shall have such other powers and duties as may from time to time be assigned
to him or her by the Board.
Section 4.4 President. Subject to such powers, if any, as may be
---------
given by the Board to the Chairman of the Board, if there is such an officer,
the President shall be the chief executive officer of the Corporation with the
powers of general manager, and he or she shall have supervising authority over
and may exercise general executive powers concerning all of the operations and
business of the Corporation, with the authority from time to time to delegate to
other officers such executive and other powers and duties as he or she may deem
advisable. If there be no Chairman of the Board, or in his or her absence, the
President shall preside at all meetings of the stockholders and of the Board,
unless the Board appoints another person who need not be a stockholder, officer
or director of the Corporation, to preside at a meeting of stockholders.
Section 4.5 Vice President. In the absence of the President, or in
--------------
the event of the President's inability or refusal to act, the Vice President, if
any, (or if there be more
7
<PAGE>
than one Vice President, the Vice Presidents in the order of their rank or, if
of equal rank, then in the order designated by the Board or the President or, in
the absence of any designation, then in the order of their appointment) shall
perform the duties of the President and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The rank
of Vice Presidents in descending order shall be Executive Vice President, Senior
Vice President and Vice President. The Vice President shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
Section 4.6 Secretary and Assistant Secretary. The Secretary shall
---------------------------------
attend all meetings of the Board (unless the Board shall otherwise determine)
and all meetings of the stockholders and record all the proceedings of the
meetings of the Corporation and of the Board in a book to be kept for that
purpose and shall perform like duties for the committees when required. The
Secretary shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board. The Secretary shall have
custody of the corporate seal of the Corporation and shall (as well as any
Assistant Secretary) have authority to affix the same to any instrument
requiring it and to attest it. The Secretary shall perform such other duties
and have such other powers as the Board or the President may from time to time
prescribe.
Section 4.7 Treasurer. The Treasurer shall have custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board. The
Treasurer may disburse the funds of the Corporation as may be ordered by the
Board or the President, taking proper vouchers for such disbursements, and shall
render to the Board at its regular meetings, or when the Board so requires, an
account of transactions and of the financial condition of the Corporation. The
Treasurer shall perform such other duties and have such other powers as the
Board or the President may from time to time prescribe.
If required by the Board, the Treasurer and Assistant Treasurer, if
any, shall give the Corporation a bond (which shall be renewed at such times as
specified by the Board) in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of such
person's office and for the restoration to the Corporation, in case of such
person's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in such person's
possession or under such person's control belonging to the Corporation.
Section 4.8 Assistant Officers. An assistant officer shall, in the
------------------
absence of the officer to whom such person is an assistant or in the event of
such officer's inability or refusal to act (or, if there be more than one such
assistant officer, the assistant officers in the order designated by the Board
or the President or, in the absence of any designation, then in the order of
their appointment), perform the duties and exercise the powers of such
8
<PAGE>
officer. An assistant officer shall perform such other duties and have such
other powers as the Board or the President may from time to time prescribe.
ARTICLE V
SEAL
It shall not be necessary to the validity of any instrument executed
by any authorized officer or officers of the Corporation that the execution of
such instrument be evidenced by the corporate seal, and all documents,
instruments, contracts and writings of all kinds signed on behalf of the
Corporation by any authorized officer or officers shall be as effectual and
binding on the Corporation without the corporate seal, as if the execution of
the same had been evidenced by affixing the corporate seal thereto. The Board
may give general authority to any officer to affix the seal of the Corporation
and to attest the affixing by signature.
ARTICLE VI
FORM OF STOCK CERTIFICATE
Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of, the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-
President, and by the Treasurer or a Financial Officer, or the Secretary or an
Assistant Secretary certifying the number of shares owned in the Corporation.
Any or all of the signatures on the certificate may be a facsimile signature.
If any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of the issuance.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock. Except as otherwise provided
in Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
9
<PAGE>
ARTICLE VII
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
Any and all shares of any other corporation or corporations standing
in the name of the Corporation shall be voted, and all rights incident thereto
shall be represented and exercised on behalf of the Corporation, as follows:
(i) as the Board of the Corporation may determine from time to time, or (ii) in
the absence of such determination, by the Chairman of the Board, or (iii) if the
Chairman of the Board shall not vote or otherwise act with respect to the
shares, by the President. The foregoing authority may be exercised either by
any such officer in person or by any other person authorized so to do by proxy
or power of attorney duly executed by said officer.
ARTICLE VIII
TRANSFERS OF STOCK
Upon surrender of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
ARTICLE IX
LOST, STOLEN OR DESTROYED CERTIFICATES
The Board may direct a new certificate or certificates be issued in
place of any certificate theretofore issued alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue of
a new certificate, the Board may, in its discretion and as a condition precedent
to the issuance, require the owner of such certificate or certificates, or such
person's legal representative, to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the lost, stolen or destroyed certificate.
ARTICLE X
RECORD DATE
The Board may fix in advance a date, which shall not be more than
sixty days nor less than ten days preceding the date of any meeting of
stockholders, nor more than 60 days prior to any other action, as a record date
for the determination of stockholders entitled to notice of or to vote at any
such meeting and any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise the rights in respect of any change, conversion or exchange of stock,
and in such case such stockholders, and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment
10
<PAGE>
of rights, or to exercise such rights, or to give such consent, as the case may
be, notwithstanding any transfer of any stock on the books of the Corporation
after any such record date fixed as aforesaid.
ARTICLE XI
REGISTERED STOCKHOLDERS
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock of the Corporation as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, except as expressly provided by applicable law.
ARTICLE XII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board.
ARTICLE XIII
AMENDMENTS
Subject to any contrary or limiting provisions contained in the
Certificate of Incorporation, these Bylaws may be amended or repealed, or new
Bylaws may be adopted (a) by the affirmative vote of the holders of at least a
majority of the Common Stock of the Corporation, or (b) by the affirmative vote
of the majority of the Board at any regular or special meeting. Any Bylaws
adopted or amended by the stockholders may be amended or repealed by the Board
or the stockholders.
ARTICLE XIV
DIVIDENDS
Section 14.1 Declaration. Dividends on the capital stock of the
-----------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board at any regular or special meeting, pursuant to
law, and may be paid in cash, in property or in shares of capital stock.
Section 14.2 Set Aside Funds. Before payment of any dividend, there
---------------
may be set aside out of any funds of the Corporation available for dividends
such sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall determine to be in the best
interest of the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
11
<PAGE>
ARTICLE XV
INDEMNIFICATION AND INSURANCE
Section 15.1 Right to Indemnification. Each person who was or is a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the Corporation shall
-------- -------
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in this Article shall be a contract right and shall include the right
to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
-------- -------
Delaware General Corporation Law requires, the payment of such expenses incurred
by a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation may, by action of
the Board, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
Section 15.2 Right of Claimant to Bring Suit. If a claim under
-------------------------------
Section 15.1 of this Article is not paid in full by the Corporation within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
Corporation to indemnify the claimant for the amount claimed.
12
<PAGE>
Neither the failure of the Corporation (including its Board, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met such standard of conduct, nor an
actual determination by the Corporation (including its Board, independent legal
counsel, or its stockholders) that the claimant has not met such standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has failed to meet such standard of conduct.
Section 15.3 Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 15.4 Insurance. The Corporation may maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 15.5 Expenses as a Witness. To the extent that any director,
---------------------
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
Section 15.6 Indemnity Agreements. The Corporation may enter into
--------------------
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.
13
<PAGE>
CERTIFICATE OF SECRETARY
OF
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
I hereby certify that I am the duly elected and acting Secretary of
Corinthian Colleges, Inc., a Delaware corporation, and that the foregoing
Bylaws, comprising 13 pages, constitute the Bylaws of said corporation as duly
adopted by the Board of Directors on September 19, 1996.
/s/ Paul St. Pierre
----------------------------
Paul St. Pierre,
Secretary
<PAGE>
EXHIBIT 4.1
PROMISSORY NOTE
U.S. $50,000.00
July 1, 1996
Santa Ana, California
FOR VALUE RECEIVED, CORINTHIAN SCHOOLS, INC., a Delaware
corporation, whose mailing address is 1932 East Deere Avenue, Suite 210, Santa
Ana, California 92705 (the "Maker"), hereby promises to pay Fifty Thousand
Dollars ($50,000) to the order of REPOSE, INC., a Washington corporation (the
"Payee"), in accordance with and subject to the terms of that certain Asset
Purchase Agreement dated as of March 20, 1996, by and between Maker and Payee
(the "Purchase Agreement"), not later than the later of (i) the one-year
anniversary of this Note, and (ii) the date at which funds are released from the
Escrow (as defined in the Purchase Agreement) pursuant to Section 2.2.1 of the
Purchase Agreement. This Note shall not bear interest.
All payment of principal hereunder shall be payable in lawful
money of the United States of America in immediately available funds on the
dates prescribed by the Purchase Agreement at the office of Payee located at
23310 14th Place West, Bothell, Washington 98021.
This Note is the "Note" referred to in the Purchase Agreement.
Reference is made to the Purchase Agreement for provisions relating to the Note,
all of which are incorporated herein and made a part hereof. Each capitalized
term defined in the Purchase Agreement is used herein as therein defined.
This Note shall be construed in accordance with and governed by
the laws of the State of California.
"Maker"
Corinthian Schools, Inc., a Delaware
corporation
By: /s/ David G. Moore
--------------------
Name: David G. Moore
--------------------
Title: President/CEO
--------------------
<PAGE>
EXHIBIT 4.2
PROMISSORY NOTE
---------------
$300,000.00 August 31, 1996
FOR VALUE RECEIVED, Corinthian Schools, Inc., a Delaware corporation
("Buyer"), promises to pay to Concorde Career Colleges, Inc., a Delaware
corporation ("Seller"), in lawful money of the United States of America, the
principal sum of Three Hundred Thousand and no/100 Dollars ($300,000.00),
without interest. Principal is due and payable on February 28, 1997.
Buyer may at any time prepay this Note, in whole or in part, without
premium or penalty.
Failure to make the payment of principal when due shall entitle the
holder to exercise all available remedies.
This Note is delivered pursuant to an Asset Purchase Agreement dated
July 11, 1996 ("Asset Purchase Agreement") and Amendment dated August 29, 1996
among Buyer and Seller pursuant to which, among other things, Buyer will acquire
certain assets of Seller.
Payment of principal is to be made in lawful money of the United
States of America by wire transfer to the same account to which the initial
payment was made under the Asset Purchase Agreement.
In addition to the principal on this Note, Buyer agrees to pay (a) all
reasonable costs and expenses incurred by the holder of this Note in collecting
this Note through any reorganization, bankruptcy or any other proceeding and (b)
reasonable attorneys' fees when and if this Note is placed in the hands of an
attorney for collection after default.
Buyer waives notice of protest, notice of dishonor, notice of intent
to accelerate, notice of acceleration and all other notices of any type or
character, demand, presentment for payment, protest, diligence in collecting or
bringing suit and notice, other than required service, with respect to the
filing of suit for the purpose of fixing liability.
This Note shall be governed by, and construed in accordance with, the
laws of the State of California.
Corinthian Schools, Inc.
By:_______________________________
Frank McCord, its Chief
Financial Officer
<PAGE>
EXHIBIT 4.3
CORINTHIAN COLLEGES, INC.
10.27% SENIOR SECURED NOTE DUE OCTOBER 17, 2003
No. R-1 October 17, 1996
$22,500,000
FOR VALUE RECEIVED, the undersigned, CORINTHIAN COLLEGES, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to The Prudential Insurance
Company of America, or registered assigns, the principal sum of TWENTY-TWO
MILLION FIVE HUNDRED THOUSAND DOLLARS ($22,500,000) on October 17, 2003, with
interest (computed on the basis of a 360-day year-30-day month) (a) on the
unpaid balance thereof at the rate of 10.27% per annum from the date hereof,
payable quarterly on the seventeenth day of January, April, July and October in
each year, commencing with the January, April, July and October next succeeding
the date hereof, until the principal hereof shall have become due and payable,
and (b) on any overdue payment (including any overdue prepayment) of principal,
any overdue payment of interest and any overdue payment of any Yield-Maintenance
Amount (as defined in the Note Agreement referred to below), payable quarterly
as aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the greater of (i) 12.27% or (ii)
2.0% over the rate of interest publicly announced by Bank of New York from time
to time in New York City as its Prime Rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Bank of
New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
This Note is one of a series of Senior Secured Notes (herein called
the "Notes") issued pursuant to a Note Purchase and Revolving Credit Agreement,
dated as of October 17, 1996 (as such Note Purchase and Revolving Credit
Agreement is amended, supplemented or otherwise modified from time to time, the
"Agreement"), between the Company and The Prudential Insurance Company of
America, and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement,
upon surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
<PAGE>
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement. This Note is also subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
This Note is secured by, and entitled to the benefits of, the
Collateral Documents. Reference is made to the Collateral Documents for a
statement concerning the terms and conditions governing the collateral security
for the obligations of the Company hereunder.
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Agreement to the extent defined
therein.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable in
the manner and with the effect provided in the Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the internal laws of the State of
California, without giving effect to principles of conflicts of laws.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
-------------------------
Title: President
<PAGE>
EXHIBIT 4.4
CORINTHIAN COLLEGES, INC.
SENIOR SECURED REVOLVING NOTE
No. R-1 October 17, 1996
$5,000,000
FOR VALUE RECEIVED, the undersigned, CORINTHIAN COLLEGES, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to The Prudential Insurance
Company of America (the "Lender"), or registered assigns, the principal sum of
FIVE MILLION DOLLARS ($5,000,000), or, if less, the aggregate principal amount
of all Revolving Loans made by Lender to the Company pursuant to the Agreement
referred to below, on or before the Revolving Loans Termination Date.
The Company also promises to pay to Lender interest for any Rate Period,
computed on the basis of actual days outstanding during such Rate Period and on
the basis of a year of 360 days, on the last Business Day of such Rate Period,
on the unpaid principal balance outstanding hereunder, (i) from the date hereof
until the principal hereof shall have become due and payable (whether by
acceleration or otherwise) at the rate per annum specified in the Agreement,
such interest rate to change when and as provided therein, and (ii) after such
date until paid at a rate per annum which shall be 2.00% per annum in excess of
the rate per annum specified in the foregoing clause (i).
Payments of principal of, interest on and any fees payable with respect to
this Note are to be made at the main office of Bank of New York in New York City
or at such other place as the holder hereof shall designate to the Company in
writing, in lawful money of the United States of America.
This Note is the Revolving Note (herein called the "Note") issued pursuant
to a Note Purchase and Revolving Credit Agreement, dated as of October 17, 1996
(as such Note Purchase and Revolving Credit Agreement is amended, supplemented
or otherwise modified from time to time, the "Agreement"), between the Company
and The Prudential Insurance Company of America and is entitled to the benefits
thereof. Capitalized terms used and not otherwise defined herein shall have the
meanings provided in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
<PAGE>
This Note is secured by, and entitled to the benefits of, the Collateral
Documents. Reference is made to the Collateral Documents for a statement
concerning the terms and conditions governing the collateral security for the
obligations of the Company hereunder.
As provided in the Agreement, this Note is subject to mandatory and
optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
In case an Event of Default shall occur and be continuing, the principal of
this Note may be declared or otherwise become due and payable in the manner and
with the effect provided in the Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the internal laws of the State of
California without giving effect to principles of conflicts of laws.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
----------------------------
Title: President
-2-
<PAGE>
EXHIBIT 4.5
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
THIS NOTE IS SUBJECT TO A SUBORDINATION AND STANDSTILL AGREEMENT DATED
OCTOBER 17, 1996, BY AND AMONG OTHERS, THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, BOCP II, LIMITED LIABILITY COMPANY, BANC ONE CAPITAL
PARTNERS II, LTD., PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP.
Subordinated Note
Due October 17, 2004
$1,000,000 Columbus, Ohio
October 17, 1996
This Subordinated Note (the "Note") is executed and delivered under
and pursuant to the terms of that certain Subordinated Note and Warrant Purchase
Agreement dated October 17, 1996, (the "Agreement") by and among Corinthian
Colleges, Inc. ("Company"), a Delaware corporation, as seller and Primus Capital
Fund III Limited Partnership ("Primus"), an Ohio limited partnership and Banc
One Capital Partners II, Ltd. ("BOCP II"), an Ohio limited liability company, as
purchasers.
The Company, together with its successors and assigns is referred to
as the "Maker." Primus, together with its successors and assigns, is referred to
as the "Payee."
All defined terms not otherwise defined in this Note will have the
meanings ascribed to them in the Agreement.
FOR VALUE RECEIVED, the Maker promises to pay to the order of the
Payee, at the Payee's office at 1375 East Ninth Street, Suite 2700, Cleveland,
Ohio 44114, the principal amount of One Million Dollars ($1,000,000) on or
before October 17, 2004.
Interest shall be calculated at a fixed rate of interest per annum
equal to twelve percent (12%) ("Interest Rate"). Interest shall be calculated on
the basis of the actual number of days elapsed over a year consisting of four
quarters each consisting of 90 days.
<PAGE>
Interest on the unpaid principal balance hereof shall be due and
payable in arrears on December 31, 1996, and continuing on the last Business Day
of each quarter thereafter until payment in full of this Note; provided,
however, that whenever the last day of any such quarter would otherwise occur on
a day other than a Business Day (as defined in the Agreement), the last day of
such quarter shall be deemed to occur on the following Business Day.
Principal shall be payable in quarterly installments of $56,250
beginning October 17, 2000 with the remaining unpaid balance due October
17,2004.
This Note may be prepaid in whole or in part in amounts of not less
than $100,000.
This Note will be subordinated to the Senior Indebtedness (as defined
in the Agreement) as provided for in the Subordination Agreement (as defined in
the Agreement).
All payments and prepayments to be made by the Maker in respect of
principal or interest on this Note shall be due at 1:30 p.m. Columbus, Ohio time
on the day when due and shall be made to the Payee in federal funds or other
immediately available lawful money of the United States of America. Whenever
any payment to be made hereunder shall be due other than on a Business Day, such
payment shall be made on the Business Day following the due date.
Any assignee of this Note shall take the same free and clear of all
offsets, counterclaims or defenses which are unrelated to this Note which the
Maker may otherwise have against the assignor of this Note and no such unrelated
counterclaim or defense shall be interposed or asserted by the Maker in any
action or proceeding brought by any such assignee under this Note and any such
right to interpose or assert any such unrelated offset, counterclaim or defense
in any such action or proceeding is hereby expressly waived by the Maker.
Time shall be of the essence in the performance of all obligations of
the Maker under this Note.
This Note is one of the Notes referred to in the Agreement. Reference
is made to the Agreement and Subordination Agreement for provisions for the
subordination of this Note with respect to the to indebtedness of the Maker to
the Senior Lender (as that term is defined in the Agreement) and the
acceleration of the maturity hereof, but neither this reference to the Agreement
and Subordination Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Maker to pay the principal of or
interest on this Note when due. All of the terms, conditions, covenants,
representations and warranties of the Agreement and the Subordination Agreement
are incorporated herein by reference as if the same were more fully set forth
herein.
Upon the occurrence of an Event of Default as specified in the
Agreement or Subordination Agreement, the principal hereof and accrued interest
hereon may be declared to be and shall thereupon become forthwith due and
payable, all as provided in the Agreement and the Subordination Agreement.
<PAGE>
To the extent permitted by law, the Maker waives presentment; protest
and demand; notice of protest, demand, dishonor and nonpayment; diligence in
collection.
If at any time the indebtedness evidenced by this Note is collected
through legal proceedings or this Note is placed in the hands of attorneys for
collection, the Maker hereby agrees to pay all reasonable costs and expenses
(including reasonable attorneys' fees) incurred by the holder of this Note in
collecting or attempting to collect such indebtedness.
This Note is made under and governed by the laws of the State of Ohio.
The Payee and the Maker, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any litigation
based upon or arising out of this Note or any related instrument or agreement,
or any of the transactions contemplated by this Note, or any course of conduct,
dealing, statements (whether oral or written) or actions of either of them.
Neither the Payee nor the Maker shall seek to consolidate, by counterclaim or
otherwise, any action in which a jury trial has been waived with any other
action in which a jury trial cannot be or has not been waived. In the event of a
dispute under this Note, the parties hereby agree that exclusive jurisdiction
and venue lies in a court of competent jurisdiction in Franklin County, Ohio.
These provisions shall not be deemed to have been modified in any respect or
relinquished by either the Payee or the Maker except by a written instrument
executed by both of them.
WITNESS the due execution hereof with intent to be legally bound
hereby.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
---------------------
David G. Moore, President
<PAGE>
EXHIBIT 4.6
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
THIS NOTE IS SUBJECT TO A SUBORDINATION AND STANDSTILL AGREEMENT DATED
OCTOBER 17, 1996, BY AND AMONG OTHERS, THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, BOCP II, LIMITED LIABILITY COMPANY, BANC ONE
CAPITAL PARTNERS II, LTD., PRIMUS CAPITAL FUND III LIMITED
PARTNERSHIP.
SUBORDINATED NOTE
DUE OCTOBER 17, 2004
$4,000,000 Columbus, Ohio
October 17, 1996
This Subordinated Note (the "Note") is executed and delivered under
and pursuant to the terms of that certain Subordinated Note and Warrant Purchase
Agreement dated October 17, 1996, (the "Agreement') by and among CORINTHIAN
COLLEGES, INC. ("Company"), a Delaware corporation, as seller and PRIMUS CAPITAL
FUND III LIMITED PARTNERSHIP ("Primus"), an Ohio limited partnership and BANC
ONE CAPITAL PARTNERS II, LTD. ("BOCP II"), an Ohio limited liability company, as
purchasers.
The COMPANY, together with its successors and assigns is referred to
as the "MAKER." BOCP II, together with its successors and assigns, is referred
to as the "PAYEE."
All defined terms not otherwise defined in this Note will have the
meanings ascribed to them in the Agreement.
FOR VALUE RECEIVED, the Maker promises to pay to the order of the
Payee, at the Payee's office at 150 East Gay Street, 24th Floor, Columbus, Ohio
43215, the principal amount of Four Million Dollars ($4,000,000) on or before
October 17, 2004.
Interest shall be calculated at a fixed rate of interest per annum
equal to twelve percent (12%) ("Interest Rate"). Interest shall be calculated
on the basis of the actual number of days elapsed over a year consisting of four
quarters each consisting of 90 days.
<PAGE>
Interest on the unpaid principal balance hereof shall be due and
payable in arrears on December 31, 1996, and continuing on the last Business Day
of each quarter thereafter until payment in full of this Note; provided,
however, that whenever the last day of any such quarter would otherwise occur on
a day other than a Business Day (as defined in the Agreement), the last day of
such quarter shall be deemed to occur on the following Business Day.
Principal shall be payable in quarterly installments of $225,000
beginning October 17, 2000 with the remaining unpaid balance due October 17,
2004.
This Note may be prepaid in whole or in part in amounts of not less
than $100,000.
This Note will be subordinated to the Senior Indebtedness (as defined
in the Agreement) as provided for in the Subordination Agreement (as defined in
the Agreement).
All payments and prepayments to be made by the Maker in respect of
principal or interest on this Note shall be due at 1:30 p.m. Columbus, Ohio time
on the day when due and shall be made to the Payee in federal funds or other
immediately available lawful money of the United States of America. Whenever
any payment to be made hereunder shall be due other than on a Business Day, such
payment shall be made on the Business Day following the due date.
Any assignee of this Note shall take the same free and clear of all
offsets, counterclaims or defenses which are unrelated to this Note which the
Maker may otherwise have against the assignor of this Note and no such unrelated
counterclaim or defense shall be interposed or asserted by the Maker in any
action or proceeding brought by any such assignee under this Note and any such
right to interpose or assert any such unrelated offset, counterclaim or defense
in any such action or proceeding is hereby expressly waived by the Maker.
Time shall be of the essence in the performance of all obligations of
the Maker under this Note.
This Note is one of the Notes referred to in the Agreement. Reference
is made to the Agreement and Subordination Agreement for provisions for the
subordination of this Note with respect to the indebtedness of the Maker to the
Senior Lender (as that term is defined in the Agreement) and the acceleration of
the maturity hereof, but neither this reference to the Agreement and
Subordination Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Maker to pay the principal of or
interest on this Note when due. All of the terms, conditions, covenants,
representations and warranties of the Agreement and the Subordination Agreement
are incorporated herein by reference as if the same were more fully set forth
herein.
Upon the occurrence of an Event of Default as specified in the
Agreement or Subordination Agreement, the principal hereof and accrued interest
hereon may be declared to be and shall thereupon become forthwith due and
payable, all as provided in the Agreement and the Subordination Agreement.
<PAGE>
To the extent permitted by law, the Maker waives presentment; protest
and demand; notice of protest, demand, dishonor and nonpayment; diligence in
collection.
If at any time the indebtedness evidenced by this Note is collected
through legal proceedings or this Note is placed in the hands of attorneys for
collection, the Maker hereby agrees to pay all reasonable costs and expenses
(including reasonable attorneys' fees) incurred by the holder of this Note in
collecting or attempting to collect such indebtedness.
This Note is made under and governed by the laws of the State of Ohio.
The Payee and the Maker, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any litigation
based upon or arising out of this Note or any related instrument or agreement,
or any of the transactions contemplated by this Note, or any course of conduct,
dealing, statements (whether oral or written) or actions of either of them.
Neither the Payee nor the Maker shall seek to consolidate, by counterclaim or
otherwise, any action in which a jury trial has been waived with any other
action in which a jury trial cannot be or has not been waived. In the event of
a dispute under this Note, the parties hereby agree that exclusive jurisdiction
and venue lies in a court of competent jurisdiction in Franklin County, Ohio.
These provisions shall not be deemed to have been modified in any respect or
relinquished by either the Payee or the Maker except by a written instrument
executed by both of them.
WITNESS the due execution hereof with intent to be legally bound
hereby.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
-------------------------
David G. Moore, President
<PAGE>
EXHIBIT 4.7
PROMISSORY NOTE (SECURED)
------------------------
$3,760,000 April 30, 1997
FOR VALUE RECEIVED, the undersigned, CORINTHIAN PROPERTY GROUP, INC., a
Florida corporation ("Borrower"), promises to pay to the order of BANC ONE
--------
CAPITAL PARTNERS VI, LTD., an Ohio limited liability company with a principal
place of business at 150 East Gay Street, 24th Floor, Columbus, Ohio 43215
("Lender"), to the account set forth in Section 2(d) below or at such other
------ -----------
place as Lender may from time to time direct, the principal sum of THREE MILLION
SEVEN HUNDRED SIXTY THOUSAND DOLLARS ($3,760,000), on or before the Maturity
Date (as defined below), together with interest thereon, all as hereinafter
provided. Interest shall be computed and accrue on the principal amount hereof
from time to time outstanding from the date advanced to the date of payment at a
rate per annum equal to the Interest Rate (as defined below).
1. Definitions. In addition to terms defined elsewhere in this Note, the
-----------
following terms shall have the following definitions:
(a) "Accelerated Amortization" shall mean monthly payments
------------------------
(commencing on the first day of the Loan Month following the Loan Month in which
an election has been made by Lender pursuant to Section 2(b), below) of the
------------
remaining principal of the Loan on an amortization schedule based upon an
interest rate at the Base Rate and an assumed term of twenty-four (24) months.
(b) "Advance" shall mean an advance by Lender to Borrower in
-------
accordance with this Note, the Mortgages or the Loan Agreement.
(c) "Base Rate" shall mean 10.95% per annum.
---------
(d) "Business Day" shall mean any day other than a Saturday, Sunday
------------
or legal holiday on which commercial banks are authorized or required to be
closed in Columbus, Ohio.
(e) "Default Rate" shall mean a rate per annum equal to the lesser of
------------
(i) four percent (4%) per annum plus the Base Rate, and (ii) the Maximum Rate.
(f) "Event of Default" shall mean (i) the failure by Borrower to pay
----------------
any installment of principal or interest under this Note within five (5) days
following the due date thereof, (ii) the failure by Borrower to pay all sums
owed to Lender under this Note and every Loan Document on or before the Maturity
Date, or (iii) the occurrence of any Event of Default under the Loan Agreement,
the Mortgages or any other Loan Document.
(g) "Dollars" and the symbol "$" shall mean lawful money of the
------- -
United States of America.
<PAGE>
(h) "Interest Rate" shall mean the lesser of (i) the Maximum Rate,
-------------
and (ii) the Base Rate or the Default Rate, as applicable, from time to time in
effect hereunder.
(i) "Loan" shall mean the loan from Lender to Borrower evidenced by
----
this Note and by the Loan Agreement.
(j) "Loan Agreement" shall mean that certain Loan Agreement of even
--------------
date herewith by and between Lender and Borrower which, together with this Note,
evidences the Loan.
(k) "Loan Documents" shall have the meaning set forth in the Loan
--------------
Agreement.
(l) "Loan Month" shall mean May, 1997 and any full calendar month
----------
during the term of this Note thereafter.
(m) "Maturity Date" shall mean the earliest to occur of: (i) April
-------------
30, 2007; (ii) if Lender has made an election pursuant to Section 2(b), below,
------------
the date which is the last day of the month which is the twenty-fourth (24th)
Loan Month following the Loan Month in which an election has been made by Lender
pursuant to Section 2(b), below; (iii) such date as Lender may, in its
------------
discretion, designate in writing as the Maturity Date if the Base Rate should at
any time exceed the Maximum Rate; or (iv) the date on which the entire principal
amount evidenced by this Note and all accrued and unpaid interest thereon shall
be paid or be required to be paid in full, whether by prepayment, acceleration
or otherwise in accordance with the terms of this Note or any of the Loan
Documents.
(n) "Maximum Rate" shall mean the maximum interest rate allowed by
------------
applicable law in effect with respect to the Loan on the date for which a
determination of interest accrued hereunder is made and after taking into
account all fees, payments and other charges which are, under applicable law,
characterized as interest.
(o) "Mortgages" shall have the meaning set forth in the Loan
---------
Agreement.
(p) "Premises" shall have the meaning set forth in the Loan
--------
Agreement.
(q) "Prepayment Fee" shall mean an amount equal to the greater (as
--------------
calculated by the Lender) of:
(i) The present value (discounted at the Treasury Rate as hereinafter
defined), of the excess (if any) obtained by subtracting the
effective annual compounded yield (at the time of prepayment) of
United States Treasury Issues (other than so-called "flower
bonds") with maturity dates that
2
<PAGE>
match, as closely as possible, the original Maturity Date of
April 30, 2007 (the "Treasury Rate") from the effective annual
compounded yield of this Note, multiplied by the outstanding
principal balance (at the time of prepayment) of this Note,
multiplied by the number of years (and any fraction thereof)
remaining between the date of prepayment and such original
Maturity Date (such amount shall be computed as if the amount
determined in accordance with the provisions of this subsection
were paid in equal monthly installments after the date of such
prepayment through such original Maturity Date); or
(ii) One percent (1%) of the outstanding principal balance (at the
time of prepayment) of this Note unless the provisions of Section
-------
4(d), below, are applicable in which case, five percent (5%) of
----
the outstanding principal balance (at the time of prepayment) of
this Note.
(r) "Property" shall have the meaning set forth in the Loan
--------
Agreement.
(s) "Prudential Payoff" shall mean the payment in full of all
-----------------
indebtedness of Corinthian Colleges, Inc. owing to Prudential Insurance Company
pursuant to that certain Note Purchase and Revolving Credit Agreement dated as
of October l7, l996, as amended.
2. Payment of Interest and Principal.
---------------------------------
(a) Commencing on June 1, 1997 and on the first day of each Loan
Month thereafter, Borrower shall pay to Lender (i) interest at the Interest Rate
on the principal amount hereof then outstanding; and (ii) installments of
principal for each Loan Month in the amounts set forth on Exhibit A attached
---------
hereto, which monthly installments are calculated to be equal to the amount
which would be sufficient to amortize the principal balance of this Note over a
fifteen (15) year term commencing on the date hereof (or the remainder of said
term at the time of each such monthly payment), with interest accruing thereon
at the Base Rate, subject to Lender's right to elect Accelerated Amortization as
set forth in Section 2(b), below.
------------
(b) Anything herein to the contrary notwithstanding, in the event of
a Prudential Payoff, Lender, at its election, may accelerate the maturity of the
Loan and require the payment by Borrower of Accelerated Amortization by
providing Borrower with written notice of such election within thirty (30) days
after Lender has received notice of such Prudential Payoff. In such event, the
Maturity Date shall be the date which is the last day of the month which is the
twenty-fourth (24th) Loan Month following the Loan Month in which such election
has been made.
(c) The entire outstanding principal amount of the Loan, and all
accrued and unpaid interest thereon, shall be due and payable on the Maturity
Date. Borrower acknowledges
3
<PAGE>
and agrees that a substantial portion of the principal balance evidenced by this
Note may be outstanding and due and payable on the Maturity Date.
(d) All payments hereunder shall be made by electronic fund transfer
debit transactions of immediately available federal funds without set-off or
counterclaim and shall be made to the following account of Lender prior to l:30
p.m., Eastern Standard Time, on the date due:
Bank One, Columbus, NA
Columbus, Ohio
ABA #044000037
Banc One Capital Funding Corporation
Account #986603080
Clearing Account
Whenever any payment to be made hereunder shall be stated to be due on a date
other than a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall be included in the calculation of
interest on such principal. Any payments received after 2:30 p.m., Eastern
Standard Time shall be deemed received on the next Business Day and shall
include interest to such next Business Day.
(e) All interest required to be paid by Borrower hereunder shall be
calculated on the basis of a year consisting of 360 days and shall be paid in
arrears for the actual number of days elapsed, calculated as to each Advance
from and including the date the applicable period commences to, but not
including, the date such period ends.
(f) If any regular monthly installment of principal and interest
shall not be paid at the place required under this Note on or before the fifth
(5th) day following the due date thereof, Borrower shall pay to Lender a late
charge (the "Late Charge") of four cents ($0.04) for each Dollar so overdue in
order to compensate Lender for its frustration in the meeting of its financial
and loan commitments and to defray part of Lender's expenses incident to
handling such delinquent payments. This charge shall be in addition to any other
remedy Lender may have and is in addition to Lender's right to collect
reasonable fees and charges of any agents or attorneys which Lender employs in
connection with any Event of Default. To the extent that any Late Charge shall
constitute interest under applicable law, the amount thereof, together with all
other interest hereunder and under the Loan Documents, shall be expressly
limited to the Maximum Rate. Nothing herein contained shall be deemed to
constitute a waiver or modification of the due date for such installments or any
deposits required to be made hereunder or under any of the Loan Documents or the
requirement that Borrower make all payments of installments and deposits as and
when the same are due and payable. In addition, Borrower shall pay to Lender
interest at the Default Rate on (i) any part of any regular monthly installment
of principal and interest which is not paid on or before the fifth (5th) day
following the due date thereof, and (ii) any other amounts owed to Lender
hereunder or under any Loan Document which are not paid
4
<PAGE>
on or before the fifth (5th) day following the due date thereof; such interest
at the Default Rate shall be calculated from the date the payment in question
became due to the date such payment is made.
(g) If at any time the Base Rate exceeds the Maximum Rate and the
Interest Rate is reduced to the Maximum Rate, any subsequent reductions in the
Base Rate to a level which is less than the Maximum Rate shall not reduce the
Interest Rate below the Maximum Rate unless and until the total amount of the
interest accrued and actually paid on this Note equals the amount of interest
which would have been paid or accrued if the Interest Rate had at all times been
equal to the Base Rate.
(h) All agreements between Borrower and Lender, whether now existing
or hereafter arising and whether written or oral, are hereby expressly limited
so that in no contingency or event, whether by reason of acceleration of the
maturity of this Note or otherwise, shall the amount paid, or agreed to be paid
to Lender for the use, forbearance, or detention of the money to be loaned under
this Note or otherwise or for the payment or performance of any covenant or
obligation contained herein or in any other document evidencing, securing
pertaining to the Loan exceed the Maximum Rate. If from any circumstances
whatsoever fulfillment of any provision hereof or any of such other agreements
shall cause the amount paid to exceed the Maximum Rate, then ipso facto, the
amount paid to Lender shall be reduced to the Maximum Rate, and if from any such
circumstances Lender shall ever receive interest which exceeds the Maximum Rate,
such amount which would be excessive interest shall be applied to the reduction
of the principal of this Note and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of principal of this Note, such
excess shall be refunded to Borrower. All sums paid or agreed to be paid to
Lender for the use, forbearance or detention of the indebtedness of Borrower to
Lender shall, to the extent permitted by applicable law, (i) be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full, so that the actual rate of interest on account of such
indebtedness does not exceed the Maximum Rate throughout the term thereof, (ii)
be characterized as a fee, expense or charge other than interest; and (iii)
exclude any voluntary prepayments and the effects thereof. The terms and
provisions of this Subsection 2(h) shall control and supersede every other
--------------
provision of all agreements between Lender and Borrower.
(i) Except as otherwise expressly provided in this Note, the Loan
Agreement or the Mortgages, each payment received by Lender shall be applied by
Lender to amounts outstanding under the Loan Documents in such order and
priority as Lender may elect in its sole and absolute discretion; provided,
however, that if at the time of any payment there is due and payable any portion
of the principal balance of this Note and sums not constituting repayment of
principal, then such payment shall first be allocated to sums not constituting
repayment of principal (in such order of priority as among the various
obligations constituting such sums as Lender may elect in its sole and absolute
discretion) before Lender applies such payments to the reduction of the
outstanding principal balance of this Note.
5
<PAGE>
3. Advances. The proceeds of the Loan have been advanced as follows:
--------
(a) On the date hereof, Lender has advanced to or for the benefit of
Borrower the sum of THREE MILLION SEVEN HUNDRED SIXTY THOUSAND DOLLARS
($3,760,000), and Borrower hereby acknowledges its receipt of said funds.
(b) Intentionally Omitted.
---------------------
4. Prepayment. Except as set forth in Article 7 of the Loan Agreement,
----------
the Loan may not be prepaid, in whole or in part, at any time during the term
hereof, except as expressly set forth below.
(a) Prepayment in full of the Loan is permitted at any time on or
after May 1, 2000 and prior to the Maturity Date; provided, however, that upon
any such prepayment in full which is made on or before March 3l, 2007, Borrower
shall also pay Lender the Prepayment Fee. Any prepayment in full which is made
on or after April 1, 2007 shall not be subject to the Prepayment Fee. The
Prepayment Fee is in consideration for the privilege of making such prepayment,
and shall be paid to Lender simultaneously with the making of the prepayment.
The Prepayment Fee shall not apply to (i) payments made pursuant to Subsection
----------
2(b) hereof, and (ii) prepayment in part or in full made pursuant to Section 2.5
- --- -----------
of the Mortgages or Article 6 or Section 7.l of the Loan Agreement. Any such
--------- -----------
prepayment permitted hereunder and made by Borrower shall be applied to the
repayment of the Loan in accordance with Subsection 2(i) of this Note; provided
--------------
however, that any sums applied to the principal balance of this Note shall be so
applied in the inverse order of maturity.
(b) Except for prepayment in full or in part pursuant to Section 2.5
-----------
of the Mortgages or Article 6 or Section 7.1 of the Loan Agreement, Borrower
--------- -----------
shall give Lender sixty (60) days prior written notice of a proposed prepayment,
which notice shall be irrevocable. Borrower's failure to make a prepayment in
full in accordance with such a written notice from Borrower to Lender, except if
such failure is due solely to reasons beyond Borrower's control, shall
constitute an Event of Default.
(c) Any tender of payment by Borrower or any other party, except as
expressly set forth in this Section 4, shall constitute a prohibited prepayment
---------
hereunder.
(d) If an Event of Default shall occur, whether or not the maturity
of this Note has been accelerated, then a tender of payment by Borrower, or by
any entity on behalf of Borrower, of the amount necessary to satisfy all sums
due under this Note and the Loan Documents (including, without limitation, any
sums due on any judgment rendered in any foreclosure action, or any amounts
necessary to redeem the property subject to the Loan Documents) made at a time
prior to, during or after a judicial foreclosure or a sale pursuant to the
exercise of a power of sale of the property subject to the Loan Documents, must,
to the extent permitted by law and subject to the provisions of Subsection 2(h)
--------------
of this Note, be accompanied
6
<PAGE>
by the Prepayment Fee. Borrower acknowledges that Lender has relied upon the
anticipated investment return under this Note in entering into this transaction
and in making commitments to third parties.
(e) Borrower acknowledges that the Prepayment Fee represents a
reasonable estimate of a fair and equitable compensation for the loss that may
be sustained by Lender due to the prepayment of the principal sum evidenced by
this Note. The Prepayment Fee shall be paid without prejudice to the right of
Lender to collect any other amounts provided to be paid under the Loan
Documents. Nothing herein contained shall constitute an agreement on the part of
Lender to accept any prepayment, other than as expressly provided in Subsection
----------
4(a) above.
- ----
5. Default. Upon the occurrence of any Event of Default, the principal
-------
amount of the Loan, together with all accrued interest thereon and all amounts
due and payable hereunder (including the Prepayment Fee, if applicable) shall
immediately become due and payable on demand. If this Note, or any part hereof,
is not paid when due, whether by acceleration or otherwise, Borrower promises to
pay all costs of collection, including, but not limited to, reasonable
attorneys' fees and disbursements, incurred by the holder hereof on account of
such collection, whether or not suit is filed hereon. Additionally, after the
Maturity Date, the Interest Rate shall without notice immediately become the
Default Rate.
6. Notices. All notices, demands and requests required or desired to be
-------
given hereunder shall be in writing and shall be delivered in person, or by
overnight courier addressed as follows:
To the Borrower:
Corinthian Property Group, Inc.
6 Hutton Centre
Suite 400
Santa Ana, California 92707-5764
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660-6429
Attn: David A. Krinsky, Esq.
7
<PAGE>
To Lender:
Banc One Capital Partners VI, Ltd.
150 East Gay Street, 24th Floor
Columbus, Ohio 43215
Attn: Ronald L. Callentine
with a copy to:
Banc One Capital Corporation
150 East Gay Street, 24th Floor
Columbus, Ohio 43215
Attn: Kenneth J. Krebs, Esq.
or at such other addresses or to the attention of such other persons as may from
time to time be designated by the party to be addressed by written notice to the
other in the manner herein provided. Notices, demands and requests given in the
manner aforesaid shall be deemed sufficiently served or given for all purposes
hereunder when received or when delivery is refused or when the same are
returned to sender for failure to be called for.
7. Governing Law. This Note was negotiated in the State of Ohio, accepted
-------------
by Lender in the State of Ohio, and the proceeds of the Loan evidenced hereby
were or are to be disbursed by Lender from the State of Ohio. Borrower and
Lender agree that the State of Ohio has a substantial relationship to the
transaction evidenced hereby and agree that this Note and the rights and
obligations of the parties hereunder shall be governed by and construed in
accordance with the laws of the State of Ohio (without giving effect to
principles of conflicts of law).
8. Waiver. Borrower hereby (a) waives demand, presentment for payment,
------
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest and all other notice (except notice specifically
provided for herein or in the Loan Documents), filing of suit and diligence in
collecting this Note or enforcing any of the security for this Note, (b) agrees
to any substitution, exchange or release of any party primarily or secondarily
liable hereon, (c) agrees that Lender or any other holder hereof shall not be
required first to institute suit or exhaust its remedies hereon or to enforce
its rights under any Loan Document in order to enforce payment of this Note, (d)
consents to any extension or postponement of time of payment of this Note and to
any other indulgence with respect hereto without notice thereof to Borrower, and
(e) agrees that the failure to exercise any option or election herein provided
upon the occurrence of any default in respect hereto shall not be construed as a
waiver of the right to exercise such option or election at any later date or
upon the occurrence of a subsequent default in respect hereto.
8
<PAGE>
9. Business Purpose. Borrower represents and warrants that the proceeds
----------------
of this Note will be used for business purposes and not for personal, family or
household purposes.
10. Severability. If any provision of this Note or any payments pursuant
------------
to this Note shall be invalid or unenforceable to any extent, the remainder of
this Note and any other payments hereunder shall not be affected thereby and
shall be enforceable to the greatest extent permitted by applicable law.
11. Miscellaneous.
-------------
(a) BORROWER HEREBY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS NOTE. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY BORROWER, AND
BORROWER ACKNOWLEDGES THAT LENDER HAS NOT MADE ANY REPRESENTATIONS OF FACT TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS
EFFECT. BORROWER FURTHER ACKNOWLEDGES THAT BORROWER HAS BEEN REPRESENTED (OR HAS
HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED BY BORROWER, AND
THAT BORROWER HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(b) Borrower hereby submits to personal jurisdiction in the State of
Ohio for the enforcement of the provisions of this Note and irrevocably waives
any and all rights to object to such to such jurisdiction for the purposes of
litigation to enforce any provision of this Note. Borrower hereby consents to
the jurisdiction of and agrees that any action, suit or proceeding to enforce
this Note may be brought in any state or federal court in the State of Ohio.
Borrower hereby irrevocably waives any objection which Borrower may have to the
laying of the venue of any such action, suit, or proceeding in any such court
and hereby further irrevocably waives any claim that any such action, suit or
proceeding brought in such a court has been brought in an inconvenient forum.
Borrower hereby appoints the Secretary of the State of Ohio as its agent for
service of process. Borrower hereby consents that service of process in any
action, suit or proceeding may be made by service upon the aforesaid agent for
service of process, by personal service upon Borrower, or by delivery in
accordance with the notice requirements of Section 6 of this Note or in such
---------
other manner permitted by law.
(c) This Note shall be binding upon Borrower and its representatives,
successors and assigns.
(d) This Note may not be changed orally, but only by an agreement in
writing signed by Borrower and Lender.
9
<PAGE>
(e) The headings used in this Note are for ease of reference only and
shall not be used to construe or interpret this Note.
(f) Borrower agrees that the terms and conditions of this Note are
the result of negotiations between Borrower and Lender and that this Note shall
not be construed in favor of or against any party by reason of the extent to
which any party or its professionals participated in the preparation of this
Note.
12. Limitation on Liability.
-----------------------
(a) Subject to the limitations and exceptions contained in
subsections (b), (c), (d) and (e) below, neither Borrower nor any Guarantor
shall have any personal recourse liability for amounts owing under this Note or
any of the other Loan Documents and no deficiency judgment therefor shall be
enforced against Borrower or any Guarantor. Lender's recourse for such amounts
shall, subject to the limitations and exceptions contained in subsections (b),
(c), (d) and (e) below, be limited to the collateral and security provided under
the Loan Documents.
(b) A judgment may be sought, obtained, entered and enforced against
Borrower or any Guarantor to the extent necessary to preserve or enforce the
rights and remedies of Lender in, to or against the collateral and security
provided under the Loan Documents, and nothing contained in this Section 12
----------
shall be construed to limit, prejudice or impair the rights of Lender to enforce
its rights and remedies against any real and personal property mortgaged,
pledged, encumbered, assigned or granted to secure payment or performance under
this Note, the Loan Agreement and the other Loan Documents. Notwithstanding
anything to the contrary herein or elsewhere Lender shall, to the fullest extent
permitted by law, be entitled to injunctive relief and to specific performance.
(c) Anything contained herein or elsewhere to the contrary
notwithstanding, Borrower or any Guarantor shall be liable to Lender, without
limitation, for Lender's harm, loss (including lost interest and principal on
the Loan), damage, costs and expenses (including Lender's reasonable attorneys'
fees and collection costs) arising out of or in connection with any of the
following circumstances:
1) any misapplication or misappropriation of any insurance or
condemnation proceeds;
2) revenues collected after an Event of Default has occurred and not
properly applied to the Loan or normal operating expenses of the
Properties;
3) any waste respecting all or any part of any Property or any other
collateral;
4) real estate taxes or Impositions, if any, and insurance premiums
with respect to any Property;
10
<PAGE>
5) fraud in connection with the Loan or any Loan Document;
6) any material breach of any representation or warranty made in
connection with the Loan known by Borrower or any Guarantor to
have been false when made, or deemed made specifically including
any material misrepresentation or inaccuracy contained in any
financial statement or other document provided to Lender pursuant
to Section 4.1.J of the Loan Agreement known by Borrower or any
-------------
Guarantor to have been false or inaccurate when provided;
7) any costs incurred in order to bring any Premises into compliance
with the accessibility provisions of the Fair Housing Act of 1988
and the Americans with Disabilities Act unless and to the extent
the Premises were not in compliance with such provisions as of
the date hereof;
8) rents collected more than one month in advance;
9) any destruction of any Property or any part thereof in or from an
uninsured or underinsured casualty for which Borrower was
required to obtain insurance under the Loan Agreement; or
10) any breach of any of the terms and provisions of Section 2.10
------------
(Environmental Matters) of any Mortgage.
(d) In the event of any filing by Borrower of any voluntary petition
under the Bankruptcy Code, or the taking by Borrower of any comparable action
under any federal or state law; or the filing of any involuntary petition under
the Bankruptcy Code against Borrower or the taking of comparable action under
any federal or state law against Borrower by any affiliate of Borrower the Loan
shall become fully recourse.
(e) Nothing contained in this Section 12 shall be construed to
----------
release Borrower or any Loan Party (as defined in the Loan Agreement) from
liability under the indemnifications contained in Section 2.10 (Environmental
------------
Matters) of any Mortgage, in the Limited Guaranty and in the Environmental
Indemnity (each as defined in the Loan Agreement).
11
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
under seal by its duly authorized representative as of the date and year first
above written.
Corinthian Property Group, Inc.,
a Florida corporation
By: /s/ Frank J. McCord
-------------------------------------
Name: FRANK J. MCCORD
-----------------------------------
Title: VP & TREASURER
12
<PAGE>
EXHIBIT A
BOCP VI Loan Amortization Schedule
<TABLE>
<CAPTION>
NAME: CORINTHIAN COLLEGES, INC.
LOAN AMOUNT $3,760,000.00 INTEREST RATE: 10.95% PAYMENT AMOUNT: $ 42,618.07
PAYMENT BEGINS: 01-JUN-97 MATURITY DATE: 30-APR-07 INTEREST BASIS 360 ACTUAL
AMORTIZATION PERIOD 15 360 ACTUAL
PRINCIPAL TOTAL TOTAL INTEREST
PAYMENT DUE DATES INTEREST PRINCIPAL BALANCE INTEREST PRINCIPAL PER DIEM DAYS/MTH
- ----------------- -------- --------- ------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
01-JUN-97 $ 34,310.00 8,308.07 $3,751,691.93 $ 34,310.00 $ 8,308.07 $1,143.67 30
JULY 34,234.19 8,383.88 3,743,308.06 68,544.19 16,691.94 1,141.14 30
AUGUST 34,157.69 8,460.38 3,734,847.68 102,701.87 25,152.32 1,138.59 30
SEPTEMBER 34,080.49 8,537.58 3,726,310.09 136,782.36 33,689.91 1,136.02 30
OCTOBER 34,002.58 8,615.49 3,717,694.61 170,784.94 42,305.39 1,133.42 30
NOVEMBER 33,923.96 8,694.10 3,709,000.51 204,708.90 50,999.49 1,130.80 30
DECEMBER 33,844.63 8,773.44 3,700,227.07 238,553.53 59,772.93 1,128.15 30
---------- ----------
238,553.53 59,772.93
298,326.46
01-JAN-98 33,764.57 8,853.49 3,691,373.57 272,318.10 68,626.43 1,125.49 30
FEBRUARY 33,683.78 8,934.28 3,682,439.29 306,001.89 77,560.71 1,122.79 30
MARCH 33,602.26 9,015.81 3,673,423.48 339,604.15 86,576.52 1,120.08 30
APRIL 33,519.99 9,098.08 3,664,325.41 373,124.14 95,674.59 1,117.33 30
MAY 33,436.97 9,181.10 3,655,144.31 406,561.11 104,855.69 1,114.57 30
JUNE 33,353.19 9,264.87 3,645,879.44 439,914.30 114,120.56 1,111.77 30
JULY 33,268.65 9,349.42 3,636,530.02 473,182.95 123,469.98 1,108.95 30
AUGUST 33,183.34 9,434.73 3,627,095.29 506,366.28 132,904.71 1,106.11 30
SEPTEMBER 33,097.24 9,520.82 3,617,574.47 539,463.53 142,425.53 1,103.24 30
OCTOBER 33,010.37 9,607.70 3,607,966.77 572,473.90 152,033.23 1,100.35 30
NOVEMBER 32,922.70 9,695.37 3,598,271.40 605,396.59 161,728.60 1,097.42 30
DECEMBER 32,834.23 9,783.84 3,588,487.56 638,230.82 171,512.44 1,094.47 30
----------- ----------
399,677.29 111,739.51
511,416.80
01-JAN-99 32,744.95 9,873.12 3,578,614.44 670,975.77 181,385.56 1,091.50 30
FEBRUARY 32,654.86 9,963.21 3,568,651.23 703,630.62 191,348.77 1,088.50 30
MARCH 32,563.94 10,054.12 3,558,597.11 736,194.57 201,402.89 1,085.46 30
APRIL 32,472.20 10,145.87 3,548,451.24 768,666.77 211,548.76 1,082.41 30
MAY 32,379.62 10,238.45 3,538,212.79 801,046.38 221,787.21 1,079.32 30
JUNE 32,286.19 10,331.87 3,527,880.92 833,332.57 232,119.08 1,076.21 30
JULY 32,191.91 10,426.15 3,517,454.76 865,524.49 242,545.24 1,073.06 30
AUGUST 32,096.77 10,521.29 3,506,933.47 897,621.26 253,066.53 1,069.89 30
SEPTEMBER 32,000.77 10,617.30 3,496,316.18 929,622.03 263,683.82 1,066.69 30
OCTOBER 31,903.89 10,714.18 3,485,601.99 961,525.92 274,398.81 1,063.46 30
NOVEMBER 31,806.12 10,811.95 3,474,790.05 993,332.83 285,209.95 1,060.20 30
DECEMBER 31,707.46 10,910.61 3,463,879.45 1,025,039.49 296,120.56 1,056.92 30
----------- ----------
386,808.67 124,608.12
511,416.80
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL TOTAL TOTAL INTEREST
PAYMENT DUE DATES INTEREST PRINCIPAL BALANCE INTEREST PRINCIPAL PER DIEM DAYS/MTH
- ----------------- -------- --------- ------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
01-JAN-00 31,607.90 11,010.17 3,452,869.28 1,056,647.39 307,130.73 1,053.60 30
FEBRUARY 31,507.43 11,110.63 3,441,758.65 1,088,154.83 318,241.36 1,050.25 30
MARCH 31,406.05 11,212.02 3,430,546.63 1,119,560.87 329,453.38 1,046.87 30
APRIL 31,303.74 11,314.33 3,419,232.30 1,150,864.61 340,767.71 1,043.46 30
MAY 31,200.49 11,417.57 3,407,814.73 1,182,065.11 352,185.28 1,040.02 30
JUNE 31,096.31 11,521.76 3,396,292.97 1,213,161.42 363,707.04 1,036.54 30
JULY 30,991.17 11,626.89 3,384,666.08 1,244,152.59 375,333.93 1,033.04 30
AUGUST 30,885.06 11,732.99 3,372,933.09 1,275,037.67 387,066.92 1,029.50 30
SEPTEMBER 30,778.01 11,840.05 3,361,093.04 1,305,815.68 398,906.97 1,025.93 30
OCTOBER 30,669.97 11,948.09 3,349,144.95 1,336,485.65 410,855.06 1,022.33 30
NOVEMBER 30,560.95 12,057.12 3,337,087.83 1,367,046.60 422,912.18 1,018.70 30
DECEMBER 30,450.93 12,167.14 3,324,920.69 1,397,497.53 435,079.32 1,015.03 30
---------- ----------
372,458.04 138,958.76
511,416.80
01-JAN-01 30,339.90 12,278.16 3,312,642.52 1,427,837.43 447,357.49 1,011.33 30
FEBRUARY 30,227.86 12,390.20 3,300,252.32 1,458,065.29 459,747.69 1,007.60 30
MARCH 30,114.80 12,503.26 3,287,749.06 1,488,180.10 472,250.95 1,003.83 30
APRIL 30,000.71 12,617.36 3,275,131.70 1,518,180.81 484,868.31 1,000.02 30
MAY 29,885.58 12,732.49 3,262,399.21 1,548,066.38 497,600 80 996.19 30
JUNE 29,769.39 12,848.67 3,249,550.54 1,577,835.78 510,449.47 992.31 30
JULY 29,652.15 12,965.92 3,236,584.62 1,607,487.92 523,415.39 988.40 30
AUGUST 29,533.83 13,084.23 3,223,500.39 1,637,021.76 536,499.62 984.46 30
SEPTEMBER 29,414.44 13,203.63 3,210,296.76 1,666,436.20 549,703.25 980.48 30
OCTOBER 29,293.96 13,324.11 3,196,972.66 1,695,730.16 563,027.35 976.47 30
NOVEMBER 29,172.38 13,445.69 3,183,526.96 1,724,902.53 576,473.05 972.41 30
DECEMBER 29,049.68 13,568.38 3,169,958.58 1,753,952.22 590,041.43 968.32 30
---------- -----------
356,454.69 154,962.11
511,416.80
01-JAN-02 28,925.87 13,692.19 3,156,266.39 1,782,878.09 603,733.62 964.20 30
FEBRUARY 28,800.93 13,817.14 3,142,449.25 1,811,679.02 617,550.76 960.03 30
MARCH 28,674.85 13,943.22 3,128,506.04 1,840,353.87 631,493.97 955.83 30
APRIL 28,547.62 14,070.45 3,114,435.59 1,868,901.49 645,564.42 951.59 30
MAY 28,419.22 14,198.84 3,100,236.75 1,897,320.71 659,763.26 947.31 30
JUNE 28,289.66 14,328.41 3,085,908.34 1,925,610.37 674,091.67 942.99 30
JULY 28,158.91 14,459.15 3,071,449.19 1,953,769.29 688,550.82 938.63 30
AUGUST 28,026.97 14,591.09 3,056,858.09 1,981,796.26 703,141.92 934.23 30
SEPTEMBER 27,893.83 14,724.24 3,042,133.86 2,009,690.09 717,866.15 929.79 30
OCTOBER 27,759.47 14,858.59 3,027,275.26 2,037,449.56 732,724.75 925.32 30
NOVEMBER 27,623.89 14,994.18 3,012,281.08 2,065,073.45 747,718.93 920.80 30
DECEMBER 27,487.06 15,131.00 2,997,150.08 2,092,560.51 762,849.93 916.24 30
---------- ----------
338,608.30 172,808.50
511,416.80
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL TOTAL TOTAL INTEREST
PAYMENT DUE DATES INTEREST PRINCIPAL BALANCE INTEREST PRINCIPAL PER DIEM DAYS/MTH
- ----------------- -------- --------- ------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
01-JAN-03 27,348.99 15,269.07 2,981,881.81 2,119,909.51 778,119.00 911.63 30
FEBRUARY 27,209.66 15,408.40 2,966,472.61 2,147,119.17 793,527.40 906.99 30
MARCH 27,069.06 15,549.O0 2,950,923.60 2,174,188.23 809,076.41 902.30 30
APRIL 26,927.18 15,690.89 2,935,232.72 2,201,115.41 824,767.29 897.57 30
MAY 26,784.00 15,834.07 2,919,398.65 2,227,899.41 840,601.36 892.80 30
JUNE 26,639.51 15,978.55 2,903,420.10 2,254,538.92 856,579.91 887.98 30
JULY 26,493.71 16,124.36 2,887,295.74 2,281,032.63 872,704.27 883.12 30
AUGUST 26,346.57 16,271.49 2,871,024.24 2,307,379.20 888,975.77 878.22 30
SEPTEMBER 26,198.10 16,419.97 2,854,684.27 2,333,577.30 905,395.74 873.27 30
OCTOBER 26,048.26 16,569.80 2,838,034.47 2,359,625.57 921,965.54 868.28 30
NOVEMBER 25,897.06 16,721.00 2,821,313.47 2,385,522.63 938,686.54 863.24 30
DECEMBER 25 744.49 16,873.58 2,804,439.89 2,411,267.12 955,560.12 858.15 30
---------- ---------
318,706.60 192,710.19
511,416.80
01-JAN-04 25,590.51 17,027.55 2,787,412.34 2,436,857.63 972,587.67 853.02 30
FEBRUARY 25,435.14 17,182.93 2,770,229.41 2,462,292.77 989,770.60 847.84 30
MARCH 25,278.34 17,339.72 2,752,889.69 2,487,571.11 1,007,110.32 842.61 30
APRIL 25,120.12 17,497.95 2,735,391.74 2,512,691.23 1,024,608.27 837.34 30
MAY 24,960.45 17,657.62 2,717,734.12 2,537,651.68 1,042,265.89 832.01 30
JUNE 24,799.32 17,818.74 2,699,915.38 2,562,451.00 1,060,084.63 826.64 30
JULY 24,636.73 17,981.34 2,681,934.04 2,587,087.73 1,078,065.97 821.22 30
AUGUST 24,472.65 18,145.42 2,663,788.62 2,611,560.38 1,096,211.39 815.75 30
SEPTEMBER 24,307.07 18,311.00 2,645,477.63 2,635,867.45 1,114,522.38 810.24 30
OCTOBER 24,139.98 18,478.08 2,626,999.54 2,660,007.43 1,133,000.47 804.67 30
NOVEMBER 23,971.37 18,646.70 2,608,352.85 2,683,978.80 1,151,647.16 799.05 30
DECEMBER 23 801.22 18,816.85 2,589,536.80 2,707,780.02 1,170,464.01 793.37 30
--------- ---------
296,512.91 214,903.89
511,416.80
01-JAN-05 23,629.52 18,988.55 2,570,547.45 2,731,409.54 1,189,452.56 787.65 30
FEBRUARY 23,456.25 19,161.82 2,551,385.63 2,754,865.78 1,208,614.38 781.87 30
MARCH 23,281.39 19,336.67 2,532,048.96 2,778,147.18 1,227,951.05 776.05 30
APRIL 23,104.95 19,513.12 2,512,535.84 2,801,252.13 1,247,464.17 770.16 30
MAY 22,926.89 19,691.18 2,492,844.66 2,824,179.81 1,267,155.35 764.23 30
JUNE 22,747.21 19,870.86 2,472,973.80 2,846,926.22 1,287,026.21 758.24 30
JULY 22,565.89 20,052.18 2,452,921.62 2,869,492.11 1,307,078.39 752.20 30
AUGUST 22,382.91 20,235.16 2,432,686.47 2,891,875.02 1,327,313.54 746.10 30
SEPTEMBER 22,198.26 20,419.80 2,412,266.66 2,914,073.28 1,347,733.35 739.94 30
OCTOBER 22,011.93 20,606.13 2,391,660.53 2,936,085.22 1,368,339.48 733.73 30
NOVEMBER 21,823.90 20,794.16 2,370,866.37 2,957,909.12 1,389,133.64 727.46 30
DECEMBER 21,634.16 20.983.91 2,349,882.46 2,979,543.27 1,410,117.55 721.14 30
--------- ---------
271,763.25 239,653.54
511,416.80
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL TOTAL TOTAL INTEREST
PAYMENT DUE DATES INTEREST PRINCIPAL BALANCE INTEREST PRINCIPAL PER DIEM DAYS/MTH
- ----------------- -------- --------- ------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
01-JAN-06 21,442.68 21,175.39 2,328,707.07 3,000,985.95 1,431,292.94 714.76 30
FEBRUARY 21,249.45 21,368.61 2,307,338.45 3,022,235.40 1,452,661.56 708.32 30
MARCH 21,054.46 21,563.60 2,285,774.85 3,043,289.87 1,474,225.16 701.82 30
APRIL 20,857.70 21,760.37 2,264,014.48 3,064,147.56 1,495,985.53 695.26 30
MAY 20,659.13 21,958.93 2,242,055.55 3,084,806.69 1,517,944.46 688.64 30
JUNE 20,458.76 22,159.31 2,219,896.24 3,105,265.45 1,540,103.77 681.96 30
JULY 20,256.55 22,361.51 2,197,534.72 3,125,522.00 1,562,465.29 675.22 30
AUGUST 20,052.50 22,565.56 2,174,969.16 3,145,574.51 1,585,030.85 668.42 30
SEPTEMBER 19,846.59 22,771.47 2,152,197.69 3,165,421.10 1,607,802.32 661.55 30
OCTOBER 19,638.80 22,979.26 2,129,218.43 3,185,059.91 1,630,781.58 654.63 30
NOVEMBER 19,429.12 23,188.95 2,106,029.48 3,204,489.02 1,653,970.53 647.64 30
DECEMBER 19,217.52 23,400.55 2,082,628.93 3,223,706.54 1,677,371.08 640.58 30
---------- ---------
244,163.27 267,253.53
511,416.80
01-JAN-07 19,003.99 23,614.08 2,059,014.85 3,242,710.53 1,700,985.16 633.47 30
FEBRUARY 18,788.51 23,829.56 2,035,185.30 3,261,499.04 1,724,814.71 626.28 30
MARCH 18,571.07 24,047.00 2,011,138.30 3,280,070.11 1,748,861.71 619.04 30
APRIL 18,351.64 24,266.43 1,986,871.87 3,298,421.75 1,773,128.14 611.72 30
30-APR-07 18,130.21 1,986,871.87 0.00 3,316,551.95 3,760,000.00 604.34
------------- --------------
$ 92,845.41 $ 2,082,628.93
$ 2,175,474.34
GRAND TOTALS: $3,316,551.95 $ 3,760,000.00
</TABLE>
<PAGE>
EXHIBIT 4.8
CORINTHIAN COLLEGES, INC.
11.02% SENIOR SECURED NOTE DUE OCTOBER 17, 2004
No. R-2 October 17, 1997
$22,500,000
FOR VALUE RECEIVED, the undersigned, CORINTHIAN COLLEGES, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to The Prudential Insurance
Company of America, or registered assigns, the principal sum of TWENTY-TWO
MILLION FIVE HUNDRED THOUSAND DOLLARS on October 17, 2004, with interest
(computed on the basis of a 360-day year-30-day month) (a) on the unpaid balance
thereof at the rate of 11.02% per annum from the date hereof, payable quarterly
on the seventeenth day of January, April, July and October in each year,
commencing with the January, April, July and October next succeeding the date
hereof, until the principal hereof shall have become due and payable, and (b)
on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Yield-Maintenance
Amount (as defined in the Note Agreement referred to below), payable quarterly
as aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the greater of (i) 13.02% or (ii)
2.0% over the rate of interest publicly announced by Bank of New York from time
to time in New York City as its Prime Rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Bank of
New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to a Note Purchase and Revolving Credit Agreement,
dated as of October 17, 1996 (as such Note Purchase and Revolving Credit
Agreement is amended, supplemented or otherwise modified from time to time, the
"Agreement"), between the Company and The Prudential Insurance Company of
America, and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
<PAGE>
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement. This Note is also subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
This Note is secured by, and entitled to the benefits of, the
Collateral Documents. Reference is made to the Collateral Documents for a
statement concerning the terms and conditions governing the collateral security
for the obligations of the Company hereunder.
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Agreement to the extent defined
therein.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable in
the manner and with the effect provided in the Agreement.
This Note represents an amendment and restatement of the Company's
10.27% Senior Secured Notes due October 17, 2003 originally issued under the
Agreement (the "Original Notes"). This Note was given in exchange and
substitution for, and not as payment of the indebtedness evidenced by, the
Original Notes, merely re-evidences the indebtedness previously evidenced by the
Original Notes and is not intended to constitute a novation or discharge of the
indebtedness previously evidenced by the Original Notes.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the internal laws of the State of
California, without giving effect to principles of conflicts of laws.
CORINTHIAN COLLEGES, INC.
By: /s/ Frank J. McCord
------------------------------
Title: Vice President & CEO
---------------------------
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
---------------
$62,437.50 June 30, 1995
For value received, David G. Moore ("Executive") promises to
pay on demand to the order of Corinthian Schools, Inc., a Delaware corporation
(the "Company"), at its offices at 1732 Reynolds Street, Irvine, California
92714, or such other place as designated in writing by the holder hereof, the
aggregate principal sum of $62,437.50. This Note was issued pursuant to and is
subject to the terms of the Executive Stock Agreement, dated as of June 30,
1995, between the Company and Executive.
Interest shall be compounded monthly and shall accrue on the
outstanding principal amount of this Note at a rate equal to the lesser of (i)
7.07% per annum or (ii) the highest rate permitted by applicable law, and shall
be payable at such time as the principal of this Note becomes due and payable.
The amounts due under this Note are secured by a pledge of
6,250 shares of the company's Class B Common Stock, and the payment of the
principal amount and accrued interest under this Note is subject to certain
offset rights under the Executive Stock Agreement and is due and payable on a
pro rata basis upon any disposition of all or a portion of such shares.
In the event Executive fails to pay any amounts due hereunder
when due, Executive shall pay to the holder hereof, --in addition to such
amounts due, all costs of collection, including reasonable attorneys fees.
Executive, or his successors and assigns, hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of Executive hereunder.
This Note shall be governed by the internal laws, not the laws
of conflicts, of the State of California.
/s/ David G. Moore
----------------------------------------
David G. Moore
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
---------------
$49,950.00 June 30, 1995
For value received, Paul St. Pierre ("Executive") promises to
pay on demand to the order of Corinthian Schools, Inc., a Delaware corporation
(the "Company"), at its offices at 1732 Reynolds Street, Irvine, California
92714, or such other place as designated in writing by the holder hereof, the
aggregate principal sum of $49,950.00. This Note was issued pursuant to and is
subject to the terms of the Executive Stock Agreement, dated as of June 30,
1995, between the Company and Executive.
Interest shall be compounded monthly and shall accrue on the
outstanding principal amount of this Note at a rate equal to the lesser of (i)
7.07% per annum or (ii) the highest rate permitted by applicable law, and shall
be payable at such time as the principal of this Note becomes due and payable.
The amounts due under this Note are secured by a pledge of
5,000 shares of the Company's Class B Common Stock, and the payment of the
principal amount and accrued interest under this Note is subject to certain
offset rights under the Executive Stock Agreement and is due and payable on a
pro rata basis upon any disposition of all or a portion of such shares.
In the event Executive fails to pay any amounts due hereunder
when due, Executive shall pay to the holder hereof, in addition to such amounts
due, all costs of collection, including reasonable attorneys fees.
Executive, or his successors and assigns, hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of Executive hereunder.
This Note shall be governed by the internal laws, not the laws
of conflicts, of the State of California.
/s/ Paul St. Pierre
-------------------------------
Paul St. Pierre
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
---------------
$24,975.00 June 30, 1995
For value received, Frank J. McCord ("Executive") promises to
pay on demand to the order of Corinthian Schools, Inc., a Delaware corporation
(the "Company"), at its offices 1732 Reynolds Street, Irvine, California 92714,
or such other place as designated in writing by the holder hereof, the aggregate
principal sum of $24,975.00. This Note was issued pursuant to and is subject to
the terms of the Executive Stock Agreement, dated as of June 30, 1995, between
the Company and Executive.
Interest shall be compounded monthly and shall accrue on the
outstanding principal amount of this Note at a rate equal to the lesser of (i)
7.07% per annum or (ii) the highest rate permitted by applicable law, and shall
be payable at such time as the principal of this Note becomes due and payable.
The amounts due under this Note are secured by a pledge of
2,500 shares of the Company's Class B Common Stock, and the payment of the
principal amount and accrued interest under this Note is subject to certain
offset rights under the Executive Stock Agreement and is due and payable on a
pro rata basis upon any disposition of all or a portion of such shares.
In the event Executive fails to pay any amounts due hereunder
when due, Executive shall pay to the holder hereof, in addition to such amounts
due, all costs of collection, including reasonable attorneys fees.
Executive, or his successors and assigns, hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of Executive hereunder.
This Note shall be governed by the internal laws, not the laws
of conflicts, of the State of California.
/s/ Frank J. McCord
-------------------------------
Frank J. McCord
<PAGE>
EXHIBIT 10.4
PROMISSORY NOTE
---------------
$24,975.00 June 30, 1995
For value received, Dennis L. Devereux ("Executive") promises
to pay on demand to the order of Corinthian Schools, Inc., a Delaware
corporation (the "Company"), at its offices at 1732 Reynolds Street, Irvine, CA
92714, or such other place as designated in writing by the holder hereof, the
aggregate principal sum of $24,975.00. This Note was issued pursuant to and is
subject to the terms of the Executive Stock Agreement, dated as of June 30,
1995, between the Company and Executive.
Interest shall be compounded monthly and shall accrue on the
outstanding principal amount of this Note at a rate equal to the lesser of (i)
7.07% per annum or (ii) the highest rate permitted by applicable law, and shall
be payable at such time as the principal of this Note becomes due and payable.
The amounts due under this Note are secured by a pledge of
2,500 shares of the Company's Class B Common Stock, and the payment of the
principal amount and accrued interest under this Note is subject to certain
offset rights under the Executive Stock Agreement and is due and payable on a
pro rata basis upon any disposition of all or a portion of such shares.
In the event Executive fails to pay any amounts due hereunder
when due, Executive shall pay to the holder hereof, in addition to such amounts
due, all costs of collection, including reasonable attorneys fees.
Executive, or his successors and assigns, hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of Executive hereunder.
This Note shall be governed by the internal laws, not the laws
of conflicts, of the State of California.
/s/ Dennis L. Devereux
-------------------------------
Dennis L. Devereux
<PAGE>
EXHIBIT 10.5
PROMISSORY NOTE
---------------
$24,975.00 June 30, 1995
For value received, Lloyd W. Holland ("Executive") promises to
pay on demand to the order of Corinthian Schools, Inc., a Delaware corporation
(the "Company"), at its offices at 1732 Reynolds Street, Irvine, CA 92714, or
such other place as designated in writing by the holder hereof, the aggregate
principal sum of $24,975.00. This Note was issued pursuant to and is subject to
the terms of the Executive Stock Agreement, dated as of June 30, 1995, between
the Company and Executive.
Interest shall be compounded monthly and shall accrue on the
outstanding principal amount of this Note at a rate equal to the lesser of (i)
7.07% per annum or (ii) the highest rate permitted by applicable law, and shall
be payable at such time as the principal of this Note becomes due and payable.
The amounts due under this Note are secured by a pledge of
2,500 shares of the Company's Class B Common Stock, and the payment of the
principal amount and accrued interest under this Note is subject to certain
offset rights under the Executive Stock Agreement and is due and payable on a
pro rata basis upon any disposition of all or a portion of such shares.
In the event Executive fails to pay any amounts due hereunder
when due, Executive shall pay to the holder hereof, in addition to such amounts
due, all costs of collection; including reasonable attorneys fees.
Executive, or his successors and assigns, hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of Executive hereunder.
This Note shall be governed by the internal laws, not the laws
of conflicts, of the State of California.
/s/ Lloyd W. Holland
-------------------------------
Lloyd W. Holland
<PAGE>
EXHIBIT 10.6
__________________________________________
CORINTHIAN SCHOOL, INC.
SUBORDINATED SECURED NOTE
AND
WARRANT PURCHASE AGREEMENT
__________________________________________
Dated as of June 30, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
BACKGROUND................................................................................................... 1
A. Company.................................................................................... 1
B. Acquisition Transaction.................................................................... 1
C. Purchase and Sale of Capital Stock......................................................... 2
D. Senior Loans............................................................................... 2
E. Purchase and Sale of Notes................................................................. 2
F. Use of Proceeds from Issuance and Sale of Purchased Capital Stock........................... 3
H. Security for Payment of the Notes.......................................................... 3
STATEMENT OF AGREEMENT....................................................................................... 3
Section 1. Defined Terms............................................................................ 4
Section 2. Purchase and Sale of the Notes........................................................... 16
Section 3. Issuance of Warrants..................................................................... 18
Section 4. Conditions to Closings................................................................... 19
Section 5. Representations and Warranties of Company................................................ 23
Section 6. Representations and Warranties of the Purchasers......................................... 26
Section 7. Financial Reporting...................................................................... 28
Section 8. Affirmative Covenants.................................................................... 32
Section 9. Negative Covenants....................................................................... 33
Section 10. Financial Tests.......................................................................... 37
Section 11. Events of Default........................................................................ 38
Section 12. Consequences of Event of Default......................................................... 40
Section 13. Miscellaneous............................................................................ 40
Form of Note Between Company and Purchasers......................................................Exhibit A
</TABLE>
<PAGE>
SUBORDINATED SECURED NOTE AND
WARRANT PURCHASE AGREEMENT
This is a SUBORDINATED SECURED NOTE and WARRANT PURCHASE AGREEMENT dated as
of June 30, 1995 ("Agreement") by and among Corinthian Schools, Inc.
("Company"), a Delaware corporation, Primus Capital Fund III Limited Partnership
("Primus"), an Ohio limited partnership and Banc One Capital Partners II,
Limited Partnership ("BOCP II"), a Delaware limited partnership. Primus and BOCP
II are referred to collectively as "Purchasers."
The Company and the Purchasers are referred to individually as a "Party"
and collectively as the "Parties."
BACKGROUND
A. COMPANY.
The Company is engaged in the business of acquiring and operating post-
secondary, vocational training schools (the "Schools"). Prior to June 30, 1995,
the Company did not own, operate or administer any Schools and had not engaged
in any other business.
B. ACQUISITION TRANSACTION.
The Company is a party to an Asset Purchase Agreement dated as of June 28,
1995 (the "Asset Purchase Agreement"), among the Company, National Education
Centers, Inc., a California corporation (the "Seller"), and National Education
Corporation, a Delaware corporation. The Asset Purchase Agreement provides for
the acquisition by the Company from the Seller of Purchased Assets (as defined
in the Asset Purchase Agreement) related to the operation and administration of
twelve (12) Schools consisting of "Tier I Schools", "Tier II Schools" and "Tier
III Schools" as designated on Exhibit A to the Asset Purchase Agreement (the
"Acquisition Transaction").
The Asset Purchase Agreement provides that payment for the Purchased Assets
shall be made (i) at the time of the completion of the purchase and sale of that
portion of the Purchased Assets that relate solely to the Tier I Schools, the
Accounts Receivable (as defined in the Asset Purchase Agreement), the Lead Bank
Data (as defined in the Asset Purchase Agreement) and the Headquarters Assets
(as defined in the Asset Purchase Agreement) (the "Tier I Closing"), (ii) at the
time of the completion of the purchase and sale of that portion of the Purchased
Assets that relate solely and directly to the Tier II Schools (the "Tier II
Closing"), and (iii) at the time of the completion of the purchase and sale of
that portion of the Purchased Assets that relate solely and directly to the Tier
III Schools (the "Tier III Closing").
<PAGE>
C. PURCHASE AND SALE OF CAPITAL STOCK.
Pursuant to the terms of a Purchase Agreement dated as of June 30, 1995
(the "Stock Purchase Agreement") among the Company, BOCP II and Primus, the
Purchasers have agreed to purchase an aggregate of (i) 18,125 shares of the
Class A Preferred Stock, par value $1.00 per share of the Company (the "Class A
Preferred"), (ii) 60,410 shares of the Class A Common Stock, par value $.01 per
share of the Company (the "Class A Common"), and (iii) 8,340 shares of the Class
B Common Stock, par value $.0l per share of the Company (the "Class B Common")
for a total cash consideration of $2,500,000 at a closing which shall take place
on the date of the Tier I Closing (the "Tier I Closing Date"). The Class A
Preferred, Class A Common and Class B Common purchased pursuant to the terms of
the Stock Purchase Agreement are sometimes hereinafter collectively referred to
as the "Purchased Capital Stock."
D. SENIOR LOANS.
Pursuant to a Credit Facility Agreement dated as of June 30, 1995 ("Senior
Credit Agreement") by and between BOCP II ("Senior Lender") and the Company, the
Senior Lender has agreed to make loans to the Company on a revolving credit
basis up to a maximum aggregate principal amount of $2,000,000 at any one time
outstanding ("Senior Loans") to be used solely for working capital purposes.
None of the Senior Loans are to be applied to the Acquisition Transaction.
Pursuant to the terms of the Senior Credit Agreement, the note evidencing the
Senior Loans must be paid in full on or before June 30, 1996. It is anticipated,
however, that the Company will refinance its obligations under the Senior Credit
Agreement prior to June 30, 1996 pursuant to the terms of an agreement with a
third party bank or financial institution providing for revolving credit loans
secured by the Collateral. Such agreement shall be subject to the consent of the
Purchasers, which consent shall not be unreasonably withheld, and the lender
with respect thereto shall be granted a first perfected security interest in the
Collateral on terms substantially equivalent to those set forth in the Security
Agreement.
E. PURCHASE AND SALE OF NOTES.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to BOCP II Subordinated Secured Notes in the
aggregate principal amount of $2,000,000, and to Primus Subordinated Secured
Notes in the aggregate principal amount of $500,000, each due June 30, 2000
(collectively, the "Notes"). The Company shall sell to the Purchasers and the
Purchasers shall purchase from the Company (i) on the date of the Tier II
Closing (the "Tier II Closing Date"), Notes in the aggregate principal amount
equal to the Tier II Principal Balance to fund a portion of the cash
consideration payable by the Company for the Purchased Assets at the Tier II
Closing, (ii) on the date of the Tier III Closing (the "Tier III Closing Date")
Notes in the aggregate principal amount equal to the Tier III Principal Balance
to fund a portion the cash consideration payable by the Company for the
Purchased Assets at the Tier III Closing, and (iii) if necessary, on any date on
which the a payment of the unpaid principal amount, if any, of the Deferred
Payment Note is due (a "Deferred Payment Note Closing Date"), Notes in the
aggregate principal amount equal to the Deferred Payment Note Principal Payment.
The Tier I Closing Date, Tier II Closing Date, Tier III Closing Date, Final
Payment Date and Deferred Payment Note Closing Date are sometimes hereinafter
individually
2
<PAGE>
referred to as a "Closing Date" and collectively referred to as the "Closing
Dates." BOCP II and Primus shall be obligated to purchase 80% and 20%,
respectively, of the principal amount of any Notes being sold by the Company and
purchased by the Purchasers on a Closing Date.
F. USE OF PROCEEDS FROM ISSUANCE AND SALE OF PURCHASED CAPITAL STOCK.
The Purchasers shall not be obligated to purchase any Notes unless and
until the Company shall have used the proceeds from the issuance and sale of the
Purchased Capital Stock pursuant to the terms of the Stock Purchase Agreement to
pay an aggregate of $2,500,000 of the cash consideration payable by the Company
at the Tier I Closing and the Tier II Closing.
G. WARRANTS.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to BOCP II warrants to purchase 5,000 shares of
Class B Common, and to Primus warrants to purchase 1,250 shares of Class A
Common ("Warrants").
The shares of Class A Common and Class B Common issuable upon exercise of
the Warrants are referred to collectively as the "Warrant Shares" and represent,
as of the date hereof, in the aggregate approximately 5% of the Outstanding
Common Stock after giving effect to the issuance of such Warrant Shares.
H. SECURITY FOR PAYMENT OF THE NOTES.
Pursuant to the Security Agreement, the Company has, as security for the
obligations hereunder, granted to the Purchasers a security interest in all
assets of the Company, whether now owned or hereafter acquired, second only to
the security interest in such assets of the Senior Lender.
STATEMENT OF AGREEMENT
In consideration of their mutual promises set forth in this Agreement, the
Parties hereby agree as follows.
SECTION 1. DEFINED TERMS.
As used herein, the following terms shall have the following meanings,
unless the context otherwise requires, as modified, amended or restated from
time to time as provided for herein.
1.1 "Accountant" means the Company's independent public accountant
selected and approved in the manner provided for in this Agreement.
1.2 "Accounts Receivable" shall have the meaning set forth in the Asset
Purchase Agreement.
3
<PAGE>
1.3 "Accountant's Statement" means, with respect to each Annual Financial
Statement, a written statement of such Accountant stating in effect that in the
course of their Audit with respect to such Financial Statement no Default has
come to their attention, or, if a Default has come to their attention, stating
the nature and period of existence of such Default.
1.4 "Accounting Periods" means the Fiscal Year, Quarter or Month, as
applicable.
1.5 "Accounting Statements" means collectively, with respect to any
Accounting Period, statements of income, changes in financial position (cash
flow) and shareholders' equity for such Accounting Period and a statement of
financial condition as at the end of such Accounting Period.
1.6 "Acquisition Transaction" shall have the meaning set forth in
Paragraph B.
1.7 "Adjusted Net Worth" means, as to any period, the total amount of
stockholders' equity of the Company that would appear on the balance sheet of
the Company prepared in accordance with GAAP after excluding therefrom (i) any
reevaluation or other write-up in the book value of assets subsequent to the
Tier I Closing Date other than upon the acquisition of assets or stock acquired
in a transaction to be accounted for by purchase accounting under GAAP made
within twelve (12) months after the acquisition of such assets, and (ii) an
amount equal to the excess, if any, of the amount reflected for the securities
of any Person which is not a Subsidiary over the lesser of cost or market value
(as determined in good faith by the Company).
1.8 "Affiliate" means any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company or
another specified Person, except a Subsidiary. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
1.9 "Agreement" means this agreement.
1.10 "Affirmative Covenants" means the covenants of the Company set forth
in Section 8.
1.11 "Annual Financial Statements" means, with respect to each Fiscal
Year, the consolidated and consolidating Accounting Statements of the Company
with respect to such Fiscal Year, presented with corresponding Accounting
Statements for the preceding Fiscal Year, which Accounting Statements shall be
Audited, prepared in accordance with GAAP and presented in reasonable detail
(including appropriate footnotes) and in a form satisfactory to the Purchasers.
1.12 "Asset Purchase Agreement" shall have the meaning set forth in
Paragraph B.
4
<PAGE>
1.13 "Audit" or "Audited" means, with respect to the consolidated Annual
Financial Statements, an examination without limitation as to scope by the
Accountant in accordance with generally accepted auditing standards for the
purpose of expressing an opinion of such Accounting Statements.
1.14 "Audit Report" means, with respect to the consolidated (but not the
consolidating) Annual Financial Statements, the report of the Accountant
indicating the scope of the Audit with respect to such Statements and setting
forth the opinion of such Accountant with respect to such Annual Financial
Statements as a whole, or an assertion to the effect that an overall opinion
cannot be expressed. The Audit Report shall set forth any qualification to such
opinion and, when such an overall opinion cannot be expressed, set forth the
reasons therefore.
1.15 "Base Compensation" means the collective base compensation (excluding
any cash bonuses) paid to the Management Group which shall be (i) $750,000 for
the twelve months following the closing of the Acquisition Transaction, and (ii)
thereafter the compensation of the Management Group will be set by the Board of
Directors, based upon the recommendation a Compensation Committee consisting of
certain members of the Board of Directors, at levels consistent with the then
prevailing market standards.
1.16 "Base Rate" means the per annum rate of interest most recently
determined by Banc One Capital Corporation as the Weekly Adjustable Rate Index
applicable to 30-day AA rated commercial paper.
1.17 "Board of Directors" means the board of directors of the Company and,
as applicable and to the extent permitted by law, any committee of such board of
directors authorized to exercise the powers of the board of directors.
1.18 "BOCP II" means Banc One Capital Partners II, Limited Partnership, a
Delaware limited partnership, together with its successors and assigns.
1.19 "Business Day" means any day other than a Saturday, Sunday or day
upon which banking institutions are authorized or required by law or executive
order to be closed in the City of Columbus, Ohio.
1.20 "Capital Stock" of any Person means, any and all shares, interests,
participations or other equivalents (however designated) of corporate stock,
including each class of common stock and preferred stock of such Person or
partnership interests and any warrants, options or other rights to acquire such
stock or interests.
1.21 "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within 90 days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within 90 days from the date of acquisition, of any domestic commercial bank
having capital and surplus in excess of $200,000,000, which has, or the holding
company of which has, a commercial paper rating of at least A-1 or the
equivalent thereof by Standard & Poors Corporation or P-1 or the equivalent
thereof by Moody's
5
<PAGE>
1.22 "CFO Certificate" means, with respect to the Quarterly Financial
Statements and the consolidating Annual Financial Statements, a certificate
signed by the chief financial officer of the Company stating in effect that such
Financial Statements, when delivered, (i) were, to the best of his knowledge,
complete and correct in all material respects, (ii) were prepared in accordance
with GAAP, and (iii) fairly present the results of operations for the applicable
Accounting Period and the financial condition as at the end of such Accounting
Period. The CFO Certificate shall be presented in a standard form reasonably
satisfactory to the Purchaser.
1.23 "Change of Control" means (i) an event or series of events by which
any Person or Persons or other entities acting in concert as a partnership or
other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of the Company, (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less than
a majority of the combined Voting Power of the Person surviving the transaction,
or (iii) the direct or indirect, sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any Person or group of
Persons.
1.24 "Class A Common" shall have the meaning set forth in Paragraph C.
1.25 "Class B Common" shall have the meaning set forth in Paragraph C.
1.26 "Class A Preferred" shall have the meaning set forth in Paragraph C.
1.27 "Closing Date" and "Closing Dates" shall have the meanings set forth
in Paragraph E.
1.28 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.29 "Collateral" means the collateral collectively described in the
Security Agreement.
1.30 "Common Stock" means the shares of Class A Common and Class B Common
of the Company treated as a single class of stock, at any time outstanding.
1.31 "Common Stock Purchase Agreement" shall have the meaning set forth in
Paragraph G.
1.32 "Company" means Corinthian Schools, Inc., a Delaware corporation,
together with its successors and assigns.
1.33 "Compensation Committee" means the compensation committee established
by the Board of Directors to review and make recommendations as to the
compensation of the Management Group.
6
<PAGE>
1.34 "Compliance Certificate" means, with respect to each Fiscal Year and
each Quarter, a certificate signed by the chief financial officer of the Company
(i) stating that no Default has occurred and is continuing, (ii) stating that,
to the best of his knowledge, the Company is in compliance with each of the
Affirmative Covenants and each of the Negative Covenants, and (iii) setting
forth in reasonable detail a computation of each of the Financial Tests as of
the end of the applicable Fiscal Year or Quarter. The Compliance Certificate
shall be presented in a standard form reasonably satisfactory to the Purchaser.
1.35 "Convertible Securities" shall have the meaning set forth in the
Warrant Certificates.
1.36 "Current Assets" means, with respect to the Company at any date, the
aggregate amount of all assets of the Company that would be classified as
current assets, each computed in accordance with GAAP.
1.37 "Current Liabilities" means, with respect to the Company at any date,
the aggregate amount of all liabilities of the Company (including tax and other
proper accruals) that would be classified as current liabilities, computed in
accordance with GAAP.
1.38 "Default" means an Event of Default, or an event which with notice,
lapse of time or both, as provided for in Section 11 would constitute an Event
of Default.
1.39 "Deferred Payment Note" shall have the meaning set forth in the Asset
Purchase Agreement.
1.40 "Deferred Payment Note Closing" shall have the meaning set forth in
Section 2.1(d)
1.41 "Deferred Payment Note Closing Date" shall have the meaning set forth
in Paragraph E.
1.42 "Deferred Payment Note Principal Balance" shall have the meaning set
forth in Section 2.1(d).
1.43 "Deferred Payment Note Principal Payment" shall have the meaning set
forth in Section 2.1(d).
1.44 "Disposition" means (i) a merger, consolidation or other business
combination in which the Company is the surviving entity and the Company's
stockholders receive cash or non-cash consideration in exchange for or in
respect of their shares of Capital Stock of the Company or (ii) the sale, lease,
conveyance, transfer or other disposition (other than the grant of a security
interest) in any single transaction or series of related transactions of all or
substantially all of the assets of the Company.
1.45 "Dividends" in respect of any corporation means:
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(i) Cash distributions or any other distributions on, or in
respect of, any class of equity security of such
corporation, except for distributions made solely in shares
of securities of the same class; and
(ii) Any and all funds, cash or other payments made in respect of
the redemption, repurchase or acquisition of such
securities.
1.46 "EBITDA" means, as of any date, the earnings (before extraordinary
items, interest income or expense, taxes, depreciation, amortization, other non-
cash charges and rents) of the Company for the preceding four (4) Quarters
determined in accordance with GAAP (but until four (4) complete Quarters have
passed after the Tier I Closing Date, such calculation shall only include the
preceding one (1), two (2) or three (3) Quarters, as appropriate and commencing
with the Quarter commencing July 1, 1995.
1.47 "Environmental Laws" means any and all laws, statutes, judgments,
ordinances, rules, regulations, orders, determinations, interpretations, or
guidance of any governmental authority pertaining to health or the environment
in effect in any and all jurisdictions in which the Company and its
subsidiaries, if any, is conducting or at any time has conducted business, or
where any property of the Company and its subsidiaries, if any, whether leased
or owned, is located, or where any hazardous substances generated or disposed of
by the Company and its subsidiaries, if any, are located, including, without
limitation, the Federal Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation and Liability Act of 1980, as amended, the
Federal Clean Water Act, as amended, the Occupational Safety and Health Act of
1970, as amended, the Resource Conversion and Recovery Act of 1976, as amended,
the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Emergency Planning and Community Right-to-Know Act, as amended, the Oil
Pollution Act of 1990, the National Environmental Policy Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Atomic Energy Act, as
amended, the Federal Insecticide, Fungicide and Rodenticide Act, as amended, and
other environmental conservation or protection laws, now existing or hereafter
enacted.
1.48 "ERISA" means the Employee Retirement Security Act of 1974, as
amended from time to time.
1.49 "ERISA Affiliate" means all members of the group of corporations and
trades or businesses (whether or not incorporated) which, together with the
Company, are treated as a single employer under Section 414 of the Code.
1.50 "ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA or Section 412 of the Code maintained or contributed to by the Company or
any ERISA Affiliate with respect to which the Company has a fixed or contingent
liability.
1.51 "Event of Default" shall have the meaning set forth in Section 11.
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1.52 "Excess Compensation" means compensation paid to the Management Group
in any twelve month period to the extent in excess of Base Compensation for such
period.
1.53 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and
1.54 "Financial Statements" means the Annual Financial Statements and
Quarterly Financial Statements of the Company.
1.55 "Financial Tests" means the financial tests with respect to the
Company set forth in Section 10, which tests are based upon the Annual and
Quarterly Financial Statements and determined as of the end of each Fiscal Year
and Quarter.
1.56 "Fiscal Year" means each year ended on June 30, or other fiscal year
of the Company adopted in the manner provided for in this Agreement. Each Fiscal
Year consists of four Quarters.
1.57 "Fixed Charges" means, as of any date, interest expense, principal
payments, taxes and rent expense (including payments under any operating leases)
for the preceding four (4) Quarters (but until four (4) complete Quarters have
passed after the Tier I Closing Date, such calculations shall only include the
preceding one (1), two (2) or three (3) Quarters, as appropriate and commencing
with the Quarter commencing July 1, 1995.
1.58 "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor).
1.59 "Headquarters Assets" shall have the meaning set forth in the Asset
Purchase Agreement.
1.60 "Indebtedness" means with respect to the Company, as of any date of
determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.61 "Initial Public Offering" means the first offer and sale to the
public by the Company or any holders of shares of any class of its Capital
Stock, pursuant to a registration statement that has been declared effective by
the SEC; provided, however, that the gross proceeds of the shares issued and
sold by the Company are at least $10,000,000.
1.62 "Interest Rate" shall have the meaning set forth in Section 2.2(b).
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1.63 "Investment" means any loan, advance or capital contribution to, or
investment in, or purchase or otherwise acquisition of any Capital Stock,
securities or evidences of Indebtedness of any Person.
1.64 "Key Man Policies" shall have the meaning set forth in Section 4.
1(d)(vii).
1.65 "Lead Bank Data" shall have the meaning set forth in the Asset
Purchase Agreement.
1.66 "Lender Reports" means, without duplication of statements,
certificates, notices or reports furnished to the Purchasers pursuant to Section
7.1 of this Agreement, copies of all financial statements, certificates,
notices, reports or other information furnished to any bank, financial
institution or note purchaser pursuant to the requirements of any loan or note
purchase or similar agreement with respect to any material Indebtedness of the
Company.
1.67 "Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the uniform commercial code or comparable law of any
jurisdiction in respect of any of the foregoing).
1.68 "Management Group" means collectively, David G. Moore, Paul St.
Pierre, Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland.
1.69 "Management Letters" means any letter or report furnished by the
Accountants to management of the Company in connection with any Audit or
otherwise describing findings or recommendations with respect to the accounting
or management practices or procedures of the Company and, including, all reports
submitted to the Company by the Accountant in connection with any interim or
special audit made by the Accountant.
1.70 "Maturity Date" means with respect to the Notes, June 30, 2000.
1.71 "Minutes" means all minutes, minutes of written action or reports
(including schedules and exhibits thereto) of a shareholder's meeting or actions
and all meetings of actions of the board of directors or any committee thereof
or appointed thereby of the Company or any subsidiary.
1.72 "Month" means a calendar month.
1.73 "Monthly Financial Statements" means, with respect to each Month, the
consolidated Accounting Statements of the Company with respect to such Month,
which Accounting Statements shall be prepared and presented in the manner
customary for purposes of dissemination for management of the Company.
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1.74 "Negative Covenants" means the covenants of the Company set forth in
Section 9.
1.75 "Non-Surviving Combination" means any merger, consolidation or other
business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity.
1.76 "Notes" means $2,000,000 aggregate principal amount Subordinated
Secured Notes issued and sold by the Company to BOCP II and the $500,000
aggregate principal amount of Subordinated Senior Notes issued and sold to
Primus, pursuant to this Agreement, each due June 30, 2000 and "Note" means any
one of such Notes. The Notes are in the form of Exhibit A.
1.77 "Obligations" means (i) all amounts owed by the Company to the
Purchasers evidenced by the Notes, and (ii) all other present and future
indebtedness and obligations of the Company to the Purchasers however created,
arising or evidenced, direct or indirect, absolute or contingent, due or to
become due, now or hereafter existing (other than under the Warrant Certificates
or the Purchased Capital Stock).
1.78 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable under
the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date shall be adjusted in accordance with the "treasury stock" method determined
under generally accepted accounting principles pursuant to Accounting Principles
Board Opinion 15.
1.79 "Parties" means the Company and the Purchasers collectively, and
"Party" means any one of the Parties.
1.80 "Permitted Liens" means Liens securing Senior Indebtedness.
1.81 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other form of equity.
1.82 "Primus" means Primus Capital Fund III Limited Partnership, an Ohio
limited partnership, together with its successors and assigns.
1.83 "Purchase Shares" shall have the meaning set forth in the Warrant
Certificate.
1.84 "Purchased Assets" shall have the meaning set forth in the Asset
Purchase Agreement.
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1.85 "Purchased Capital Stock" shall have the meaning set forth in
Paragraph C.
1.86 "Purchasers" means BOCP II and Primus.
1.87 "Put Option" means the option of the holders of the Warrants to
require the Company to purchase all of the Warrants, Warrant Shares and certain
other shares of Common Stock owned by such holder upon the exercise of such
option as provided for in the Warrant Certificates.
1.88 "Quarter" means each quarter annual period of the Fiscal Year. Each
Quarter consists of three Months.
1.89 "Quarterly Financial Statements" means, with respect to each
Quarter, the consolidated Accounting Statements of the Company with respect to
such Quarter and the current Fiscal Year to date, presented with corresponding
Accounting Statements for the same Quarter and Fiscal Year to date period for
the preceding Fiscal Year, which Accounting Statements shall be prepared in
accordance with GAAP (subject to applicable year end adjustments) and presented
in reasonable detail (but omitting footnotes that would substantially duplicate
footnotes contained in the most recent Annual Financial Statements).
1.90 "Related Documents" means the Security Agreement and the
Warrant Certificates.
1.91 "Responsible Officer" means the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration of its controllership function.
1.92 "Restricted Payments" means any of the following:
(i) any dividend on any class of the Company's Capital Stock;
(ii) any other distribution on account of any class of the
Company's Capital Stock;
(iii) any redemption, purchase or other acquisition, direct or
indirect, of any shares of the of the Company's Capital
Stock;
(iv) any Excess Compensation; and
(v) any management, consulting and other fees paid to any Person
which owns, or is an Affiliate of a Person which owns,
capital stock of the Company.
Notwithstanding the foregoing, Restricted Payments shall not include (A)
---
dividends paid, or distributions made, in Capital Stock of the Company; or (B)
exchanges of Capital Stock of the Company for another class of Capital Stock of
the Company, except to the extent that cash or other non-stock value is involved
in such exchange.
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1.93 "Schools" shall have the meaning set forth in Paragraph A.
1.94 "SEC" means the United States Securities and Exchange Commission (or
any governmental body or agency succeeding to its functions).
1.95 "Securities Act" means the Securities Act of 1933, as amended, and
any successor law.
1.96 "Security Agreement" means the Security Agreement, dated as of the
date hereof among the Company, the Senior Lender and the Purchasers, as
modified, amended or restated from time to time, together with any other
agreements securing the payment of the obligations evidenced by the Senior Loans
and the Notes or under Senior Credit Agreement or this Agreement.
1.97 "Security Reports" means all financial statements, proxy statements,
notices and reports furnished to the shareholders or securities holders of the
Company and all registration statements and reports (including reports on Forms
10-K, 10-Q and 8-K) filed with the SEC.
1.98 "Seller" means National Education Centers, Inc., a California
Corporation, together with its successors and assigns.
1.99 "Senior Credit Agreement" shall have the meaning set forth in
Paragraph D, and including all extensions, renewals and refinancings thereof.
1.100 "Senior Lender" means BOCP II, in its capacity as lender under the
Senior Credit Agreement, together with its successors and assigns in such
capacity.
1.101 "Senior Loans" shall have the meaning specified in Paragraph D,
including all extensions, renewals and refinancings thereof.
1.102 "Senior Indebtedness" means the Senior Loans, and Indebtedness
incurred pursuant to the terms of any agreement (other than the Senior Credit
Agreement) between the Company and any bank or financial institution providing
for revolving credit loans secured by the Collateral; provided, that any such
other agreement shall have been consented to by the Purchasers, which consent
shall not be unreasonably withheld, and the lender with respect thereto shall
have been granted a first perfected security interest in the Collateral on terms
substantially equivalent to those set forth in the Security Agreement.
1.103 "Stock Purchase Agreement" shall have the meaning specified in
Paragraph C.
1.104 "Subordinated Debt" means Indebtedness of the Company which is
subordinated, in a manner satisfactory to and approved in writing by the
Purchasers, to the Indebtedness of the Company evidenced by the Notes.
1.105 "Subordinated Security Agreement" shall have the meaning
set forth in Section 4.2(d).
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1.106 "Subsidiary" means any corporation, all of the stock of every class
of which, except directors' qualifying shares, shall at the time as of which any
determination is being made, be owned by the Company either directly or through
Subsidiaries.
1.107 "Tier I Closing" shall have the meaning set forth in Paragraph B.
1.108 "Tier I Closing Date" shall have the meaning set forth in Paragraph
E.
1.109 "Tier II Closing" shall have the meaning set forth in Paragraph B.
1.110 "Tier II Closing Date" shall have the meaning set forth in Paragraph
E.
1.111 "Tier III Closing" shall have the meaning set forth in Paragraph B.
1.112 "Tier III Closing Date" shall have the meaning set forth in
Paragraph E.
1.113 "Tier II Principal Balance" shall have the meaning set forth in
Section 2.1(b).
1.114 "Tier III Principal Balance" shall have the meaning set
forth in Section 2.1(c).
1.115 "Tier I Schools" shall have the meaning set forth in the Asset
Purchase Agreement.
1.116 "Tier II Schools" shall have the meaning set forth in the Asset
Purchase Agreement.
1.117 "Tier III Schools" shall have the meaning set forth in the Asset
Purchase Agreement.
1.118 "Total Liabilities" of any Person shall mean, as of any date, all
amounts which would be included as liabilities on a balance sheet of such Person
as of such date prepared in accordance with GAAP.
1.119 "Transfer" means, with respect to any item, the sale, exchange,
conveyance, lease, transfer or other disposition of such item.
1.120 "Trigger Event" means any of the following events: (i) an Initial
Public Offering; (ii) a Change of Control; (iii) a Disposition; or (iv) a Non-
Surviving Combination.
1.121 "UCC" means the Uniform Commercial Code as in effect in
the State of Ohio.
1.122 "Voting Power" means with respect to any corporation the power to
vote for or designate members of the board of directors of such corporation,
whether exercised by virtue of the record ownership of stock, under a close
corporation or similar agreement or under an irrevocable proxy.
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"Tier II School" shall have the meaning set forth in the Asset
Purchase
"Tier III School" shall have the meaning set forth in the Asset
Purchase
1.123 "Warrant Certificates" means the certificates issued by the Company
to the Purchasers evidencing the Warrants.
1.124 "Warrant Shares" means the shares of Class A Stock of the Company
issuable to Primus and the shares of Class B Stock of the Company issuable to
BOCP II upon exercise of the Warrants, together with other shares of Common
Stock or Convertible Securities purchased or acquired as provided for in the
Warrant Certificates.
1.125 "Warrants" means the warrants to purchase an aggregate of 1,250
shares of Class A Common issued and sold to Primus by the Company and 5,000
shares of Class B Common issued and sold to BOCP II by the Company pursuant to
this Agreement. The Warrants are evidenced by Warrant Certificates.
Section 2. Purchase and Sale of the Notes.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to BOCP II and BOCP II shall purchase from the
Company Notes in the aggregate principal amount of $2,000,000, for a purchase
price of $2,000,000 and the Company shall issue and sell to Primus and Primus
shall purchase from Company Notes in the aggregate principal amount of $500,000,
for a purchase price of $500,000. Such purchases and sales shall be consummated
on the Closing Dates as provided for in this Agreement, and on each such date
the Purchasers shall make payment of the purchase price of the Notes being
purchased by wire transfer to an account designated by the Company. BOCP II and
Primus shall be obligated to purchase 80% and 20%, respectively, of the
principal amount of any Notes being sold by the Company and purchased by the
Purchasers on a Closing Date.
2.1 Closings
The Purchasers shall be obligated to purchase Notes at such time or times
and in such amounts as hereinafter provided to provide funds to the Company to
pay a portion of the cash consideration for the Purchased Assets or to pay a
portion of the principal balance of the Deferred Payment Note, if any, pursuant
to the terms of the Asset Purchase Agreement.
(a) Tier I Closing. The Purchasers shall have no obligation to purchase
any Notes in connection with the Tier I Closing since the entire cash
consideration payable at the Tier I Closing will be provided from the proceeds
of the issuance and sale of the Purchased Capital Stock to the Purchasers
pursuant to the terms of the Stock Purchase Agreement.
(1)) Tier II Closing. In connection with the Tier II Closing, the Company
shall sell to the Purchasers and the Purchasers shall purchase from the Company
Notes in the aggregate principal amount equal to $2,125,000 less the Tier I
Deferred Amount (as defined in the Asset Purchase Agreement) (the "Tier II
Principal Balance").
(c) Tier III Closing. In connection with the Tier III Closing, the
Company shall sell to the Purchasers and the Purchasers shall purchase from the
Company Notes in the
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aggregate principal amount equal to $375,000 (i) plus the Tier I Deferred
Amount, (ii) minus the Tier II Deferred Amount (as defined in the Asset Purchase
Agreement) (the "Tier
(d) Deferred Payment Note Closing. On any date on which the payment
-----------------------------
of all or part of the principal amount, if any, of the Deferred Payment Note is
due (a "Deferred Payment Note Closing"), the Company shall sell to the
Purchasers and the Purchasers shall purchase from the Company Notes in the
aggregate principal amount equal to the principal amount of, and accrued
interest on, the Deferred Payment Note then due (the "Deferred Payment Note
Principal Payment") but in no event shall the aggregate of all Notes purchased
hereunder to make Deferred Payment Note Principal Payments exceed (i) $2,500,000
(ii) minus the sum of (a) the Tier II Principal Balance, and (b) the Tier III
Principal Balance (the "Deferred Payment Note Principal Balance").
2.2 TERMS OF THE NOTES
The Notes shall include the following terms and shall be substantially in
the form of Exhibit A.
(a) Term. The Notes shall be dated the date of this Agreement and
----
shall be due and payable in full on or before the Maturity Date.
(b) Interest Rate. The Notes shall accrue interest (computed on the
-------------
basis of the actual number of days elapsed over a 360 day year with daily
compounding) on the unpaid principal balance thereof at a floating rate per
annum equal to the Base Rate in effect from time to time plus a fixed spread
determined as of the Tier II Closing Date equal to a percentage which when added
to the Base Rate as of the Tier II Closing Date will equal 12%, compounded
daily ("Interest Rate"). The spread so determined shall remain fixed throughout
the term of this Agreement. The Interest Rate shall reset weekly and shall not
be less than 10% per annum nor more than the lesser of 14% per annum or the
maximum permitted by law.
(c) Interest Payment Dates. Interest on each Note shall be payable
----------------------
monthly in arrears on the last Business Day of each Month commencing on the last
Business Day of the Month immediately succeeding the month in which such Note
was issued.
(d) Principal Payments. The unpaid principal amount of the Notes
-------------------
shall be due and payable in a single installment on the Maturity Date.
(e) Prepayments. The Notes may be prepaid in whole or in part in
-----------
amounts of not less than $100,000. Each prepayment of principal shall be
accompanied by the payment of all accrued but unpaid interest through the date
of prepayment.
(f) Subordination. The Notes will be subordinated, with respect to
-------------
the Collateral, to all Senior Indebtedness of the Company outstanding or
incurred in a manner permitted by this Agreement and, specifically, shall be
subordinated to the Senior Loans, including all renewals, extensions,
continuations and refinancings thereof.
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(g) Payments. All payments or prepayments to be made by the Company,
--------
with respect to principal or interest on the Notes shall be due at 1:30 p.m.
Columbus, Ohio time on the day when due and shall be made to the Purchasers in
federal funds or other immediately available lawful money of the United States
of America. Whenever any payment to be made hereunder shall be due other than on
a Business Day, such payment shall be made on the Business Day preceding the due
date.
(h) Security. As security for the payment of the Notes and for the
--------
performance of, and compliance with all of the terms, covenants, conditions and
stipulations and agreements contained in this Agreement and in the Notes, the
Company, by the Security Agreement and by other instruments, including UCC
financing statements, shall, as provided in the Security Agreement, assign and
grant to the Purchasers a perfected security interest in all assets of the
Company, whether now owned or hereafter acquired, which shall be second in
priority solely to the first perfected security interest in the Collateral
granted to the Senior Lender pursuant to the terms of the Security Agreement or
any replacement agreement arising in connection with a refinancing of the Senior
Loans.
(i) Financing Fee. As additional consideration for the purchase of
-------------
the Notes, the Company shall pay to BOCP II a financing fee of $40,000 and to
Primus Venture Partners Limited Partnership.
SECTION 3. ISSUANCE OF WARRANTS.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to Primus and Primus shall purchase from
Company for a purchase price of $100 Warrants to purchase 1,250 shares of Class
A Common, and the Company shall issue and sell to BOCP II and BOCP II shall
purchase from the Company for a purchase price of $100 Warrants to purchase
5,000 shares of Class B Common, which shares collectively represent, as of the
date hereof, in the aggregate 5% of the Outstanding Common Stock, of the
Company, after giving effect to the issuance of such Warrant Shares. Such sales
and purchases shall be consummated on the Tier I Closing Date as provided for in
this Agreement. The terms and conditions of exercise of such Warrants, including
the time of exercise, the number of Warrant Shares which may be purchased upon
exercise shall be as provided in the Warrant Certificates.
SECTION 4. CONDITIONS TO CLOSINGS.
The obligations of the Purchasers to purchase the Notes and the Warrants on
each Closing Date is subject to the fulfillment of the conditions precedent for
each such Closing Date as hereinafter set forth.
4.1 PURCHASE OF WARRANTS ON TIER I CLOSING DATE
The obligations of the Purchasers to purchase the Warrants on the Tier I
Closing Date is subject to the fulfillment, in a manner reasonably satisfactory
to the Purchasers and their counsel, of each of the following conditions
precedent.
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(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Tier I Closing
Date.
(c) Senior Credit Agreement. The Senior Credit Agreement shall have
-----------------------
been duly executed and delivered by the Company and the Senior Lender, shall be
in full force and effect, and no event of default under such agreement or event
which with notice, lapse of time or both would constitute an event of default
under such agreement shall have occurred thereunder.
(d) Execution and Delivery of Documents. Each of the following
-----------------------------------
documents, in form and substance reasonably satisfactory to the Purchasers and
their counsel, shall have been duly executed and delivered:
(i) Warrant Certificates for the purchase of 1,250 Warrant
Shares issued in the name of Primus and 5,000 Warrant
Shares issued in the name of BOCP II;
(ii) Security Agreement;
(iii) Senior Credit Agreement;
(iv) Certified copies of the corporate resolutions of the
Company authorizing the execution, delivery and
performance of its obligations under this Agreement, the
Notes, the Related Documents and any other documents to be
delivered pursuant to this Agreement;
(v) Certified copies of the Company's Certificate of
Incorporation, including any and all amendments thereto,
and a certified copy of the bylaws of the Company as in
effect on the Tier I Closing Date;
(vi) A certificate of the Secretary of the Company certifying
the names of the officers of the Company authorized to
sign this Agreement, the Notes, the Warrant Certificates,
the Related Documents and any other documents or
certificates to be delivered pursuant to this Agreement by
the Company, together with the true signatures of such
officers;
(vii) Evidence of the issuance to the Company of a key man life
insurance policy in the amount of One Million Five Hundred
Thousand Dollars ($1,500,000) on the life of David G.
Moore, and One Million Dollars ($1,000,000) on the life of
Paul St.
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Pierre, naming the Company as the sole beneficiary ("Key
Man Policies");
(viii) Evidence satisfactory to the Purchasers of the
consummation of the purchase of the Purchased Capital
Stock pursuant to the terms of the Stock Purchase
Agreement;
(ix) Payment of the closing fees of $40,000 and $10,000 shall
have been made to BOCP II and Primus Venture Partners
Limited Partnership, respectively;
(x) An opinion of counsel for the Company, addressed to the
Purchasers, in form and substance satisfactory to the
Purchasers and their counsel; and
(xi) Such other opinions, certificates, affidavits, documents
and filings, including any and all UCC filings, as the
Purchasers may deem reasonably necessary or appropriate.
(e) Asset Purchase Agreement. The Asset Purchase Agreement shall be
------------------------
in full force and effect as of the Tier I Closing Date and shall not have been
amended or modified. The conditions precedent to the obligations of the Company
to complete the purchase of the Purchased Assets pursuant to the terms of the
Asset Purchase Agreement shall have been satisfied in full (without reliance on
any waiver by the Company) and the Tier I Closing shall have been consummated in
accordance with the terms of the Asset Purchase Agreement. The Seller shall not
have any right under the Asset Purchase Agreement to terminate, and shall not
have terminated, the Company's right to purchase or manage any of the Schools.
4.2 PURCHASE OF NOTES ON TIER II CLOSING DATE
The obligations of the Purchasers to purchase Notes on the Tier II Closing
Date in the aggregate principal amount equal to the Tier II Principal Balance is
subject to the fulfillment, in a manner reasonably satisfactory to the
Purchasers and their counsel, of each of the following conditions precedent.
(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Tier II Closing
Date.
(c) Execution and Delivery of Notes. Notes in the aggregate principal
-------------------------------
amount equal to the Tier II Principal Balance shall have been duly executed and
delivered to the Purchasers.
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(d) Execution and Delivery of Subordinated Security Agreement. The
---------------------------------------------------------
Company shall have executed and delivered a subordinated security agreement in
the form attached to the Asset Purchase Agreement (the "Subordinated Security
Agreement") as security for the performance of the Company's obligations under
the Asset Purchase Agreement including payment of all principal and interest on
the Deferred Payment Note. The security interest in the Purchased Assets granted
to the Seller pursuant to the terms of the Subordinated Security interest shall
be subordinate to the security interest of the Lender and the Purchasers in the
Collateral granted pursuant to the terms of the Security Agreement.
(e) Acquisition Transaction. The Asset Purchase Agreement shall be in
-----------------------
full force and effect as of the Tier II Closing Date and shall not have been
amended or modified. The Tier II Closing shall have been consummated in
accordance with the terms of the Asset Purchase Agreement. The Seller shall not
have any right under the Asset Purchase Agreement to terminate, and shall not
have terminated, the Company's right to purchase or manage any of the Schools.
4.3 PURCHASE OF NOTES ON TIER III CLOSING DATE
The obligations of the Purchasers to purchase Notes on the Tier III Closing
Date in the aggregate principal amount equal to the Tier III Principal Balance
is subject to the fulfillment, in a manner reasonably satisfactory to the
Purchasers and their counsel, of each of the following conditions precedent.
(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Tier III Closing
Date.
(c) Execution and Delivery of Notes. Notes in the aggregate
-------------------------------
principal amount equal to the Tier III Principal Balance shall have been duly
executed and delivered to the Purchasers.
(d) Acquisition Transaction. The Asset Purchase Agreement shall be
-----------------------
in full force and effect as of the Tier III Closing Date and shall not have been
amended or modified. The Tier III Closing shall have been consummated in
accordance with the terms of the Asset Purchase Agreement. The Seller shall not
have any right under the Asset Purchase Agreement to terminate, and shall not
have terminated, the Company's right to purchase or manage any of the Schools.
4.4 PURCHASE OF NOTES ON A DEFERRED PAYMENT NOTE CLOSING DATE
The obligations of the Purchasers to purchase Notes on a Deferred Payment
Note Closing Date in the aggregate principal amount equal to the Deferred
Payment Note Principal Payment
20
<PAGE>
is subject to the fulfillment in a manner reasonably satisfactory to the
Purchasers and their counsel, of each of the following conditions precedent.
(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Deferred Payment
Note Closing Date.
(c) Execution and Delivery of Notes. Notes in the aggregate
-------------------------------
principal amount equal to the Deferred Payment Note Principal Payment shall have
been duly executed and delivered to the Purchasers.
(d) Acquisition Transaction. The Asset Purchase Agreement shall be
-----------------------
in full force and effect as of the Deferred Payment Note Closing Date and shall
not have been amended or modified. The Seller shall not have any right to
terminate, and shall not have terminated, the Company's right to purchase or
manage the Schools.
(e) Release of Security Interest in Purchased Assets. In the event
------------------------------------------------
that, after giving effect to any Deferred Payment Note Principal Payment the
principal balance of the Deferred Payment Note is zero, the Company shall have
delivered to the Purchasers evidence satisfactory to them that the Seller's
security interest in the Purchased Assets granted pursuant to the terms of the
Subordinated Security Agreement has been released.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF COMPANY.
The representations and warranties of the Company set forth in this Section
5 shall survive the purchase and sale of the Notes and Warrants, and any
investigation made by the Purchasers shall not diminish the right of the
Purchasers to rely upon such representations and warranties. The Company
represents and warrants to the Purchasers as follows.
(a) Organization. The Company is a corporation duly organized and
------------
validly existing under the laws of the state of its incorporation and the
execution, delivery and performance of this Agreement, each of the Related
Documents and of any instrument or agreement required by this Agreement and each
of the Related Documents are within the Company's powers, have been duly
authorized, and are not in conflict with the terms of any charter, bylaw or
other organizational documents of the Company.
(b) Subsidiaries. Immediately after the date of Closing, the
------------
Company will not have any subsidiaries or own any Capital Stock, partnership
interest, membership interest or other equity interest in or of any other
entity.
(c) Good Standing. The Company is properly licensed and in good
--------------
standing in each state in which the Company is doing business and the Company
has qualified under, and complied with, where required, the fictitious name
statute of each state in which the Company
21
<PAGE>
is doing business and where the failure to do so would have a material adverse
affect on the Company's financial condition or operations.
(d) Information Submitted. Any audited consolidated Annual Financial
---------------------
Statements and unaudited Quarterly Financial Statements of the Company submitted
by the Company to the Purchasers have been prepared in accordance with GAAP
consistently applied, are true and correct in all material respects and are
complete insofar as may be necessary to give the Purchasers a true and accurate
knowledge of the subject matter thereof.
(e) No Material Adverse Change. There has been no material adverse
--------------------------
change in the consolidated financial condition of Company since the later of (i)
May 31, 1995, and (ii) date of the most recent Financial Statements submitted to
the Purchasers.
(f) Disclosure. Neither this Agreement nor any other document,
----------
opinion, Accounting Statement, certificate or statement by an officer of the
Company furnished or made by or on behalf of the Company in connection with the
transactions contemplated in this Agreement, including Acquisition Transaction,
contains any untrue statement of a material fact or omits to a state a material
fact necessary in order to make the statements contained therein not misleading.
There is no fact peculiar to the Company which materially and adversely affects
or in the future may (so far as the Company can reasonably foresee) materially
and adversely affects the business, property or assets or financial condition of
the Company which has not been disclosed to the Purchasers in this Agreement or
in other documents, opinion, Accounting Statements, certificates or statements
furnished to or made by or on behalf of the Company to the Purchasers in
connection with the transactions contemplated by this Agreement.
(g) No Conflicts. The execution, delivery and performance of this
------------
Agreement, the Related Documents and any other instrument or agreement required
by this Agreement are not in conflict with any law or any material indenture,
agreement or undertaking to which the Company is a party or by which the Company
is bound or affected.
(h) Enforceability. This Agreement is a legal, valid and binding
--------------
agreement of the Company, enforceable against the Company in accordance with its
terms and each Related Document, and any instrument or agreement required under
this Agreement, when executed and delivered, will be similarly legal, valid,
binding and enforceable in accordance with their respective terms, except, in
either case, as enforcement thereof may be affected by bankruptcy, moratorium,
insolvency or similar laws affecting creditors' rights generally or by the
application by a court of equitable principles.
(i) Ownership of Collateral. All Collateral is owned by the Company
-----------------------
free and clear of all security interests, liens, encumbrances and rights of
others except for the rights of the Senior Lender and the Purchasers under the
Security Agreement, the rights of the Seller under the Subordinated Security
Agreement and those consented to in writing by the Senior Lender and the
Purchasers.
(j) Perfected Security Interest in Collateral. Except for the filing
-----------------------------------------
of financing statements with respect to the Collateral and the delivery to the
Purchasers of any Collateral as
22
<PAGE>
to which possession is the only method of perfecting a security interest
therein, no further action is necessary in order to establish and perfect the
Purchasers' lien on or perfected security interest in the Collateral, which lien
shall be second only to the lien of the Senior Lender.
(k) Compliance with Laws. To the best of the knowledge of the
--------------------
Company, the Company has complied with all federal, state and local laws, rules
and regulations affecting the business of the Company.
(l) Environmental Compliance. The Company and all of its properties
------------------------
and facilities have, at all time and in all respects, complied with all
Environmental Laws, except where the failure to comply would not have a material
adverse effect on the business, condition (financial or otherwise) or operations
of the Company, assuming all such instances of noncompliance were brought to the
attention of appropriate governmental authorities.
(m) Labor and Employee Relations Matters.
------------------------------------
(i) The Company is not and does not expect to be the subject
of any union organizing activity or labor dispute, nor has
there been any strike of any kind called or, to the
knowledge of the Company, threatened to be called against
the Company; and the Company has not violated any
applicable federal or state law or regulation relating to
labor or labor practices.
(ii) No present or former employees of the Company have
advanced claims in writing against the Company (whether
under any foreign, federal, state or common law, through a
government agency, under an employment agreement,
collective bargaining agreement, personal service or
independent contractor agreement or otherwise) that are
currently pending for (a) overtime pay, other than
overtime pay for the current payroll period; (b) wages,
salaries or profit sharing (excluding wages, salaries or
profit sharing for the current payroll period); (c)
vacations, time off (including, without limitation,
potential sick leave) or pay in lieu of vacation or time
off, other than vacation or time off (or pay in lieu
thereof) earned in respect of the current Fiscal Year; (d)
any violation of any statute, ordinance or regulation
relating to minimum wages or maximum hours of work; (e)
discrimination against employees on any basis; (f)
unlawful employment or termination practices; (g) unfair
labor practices or alleged violations of collective
bargaining agreements; (h) any violation of occupational
safety and/or health standards; (i) benefits under any
employee plans or compensation arrangement; and (j) breach
of any employment, personal service or independent
contractor agreement, except any such claims which, in the
aggregate, do not exceed $100,000.
23
<PAGE>
(iii) There is not pending against the Company or, to the
knowledge of the Company threatened, any labor dispute,
strike or work stoppage that does or may materially affect
or materially interfere with the Company's operations.
(iv) There is not pending or, to the knowledge of the Company
threatened, any charge or complaint against the Company by
or before the National Labor Relations Board, any
representative thereof, or any comparable foreign or state
agency or authority.
(v) All collective bargaining agreements to which the Company
is a party have been furnished to the Purchaser hereto.
(n) No Event of Default. No event has occurred and is continuing or
-------------------
would result from the transactions described in this Agreement which constitutes
or would constitute an Event of Default or which, upon a lapse of time or notice
or both, would become an Event of Default.
(o) Litigation. There is no litigation, tax claim, proceeding or
----------
dispute pending, or, to the knowledge of the Company threatened, against or
affecting the Company or its property, the adverse determination of which will
have a material adverse affect the Company's financial condition or operation or
impair the Company's ability to perform its obligations hereunder or under any
instrument or agreement required hereunder.
(p) Taxes. All tax returns required to be filed by the Company in
-----
any jurisdiction have been filed or extended and all taxes, assessments, fees
and other governmental charges upon the Company or upon any of its properties,
income or franchises have been paid prior to the time that such taxes could give
rise to a lien thereon, unless protested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
established on the books of the Company. The Company has no knowledge of any
proposed tax assessment against the Company.
(q) Securities Act. The Company has not issued any unregistered
--------------
securities in violation of the registration requirements of the Securities Act,
any applicable state securities law, or of any other requirement of law, and is
not violating any rule, regulation, or requirement under the Securities Act or
the Securities and Exchange Act. The Company is not required to qualify an
indenture under the Trust Indenture Act of 1939, as amended, in connection with
its execution and delivery of the Notes.
(r) Indebtedness. Immediately after the date of Closing, the
------------
Company will not have any outstanding Indebtedness other than the Notes, the
Senior Loans, accounts payable and other indebtedness incurred in the ordinary
course of business.
(s) ERISA Plan. The Company has no ERISA Affiliates and does not
----------
currently maintain, contribute to, have any requirements to contribute to or
have any liability, whether absolute or contingent, with respect to any ERISA
Plan.
24
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
The representations and warranties of the Purchasers set forth in this
Section 6 shall survive the purchase and sale of the Notes and Warrants, and any
investigation made by the Company shall not diminish the right of the Company to
rely upon such representations and warranties. The Purchasers represent and
warrant to the Company as follows.
(a) Organization. Each Purchaser represents and warrants that it
------------
is a limited partnership duly organized and validly existing under the laws of
the state of its formation and the execution, delivery and performance of this
Agreement, each of the Related Documents and of any instrument or agreement
required by this Agreement, or each of the Related Documents are within its
powers, have been duly authorized, and are not in conflict with the terms of any
provision of its partnership agreement or other organizational papers.
(b) No Conflicts. The execution, delivery and performance of
------------
this Agreement, the Related Documents and any other instrument or agreement
required by this Agreement are not in conflict with any law or of any material
indenture, agreement or undertaking to which either Purchaser is a party or by
which either Purchaser is bound or affected.
(c) Enforceability. This Agreement is a legal, valid and binding
--------------
agreement of each Purchaser, enforceable against each Purchaser in accordance
with its terms, the Related Documents and any other instrument or agreement
required under this Agreement, when executed or delivered, will be legal, valid,
binding and enforceable.
(d) Authorization and Consents. No approval, consent,
--------------------------
compliance, exemption, authorization or other action by, or notice to, or filing
with, any governmental authority or any other Person pursuant to applicable law,
and no lapse of the waiting period under the applicable law, is necessary or
required in connection with the execution, delivery and performance by each
Purchaser or enforcement against each Purchaser of this Agreement or the
transactions contemplated hereby.
(e) Experience. Each Purchaser is an accredited investor within
----------
the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act
and has substantial experience in evaluating and investing in securities of
companies similar to the Company and has made investments of securities other
than those of the Company. Each Purchaser acknowledges that by reason of its
business or financial experience and financial condition, it has the ability to
analyze and bear the entire risk of its investment pursuant to this Agreement.
(f) Investment Intent. Each Purchaser is acquiring its Notes,
-----------------
Warrant Certificate and Warrant Shares for investment for its own account, not
as a nominee or agent and not with a view to, or for resale in connection with,
any distribution thereof. Each Purchaser understands that the issuance and sale
of such securities purchased by it hereunder (and the issuance to each Purchaser
of Warrant Shares upon the conversion of the Warrant Certificate) have not been,
and will not be, subject to a registration statement filed under the Securities
Act or any applicable state securities law by reason of a specific exemption
from the registration provisions of the Securities Act and such state securities
laws which depend upon,
25
<PAGE>
among other things, the bona fide nature of the investment intent and the
accuracy of each Purchaser's representation as expressed herein.
(g) Rule 144. Each Purchaser acknowledges that the securities
--------
which could be acquired hereunder are restricted securities within the meaning
of Rule 144 promulgated under the Securities Act and must be held indefinitely
unless subsequently registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration is available. Each
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act which permits the limited resale of securities purchased in a
private placement subject to the satisfaction of certain conditions including,
without limitation, the existence of a public market for the securities, the
availability of certain current public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for any
security to be sold, the sale being effected through a "broker's transaction" or
a transaction directly with a "market maker" as provided by Rule 144(f), and the
number of securities being sold during any three-month period not exceeding
specified limitations.
(h) No Public Market. Each Purchaser understands that no public
----------------
market now exists for any of the securities to be purchased by it hereunder and
that the Company has given no assurance that a public market will ever exist for
any of the Company's securities.
(i) Knowledge of Offer. Each Purchaser is aware of and has
------------------
investigated the Company's business, management and financial condition, has had
the opportunity to inspect the Company's facilities and has had access to such
other information about the Company as each Purchaser has deemed necessary and
desirable to reach an informed and knowledgeable decision to acquire the
securities to be purchased by it hereunder. The purchase of such securities is
not a result of an advertisement of an offering in connection with the sale of
such securities.
SECTION 7. FINANCIAL REPORTING.
The obligations and covenants of the Company set forth in this Section 7
shall terminate upon the later to occur of (i) the exercise of both of the Put
Options (as defined in the Warrant Certificates), and (ii) the date upon which
the Purchasers are no longer the holder of any Notes, Warrants, Warrant Shares
or Purchase Shares.
7.1 FINANCIAL REPORTS.
The Company shall deliver, or shall cause to be delivered to the
Purchasers the following financial reports within the applicable time periods
specified in this Section.
(a) Annual Financial Statements. The Annual Financial Statements
---------------------------
shall be delivered within ninety (90) days after the end of each Fiscal Year,
and shall be accompanied by the applicable Audit Report, Accountant's Statement,
CFO Certificate and Compliance Certificate.
(b) Quarterly Financial Statements. The Quarterly Financial
------------------------------
Statements shall be delivered within forty-five (45) days after the end of each
Quarter (other than the fourth
26
<PAGE>
Quarter) of each Fiscal Year, and shall be accompanied by the applicable CFO
Certificate and Compliance Certificate.
(c) Monthly Financial Statements. The Monthly Financial Statements
----------------------------
shall be delivered promptly upon their dissemination to management of the
Company.
(d) Projected Financial Statements. The projected Financial
------------------------------
Statements with respect to each succeeding Fiscal Year shall be delivered with
sixty (60) days after the end of the preceding Fiscal Year.
(e) Securities Reports. Any Securities Reports shall be delivered
------------------
promptly upon their delivery to shareholders, securities holders or the SEC.
(f) Lender Reports. Any Lender Reports shall be delivered promptly
--------------
upon their delivery to any lender or note holder.
(g) Management Letters. Any Management Letters shall be delivered
------------------
promptly after receipt thereof.
(h) Minutes. Any Minutes shall be delivered promptly upon the
-------
recording of such Minutes in the records of the Company.
Notwithstanding the foregoing provisions, so long as the Stock Purchase
Agreement remains in full force and effect, the Company's obligation to deliver
the financial reports set forth in Sections 7.1(a) through 7.1(d) shall be
satisfied by the delivery to the Purchasers of the financial statements and
other information required to be delivered to the Purchasers pursuant to Section
3A of the Stock Purchase Agreement.
7.2 OTHER INFORMATION.
Promptly upon reasonable written request therefor, the Company shall
furnish (or cause to be furnished) to such Purchaser other financial or other
information with respect to the Company available in the books, records and
files of the Company; provided, however, that if such information cannot be
furnished without undue expense, the Company may require such Purchaser to
reimburse it for all reasonable out-of-pocket expenses incurred in connection
with furnishing such information.
7.3 RULE 144A.
The Company shall upon the reasonable written request of a Purchaser,
furnish to any qualified institutional buyer (as such term is defined in Rule
144A under the Securities Act) designated by the Purchaser, such financial or
other information as the Purchaser reasonably determines is necessary in order
to afford compliance with the applicable information requirements under Rule
144A under the Securities Act in connection with any proposed sale of the
Warrants, Warrant Shares, or Purchase Shares except at such times as the Company
is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act.
27
<PAGE>
7.4 PREPARATION OF ANNUAL AND QUARTERLY FINANCIAL STATEMENTS IN
ACCORDANCE WITH GAAP.
The Company shall cause the Company to maintain adequate books, accounts
and records, and to prepare all Annual and Quarterly Financial Statements
required to be delivered to the Purchasers pursuant to this Section in
accordance with GAAP applied in a manner consistent with the practices, policies
and procedures applied in connection with the preparation of the financial
statements of the Company initially delivered to the Purchasers, except for any
changes in such practices, policies and procedures permitted or approved in the
manner provided for in this Section.
7.5 CHANGES IN GAAP AND IN PRACTICES, POLICIES AND PROCEDURES.
(a) Notice of Proposed Change. In the event that the Company
-------------------------
proposes to make any material change in any of the practices, policies or
procedures applied in connection with the preparation of its Annual or Quarterly
Financial Statements, the Company shall:
(i) notify the Purchasers in writing of such proposed change
at least forty-five (45) days prior to the required
delivery date of the first Annual or Quarterly Financial
Statement that will be effected by such proposed change;
(ii) state in reasonable detail in such notice the reason for
such change, including, if applicable, a description of
any change in GAAP that occasion such change;
(iii) submit with such notice a written statement by the chief
financial officer of the Company and the Accountants
describing the anticipated effect, if any, of the proposed
change to the computation of the Financial Tests, or
stating that in their opinion such proposed change will
have no material effect on the computation of such
Financial Tests; and
(iv) in the event such proposed change will have a material
effect on the computation of such Financial Tests, submit
with each Compliance Certificate a written reconciliation
in reasonable detail demonstrating the computation of the
Financial Tests as if such change had not been made.
(b) Consent to Change. Unless such change in practices, policies or
-----------------
procedures is required by a change in GAAP, the Company shall not adopt any such
proposed change without the written consent of each Purchaser, which consent
shall not be unreasonably withheld by the Purchaser; provided, however, that the
Company shall not permit the Company to change its Fiscal Year without the
written consent of each Purchaser, which consent may be withheld in the exercise
of its sole discretion.
28
<PAGE>
(c) Effect of Change on Financial Tests. In the event that any such
-----------------------------------
change in policies, practice or procedures would materially affect the
computation of any Financial Test, and unless this Agreement is amended to make
appropriate modifications to such Financial Test, compliance with all such
Financial Test shall be determined on a proforma basis without giving effect to
any such change.
7.6 NOTICE OF CERTAIN EVENTS.
The Company shall give prompt written notice to each Purchaser of the
occurrence of any of the following events:
(i) a Default;
(ii) the occurrence of any event which with notice, lapse of
time or both would constitute an event of default under
any Senior Indebtedness;
(iii) all litigation affecting the Company where the
amount claimed is Two Hundred Fifty Thousand
Dollars ($250,000) or more;
(iv) any substantial dispute which may exist between
the Company and any governmental regulatory
body or law enforcement authority;
(v) Any other matter which has resulted or might result in a
material adverse change in the Company's financial
condition or operations;
(vi) the loss or destruction of any material asset
of the Company; and
(vii) the occurrence of or the entering into any
agreement or letter of intent with respect to
any Trigger Event.
7.7 INSPECTIONS.
(a) Books. Records. Audits and Inspections. The Company shall
--------------------------------------
maintain adequate books, accounts and records and prepare all Annual, Quarterly
or Monthly Financial Statements required hereunder in accordance with GAAP
consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over the Company or the Company's business
and permit employees or agents of the Purchasers at any reasonable time to
inspect Company's properties, and to examine or audit the Company's books,
accounts and records and make copies and memoranda thereof. In the event any
properties, books, accounts or records are in the possession of or under the
control of a third party, the Company shall direct and hereby authorize such
third party to permit access to the Purchasers' employees or agents for the
purpose of performing the inspections, appraisals, examinations or audits
permitted under this Section, and to respond to any reasonable requests from the
Purchasers for information concerning the amount, status or condition of any
assets in a third party's possession or control.
29
<PAGE>
SECTION 8. AFFIRMATIVE COVENANTS.
Until payment in full of the Notes and the performance by the Company of
all of its other obligations hereunder, the Company and any Subsidiaries, shall,
unless each Purchaser waives compliance therewith in writing:
(a) Insurance. Insure and maintain insurance upon all of its
---------
assets and business properties and public and product liability insurance with
responsible and reputable insurers of such character and in such amounts as are
usually maintained by companies engaged in like business.
(b) Payment of Taxes and Claims. Pay all taxes, assessments and
---------------------------
other governmental charges imposed upon its properties or assets or in respect
of any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become due and payable or become a lien
or charge upon any of its properties or assets, provided that (unless any
material item of property would be lost, forfeited or materially damaged as a
result thereof) no such charge, tax, assessment or claim need be paid if the
amount, applicability or validity thereof is currently being contested in good
faith and if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor.
(c) Compliance with Laws. Comply in all material respects with
--------------------
all applicable statutes, laws, ordinances and governmental rules, regulations
and orders including, but not limited to, all Environmental Laws, to which it is
subject or which are applicable to its business, properties and assets if
noncompliance therewith would materially adversely affect such business.
(d) Preservation of Existence. Preserve and maintain its
-------------------------
corporate existence, as the case may be, and its rights, franchises and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation in each jurisdiction in which the failure to
do so would have a material adverse affect on the Company's financial condition
or operations.
(e) Maintenance of Tangible Assets. Maintain its tangible assets
------------------------------
in good condition and repair in accordance with the requirements of its business
and shall not permit any action or omission which might materially impair the
value thereof, normal wear and tear excepted.
(f) Performance of Contracts. Perform and comply with, in
------------------------
accordance with its terms, all material provisions of each and every material
contract, agreement or instrument now or hereafter binding upon it, except to
the extent it may contest the provisions thereof in good faith and by proper
proceedings.
30
<PAGE>
SECTION 9. NEGATIVE COVENANTS.
Until payment in full of the Notes and the performance by the Company of
all of its other obligations hereunder, the Company and any Subsidiaries shall
not, unless the prior written consent of each Purchaser is obtained:
(a) Other Indebtedness. Create or incur, contract, assume, have
------------------
outstanding, guarantee or otherwise be or become directly or indirectly liable
in respect of any Indebtedness; provided, however, that this Section shall not
be deemed to prohibit:
(i) The Senior Indebtedness;
(ii) Up to $100,000 of Indebtedness of the Company
evidenced by Capitalized Lease Obligations of the
Company or incurred by the Company simultaneously with
its purchase of real or personal property;
(iii) Lease financing or purchase money for equipment which
is secured by the equipment so leased or purchased;
and
(iv) Indebtedness of any Subsidiary to the Company or
another Subsidiary.
(b) Prepayments. Pay any Indebtedness prior to its scheduled
-----------
maturity or scheduled payment date other than the Notes or the Senior Loans.
(c) Liens. Grant, create, incur, assume, permit or suffer to
-----
exist any Lien, upon any of its properties or assets, whether now owned or
hereafter acquired, except, to the extent not otherwise prohibited hereunder:
(i) Liens for taxes not yet due or which are being
actively contested in good faith by appropriate
proceedings;
(ii) other Liens incidental to the conduct of its business
or the ownership of its property and assets which do
not secure Indebtedness and which do not in the
aggregate materially detract from the value of its
property or assets or materially impair the use
thereof in the operation of its business;
(iii) Liens on property or assets of a Subsidiary to secure
obligations of such Subsidiary to the Company or
another Subsidiary;
(iv) Liens securing the Indebtedness permitted by Section
9(a)(ii) and Section 9(a)(iii); and
(v) Permitted Liens.
31
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(d) Capital Assets. In any of its Fiscal Years, expend or incur
--------------
obligations (including the full amount capitalized under capital leases) of more
than $550,000 for the acquisition of fixed or capital assets.
(e) Leases. Enter into or permit to remain in effect any operating
------
lease as lessee, other than (i) operating leases with respect to
telecommunications equipment and (ii) other operating leases the aggregate
amount payable under which by the Company during any period of four consecutive
Quarters shall not exceed $600,000.
(f) Loans, Advances and Investments. Make any loan, advance, or
-------------------------------
capital contribution to, or investment in (including any investment in any
corporation, joint venture or partnership), or purchase or otherwise acquire any
of the Capital Stock, securities or evidences of indebtedness of, any Person
(collectively "Investment"), or otherwise acquire any interest in, or control
of, another Person, except for the following:
(i) Cash Equivalents;
(ii) Any acquisition of securities or evidences of indebtedness
of others when acquired by the Company in settlement of
accounts receivable or other debts arising in the ordinary
course of its business, so long as the aggregate amount of
any such securities or evidences of indebtedness is not
material to the business or condition (financial or
otherwise) of the Company;
(iii) Make or permit to remain outstanding travel and other
advances to officers and employees of the Company or a
Subsidiary in the ordinary course of business; and
(iv) other loans, advances and investments (including loans,
advances and investments to or in Subsidiaries), provided
that the aggregate amount thereof, at original cost, at no
time exceeds $100,000.
(g) No Acquisition or Merger. Acquire by purchase or otherwise all or
------------------------
substantially all of the assets or capital stock of any Person. Merge or
consolidate with or into any Person, except that:
(i) Any Subsidiary may merge or consolidate with or into the
Company, provided that the Company is the continuing or
--------
surviving corporation;
(ii) Any Subsidiary may merge or consolidate with or into
another Subsidiary; and
(iii) Subject to the provisions of Section 3 of the Warrant
Certificates, the Company may merge with any other solvent
corporation, provided that (A) the Company shall be the
--------
continuing or surviving
32
<PAGE>
corporation and (B) no Event of Default exists or would
exist immediately after giving effect to such merger.
(h) Sale of Stock or Indebtedness of Subsidiaries. Sell or otherwise
---------------------------------------------
dispose of, or part with control of, any shares of stock or Indebtedness of any
Subsidiary, except to the Company or another Subsidiary, and except that all
shares of stock and Indebtedness of any Subsidiary at the time owned by or owed
to the Company and all Subsidiaries may be sold as an entirety for a cash
consideration which represents the fair value (as determined in good faith by
the Board of Directors of the Company) at the time of sale of the shares of
stock and Indebtedness sold; provided, that (A) such sale or other disposition,
--------
if treated as a transfer of assets of such Subsidiary, would be permitted by
Section 9(k) and (B) at the time of such sale, such Subsidiary shall not own,
directly or indirectly, any shares of stock or Indebtedness of any other
Subsidiary (unless all of the shares of stock and Indebtedness of such other
Subsidiary owned directly or indirectly, by the Company and all Subsidiaries are
simultaneously being sold as permitted by this Section 9(h).
(i) Sales and Leasebacks. Dispose of any of its assets except for
--------------------
full, fair and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed or capital assets.
(j) Restrictions on Dividends. Directly or indirectly declare or
-------------------------
make, or incur any liability to make any Dividend except those on the Class A
Preferred.
(k) Transfers, Liquidations and Dispositions of Substantial Assets.
--------------------------------------------------------------
Dissolve or liquidate or sell, transfer, lease or otherwise dispose of any
material portion of its property or assets or business, other than in the
ordinary course of business, except that:
(i) Any Subsidiary may Transfer assets to the Company or
another Subsidiary;
(ii) The Company or any Subsidiary may sell inventory in the
ordinary course of business; and
(iii) The Company or any Subsidiary may otherwise Transfer
assets, provided that the assets Transferred shall not
--------
exceed $250,000 in any twelve month period.
(l) Restricted Payments. Make, pay or declare, or commit to make, pay
-------------------
or declare, any Restricted Payment without the prior written consent of each
Purchaser except that so long as no Event of Default shall have occurred and be
continuing, or would result therefrom, the Company may (i) pay dividends on
Class A Preferred, and (ii) repurchase Common Stock from employees of the
Company upon termination of employment pursuant to arrangements approved by the
Board of Directors.
(m) Business Activities. Engage in any business activities or
-------------------
operations substantially different from or unrelated to its present business.
33
<PAGE>
(n) Transactions with Affiliates. Enter into any transaction,
----------------------------
including without limitation, the purchase, sale or exchange of property or the
rendering of any services, with any affiliate or any partner, officer or
director thereof, enter into, assume or suffer to exist any employment or
consulting contract with any affiliate or any partner, officer or director
thereof or any former or current officer or director of the Company, except any
transaction or contract which is in the ordinary course of the Company's
business and which is upon fair and reasonable terms no less favorable to the
Company than it would obtain in a comparable arms-length transaction with a
person not an affiliate.
(o) Change of Control. Without the prior written consent of each
-----------------
Purchaser, permit the transfer, sale or other change of ownership in any twelve
month period of Common Stock exceeding 50% of the total issued and outstanding
Common Stock at the time of such transfer, sale or change of ownership, nor
permit at any time more than 70% of the total issued and outstanding Common
Stock to be owned by persons not employed by the Company.
(p) Fiscal Year. Method of Accounting. Change its Fiscal Year or
---------------------------------
make any material change in its method of accounting without prior written
notice to each Purchaser.
(q) ERISA Plans. Adopt or agree to maintain or contribute to any
-----------
ERISA Plan without the prior written consent of each Purchaser which consent
shall not be unreasonably withheld. The Company shall promptly notify each
Purchaser in writing in the event an ERISA Affiliate adopts and ERISA Plan.
(r) Change in Principal Office. Moves its principal office, executive
--------------------------
office or principal place of business without prior written notice to each
Purchaser.
SECTION 10. FINANCIAL TESTS.
Until payment in full of the Notes and the performance by the Company of
all its obligations hereunder, the Company shall, unless each Purchaser waives
compliance therewith in writing, meet the following Financial Tests.
(a) Current Ratio. At the end of each period set forth below, the
-------------
Company shall maintain a ratio of Current Assets to Current Liabilities greater
than the ratio set forth opposite such period below:
Period Ending Ratio
------------- -----
September 30, 1995 1.7:1.0
December 31, 1995 1.7:1.0
March 31, 1996 1.7:1.0
June 30, 1996 1.7:1.0
September 30, 1995 and each 2.0:1.0
Quarter thereafter
34
<PAGE>
(b) Fixed Charge Coverage. At the end of each period set forth below,
---------------------
the ratio of EBITDA to Fixed Charges shall be greater than the ratio set forth
opposite such period below:
Period Ending Ratio
------------- -----
September 30, 1995 1.25:1.0
and each Quarter thereafter
(c) Indebtedness to Adjusted Net Worth Ratio. On each of the dates
----------------------------------------
set forth below, and after such date at all times until the next such date set
forth below, the Company shall maintain a ratio of Indebtedness to Adjusted Net
Worth less than or equal to the ratio set forth opposite such date below:
Initial Test Date Ratio
----------------- -----
Tier I Closing Date and 2.0:1.0
thereafter
SECTION 11. Events of Default.
The occurrence of any of the following events shall, at the option of
either Purchaser, constitute an Event of Default ("Event of Default") hereunder
and under the Notes:
(a) Failure to Pay. The Company fails to pay, within two (2) Business
--------------
Days of the date when due, any installment of interest or any other sum due
under this Agreement or the Notes in accordance with the terms hereof or
thereof;
(b) Put Option Default. The Company fails to purchase all the
------------------
Warrants, Warrant Shares, or Purchase Shares required to be purchased by it upon
the exercise of the Put Option.
(c) Breach of Representation or Warranty. Any representation or
------------------------------------
warranty herein or in any agreement, instrument or certificate executed pursuant
hereto or in connection with any transaction contemplated hereby proves to have
been false or misleading in any material respect when made;
(d) Falsity of Information. Any financial or other information
----------------------
delivered by the Company to the Purchaser proves to be false or misleading in
any material respect when delivered;
(e) Security Interest. The Purchasers fail to have a valid and
-----------------
enforceable perfected security interest in or lien on the Collateral or such
security interest or lien fails to be
35
<PAGE>
prior to the rights and interest of all others except for the Senior Lender and
security interests securing Indebtedness permitted by Section 9(a)(iii);
(f) Judgments. A final nonappealable judgment or judgments is or are
---------
entered against the Company in the aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) or more on a claim or claims not covered by
insurance;
(g) Failure to Pay Debts: Voluntary Bankruptcy. The Company fails to
------------------------------------------
pay its debts generally as they come due (or within any applicable grace or cure
periods), or files any petition, proceeding, case or action for relief under any
bankruptcy, reorganization, insolvency, or moratorium law, or any other law or
laws for the relief of, or relating to, debtors;
(h) Involuntary Bankruptcy. An involuntary petition is filed under
----------------------
any bankruptcy or similar statute against the Company, or a receiver, trustee,
liquidator, assignee, custodian, sequestrator or other similar official is
appointed to take possession of the properties of the Company and such petition
or appointment is not dismissed within ninety (90) days;
(i) Governmental Action. Any governmental regulatory authority takes
-------------------
or institutes action which will materially adversely affect the condition,
operations or ability to pay the Company's obligations under this Agreement, the
Notes or any instrument or agreement required under this Agreement;
(j) Default of Other Financial Obligations. Any default occurs under
--------------------------------------
the Senior Credit Agreement, any agreement, note or document related to any such
agreement or any other agreement involving the borrowing of money or the advance
of credit to which the Company may be a party as obligor or guarantor, if such
default consists of the failure to pay any Indebtedness in an aggregate
principal amount greater than $25,000 when due or if such default gives to the
holder of the obligation concerned the right to accelerate such Indebtedness;
(k) Default Under Security Agreement. Warrant Certificate or Other
--------------------------------------------------------------
Agreement. The Company breaches or defaults in any material respect under any of
- ---------
its obligations contained in the Security Agreement, the Warrant Certificates or
any other agreement with the Purchasers;
(l) Financial Reporting Default. The Company fails for a period of
---------------------------
thirty (30) days after notice thereof to comply with the requirements of Section
7.
(m) Affirmative Covenants. The Company fails for a period of thirty
---------------------
(30) days after written notice thereof to comply in any material respect with
any Affirmative Covenant.
(n) Negative Covenants. The Company fails to comply in any material
------------------
respect with any Negative Covenant (i) for a period of thirty (30) days after
written notice thereof with respect to any such breach that is subject to cure,
and (ii) with respect to any other such breach, and a Purchaser gives written
notice thereof.
36
<PAGE>
(o) Financial Tests. The Company fails to comply with any Financial
---------------
Test and a Purchaser gives written notice thereof.
(p) Use of Proceeds. Any use of the proceeds from the sale of the
---------------
Notes other than for the Acquisition Transaction described in Background B,
without the prior written consent of each Purchaser.
(q) Material Adverse Change. Any material adverse change occurs in
-----------------------
the consolidated financial condition or results of operations of the Company or
in the Company's ability to perform their obligations under this Agreement, the
Notes or under any instrument or agreement required by this Agreement;
(r) Change in Ownership. The Management Group ceases to own 30% of
-------------------
the Company's Outstanding Common Stock; and
(s) Other Breach Under Agreement. The Company breaches, or defaults
----------------------------
in any material respect under, any term, condition, provision, representation or
warranty contained in this Agreement not specifically referred to in this
Section, provided that with respect to any of the foregoing (other than (a), (g)
and (j)) that is capable of being cured, the Company have failed to cure the
same within thirty (30) days from the receipt of notice thereof from a
Purchaser.
SECTION 12. CONSEQUENCES OF EVENT OF DEFAULT.
(a) If any Event of Default specified under Section 11, other than
subsections (g) and (h) hereof, shall occur and be continuing, the Purchasers
may, by written notice to the Company, declare the principal and interest
accrued on the Notes and all other obligations of the Company hereunder to be
forthwith due and payable, and the same shall thereupon become immediately due
and payable, without any other or further presentment, demand, protest, notice
of default, notice of intent to accelerate, notice of acceleration or other
notice of any kind, all of which are hereby expressly waived.
(b) If an Event of Default specified under subsections (g) and (h)
of Section 11 hereof shall occur, the unpaid balance of the principal and
interest accrued on the Notes and all other obligations of the Company hereunder
shall be immediately due and payable automatically without presentment, demand,
protest, notice of default, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby expressly
waived.
SECTION 13. MISCELLANEOUS.
(a) No Implied Rights or Waivers. No notice to or demand on the
----------------------------
Company in any case shall entitle the Company to any other or further notice or
demand in the same, similar and other circumstances. Neither any failure nor any
delay on the part of a Purchaser in exercising any right, power or privilege
hereunder or under the Notes or Warrant Certificates
37
<PAGE>
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of the same or the exercise of
any other right, power or privilege.
(b) Modifications. Amendments or Waivers. The Company and the
------------------------------------
Purchasers may from time to time enter into written agreements amending or
changing any provision of this Agreement or the rights hereunder or give waivers
or consents to a departure from the due performance of their obligations
hereunder provided that no departure from the Company's due performance of its
obligations hereunder shall be effective unless agreed to in writing by each
Purchaser.
(c) Expenses. The Company shall pay or cause to be paid and save the
--------
Purchasers harmless against liability for the payment of all reasonable out-of-
pocket expenses, including counsel fees (including fees of BOCP II's outside
counsel and Legal Department not to exceed $25,000) and disbursements, incurred
or paid by the Purchasers in connection with (i) the due diligence inquiries,
negotiation, development, preparation, execution and performance of this
Agreement, the Notes, the Security Agreement, the Warrant Certificates and the
related transactions; (ii) any requested amendments, waivers or consents
pursuant to the provisions hereof and thereof; and (iii) the enforcement of this
Agreement, the Notes, the Security Agreement and the Warrant Certificates,
including such reasonable expenses as may be incurred by the Purchasers in
collection of the Notes.
(d) Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP.
(e) Entire Agreement. This Agreement including the Exhibits or
----------------
Schedules hereto, constitutes the entire agreement relating to the subject
matter hereof among the Parties hereto. Each Party acknowledges that no
representation, inducement, promise or agreement has been made, orally or
otherwise, by any other Party, or anyone acting on behalf of any other Party,
unless such representation, inducement, promise or agreement is embodied in this
Agreement expressly or by incorporation.
(f) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Ohio.
(g) Severability. If any provision of this Agreement is held to be
------------
invalid, void or unenforceable, the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
(h) Third Party Beneficiaries. The obligations of each Party under
-------------------------
this Agreement shall inure solely to the benefit of the other Parties, and no
other person or entity shall be a third party beneficiary of this Agreement.
(i) Rules of Construction. Unless otherwise specified, the
----------------------
following rules shall be applied in construing the provisions of this Agreement.
(i) Terms that imply gender shall be construed to apply to all
genders.
38
<PAGE>
(ii) References to Sections, Schedules and Exhibits refer to
the numbered Sections of, the Schedules of and the
Exhibits attached to this Agreement.
(iii) Headings to the various Sections of this Agreement are
included solely for purposes of reference and shall be
ignored in construing the provisions of this Agreement.
(iv) The Exhibits and Schedules attached to this Agreement are
incorporated herein by reference.
(v) "Herein," "hereto," "hereof" and words of similar import
refer to this Agreement.
(vi) The word "and" connotes "each and every", and the word
"or" connotes "any one or more".
(vii) The word "including" connotes "including without
limitation".
(viii) Any reference to any law or regulation refers to that law
or regulation as amended from time-to-time after the date
of this Agreement and to the corresponding provision of
any successor law or regulation.
(ix) Any reference to any agreement or other document in this
Agreement refers to that agreement or other document as
amended from time-to-time after the date of this
Agreement.
(x) The recitals included in this Agreement are the mutual
representations of the Parties and are a part of this
Agreement.
(j) Notices. Any notice or other communication required or permitted
-------
to be made or given under this Agreement, shall be in writing and shall be
deemed to have been received by the Party to whom it is addressed: (i) on the
date indicated on the certified mail return receipt if sent by certified mail
return receipt requested; (ii) on the date actually received if hand delivered
or if transmitted by telefax (receipt of which is confirmed to sender); (iii)
three business days after such notice was deposited in the United States Mail
postage prepaid; or (iv) one business day after such notice was delivered to an
overnight delivery service, addressed, delivered or transmitted in each case as
follows:
39
<PAGE>
PURCHASERS:
Banc One Capital Partners II, Limited Partnership
10 West Broad Street
Columbus, Ohio 43215
ATTENTION:Earle J. Bensing
Telephone: (614) 227-4219
Telefax: (614) 224-7675
WITH A COPY TO:
Banc One Capital Corporation
90 North High Street
Columbus, Ohio 43215
ATTENTION:General Counsel
Telephone: (614) 227-7727
Telefax: (614) 227-7750
Primus Capital Fund III Limited Partnership
1375 East Ninth Street
Suite 2700
ATTENTION:Loyal W. Wilson
Telephone: (216) 621-2185
Telefax: (216) 621-4543
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
ATTENTION:Carter W. Emerson, Esq.
Telephone: (312) 861-2052
Telefax: (312) 861-2200
COMPANY:
Corinthian Schools Incorporated
1732 Reynolds Street
Irvine, California 92714
ATTENTION:David G. Moore
Telephone: (714) 261-7606
Telefax: (714) 222-3513
40
<PAGE>
WITH A COPY TO:
O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660
ATTENTION:David A. Krinsky, Esq.
Telephone: (714) 669-7902
Telefax: (714) 669-6994
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
(k) Assignment. Neither this Agreement nor any of the rights or
----------
duties hereunder may be assigned by any Party without the prior written consent
of each of the other Parties, and any assignment attempted without such prior
consent shall be null and void.
(1) Further Acts and Documents. Each of the Parties hereby agrees to
--------------------------
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
(m) Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one in the same agreement.
41
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
CORINTHIAN SCHOOLS, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By /s/ David G. Moore By: Banc One Capital Partners II
--------------------------
David G. Moore, President Corporation
By /s/ Earle J. Bensing
--------------------------
Its Senior Vice President
--------------------------
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By____________________________
Its___________________________
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
CORINTHIAN SCHOOLS, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By By: Banc One Capital Partners II
____________________________ Corporation
David G. Moore, President
BY /s/ Earle J. Bensing
---------------------------
Its Senior Vice President
---------------------------
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
BY /s/ Loyal W. Wilson
----------------------------
Its President
----------------------------
<PAGE>
EXHIBIT 10.7
CREDIT FACILITY AGREEMENT
This is a CREDIT FACILITY AGREEMENT dated as of June 30, 1995 ("Agreement")
by and between CORINTHIAN SCHOOLS, INC. ("Borrower"), a Delaware corporation,
and BANC ONE CAPITAL PARTNERS II, LIMITED PARTNERSHIP ("Lender"), a Delaware
limited partnership.
The Borrower and the Lender are referred to individually as a "Party" and
collectively as the "Parties."
BACKGROUND
A. BORROWER.
The Borrower is engaged in the business of owning, operating and
administering post-secondary, vocational training schools ("Schools"). Prior to
June 30, 1995, the Borrower did not own, operate or administer any Schools and
had not engaged in any other business.
B. ACQUISITION TRANSACTION.
Pursuant to an Asset Purchase Agreement dated as of June 28, 1995 ("Asset
Purchase Agreement") by and among the Borrower and National Education Centers,
Inc. ("NECI") and National Education Corporation, the Borrower (i) has acquired
all of the assets comprising certain Tier I Schools (as designated in the Asset
Purchase Agreement), and (ii) will, upon the satisfaction of certain conditions
set forth in the Asset Purchase Agreement, acquire the assets comprising the
Tier II and Tier III Schools (as designated in the Asset Purchase Agreement).
Pursuant to a Support Services Agreement dated as of June 30, 1995 and a
Management Agreement dated as of June 30, 1995 both by and between the Borrower
and NECI, Borrower will manage and provide certain support services with respect
to the Tier II and Tier III Schools pending their respective acquisitions as
provided for in the Asset Purchase Agreement.
C. SUBORDINATED SECURED NOTES.
Pursuant to a Subordinated Secured Note and Warrant Purchase Agreement
dated as of June 30, 1995 ("Note Agreement"), the Borrower has agreed to issue
and sell Subordinated Secured Notes in the aggregate principal amount of
$2,000,000 due June 30, 2000 ("Subordinated Notes") to the Lender and
Subordinated Notes in the aggregate principal amount of $500,000 to Primus
Capital Fund III Limited Partnership ("Primus"). The proceeds of the
Subordinated Notes will be applied to pay part of the purchase price provided
for in the Asset Purchase Agreement.
D. SECURITY AGREEMENT.
Payment of the Loans (as defined in this Agreement) and the Subordinated
Notes is secured pursuant to a Security Agreement dated as of June 30, 1995
("Security Agreement") by and among the Borrower, the Lender and Primus,
pursuant to which the Borrower has granted
<PAGE>
to Primus and the Lender a security interest in all of the personal property now
or hereafter owned or acquired by the Borrower. The Security Agreement provides,
among other things for the relative priorities of payment of the Loans and the
Subordinated Notes.
E. CREDIT FACILITY.
Upon the terms and subject to the conditions set forth in this Agreement,
the Lender has agreed to loan to the Borrower on a revolving credit basis up to
$2,000,000 aggregate principal amount at any one time outstanding.
STATEMENT OF AGREEMENT
In consideration of their mutual promises set forth in this Agreement, the
Parties hereby agree as follows.
SECTION 1. DEFINED TERMS.
Except as otherwise specifically defined in this Agreement, all terms
specifically defined in the Note Agreement shall have the same definitions when
used in this Agreement. In addition, as used in this Agreement, the following
terms shall have the specified definitions.
SECTION 1.1. "Affirmative Covenants" means the Affirmative
Covenants as provided for in Section 8 of the Note Agreement and incorporated by
reference herein.
SECTION 1.2. "Agreement" means this Credit Facility Agreement.
SECTION 1.3. "Asset Purchase Agreement" shall have the meaning set
forth in Paragraph B.
SECTION 1.4. "Base Rate" means the per annum rate of interest then
most recently determined by Banc One Capital Corporation as the Weekly
Adjustable Rate Index applicable to thirty (30) day AA rated commercial paper.
SECTION 1.5. "Borrower" means Corinthian Schools, Inc., a Delaware
corporation, together with its successors and assigns.
SECTION 1.6. "Business Day" means any day other than a Saturday,
Sunday or day upon which banking institutions are authorized or required by law
or executive order to be closed in the City of Columbus, Ohio.
SECTION 1.7. "Closing Date" means June 30, 1995.
SECTION 1.8. "Collateral" shall have the meaning set forth in the
Security Agreement.
<PAGE>
SECTION 1.9. "Default" means any condition or event which, with
notice or lapse of time or both, would constitute an Event of Default.
SECTION 1.10. "Event of Default" shall have the meaning set forth
in Section 5.
SECTION 1.11. "Financial Reporting" means the Financial Reporting
requirements as provided for in Section 7 of the Note Agreement and incorporated
by reference herein.
SECTION 1.12. "Financial Test(s)" means the Financial Test(s) as
provided for in Section 10 of the Note Agreement and incorporated by reference
herein.
SECTION 1.13. "Indebtedness" shall have the meaning set forth in
the Note Agreement.
SECTION 1.14. "Interest Rate" shall have the meaning set forth in
Section 2.2(a).
SECTION 1.15. "Lender" means Banc One Capital Partners II, Limited
Partnership, a Delaware limited partnership, together with its successors and
assigns.
SECTION 1.16. "Loan Documents" shall mean this Agreement, the
Revolving Note and the Security Agreement and all other documents, agreements
and instruments executed and delivered in connection therewith, whether now
existing or hereafter executed and delivered, in each case as the same may be
amended, modified, restated, supplemented, increased, renewed, extended,
substituted for or replaced from time to time.
SECTION 1.17. "Loans" means, collectively, each advance made by the
Lender to the Borrower under the Revolving Note pursuant to the terms and
subject to the conditions of this Agreement.
SECTION 1.18. "Maturity Date" means June 30, 1996.
SECTION 1.19. "NECI" shall have the meaning set forth in Paragraph
B.
SECTION 1.20. "Negative Covenants" means the Negative Covenants as
provided for in Section 9 of the Note Agreement and incorporated by reference
herein.
SECTION 1.21. "Note Agreement" means the Subordinated Secured Note
and Warrant Purchase Agreement dated as of the date hereof by and among the
Borrower, the Lender and Primus.
SECTION 1.22. "Obligations" means all Indebtedness, liabilities and
obligations of the Borrower under the Loan Documents, including, but not limited
to, (a) the obligation of the Borrower for the due and punctual payment of the
principal of and interest on the Revolving Note when due, whether at maturity,
by acceleration, by mandatory prepayment, by notice of voluntary prepayment or
otherwise, (b) all other obligations and all out-of-pocket expenses and
3
<PAGE>
indemnities now or hereafter existing of the Borrower to the Lender under this
Agreement, (c) all reasonable out-of-pocket costs and expenses, now or hereafter
existing, that may be incurred by the Lender in connection with the
administration and enforcement of the Loan Documents, or the realization on the
security provided for by the Loan Documents, and (d) the obligations of the
Borrower under the Security Agreement.
SECTION 1.23. "Parties" means the Borrower and the Lender,
collectively, and "Party" means either one of the Parties.
SECTION 1.24. "Payment Date" means the last Business Day of any
calendar month on which there is an outstanding principal balance under the
Revolving Note.
SECTION 1.25. "Primus" means Primus Capital Fund III Limited
Partnership, an Ohio limited partnership, together with its successors and
assigns.
SECTION 1.26. "Revolving Note" means that certain promissory note
in the principal amount of up to Two Million Dollars ($2,000,000) substantially
in the form of Exhibit A attached hereto, with appropriate insertion, and made
by Borrower payable to the order of the Lender, as may be amended, supplemented,
increased, or otherwise modified from time to time.
SECTION 1.27. "Schools" shall have the meaning set forth in
Paragraph A.
SECTION 1.28. "Security Agreement" means the Security Agreement,
dated as of the date hereof among the Borrower, the Lender and Primus, as
modified, amended or restated from time to time, together with any other
agreements securing the payment of the obligations evidenced by the Revolving
Note and the Subordinated Notes under the Note Agreement or this Agreement.
SECTION 1.29. "Subordinated Notes" shall have the meaning set forth
in Paragraph C.
SECTION 1.30. "Warrant Certificates" means the certificates
evidencing the warrants granted to the Lender and Primus under the Note
Agreement.
SECTION 2. LOANS.
-----
SECTION 2.1. FACILITY. During the period commencing on the Closing
--------
Date and ending on the Business Day immediately preceding the Maturity Date,
Loans under this Agreement will be advanced to Borrower not more frequently than
once every two (2) weeks up to an aggregate principal amount not to exceed Two
Million Dollars ($2,000,000) at any one time outstanding. Notwithstanding the
foregoing sentence, in no event shall Loans be made if, either immediately
before or after giving effect to such Loan, a Default or an Event of Default
shall have occurred and is continuing. Subject to the terms and provisions
hereof, the Borrower may borrow, repay and reborrow Loans under this Agreement.
4
<PAGE>
The Loans shall be evidenced by the Revolving Note. The Revolving
Note shall bear interest from the date thereof on the outstanding principal
balance thereof as set forth in Section 2.2. The Lender shall, and is hereby
authorized by the Borrower to, record in the Lender's internal records an
appropriate notation evidencing each payment of principal of the Loans, each
payment of interest on the Loans and other relevant information; provided,
--------
however, that the failure of the Lender to make such a notation or any error in
- -------
such a notation shall not affect the obligation of the Borrower to repay the
Loans made by the Lender to the Borrower in accordance with the terms of the
Revolving Note and this Agreement.
SECTION 2.2. INTEREST.
--------
(a) The Borrower agrees to pay interest on the average daily
outstanding principal amount of the Loans at a rate per annum equal to the Base
Rate in effect from time to time plus a fixed spread determined as of the date
of the first advance to the Borrower pursuant to Section 2.4, equal to a
percentage which when added to the Base Rate will equal 12%, compounded daily
("Interest Rate"). The spread so determined shall remain fixed throughout the
term of this Agreement. The Interest Rate shall be reset weekly.
(b) Each change in the Interest Rate to be charged hereunder shall
become effective without notice to the Borrower on the effective date of each
weekly change in the Base Rate.
(c) Interest on the Loans shall accrue from and including the date
any such Loan is advanced to but excluding the date on any repayment thereof and
shall be payable (i) on each Payment Date, (ii) upon the payment, in full or in
part, of any of the principal amount of such Loan, (iii) at the maturity of such
Loan (whether at stated maturity, by acceleration or otherwise), and (iv) after
maturity (whether at stated maturity, by acceleration or otherwise), on demand.
SECTION 2.3. SCHEDULED REPAYMENT. To the extent not previously
-------------------
paid, the unpaid principal balance of the Revolving Note shall be due and
payable on the Maturity Date.
SECTION 2.4. PROCEDURE FOR ADVANCING LOANS. Subject to the terms
-----------------------------
and conditions of this Agreement, the Lender will, not more frequently than once
every two (2) weeks prior to the maturity of the Revolving Note, whether by
acceleration or otherwise, upon the written request of Borrower therefor,
advance Loans to the Borrower in accordance with Borrower's instructions.
Borrower shall set forth disbursement instructions in each such request for a
Loan. If the Lender receives such a request from Borrower for a Loan prior to
12:00 noon, Columbus, Ohio time, Bank will advance such Loan on that same
Business Day. Each Loan advanced hereunder shall be in the amount of Two Hundred
Thousand Dollars ($200,000) or an integral multiple thereof up to an amount not
to exceed Two Million Dollars ($2,000,000) at any one time outstanding.
Notwithstanding the foregoing, in no event shall Loans be made if, either
immediately before or after giving effect to such Loan, a Default or an Event of
Default shall have occurred and is continuing.
5
<PAGE>
SECTION 2.5. PAYMENTS, ETC.
--------------
(a) Except as otherwise specifically provided herein, all payments
under this Agreement shall be made without defense, setoff or counterclaim to
the Lender not later than 1:00 p.m. (Columbus, Ohio time) on the date when due
and shall be made in lawful money of the United States of America by the
Borrower's company check made payable to the order of the Lender or in
immediately available funds by wire transfer to Bank One, Columbus, Ohio ABA
#044-000-037, for the account of Bank One Capital Partners II, Limited
Partnership, Account #0122171, notify Jeannine Perez (614) 248-7370, or at such
other place as the Lender may direct.
(b) Whenever any payment to be made hereunder shall be stated to be
due on a day that is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the applicable rate during such extension.
(c) All payments hereunder shall be applied first to collection fees,
-----
expenses and other amounts owed pursuant to the Indemnity Provisions, if any;
second to accrued but unpaid interest on the Loans; third to principal due on
- ------ -----
the Loan(s); and fourth to all other Obligations.
------
SECTION 2.6. FEES.
----
(a) Closing Fee. The Borrower shall pay the Lender a closing fee of
-----------
Forty Thousand Dollars ($40,000), payable on the Closing Date.
SECTION 3. CONDITIONS TO BORROWING.
SECTION 3.1. INITIAL DISBURSEMENT. At the time of the making of the
--------------------
initial disbursement of proceeds of the Loans by the Lender, all obligations of
the Borrower hereunder to the Lender incurred prior to such initial disbursement
shall have been paid in full, and the following requirements shall have been
fulfilled, in each case in form and substance satisfactory to the Lender:
SECTION 3.2. PRIMARY DOCUMENTATION. The Lender shall have received
---------------------
the following documents, each duly executed and delivered by all parties thereto
other than the Lender:
(a) this Agreement;
(b) the Revolving Note; and
(c) the Security Agreement.
6
<PAGE>
SECTION 3.3. COMPLIANCE WITH WARRANTIES, ABSENCE OF LITIGATION, NO
-----------------------------------------------------
DEFAULT, ETC. The representations and warranties set forth in Section 4 and in
- ------------
each of the other Loan Documents shall have been true and correct in all
material respects as of the date made, and both immediately before and
immediately after giving effect to such Loan:
(a) such representations and warranties shall be true and correct
with the same effect as if then made;
(b) no litigation, arbitration, or governmental investigation or
proceeding shall be pending or, to the best knowledge of the Borrower,
threatened against Borrower or affecting the business or properties thereof
which, if adversely determined, would be likely to have a material adverse
effect on (i) the business, property, assets, operations or conditions,
financial or otherwise, of the Borrower, or (ii) the ability of the Borrower to
perform its obligations under or in connection with the Asset Purchase Agreement
to which it is a party; and
(c) no Default or Event of Default shall have then occurred and be
continuing.
SECTION 3.4. LOAN REQUEST. Each request for a Loan by the Borrower
------------
under Section 2.4 and the acceptance by the Borrower of the proceeds or other
benefits of such Loan shall constitute a representation and warranty by the
Borrower that on the date of such Loan and before and after giving effect to the
application of the proceeds of any Loan request thereby, all statements set
forth in Section 4 are true and correct.
SECTION 3.5. SATISFACTORY LEGAL FORM, ETC. All documents executed
----------------------------
or submitted pursuant hereto by or on behalf of the Borrower, shall be
satisfactory in form and substance to the Lender and its counsel; the Lender and
counsel shall have received all information, and such counterpart originals or
such certified or other copies of such materials, as the Lender or its counsel
may reasonably request; and all legal matters incident to the transactions
contemplated by this Agreement shall be reasonably satisfactory to counsel to
the Lender.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender to enter into this Agreement and make the
Loans provided for herein, the Borrower represents, warrants and covenants that,
as of the date hereof, both immediately prior to and immediately after the
funding of the initial disbursement of the proceeds of the Loans, any date upon
which a Loan is made hereunder, and until the Obligations are fully paid,
performed and satisfied, the following representations and warranties set forth
below are and shall remain true:
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF BORROWER. The
------------------------------------------
representations and warranties of the Borrower contained in Section 5 of the
Note Agreement are incorporated by reference herein.
7
<PAGE>
SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF LENDER. The
----------------------------------------
representations and warranties of the Lender contained in Section 6 of the Note
Agreement are incorporated by reference herein.
SECTION 4.3. FINANCIAL REPORTING. The Financial Reporting
-------------------
requirements of the Borrower provided for in Section 7 of the Note Agreement are
incorporated by reference herein.
SECTION 4.4. AFFIRMATIVE COVENANTS. The Affirmative Covenants made
---------------------
by the Borrower in Section 8 of the Note Agreement are incorporated by reference
herein.
SECTION 4.5. NEGATIVE COVENANTS. The Negative Covenants agreed to
------------------
by the Borrower in Section 9 of the Note Agreement are incorporated by reference
herein.
SECTION 4.6. FINANCIAL TESTS. The Borrower shall meet the Financial
---------------
Tests provided for in Section 10 of the Note Agreement and incorporated by
reference herein.
SECTION 5. EVENTS OF DEFAULT.
The occurrence of any of the following events shall, at the option of the
Lender, constitute an Event of Default ("Event of Default") hereunder and under
the Revolving Note:
SECTION 5.1. FAILURE TO PAY. The Borrower fails to pay, within two
--------------
(2) Business Days of the date when due, any installment of interest or any other
sum due under this Agreement or the Revolving Note in accordance with the terms
hereof or thereof.
SECTION 5.2. BREACH OF REPRESENTATION OR WARRANTY. Any
------------------------------------
representation or warranty herein or in any agreement, instrument or certificate
executed pursuant hereto or in connection with any transaction contemplated
hereby proves to have been false or misleading in any material respect when
made.
SECTION 5.3. FALSITY OF INFORMATION. Any financial or other
----------------------
information delivered by the Borrower to the Lender proves to be false or
misleading in any material respect when delivered.
SECTION 5.4. SECURITY INTEREST. The Lender fails to have a valid
-----------------
and enforceable perfected security interest in or lien on the Collateral or such
security interest or lien fails to be prior to the rights and interest of all
others except for purchase money security interests to the extent permitted by
the Note Agreement.
SECTION 5.5. JUDGMENTS. A final nonappealable judgment or judgments
---------
is or are entered against the Borrower in the aggregate amount of Two Hundred
Fifty Thousand Dollars ($250,000) or more on a claim or claims not covered by
insurance.
SECTION 5.6. FAILURE TO PAY DEBTS; VOLUNTARY BANKRUPTCY. The
------------------------------------------
Borrower fails to pay its debts generally as they come due, or files any
petition, proceeding, case or action for
8
<PAGE>
relief under any bankruptcy, reorganization, insolvency, or moratorium law, or
any other law or laws for the relief of, or relating to, debtors.
SECTION 5.7. INVOLUNTARY BANKRUPTCY. An involuntary petition is
----------------------
filed under any bankruptcy or similar statute against the Borrower, or a
receiver, trustee, liquidator, assignee, custodian, sequestrator or other
similar official is appointed to take possession of the properties of the
Borrower and such petition or appointment is not dismissed within ninety (90)
days.
SECTION 5.8. GOVERNMENTAL ACTION. Any governmental regulatory
-------------------
authority takes or institutes action which will materially adversely affect the
condition, operations or ability to pay the Borrower's obligations under this
Agreement, the Revolving Note or any instrument or agreement required under this
Agreement.
SECTION 5.9. DEFAULT OF OTHER FINANCIAL OBLIGATIONS. Any default
--------------------------------------
occurs under the Note Agreement, any agreement, note or document related to any
such agreement or any other agreement involving the borrowing of money or the
advance of credit to which the Borrower may be a party as obligor or guarantor,
if such default consists of the failure to pay any Indebtedness in an aggregate
principal amount greater than $50,000 when due or if such default gives to the
holder of the obligation concerned the right to accelerate such Indebtedness.
SECTION 5.10. DEFAULT UNDER SECURITY AGREEMENT, WARRANT
-----------------------------------------
CERTIFICATE OR OTHER AGREEMENT. The Borrower breaches or defaults in any
- ------------------------------
material respect under any of its obligations contained in the Security
Agreement, the Warrant Certificates, the Note Agreement, the Subordinated Notes,
the Revolving Notes or any other agreement with the Lender.
SECTION 5.11. FINANCIAL REPORTING DEFAULT. The Borrower fails for a
---------------------------
period of thirty (30) days after notice thereof to comply with the requirements
of Section 7 of the Note Agreement.
SECTION 5.12. AFFIRMATIVE COVENANTS. The Borrower fails for a
---------------------
period of thirty (30) days after written notice thereof to comply in any
material respect with any Affirmative Covenant.
SECTION 5.13. NEGATIVE COVENANTS. The Borrower fails to comply in
------------------
any material respect with any Negative Covenant (i) for a period of thirty (30)
days after written notice thereof with respect to any such breach that is
subject to cure, and (ii) with respect to any other such breach, and the Lender
gives written notice thereof.
SECTION 5.14. FINANCIAL TESTS. The Borrower fails to comply with
---------------
any Financial Test and the Lender gives written notice thereof.
SECTION 5.15. USE OF PROCEEDS. Any use of the proceeds from the
---------------
sale of the Revolving Note other than working capital purposes, without the
prior written consent of the Lender.
9
<PAGE>
SECTION 5.16. MATERIAL ADVERSE CHANGE. Any material adverse change
-----------------------
occurs in the consolidated financial condition or results of operations of the
Borrower or in the Borrower's ability to perform its obligations under this
Agreement, the Revolving Note or under any instrument or agreement required by
this Agreement:
SECTION 5.17. OTHER BREACH UNDER AGREEMENT. The Borrower breaches,
----------------------------
or defaults in any material respect under, any term, condition, provision,
representation or warranty contained in this Agreement not specifically referred
to in this Section, provided that with respect to any of the foregoing (other
than Sections 5.1, 5.7, and 5.10) that is capable of being cured, the Borrower
have failed to cure the same within thirty (30) days from the receipt of notice
thereof from the Lender.
SECTION 6. CONSEQUENCES OF EVENT OF DEFAULT.
(a) If any Event of Default specified under Section 5, other than
Sections 5.6 and 5.7 hereof, shall occur and be continuing, the Lender may, by
written notice to the Borrower, declare the principal and interest accrued on
the Revolving Note and all other obligations of the Borrower hereunder to be
forthwith due and payable, and the same shall thereupon become immediately due
and payable, without any other or further presentment, demand, protest, notice
of default, notice of intent to accelerate, notice of acceleration or other
notice of any kind, all of which are hereby expressly waived.
(b) If an Event of Default specified under Sections 5.6 and 5.7 of
Section 5 hereof shall occur, the unpaid balance of the principal and interest
accrued on the Revolving Note and all other obligations of the Borrower
hereunder shall be immediately due and payable automatically without
presentment, demand, protest, notice of default, notice of intent to accelerate,
notice of acceleration or other notice of any kind, all of which are hereby
expressly waived.
SECTION 7. MISCELLANEOUS.
SECTION 7.1. NO IMPLIED RIGHTS OR WAIVERS. No notice to or demand
----------------------------
on the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in the same, similar and other circumstances. Neither any
failure nor any delay on the part of the Lender in exercising any right, power
or privilege hereunder or under the Revolving Note shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise of the same or the exercise of any other right, power or
privilege.
SECTION 7.2. MODIFICATIONS, AMENDMENTS OR WAIVERS. The Borrower and
------------------------------------
the Lender may from time to time enter into written agreements amending or
changing any provision of this Agreement or the rights hereunder or give waivers
or consents to a departure from the due performance of their obligations
hereunder provided that no departure from the Borrower's due performance of its
obligations hereunder shall be effective unless agreed to in writing by the
Lender and Primus.
10
<PAGE>
SECTION 7.3. EXPENSES. The Borrower shall pay or cause to be paid and
--------
save the Lender harmless against liability for the payment of all reasonable
out-of-pocket expenses, including counsel fees and disbursements, incurred or
paid by the Lender in connection with (i) the due diligence inquiries,
negotiation, development, preparation, execution and performance of this
Agreement, the Revolving Note, the Security Agreement, and the related
transactions; (ii) any requested amendments, waivers or consents pursuant to the
provisions hereof and thereof; and (iii) the enforcement of this Agreement, the
Revolving Note, and the Security Agreement, including such reasonable expenses
as may be incurred by the Lender in collection of the Revolving Note.
SECTION 7.4. ACCOUNTING TERMS. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with GAAP.
SECTION 7.5. ENTIRE AGREEMENT. This Agreement including the Exhibits
----------------
or Schedules hereto, constitutes the entire agreement relating to the subject
matter hereof between the Parties hereto. Each Party acknowledges that no
representation, inducement, promise or agreement has been made, orally or
otherwise, by the other Party, or anyone acting on behalf of the other Party,
unless such representation, inducement, promise or agreement is embodied in this
Agreement expressly or by incorporation.
SECTION 7.6. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Ohio.
SECTION 7.7. SEVERABILITY. If any provision of this Agreement is held
------------
to be invalid, void or unenforceable, the remaining provisions of this Agreement
shall nevertheless continue in full force and effect.
SECTION 7.8. THIRD PARTY BENEFICIARIES. The obligations of each Party
-------------------------
under this Agreement shall inure solely to the benefit of the other Party, and
no other person or entity shall be a third party beneficiary of this Agreement.
SECTION 7.9. RULES OF CONSTRUCTION. Unless otherwise specified, the
---------------------
following rules shall be applied in construing the provisions of this Agreement.
(i) Terms that imply gender shall be construed to apply to
all genders.
(ii) References to Sections, Schedules and Exhibits refer to
the numbered Sections of, the Schedules of and the
Exhibits attached to this Agreement.
(iii) Headings to the various Sections of this Agreement are
included solely for purposes of reference and shall be
ignored in construing the provisions of this Agreement.
11
<PAGE>
(iv) The Exhibits and Schedules attached to this Agreement
are incorporated herein by reference.
(v) "Herein," "hereto," "hereof" and words of similar import
refer to this Agreement.
(vi) The word "and" connotes "each and every", and the word
"or" connotes "any one or more".
(vii) The word "including" connotes "including without
limitation".
(viii) Any reference to any law or regulation refers to that law
or regulation as amended from time-to-time after the date
of this Agreement and to the corresponding provision of
any successor law or regulation.
(ix) Any reference to any agreement or other document in this
Agreement refers to that agreement or other document as
amended from time-to-time after the date of this
Agreement.
(x) The recitals included in this Agreement are the mutual
representations of the Parties and are a part of this
Agreement.
SECTION 7.10. NOTICES. Any notice or other communication required or
-------
permitted to be made or given under this Agreement, shall be in writing and
shall be deemed to have been received by the Party to whom it is addressed: (i)
on the date indicated on the certified mail return receipt if sent by certified
mail return receipt requested; (ii) on the date actually received if hand
delivered or if transmitted by telefax (receipt of which is confirmed to
sender); (iii) three business days after such notice was deposited in the United
States Mail postage prepaid; or (iv) one business day after such notice was
delivered to an overnight delivery service, addressed, delivered or transmitted
in each case as follows:
LENDER:
Banc One Capital Partners II, Limited Partnership
10 West Broad Street
Columbus, Ohio 43215
Attention: Earle J. Bensing
Telephone: (614) 227-4219
Telefax: (614) 224-7675
12
<PAGE>
WITH A COPY TO:
Banc One Capital Corporation
90 North High Street
Columbus, Ohio 43215
ATTENTION: Legal Department
Telephone: (614) 227-7727
Telefax: (614) 227-7750
BORROWER:
Corinthian Schools, Inc.
1732 Reynolds Street
Irvine, California 92714
ATTENTION: David G. Moore
Telephone: (714) 261-7606
Telefax: (714) 222-3513
WITH A COPY TO:
O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660
ATTENTION:David A. Krinsky, Esq.
Telephone: (714) 669-7902
Telefax: (714) 669-6994
A Party's Address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
SECTION 7.11. ASSIGNMENT. Neither this Agreement nor any of the
----------
rights or duties hereunder may be assigned by any Party without the prior
written consent of each of the other Parties, and any assignment attempted
without such prior consent shall be null and void.
SECTION 7.12. FURTHER ACTS AND DOCUMENTS. Each of the Parties hereby
--------------------------
agrees to execute and deliver such further instruments and to do such further
acts and things as may be necessary or desirable to carry out the purposes of
this Agreement.
SECTION 7.13. COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one in the same agreement.
13
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
BORROWER: LENDER:
CORINTHIAN SCHOOLS, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: /s/ David G. Moore
-----------------------------
David G. Moore, President By: Banc One Capital Partners II
Corporation
By /s/ Earle J. Bensing
-------------------------------
Its Senior Vice President
------------------------------
<PAGE>
REVOLVING CREDIT NOTE
$2,000,000 COLUMBUS OHIO
JUNE 30, 1995
On or before June 30, 1996, for value received, the undersigned,
CORINTHIAN SCHOOLS, INC., a Delaware corporation (the "Borrower"), hereby
promises to pay to the order of BANC ONE CAPITAL PARTNERS II, LIMITED
PARTNERSHIP, a Delaware limited partnership (the "Lender"), or its
assigns, as further provided herein, the principal amount of Two Million Dollars
($2,000,000) or, if such principal is less, the aggregate unpaid principal
amount of all Loans made by the Lender to the Borrower pursuant to the
Agreement (as referred to and defined in Section 1 hereof), together with
interest on the unpaid principal balance of all Loans made hereunder until paid
in full at a fluctuating rate of interest and payable on the dates as determined
in accordance with the provisions of the Agreement. Both Principal and interest
are payable in lawful money of the United States of America by the Borrower's
company check made payable to the order of the Lender or in immediately
available funds by wire transfer to Bank One, Columbus, Ohio ABA #044-000-037,
for the account of Banc One Capital Partners II, Limited Partnership, Account
#0122171, notify Jeannine Perez (614) 248-7370, or at such other place as the
Lender may direct.
SECTION 1. LOAN AGREEMENT. This Revolving Credit Note is the Revolving
--------------
Note referred to in the Credit Facility Agreement dated as of an even date
herewith (the "Agreement"), by and among the Borrower and the Lender, as the
same may be amended, modified or supplemented from time to time, which
Agreement, as amended, is incorporated by reference herein. All capitalized
terms used herein shall have the same meanings as are assigned to such terms in
the Agreement. This Revolving Credit Note is entitled to the benefits of and is
subject to the terms, conditions and provisions of the Agreement. The Agreement,
among other things, contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events, and also for repayments and
reborrowings on account of the principal hereof prior to maturity upon the
terms, conditions and provisions specified therein.
SECTION 2. ENDORSEMENTS. All Loans made by the Lender to the Borrower
------------
pursuant to the Agreement and all payments made on account of principal hereof
shall be recorded by the Lender in the regularly maintained data processing
records of the Lender; provided, however, that the failure of the Lender or any
holder to make such notation shall not limit or otherwise affect the obligations
of the Borrower hereunder or under the Agreement.
SECTION 3. SETOFF. Any and all moneys now or at any time hereafter owing
------
to the Borrower from the holder hereof, are hereby pledged for the security of
this and all other Indebtedness from the Borrower to the holder hereof, and may,
upon the occurrence of any Event of Default, be paid and applied thereon whether
such Indebtedness be then due or is to become due.
A-1
<PAGE>
SECTION 4. WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER, AFTER
--------------------
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS REVOLVING CREDIT
NOTE OR ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS REVOLVING CREDIT NOTE, OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER OF THEM. NEITHER THE
LENDER NOR THE BORROWER SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE,
ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH
A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. IN THE EVENT OF A DISPUTE UNDER
THIS REVOLVING CREDIT NOTE, THE PARTIES HEREBY AGREE THAT EXCLUSIVE JURISDICTION
AND VENUE LIES IN A COURT OF COMPETENT JURISDICTION IN FRANKLIN COUNTY, OHIO.
THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY EITHER THE LENDER OR THE BORROWER EXCEPT BY A WRITTEN INSTRUMENT
EXECUTED BY BOTH OF THEM.
BORROWER:
CORINTHIAN SCHOOLS, INC., a
Delaware corporation
By: /s/ David G. Moore
----------------------------
David G. Moore, President
A-2
<PAGE>
EXHIBIT 10.8
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS
THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING
SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER
FROM THE COMMISSION STATING THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT,
HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND LAWS.
-------------------------------------
CORINTHIAN SCHOOLS, INC.
WARRANT CERTIFICATE
CLASS B COMMON STOCK PURCHASE WARRANT
-------------------------------------
Dated as of June 30, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions...................................................................... 1
Section 2. Duration and Exercise of Warrant................................................. 8
2.1 Warrant Exercise Period.......................................................... 8
2.2 Manner of Exercise............................................................... 8
2.3 When Exercise Effective.......................................................... 9
2.4 Delivery of Stock Certificates, etc.............................................. 9
Section 3. Antidilution Adjustment.......................................................... 9
3.1 Number of Warrant Shares......................................................... 9
3.2 Adjustment Event................................................................. 9
3.3 Reorganization Event............................................................. 9
3.4 Other Event...................................................................... 10
3.5 Rights Offering.................................................................. 10
3.6 Preemptive Rights................................................................ 10
Section 4. Restrictions on Transfer......................................................... 11
4.1 Restrictive Legends.............................................................. 11
4.2 Notice of Proposed Transfer; Opinions of Counsel................................. 11
Section 5. Availability of Information...................................................... 12
Section 6. Reservation of Stock, Etc........................................................ 12
Section 7. Due Organization; No Violation................................................... 13
Section 8. Issuance of Common Stock; Company's Representation............................... 13
Section 9. Ownership; Registration of Transfer; Exchange and Substitution of Warrant........ 13
9.1 Ownership of Warrant............................................................. 13
9.2 Registration of Transfers........................................................ 14
9.3 Replacement of Warrant Certificate............................................... 14
9.4 Expenses......................................................................... 14
Section 10. Registration Rights.............................................................. 14
Section 11. Put Option....................................................................... 14
11.1 Put Option Exercise Period....................................................... 14
11.2 Manner of Exercise............................................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
11.3 The Repurchase Price............................................................................ 15
11.4 Closing and Payment............................................................................. 15
Section 12. Exchange for Class A Stock...................................................................... 15
Section 13. No Rights or Liabilities as Stockholder......................................................... 16
Section 14. Notices......................................................................................... 16
Section 15. Miscellaneous................................................................................... 16
Section 16. Expiration...................................................................................... 16
Section 17. Assignment...................................................................................... 16
</TABLE>
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WARRANT CERTIFICATE
Dated as of June 30, 1995
This certifies that, for value received, BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP (the "Holder") a Delaware limited partnership, is entitled,
subject to the terms set forth below, to purchase from CORINTHIAN SCHOOLS, INC.,
(the "Company") a Delaware corporation in a single exercise 5,000 shares of the
Class B Non-Voting Common Stock, $.01 par value ("Class B Stock"), of the
Company at the principal office of the Company, with the Notice of Exercise
attached hereto duly executed, and simultaneous payment therefor in lawful money
of the United States or otherwise as hereinafter provided, for the aggregate
purchase price of $100 ("Price").
This Warrant is being issued by the Company pursuant to the Subordinated
Secured Note and Warrant Purchase Agreement dated as of the date hereof, by and
among the Company, as seller, and Primus Capital Fund III Limited Partnership
("Primus") and the Holder, as purchasers ("Purchase Agreement").
SECTION 1. DEFINITIONS.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings (the definitions to be applicable to both
the singular and the plural forms of the terms defined where either such form is
used in this Warrant).
1.1 "Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Original Issue Date other than Warrant
Shares and shares issued under the Company's employee stock option plans.
1.2 "Adjusted Permitted Indebtedness" means, as determined as of any
date (i) the aggregate principal amount of all Permitted Indebtedness, excluding
(ii) the aggregate principal amount of the Senior Loans outstanding as of such
date of determination.
1.3 "Adjustment Event" means any of the following events (except if
such event also constitutes a Preemption Offering, under which circumstances
this Section 1.3 and Sections 3.1 through 3.5 shall not apply):
(i) the Company declares a dividend or makes a distribution on
its Outstanding Common Stock in Common Stock or Convertible
Securities, or
(ii) the Company subdivides or reclassifies any of its
outstanding Common Stock into a greater number of shares,
or
(iii) the Company combines or reclassifies any of its outstanding
Common Stock into a smaller number of shares; or
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(iv) any "5% Shares" or "2.5% Shares" (as each such term is
defined in separate Executive Stock Agreements, each date
as of the date hereof, by and between the Company and an
executive of the Company) become vested.
1.4 "Affiliate" shall have the meaning set forth in the Purchase
Agreement.
1.5 "Appraiser" means, with respect to any determination of the Fair
Market Value Amount, an independent appraiser (which shall be an accounting firm
or investment banking firm that is not an Affiliate of either the Company or the
Holder) selected in the manner provided for in this definition. Within ten (10)
days after the exercise of the Put Option, the Company and the Holder shall
endeavor in good faith to select a mutually acceptable Appraiser. If no such
Appraiser is mutually selected within such time period or such longer time
period as the Company and the Holder shall mutually agree upon, then within ten
(10) days thereafter, the Company and the Holder shall each designate an
investment banking firm that is not an Affiliate of either the Company or the
Holder, and within ten (10) days thereafter, such investment banking firms shall
mutually select the Appraiser. The Company shall pay the reasonable fees and
expenses of the Appraiser, and, if applicable, the Company and the Holder shall
each pay the fees and expenses of the investment banking firm designated by each
of them for the purpose of selecting the Appraiser.
1.6 "BOCP II" means Banc One Capital Partners II, Limited
Partnership, together with its successors and assigns.
1.7 "Business Day" means, any day other than a Saturday, Sunday or
day upon which banking institutions are authorized or required by law or
executive order to be closed in the City of Columbus, Ohio.
1.8 "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such Person
or partnership interests and any warrants, options or other rights to acquire
such stock or interests.
1.9 "Capitalized Earnings Amount" means, as of any date of
determination, an amount equal to four (4) times EBITDA (i) reduced by an amount
sufficient to pay in full all of the then outstanding Adjusted Permitted
Indebtedness (including all accrued but unpaid interest with respect thereto),
and (ii) increased by the average amount of cash and marketable securities
reflected on the most recent Financial Statements of the Company as of the date
of determination.
1.10 "Change of Control" means (i) an event or series of events by
which any Person or Persons or other entities acting in concert as a partnership
or other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of the Company, (ii) the Company is merged with or into another
corporation with
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the effect that immediately after such transaction the stockholders of the
Company immediately prior to such transaction hold less than a majority of the
combined Voting Power of the Person surviving the transaction, or (iii) the
direct or indirect, sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company to any Person or Group of
Persons.
1.11 "Class A Stock" means the shares of voting common stock, $.01
par value, of the Company at any time outstanding.
1.12 "Class B Stock" means the shares of non-voting common stock,
$.01 par value of the Company at any time outstanding.
1.13 "Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
1.14 "Company" means Corinthian Schools, Inc., a Delaware
corporation, and includes any corporation which shall succeed to or assume the
obligations of the Company.
1.15 "Common Stock" means the shares of Class A Stock and Class B
Stock treated as a single class of stock, at any time outstanding.
1.16 "Convertible Securities" means evidences of indebtedness, shares
of stock or other securities that are convertible into or exchangeable for, with
or without payment of additional consideration in cash or property, or options,
warrants or other rights that are exercisable for, shares of Common Stock that,
when issued, would constitute Additional Shares of Common Stock, either
immediately or upon the occurrence of a specified date or a specified event, but
excluding the shares of Common Stock issuable upon exercise of the Warrants.
1.17 "Disposition" means (i) a merger, consolidation or other
business combination in which the Company is the surviving entity and the
Company's stockholders receive cash or non-cash consideration in exchange for or
in respect of their shares of Capital Stock of the Company or (ii) the sale,
lease, conveyance, transfer or other disposition (other than the grant of a
security interest) in any single transaction or series of related transactions
of all or substantially all of the assets of the Company.
1.18 "EBITDA" means, as determined as of any date, earnings of the
Company (as reflected on the most recent Financial Statements) for the
twelve-month period ended immediately prior to any such date of determination
determined excluding all amounts expensed as reflected on such Financial
Statements during such twelve-month period with respect to (i) interest expense
with respect to Permitted Indebtedness, (ii) federal and state income tax
expense, (iii) depreciation expense, and (iv) amortization expense.
1.19 "Event of Default" shall have the meaning set forth in the
Purchase Agreement.
1.20 "Fair Market Value Amount" means, as of any Put Date with
respect to which either the Company or the Holder by written notice within ten
(10) days after the Put Date
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to the other requests a determination of such amount, the fair market value of
the then Outstanding Common Stock as determined by the Appraiser assuming the
sale of such Outstanding Common Stock by a willing seller to a willing buyer
immediately after giving effect to (i) the redemption in full of all the
outstanding Preferred Stock at the applicable Redemption Price, and (ii) the
payment in full of all outstanding Permitted Indebtedness, and determined
without giving consideration to the tax consequences of such sale to the seller.
1.21 "Financial Statements" means the Annual Financial Statements,
Quarterly Financial Statements and Monthly Financial Statements (all as defined
in the Purchase Agreement), as applicable, of the Company.
1.22 "Group of Persons" is defined in Section 1.10 hereof.
1.23 "Holder" means Banc One Capital Partners II, Limited
Partnership, a Delaware limited partnership, together with its successors and
assigns.
1.24 "Indebtedness" means, with respect to the Company, as of any
date of determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.25 "Initial Public Offering" means the first offer and sale to the
public by the Company or any holders of shares of any class of its Capital
Stock, pursuant to a registration statement that has been declared effective by
the Commission; provided, however, that the gross proceeds of the shares issued
and sold by the Company are at least $10,000,000.
1.26 "Market Determined Value Amount" means, with respect to any Put
Date, the fair market value of the then Outstanding Common Stock determined in
good faith in connection with a Trigger Event the closing of which has occurred
within six (6) months immediately preceding the Put Date or that will occur
pursuant to an agreement or a binding letter of intent in effect as of the Put
Date and assuming (i) the redemption in full of all the outstanding Preferred
Stock at the applicable Redemption Price and, (ii) the payment in full of all
outstanding Permitted Indebtedness, and determined without giving consideration
to the tax consequences of such sale to the seller.
1.27 "Non-Surviving Combination" means any merger, consolidation or
other business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity.
1.28 "Notes" means the Subordinated Secured Note due June 30, 2000 in
the principal amount of $2,000,000 issued and sold to the Holder and the
Subordinated Secured Note
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due June 30, 2000, in the principal amount of $500,000 issued and sold to
Primus, by the Company pursuant to the terms of the Purchase Agreement.
1.29 "Number of Warrant Shares" shall have the meaning set forth in
Section 3.1.
1.30 "Original Issue Date" means the date on which this Warrant and
the Notes were first issued pursuant to the Purchase Agreement.
1.31 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable under
the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date shall be adjusted in accordance with the "treasury stock" method determined
under generally accepted accounting principles pursuant to Accounting Principles
Board Opinion 15.
1.32 "Permitted Indebtedness" means, as of any date of determination
the aggregate principal amount of all Indebtedness of the Company outstanding as
of such date of determination, but only to the extent that the principal amount
of such Indebtedness does not exceed the amounts permitted under the Purchase
Agreement.
1.33 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, estate, unincorporated organization
or government or any agency or political subdivision thereof.
1.34 "Preemption Offering" means any proposed issuance and sale by
the Company after the Original Issue Date and prior to the date of the Initial
Public Offering of any shares of Common Stock or any Convertible Securities
other than the following:
(i) the issuance of the Warrant Shares subject to this Warrant
and shares of Common Stock subject to the other warrants;
(ii) the issuance or sale of Common Stock pursuant to a rights
offering in which the holder hereof elects to participate
under the provisions of Section 3.5;
(iii) the issuance or sale of Common Stock or Convertible
Securities in connection with the acquisition by the
Company of a business, which issuance or sale has been
approved by a unanimous vote of the Board of Directors of
the Company; or
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(iv) the issuance or sale of Common Stock pursuant to any
employee stock option plan of the Company which has been
consented to in writing by the Holder.
1.35 "Preferred Stock" means any shares of Capital Stock of the
Company ranking senior to the Common Stock with respect to dividends or
liquidation including, without limitation, the shares of 6% Redeemable Preferred
Stock, $1.00 par value, of the Company.
1.36 "Price" means One Hundred Dollars ($100), which is the exercise
price for all of the Warrant Shares subject to this Warrant.
1.37 "Primus" means Primus Capital Fund III, Limited Partnership,
together with its successors and assigns.
1.38 "Purchase Agreement" means the Subordinated Secured Note and
Warrant Purchase Agreement, dated as of the date hereof among the Company as
seller and Primus and the Holder as purchasers.
1.39 "Purchase Shares" means, as of any date of determination, any
shares of Common Stock purchased by the Holder prior to such date of
determination pursuant to the exercise of its rights under Section 3.5 or
Section 3.6 hereof, or directly from the Company in any other transaction after
the Original Issue Date. For purposes of this definition, Purchase Shares shall
include any shares of Common Stock issuable upon the conversion of any
Convertible Securities purchased by the Holder pursuant to the exercise of its
rights under Section 3.5 and Section 3.6 hereof.
1.40 "Put Date" shall have the meaning set forth in Section 11.2.
1.41 "Put Event" means the earlier to occur of the following:
(i) the fifth anniversary of the Original Issue Date;
(ii) an Event of Default has occurred with respect to the Notes
and has not been cured;
(iii) a Change of Control; or
(iv) a Non-Surviving Combination.
1.42 "Put Option" shall have the meaning set forth in Section 11.1.
1.43 "Redemption Price" means the liquidation value with respect to
the Preferred Stock plus all accrued and unpaid dividends.
1.44 "Reorganization Event" means any of the following events:
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(i) capital reorganization or reclassification or
recapitalization of the Capital Stock of the Company (other
than any Adjustment Event);
(ii) any merger or consolidation of the Company with or into
another corporation; and
(iii) the sale or transfer of the property of the Company as an
entirety or substantially as an entirety.
1.45 "Repurchase Price" shall have the meaning set forth in Section
11.3.
1.46 "Restricted Securities" means (a) any Warrant bearing the
applicable legend set forth in Section 4.1, (b) any Warrant Shares which are
evidenced by a certificate or certificates bearing the legend set forth in
Section 4.1, and (c) unless the context otherwise requires, any shares of Common
Stock which are at the time issuable upon the exercise of any Warrant and which,
when so issued, will be evidenced by a certificate or certificates bearing the
legend set forth in section 4.1.
1.47 "Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute replacing said statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.48 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar Federal statute replacing said statute, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
1.49 "Senior Loans" means (i) loans outstanding under the Credit
Agreement dated as of June 30, 1995 among the Company and BOCP II, as modified,
amended, restated, renewed or extended from time to time and (ii) any extension,
renegotiation or refinancing of such loans with BOCP II or any other lender;
provided, however, that, in any event, for purposes of this Warrant, the
aggregate outstanding principal amount of the Senior Loans shall be deemed not
to exceed $5,000,000.
1.50 "Stock Purchase Agreement" means the Purchase Agreement dated as
of June 30, 1995, among the Company, BOCP II and Primus.
1.51 "Transfer" means with respect to any Restricted Securities, any
sale, assignment, pledge or other disposition thereof, or of any interest
therein, which could constitute a "sale" thereof, as that term is defined in
Section 2(3) of the Securities Act.
1.52 "Trigger Event" means any of the following events: (i) an
Initial Public Offering; (ii) a Change of Control; (iii) a Disposition; or (iv)
a Non-Surviving Combination.
1.53 "Valuation Amount" means, as of any date of determination, the
Capitalized Earnings Amount, unless (i) a greater Fair Market Value Amount has
been determined, or (ii) a greater Market Determined Value Amount is
determinable with respect to
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such date of determination, in which case "Valuation Amount" means the greater
amount (if applicable).
1.54 "Voting Power" of any Person means the aggregate number of votes
of all classes of Capital Stock of such Person which ordinarily has voting power
for the election of the Board of Directors or their equivalents of such Person.
1.55 "Warrant Exercise Expiration Date" means that date which is the
earliest of (i) the time immediately prior to the completion by the Company of
an Initial Public Offering, (ii) the date on which a Disposition or
Non-Surviving Combination is consummated, and (iii) June 30, 2004.
1.56 "Warrant" mean this Warrant.
1.57 "Warrant Shares" means the shares of Class B Stock issuable upon
exercise of this Warrant.
SECTION 2. DURATION AND EXERCISE OF WARRANT.
2.1 WARRANT EXERCISE PERIOD. This Warrant shall be exercisable in a
single exercise at any time after the date hereof and on or before the Warrant
Exercise Expiration Date.
2.2 MANNER OF EXERCISE. This Warrant may be exercised by the Holder
in a single exercise upon surrender of this Warrant and Notice of Exercise
attached hereto duly completed and executed on behalf of the Holder, at the
principal office of the Company (or at such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company), upon payment of the Price by
delivery of a certified or cashier's check to the Company. The Holder may, in
lieu of paying the Price by delivery of a certified or cashier's check to the
Company, reduce the unpaid principal amount of the Notes by an amount equal to
the funds which would otherwise have been delivered.
2.3 WHEN EXERCISE EFFECTIVE. Subject to the requirements of any
state or federal finance company licensing laws or regulations to which the
Company may be subject, the exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the Business Day on
which this Warrant shall have been surrendered and the Company receives payment
of the Price as provided in Section 2.2, and immediately prior to the close of
business on such Business Day the Holder shall be deemed to have become the
holder of record of the Warrant Shares.
2.4 DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable
after the exercise of this Warrant, and in any event within five (5) Business
Days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise, plus, in lieu of any
fractional
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share to which the Holder would otherwise be entitled, cash in an amount equal
to the same fraction (calculated to the nearest 1/100th of a share) of one full
share of Common Stock based on the Capitalized Earnings Amount on the Business
Day next preceding the date of such exercise.
SECTION 3. ANTIDILUTION ADJUSTMENT.
3.1 NUMBER OF WARRANT SHARES. The number of Warrant Shares that may
be purchased by the Holder in consideration of the payment of the Price is
initially 5,000 shares of Class B Stock; provided, however, that such number of
shares is subject to adjustment as provided for in this Section 3, which number
of Warrant Shares, as so adjusted from time, to time is referred to as the
"Number of Warrant Shares." The Price is not subject to adjustment.
3.2 ADJUSTMENT EVENT. Upon the occurrence of any Adjustment Event,
the Number of Warrant Shares shall be adjusted immediately after the applicable
record date with respect to such Adjustment Event as follows. The adjusted
Number of Warrant Shares shall be a number equal to the Number of Warrant Shares
immediately prior to such event multiplied by a fraction (i) the numerator of
which is the number of shares of Outstanding Common Stock immediately after the
record date with respect to such Adjustment Event, and (ii) the denominator of
which is the number of shares of Outstanding Common Stock immediately before
such record date. Any such adjustment shall be calculated to the nearest 0.001
Warrant Share.
3.3 REORGANIZATION EVENT. Upon the occurrence of a Reorganization
Event, there shall thereafter be issuable or deliverable upon the exercise of
this Warrant (in lieu of the Warrant Shares), as appropriate, the number of
shares of stock, other securities or property to which the Holder of the number
of shares of Common Stock equal to the Number of Warrant Shares at the date of
the Reorganization Event would have been entitled to as a result of such
Reorganization Event.
Prior to and as a condition of the consummation of any Reorganization
Event, the Company shall cause effective provisions to be made to effect the
purposes of this Section 3.3, including, if appropriate, an agreement among the
Company, any successor to the Company and the Holder.
3.4 OTHER EVENT. In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof, then the
Holder may request in writing within one hundred twenty (120) days after the
occurrence of such event that the Company examine the propriety of an adjustment
to the Number of Warrant Shares. Unless the Company and the Holder shall have
mutually agreed upon an adjustment, or that no adjustment is required, within
thirty (30) days after the receipt of such request, the Company shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regularly engaged accountants of the Company), to give an
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in this Section 3, necessary to preserve, the
purchase rights represented by this Warrant. Upon receipt of such opinion, the
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Company will promptly mail a copy thereof to the holder of this Warrant and
shall make the adjustments described therein. If such opinion states that no
such adjustment is necessary, the holder hereof shall reimburse the Company for
one-half of the cost and expense of such opinion.
3.5 RIGHTS OFFERING. In the event the Company shall effect an
offering of Common Stock or Convertible Securities pro rata among its
stockholders, the Holder shall be entitled, at its option, to elect to
participate in each and every such offering as if this Warrant had been
exercised and such Holder were, at the time of any such rights offering, then a
holder of that number of shares of Common Stock to which such holder is then
entitled on the exercise hereof.
3.6 PREEMPTIVE RIGHTS. In the event of any Preemption Offering, (i)
the Company shall notify the Holder in writing of the number of shares of Common
Stock or Convertible Securities subject to such Preemption Offering and the cash
or cash equivalent purchase price (determined by the Board of Directors of the
Company in good faith) thereof, and (ii) the Holder shall have the right for a
period of thirty (30) days following the consummation of such Preemption
Offering to purchase (A) prior to the exercise of this Warrant, up to that
number of shares of Common Stock or Convertible Securities that is sufficient to
permit the Holder to maintain the percentage of shares of Outstanding Common
Stock which the Holder owns or would be entitled to purchase upon exercise of
this Warrant and after giving effect to such purchase and the sale of all
remaining shares subject to such Preemption Offering, and (B) after the exercise
of this Warrant, up to that percentage of such shares of Common Stock or
Convertible Securities determined by dividing (a) the total number of shares of
Common Stock then owned by the Holder, and (b) the total number of shares of
Outstanding Common Stock.
The Holder shall have the right, during the period specified in the
Preemption Offering, to purchase any or all of the new shares that it is
entitled to purchase under this provision at the purchase price and on the terms
stated in the Preemption Offering. Notice by the Holder of its acceptance, in
whole or in part, of the Preemption Offering shall be in writing and signed by
the Holder and shall be delivered to the Company prior to the end of the period
specified in the Preemption Offering, setting forth the number of new shares of
Common Stock the Holder elects to purchase. With respect to any of the new
shares of Common Stock not purchased by the Holder hereunder, the Company may
during the period of sixty (60) days following the date of expiration of the
Preemption Offering sell to any other person or persons all or any part of such
shares, but only on terms and conditions that are no more favorable to such
person or persons or less favorable to the Company than those set forth in the
Preemption Offering.
SECTION 4. RESTRICTIONS ON TRANSFER.
4.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Section 4, this Warrant and each Warrant issued in exchange or substitution for
any Warrant, and each Warrant issued upon the registration of transfer of any
Warrant and each certificate representing Warrant Shares and each certificate
issued upon the registration of transfer of any Warrant Shares, shall be stamped
or otherwise imprinted with a legend in substantially the following form:
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"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED,
HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION STATEMENT
UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER FROM THE COMMISSION
INDICATING THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT,
HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS."
4.2 NOTICE OF PROPOSED TRANSFER; OPTIONS OF COUNSEL. Prior to any
transfer of any Restricted Securities, the Holder will give written notice to
the Company of the Holder's intention to effect such transfer and to comply in
all other respects with this Section 4.2. Each such notice of a proposed
transfer (a) shall describe the manner and circumstances of the proposed
transfer in sufficient detail to enable counsel to render the opinion referred
to below, and (b) shall designate counsel for the Holder. The Holder will submit
a copy thereof to the counsel designated in such notice and the Company will
promptly submit a copy thereof to its counsel. The following provisions shall
then apply:
(i) If in the opinion of counsel to the Company the proposed
transfer may be effected without registration of such
Restricted Securities under the Securities Act, the Company
will promptly notify the Holder and the Holder shall thereupon
be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by the
Holder to the Company. Each Warrant or certificate, if any,
issued upon or in connection with such transfer shall bear the
restrictive legend set forth in section 4.1, unless in the
opinion of such counsel such legend is no longer required to
ensure compliance with the Securities Act. If for any reason
counsel for the Company (after having been furnished with the
information required to be furnished by clause (a) of this
Section 4.2) shall fail to deliver an opinion to the Company,
or the Company shall fail to notify the Holder as aforesaid,
within thirty (30) days after receipt of notice of the
Holder's intention to effect a transfer, then for all purposes
of this Warrant the opinion of counsel for the Holder shall be
sufficient to authorize the proposed transfer and the opinion
of counsel for the Company shall not be required in connection
with such proposed transfer; and
(ii) If in the opinion of counsel to the Company the proposed
transfer may not be effected without registration of such
Restricted Securities under the Securities Act, the Company
will promptly so notify the Holder and the Holder shall not be
entitled to transfer
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such Restricted Securities until receipt of a further notice
from the Company under clause (i) above or until registration
of such Restricted Securities under the Securities Act has
become effective.
Section 5. Availability of Information.
Within ninety (90) days after a registration statement under the
Securities Act is declared effective with respect to an Initial Public Offering,
the Company will comply with the reporting requirements of Sections 13 and 15(d)
of the Securities Exchange Act insofar as they are applicable to the Company and
will comply with all other public information reporting requirements of the
Commission (including the requirements of Rule 144 promulgated by the Commission
under the Securities Act) from time to time in effect and relating to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities or the sale of securities by Affiliates. The Company will
also cooperate with the Holder at the Holder's expense to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Restricted Securities or the sale of securities by Affiliates.
Section 6. RESERVATION OF STOCK, ETC.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant and free from preemptive
rights other than any rights created pursuant to Section 3J of the Stock
Purchase Agreement, a sufficient number of shares of Common Stock to cover the
Warrant Shares issuable upon the exercise of this Warrant. All such shares shall
be duly authorized and, when issued upon such exercise, shall be validly issued,
fully paid and non-assessable with no liability on the part of the holders
thereof.
Section 7. DUE ORGANIZATION; NO VIOLATION.
7.1 The Company shall at all times be a corporation duly organized
and existing and in good standing under the laws of its state of incorporation.
7.2 The Company shall not be in violation of (i) any applicable
statute, regulation or ordinance (including, without limitation the Internal
Revenue Code) of any federal, state, local or other jurisdiction, or any agency
thereof, in any respect materially and adversely affecting its financial or
business condition, and (ii) any material indenture, mortgage, deed, agreement,
instrument or document to which it is or may become a party or by which it is or
may become bound; provided, however, that the Company may exercise in good faith
-------- -------
its right to protest and actively pursue the same diligently and by appropriate
proceedings.
7.3 The Certificate of Incorporation or by-laws of the Company
shall not, without the prior written consent of the Holder, be amended to (i)
authorize shares of Capital Stock in addition to the shares described in Section
8, (ii) create a classified board of directors or provide for terms for
directors in excess of one year, or (iii) provide for preemptive rights with
respect to any shares of Capital Stock.
12
<PAGE>
SECTION 8. ISSUANCE OF COMMON STOCK; COMPANY'S REPRESENTATION.
The Company represents and warrants that its authorized, issued and
outstanding Capital Stock as of the date hereof consists solely of 9,000,000
shares of Class A Stock of which 110,410 shares are issued and outstanding,
500,000 shares of Class B Stock of which 8,340 shares are issued and outstanding
and 500,000 shares of 6% Redeemable Preferred Stock of which 18,125 shares are
issued and outstanding and that it has no other Capital Stock, authorized,
issued or outstanding. All of the shares of issued and outstanding Capital Stock
of the Company are duly authorized, validly issued, fully paid and nonassessable
and are not subject to any preemptive rights of stockholders. There are no
outstanding options, warrants or other rights to acquire from the Company any
shares of its Capital Stock, other than this Warrant and the warrant issued to
Primus pursuant to the Purchase Agreement and the Company's employee stock
option plans.
SECTION 9. OWNERSHIP; REGISTRATION OF TRANSFER; EXCHANGE AND SUBSTITUTION
OF WARRANT.
9.1 OWNERSHIP OF WARRANT. Until due presentment for registration, the
Company may treat the Person in whose name this Warrant is registered on the
register kept at the Company's principal office as the owner and holder thereof
for all purposes, notwithstanding any notice to the contrary, except that, if
and when this Warrant is properly assigned to another Person, the Company may
(but shall not be obligated to) treat such Person as the owner of this Warrant
for all purposes, notwithstanding any notice to the contrary. Subject to the
foregoing provisions and to Section 4, this Warrant, if properly assigned, may
be exercised by the assignee without first having a new Warrant issued.
9.2 REGISTRATION OF TRANSFERS. SUBJECT TO Section 4 hereof, the
Company shall register the transfer of this Warrant permitted under the terms
hereof upon records to be maintained by the Company for that purpose, upon
surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at the Company's principal office. Upon any
such registration of transfer, a new Warrant, in substantially the form of this
Warrant, shall be issued to the transferee.
9.3 REPLACEMENT OF WARRANT CERTIFICATE. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and upon delivery of indemnity reasonably
satisfactory to the Company in form and amount, or, in the case of any such
mutilation, upon surrender of this Warrant for cancellation at the Company's
principal office, the Company at its expense will promptly execute and deliver,
in lieu thereof, a new Warrant of like tenor.
9.4 EXPENSES. The Company will pay all expenses, taxes (other than
transfer and income taxes) and other charges payable by the Holder in connection
with the preparation, issuance and delivery from time to time of this Warrant or
the Warrant Shares.
13
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SECTION 10. REGISTRATION RIGHTS.
The Holder's Warrants and/or Purchase Shares shall have registration
rights as provided in the Registration Agreement dated as of the date hereof by
and between the Holder and the Company.
SECTION 11. PUT OPTION.
11.1 PUT OPTION EXERCISE PERIOD. Unless and until an Initial
Public Offering has occurred, the Holder shall have the option (the "Put
Option") to require the Company to purchase all, but not less than all, of the
Warrants or Warrant Shares and Purchase Shares, if any, at any time within two
years after a Put Event has occurred.
11.2 MANNER OF EXERCISE. The Put Option may be exercised by the
Holder giving written notice to the Company that the Holder elects to sell the
Warrant or Warrant Shares and Purchase Shares then held by the Holder to the
Company ("Put Date") at the repurchase price set forth in Section 11.3 (the
"Repurchase Price"). Such written notice of election by the Holder shall be
irrevocable. Upon final determination of the Repurchase Price as set forth in
Section 11.3, the Company shall be required to repurchase the Warrant or Warrant
Shares and Purchase Shares, if any, then held by the Holder. The Company shall
not be obligated to repurchase the Warrant, Warrant Shares or Purchase Shares,
if any, if the Company shall be unable to do so without a breach or violation of
the provisions of applicable law. Notwithstanding the foregoing, the Company
shall use its best efforts to remove all limitations upon its ability to
repurchase the Warrant or Warrant Shares and Purchase Shares, if any, such
obligation shall remain a continuing obligation of the Company and the Company
shall repurchase the Warrant or Warrant Shares and Purchase Shares, if any,
immediately after all such limitations have been removed.
11.3 THE REPURCHASE PRICE. The Repurchase Price per share shall
be equal to the Valuation Amount divided by the number of shares of Outstanding
Common Stock determined as of the date of the notice of exercise of the Put
Option.
11.4 CLOSING AND PAYMENT. The closing for the repurchase of the
Warrant or Warrant Shares and Purchase Shares, if any, by the Company pursuant
to this Section 11 shall occur within ten (10) Business Days following the date
of the determination of the Repurchase Price which shall be payable by the
Company by delivery of a certified or cashiers' check to the Holder.
SECTION 12. EXCHANGE FOR CLASS A STOCK.
The Company shall, at any time, upon the written request of Holder, issue
and exchange shares of Class A Stock on a share-for-share basis for Warrant
Shares issued upon exercise of or acquired pursuant to this Warrant and/or
Purchase Shares to the extent that the Holder:
(i) sells such Warrant Shares and/or Purchase Shares pursuant to
a public offering under a registration statement under the
Securities
14
<PAGE>
Act provided that such offering is
underwritten on a firm commitment basis
or otherwise provides for a widely
dispersed distribution of the shares;
(ii) sells such Warrant Shares and/or
Purchase Shares in a private placement
pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act,
provided that no purchaser or related
group of purchasers acquires more than 2
% of the outstanding shares of Class A
Stock;
(iii) sell such Warrant Shares and/or Purchase
Shares as part of a direct sale,
together with other shareholders of the
Company, to a third party that is not
related to or affiliated with the
Holder, provided that pursuant to such
sale the purchaser acquires at least a
majority of the outstanding Class A
Stock without regard to any shares
purchased from the Holder;
(iv) the Holder, together with its
Affiliates, would not own or have the
right to receive upon exercise of the
Warrants or otherwise, more than 4.9% of
the Class A Stock that would be
outstanding immediately after such
exchange; or
(v) immediately after such exchange, the
Holder, together with its Affiliates and
any Group of Persons of which it or any
of its Affiliates is a member, would not
exercise or control the exercise,
directly or indirectly, through the
ownership of Capital Stock of the
Company, by contract or otherwise, more
than 4.9% of the aggregate Voting Power
of the Company.
SECTION 13. NO RIGHTS OR LIABILITIES AS STOCKHOLDER.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder any rights as a stockholder of the Company or as imposing any
liabilities on the Holder to purchase any securities or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by creditors of
the Company.
SECTION 14. NOTICES.
All notices and other communications provided for herein shall be mailed
by first class mail, postage prepaid, addressed (a) if to the Holder, at the
registered address of the Holder as set forth in the register kept at the
Company's office, or (b) if to the Company, at its principal office, being on
the date of original issuance of this Warrant, 1732 Reynolds Street, Irvine,
California 92714, or at such other address of which the Company shall have given
written notice to the Holder, provided that the exercise of this Warrant shall
--------
be effective if effected in the manner provided in Section 2.
15
<PAGE>
SECTION 15. MISCELLANEOUS.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be governed by the laws of the State of Ohio. The headings in this
Warrant are inserted for convenience only and shall not be deemed to constitute
a part hereof.
SECTION 16. EXPIRATION.
The right to exercise this Warrant and all other rights and obligations
hereunder shall expire on the Warrant Exercise Expiration Date.
SECTION 17. ASSIGNMENT.
The Holder may not assign or otherwise transfer this Warrant or any of its
rights hereunder without the express written consent of the Company, which will
not be unreasonably withheld. Any transferee of Warrant Shares exceeding less
than all of the Warrant Shares shall not be entitled to any rights hereunder and
any transferee of all of the Warrant Shares shall only be entitled to such
rights as provided in the foregoing sentence.
CORINTHIAN SCHOOL, INC.
/s/ David G. Moore
BY:------------------------
David G. Moore, President
16
<PAGE>
NOTICE OF EXERCISE
CORINTHIAN SCHOOLS, INC.
The undersigned, hereby elects to exercise the Warrant evidenced by this
Warrant Certificate, and to purchase thereunder, the shares covered by said
Warrant Certificate and herewith makes payment in full therefor [by delivery
herewith of a certified or official bank check payable to the order of the
Company in the amount of $________________________________________] [by agreeing
hereby to reduce the outstanding principal balance of the Company's Subordinated
Secured Note payable to the undersigned by the amount of $___________________]
and requests that certificates for such shares be issued in the name of and
delivered to __________________, whose address is ____________________________.
___________________________________
Signature guaranteed:
___________________________________
Dated:
17
<PAGE>
FORM OF ASSIGNMENT
FOR VALUED RECEIVED,_______________ hereby sells, assigns and transfers
to the ______________ all of the rights of the undersigned in and to this
Warrant, the foregoing Warrant Certificate with respect to said Warrant and the
shares of Common Stock issuable upon exercise of said Warrant.
Name of Holder
(Print):___________________________
Dated:_____________________________
(By:)______________________________
(Title:)___________________________
18
<PAGE>
EXHIBIT 10.9
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS
THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING
SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER
FROM THE COMMISSION STATING THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT,
HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND LAWS.
_____________________________________
CORINTHIAN SCHOOLS, INC.
WARRANT CERTIFICATE
CLASS A COMMON STOCK PURCHASE WARRANT
_____________________________________
Dated as of June 30, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Definitions........................................................................ 1
Section 2. Duration and Exercise of Warrant................................................... 8
2.1 Warrant Exercise Period............................................................ 8
2.2 Manner of Exercise................................................................. 8
2.3 When Exercise Effective............................................................ 8
2.4 Delivery of Stock Certificates, etc................................................ 9
Section 3. Antidilution Adjustment............................................................ 9
3.1 Number of Warrant Shares........................................................... 9
3.2 Adjustment Event................................................................... 9
3.3 Reorganization Event............................................................... 9
3.4 Other Event........................................................................ 9
3.5 Rights Offering.................................................................... 10
3.6 Preemptive Rights.................................................................. 10
Section 4. Restrictions on Transfer........................................................... 11
4.1 Restrictive Legends................................................................ 11
4.2 Notice of Proposed Transfer; Opinions of Counsel................................... 11
Section 5. Availability of Information........................................................ 12
Section 6. Reservation of Stock, Etc.......................................................... 12
Section 7. Due Organization; No Violation..................................................... 13
Section 8. Issuance of Common Stock; Company's Representation................................. 13
Section 9. Ownership; Registration of Transfer; Exchange and Substitution of
Warrant........................................................................... 13
9.1 Ownership of Warrant............................................................... 13
9.2 Registration of Transfers.......................................................... 14
9.3 Replacement of Warrant Certificate................................................. 14
9.4 Expenses............................................................................ 14
Section 10. Registration Rights................................................................ 14
Section 11. Put Option......................................................................... 14
11.1 Put Option Exercise Period......................................................... 14
11.2 Manner of Exercise................................................................. 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
11.3 The Repurchase Price............................................................... 15
11.4 Closing and Payment................................................................ 15
Section 12. No Rights or Liabilities as Stockholder............................................ 15
Section 13. Notices............................................................................ 15
Section 14. Miscellaneous...................................................................... 15
Section 15. Expiration......................................................................... 15
Section 16. Assignment......................................................................... 15
</TABLE>
ii
<PAGE>
WARRANT CERTIFICATE
Dated as of June 30, 1995
This certifies that, for value received, PRIMUS CAPITAL FUND III LIMITED
PARTNERSHIP (the "Holder") an Ohio limited partnership, is entitled, subject to
the terms set forth below, to purchase from CORINTHIAN SCHOOLS, INC., (the
"Company") a Delaware corporation in a single exercise 1,250 shares of the Class
A Voting Common Stock, $.01 par value ("Class A Stock"), of the Company at the
principal office of the Company, with the Notice of Exercise attached hereto
duly executed, and simultaneous payment therefor in lawful money of the United
States or otherwise as hereinafter provided, for the aggregate purchase price of
$100 ("Price").
This Warrant is being issued by the Company pursuant to the Subordinated
Secured Note and Warrant Purchase Agreement dated as of the date hereof, by and
among the Company, as seller, and Banc One Capital Partners II, Limited
Partnership ("BOCP II") and the Holder, as purchasers ("Purchase Agreement").
SECTION 1. DEFINITIONS.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings (the definitions to be applicable to both
the singular and the plural forms of the terms defined where either such form is
used in this Warrant).
1.1 "Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Original Issue Date other than Warrant
Shares and shares issued under the Company's employee stock option plans.
1.2 "Adjusted Permitted Indebtedness" means, as determined as of
any date (i) the aggregate principal amount of all Permitted Indebtedness,
excluding (ii) the aggregate principal amount of the Senior Loans outstanding as
of such date of determination.
1.3 "Adjustment Event" means any of the following events (except if
such event also constitutes a Preemption Offering, under which circumstances
this Section 1.3 and Sections 3.1 through 3.5 shall not apply):
(i) the Company declares a dividend or makes a distribution on
its Outstanding Common Stock in Common Stock or
Convertible Securities, or
(ii) the Company subdivides or reclassifies any of its
outstanding Common Stock into a greater number of shares,
or
(iii) the Company combines or reclassifies any of its
outstanding Common Stock into a smaller number
of shares; or
<PAGE>
(iv) any "5% Shares" or "2.5% Shares" (as each such term is
defined in separate Executive Stock Agreements, each date
as of the date hereof, by and between the Company and an
executive of the Company) become vested.
1.4 "Affiliate" shall have the meaning set forth in the Purchase
Agreement.
1.5 "Appraiser" means, with respect to any determination of the
Fair Market Value Amount, an independent appraiser (which shall be an accounting
firm or investment banking firm that is not an Affiliate of either the Company
or the Holder) selected in the manner provided for in this definition. Within
ten (10) days after the exercise of the Put Option, the Company and the Holder
shall endeavor in good faith to select a mutually acceptable Appraiser. If no
such Appraiser is mutually selected within such time period or such longer time
period as the Company and the Holder shall mutually agree upon, then within ten
(10) days thereafter, the Company and the Holder shall each designate an
investment banking firm that is not an Affiliate of either the Company or the
Holder, and within ten (10) days thereafter, such investment banking firms shall
mutually select the Appraiser. The Company shall pay the reasonable fees and
expenses of the Appraiser, and, if applicable, the Company and the Holder shall
each pay the fees and expenses of the investment banking firm designated by each
of them for the purpose of selecting the Appraiser.
1.6 "BOCP II" means Banc One Capital Partners II, Limited
Partnership, together with its successors and assigns.
1.7 "Business Day" means, any day other than a Saturday, Sunday or
day upon which banking institutions are authorized or required by law or
executive order to be closed in the City of Columbus, Ohio.
1.8 "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such Person
or partnership interests and any warrants, options or other rights to acquire
such stock or interests.
1.9 "Capitalized Earnings Amount" means, as of any date of
determination, an amount equal to four (4) times EBITDA (i) reduced by an amount
sufficient to pay in full all of the then outstanding Adjusted Permitted
Indebtedness (including all accrued but unpaid interest with respect thereto),
and (ii) increased by the average amount of cash and marketable securities
reflected on the most recent Financial Statements of the Company as of the date
of determination.
1.10 "Change of Control" means (i) an event or series of events by
which any Person or Persons or other entities acting in concert as a partnership
or other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of the Company, (ii) the Company is merged with or into another
corporation with
2
<PAGE>
the effect that immediately after such transaction the stockholders of the
Company immediately prior to such transaction hold less than a majority of the
combined Voting Power of the Person surviving the transaction, or (iii) the
direct or indirect, sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company to any Person or Group of
Persons.
1.11 "Class A Stock" means the shares of voting common stock, $.01
par value, of the Company at any time outstanding.
1.12 "Class B Stock" means the shares of non-voting common stock,
$.01 par value of the Company at any time outstanding.
1.13 "Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
1.14 "Company" means Corinthian Schools, Inc., a Delaware
corporation, and includes any corporation which shall succeed to or assume the
obligations of the Company.
1.15 "Common Stock" means the shares of Class A Stock and Class B
Stock treated as a single class of stock, at any time outstanding.
1.16 "Convertible Securities" means evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for, with or without payment of additional consideration in cash or property, or
options, warrants or other rights that are exercisable for, shares of Common
Stock that, when issued, would constitute Additional Shares of Common Stock,
either immediately or upon the occurrence of a specified date or a specified
event, but excluding the shares of Common Stock issuable upon exercise of the
Warrants.
1.17 "Disposition" means (i) a merger, consolidation or other
business combination in which the Company is the surviving entity and the
Company's stockholders receive cash or non-cash consideration in exchange for or
in respect of their shares of Capital Stock of the Company or (ii) the sale,
lease, conveyance, transfer or other disposition (other than the grant of a
security interest) in any single transaction or series of related transactions
of all or substantially all of the assets of the Company.
1.18 "EBITDA" means, as determined as of any date, earnings of the
Company (as reflected on the most recent Financial Statements for the twelve-
month period ended immediately prior to any such date of determination
determined excluding all amounts expensed as reflected on such Financial
Statements during such twelve-month period with respect to (i) interest expense
with respect to Permitted Indebtedness, (ii) federal and state income tax
expense, (iii) depreciation expense, and (iv) amortization expense.
1.19 "Event of Default" shall have the meaning set forth in the
Purchase Agreement.
1.20 "Fair Market Value Amount" means, as of the date of any Put
Event with respect to which either the Company or the Holder by written notice
within ten (10) days after
3
<PAGE>
such date to the other requests a determination of such amount, the fair market
value of the then Outstanding Common Stock as determined by the Appraiser
assuming the sale of such Outstanding Common Stock by a willing seller to a
willing buyer immediately after giving effect to (i) the redemption in full of
all the outstanding Preferred Stock at the applicable Redemption Price, and (ii)
the payment in full of all outstanding Permitted Indebtedness, and determined
without giving consideration to the tax consequences of such sale to the seller.
1.21 "Financial Statements" means the Annual Financial Statements,
Quarterly Financial Statements and Monthly Financial Statements (all as defined
in the Purchase Agreement), as applicable, of the Company.
1.22 "Group of Persons" is defined in Section 1.10 hereof.
1.23 "Holder" means Primus Capital Fund III Limited Partnership, an
Ohio limited partnership, together with its successors and assigns.
1.24 "Indebtedness" means, with respect to the Company, as of any
date of determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.25 "Initial Public Offering" means the first offer and sale to the
public by the Company or any holders of shares of any class of its Capital
Stock, pursuant to a registration statement that has been declared effective by
the Commission; provided, however, that the gross proceeds of the shares issued
and sold by the Company are at least $10,000,000.
1.26 "Market Determined Value Amount" means, with respect to the
date of any Put Event, the fair market value of the then Outstanding Common
Stock determined in good faith in connection with a Trigger Event the closing of
which has occurred within six (6) months immediately preceding the date of the
Put Event or that will occur pursuant to an agreement or a binding letter of
intent in effect as of the date of the Put Event and assuming (i) the redemption
in full of all the outstanding Preferred Stock at the applicable Redemption
Price and, (ii) the payment in full of all outstanding Permitted Indebtedness,
and determined without giving consideration to the tax consequences of such sale
to the seller.
1.27 "Non-Surviving Combination" means any merger, consolidation or
other business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity.
1.28 "Notes" means the Subordinated Secured Note due June 30, 2000
in the principal amounts of $500,000 issued and sold to the Holder and the
Subordinated Secured Note
4
<PAGE>
due June 30, 2000 in the principal amount of $2,000,000 issued and sold to BOCP
II by the Company pursuant to the terms of the Purchase Agreement.
1.29 "Number of Warrant Shares" shall have the meaning set forth in
Section 3.1.
1.30 "Original Issue Date" means the date on which this Warrant and
the Note were first issued pursuant to the Purchase Agreement.
1.31 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable under
the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date shall be adjusted in accordance with the "treasury stock" method determined
under generally accepted accounting principles pursuant to Accounting Principles
Board Opinion 15.
1.32 "Permitted Indebtedness" means, as of any date of determination
the aggregate principal amount of all Indebtedness of the Company outstanding as
of such date of determination, but only to the extent that the principal amount
of such Indebtedness does not exceed the amounts permitted under the Purchase
Agreement.
1.33 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, estate, unincorporated organization
or government or any agency or political subdivision thereof.
1.34 "Preemption Offering" means any proposed issuance and sale by
the Company after the Original Issue Date and prior to the date of the Initial
Public Offering of any shares of Common Stock or any Convertible Securities
other than the following:
(i) the issuance of the Warrant Shares subject to this Warrant
and shares of Common Stock subject to the other warrants;
(ii) the issuance or sale of Common Stock pursuant to a rights
offering in which the holder hereof elects to participate
under the provisions of Section 3.5;
(iii) the issuance or sale of Common Stock or Convertible
Securities in connection with the acquisition by the
Company of a business, which issuance or sale has been
approved by a unanimous vote of the Board of Directors of
the Company; or
5
<PAGE>
(iv) the issuance or sale of Common Stock pursuant to any
employee stock option plan of the Company which has been
consented to in writing by the Holder.
1.35 "Preferred Stock" means any shares of Capital Stock of the
Company ranking senior to the Common Stock with respect to dividends or
liquidation including, without limitation, the shares of 6% Redeemable Preferred
Stock, $1.00 par value, of the Company.
1.36 "Price" means One Hundred Dollars ($100), which is the exercise
price for all of the Warrant Shares subject to this Warrant.
1.37 "Purchase Agreement" means the Subordinated Secured Note and
Warrant Purchase Agreement, dated as of the date hereof among the Company as
seller and BOCP II and the Holder as purchasers.
1.38 "Purchase Shares" means, as of any date of determination, any
shares of Common Stock purchased by the Holder prior to such date of
determination pursuant to the exercise of its rights under Section 3.5 or
Section 3.6 hereof, or directly from the Company in any other transaction after
the Original Issue Date. For purposes of this definition, Purchase Shares shall
include any shares of Common Stock issuable upon the conversion of any
Convertible Securities purchased by the Holder pursuant to the exercise of its
rights under Section 3.5 and Section 3.6 hereof.
1.39 "Put Date" shall have the meaning set forth in Section 11.2.
1.40 "Put Event" means the earlier to occur of the following:
(i) the fifth anniversary of the Original Issue Date;
(ii) an Event of Default has occurred with respect to the Notes
and has not been cured;
(iii) a Change of Control; or
(iv) a Non-Surviving Combination.
1.41 "Put Option" shall have the meaning set forth in Section 11.1.
1.42 "Redemption Price" means the liquidation value with respect to
the Preferred Stock plus all accrued and unpaid dividends.
1.43 "Reorganization Event" means any of the following events:
(i) capital reorganization or reclassification or
recapitalization of the Capital Stock of the Company
(other than any Adjustment Event);
6
<PAGE>
(ii) any merger or consolidation of the Company with or into
another corporation; and
(iii) the sale or transfer of the property of the Company as an
entirety or substantially as an entirety.
1.44 "Repurchase Price" shall have the meaning set forth in Section
11.3.
1.45 "Restricted Securities" means (a) any Warrant bearing the
applicable legend set forth in Section 4.1, (b) any Warrant Shares which are
evidenced by a certificate or certificates bearing the legend set forth in
Section 4.1, and (c) unless the context otherwise requires, any shares of Common
Stock which are at the time issuable upon the exercise of any Warrant and which,
when so issued, will be evidenced by a certificate or certificates bearing the
legend set forth in section 4.1.
1.46 "Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute replacing said statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.47 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar Federal statute replacing said statute, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
1.48 "Senior Loans" means (i) loans outstanding under the Credit
Agreement dated as of June 30, 1995 among the Company and BOCP II, as modified,
amended, restated, renewed or extended from time to time and (ii) any extension,
renegotiation or refinancing of such loans with BOCP II or any other lender;
provided, however, that, in any event, for purposes of this Warrant, the
aggregate outstanding principal amount of the Senior Loans shall be deemed not
to exceed $5,000,000.
1.49 "Stock Purchase Agreement" means the Purchase Agreement dated
as of June 30, 1995, among the Company, BOCP II and the Holder.
1.50 "Transfer" means with respect to any Restricted Securities, any
sale, assignment, pledge or other disposition thereof, or of any interest
therein, which could constitute a "sale" thereof, as that term is defined in
Section 2(3) of the Securities Act.
1.51 "Trigger Event" means any of the following events: (i) an
Initial Public Offering; (ii) a Change of Control; (iii) a Disposition; or (iv)
a Non-Surviving Combination.
1.52 "Valuation Amount" means, as of any date of determination, the
Capitalized Earnings Amount, unless (i) a greater Fair Market Value Amount has
been determined, or (ii) a greater Market Determined Value Amount is
determinable with respect to such date of determination, in which case
"Valuation Amount" means the greater amount (if applicable).
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1.53 "Voting Power" of any Person means the aggregate number of
votes of all classes of Capital Stock of such Person which ordinarily has voting
power for the election of the Board of Directors or their equivalents of such
Person.
1.54 "Warrant Exercise Expiration Date" means that date which is the
earliest of (i) the time immediately prior to the completion by the Company of
an Initial Public Offering, (ii) the date on which a Disposition or Non-
Surviving Combination is consummated, and (iii) June 30, 2004.
1.55 "Warrant" mean this Warrant.
1.56 "Warrant Shares" means the shares of Class A Stock issuable
upon exercise of this Warrant.
SECTION 2. DURATION AND EXERCISE OF WARRANT.
2.1 WARRANT EXERCISE PERIOD. This Warrant shall be exercisable in a
single exercise at any time after the date hereof and on or before the Warrant
Exercise Expiration Date.
2.2 MANNER OF EXERCISE. This Warrant may be exercised by the Holder
in a single exercise upon surrender of this Warrant and Notice of Exercise
attached hereto duly completed and executed on behalf of the Holder, at the
principal office of the Company (or at such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company), upon payment of the Price by
delivery of a certified or cashier's check to the Company. The Holder may, in
lieu of paying the Price by delivery of a certified or cashier's check to the
Company, reduce the unpaid principal amount of the Notes by an amount equal to
the funds which would otherwise have been delivered.
2.3 WHEN EXERCISE EFFECTIVE. Subject to the requirements of any
state or federal finance company licensing laws or regulations to which the
Company may be subject, the exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the Business Day on
which this Warrant shall have been surrendered and the Company receives payment
of the Price as provided in Section 2.2, and immediately prior to the close of
business on such Business Day the Holder shall be deemed to have become the
holder of record of the Warrant Shares.
2.4 DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable
after the exercise of this Warrant, and in any event within five (5) Business
Days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction (calculated to the nearest 1/100th of a share)
of one full share of Common Stock based
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on the Capitalized Earnings Amount on the Business Day next preceding the date
of such exercise.
SECTION 3. ANTIDILUTION ADJUSTMENT.
3.1 NUMBER OF WARRANT SHARES. The number of Warrant Shares that may
be purchased by the Holder in consideration of the payment of the Price is
initially 1,250 shares of Class A Stock; provided, however, that such number of
shares is subject to adjustment as provided for in this Section 3, which number
of Warrant Shares, as so adjusted from time, to time is referred to as the
"Number of Warrant Shares." The Price is not subject to adjustment.
3.2 ADJUSTMENT EVENT. Upon the occurrence of any Adjustment Event,
the Number of Warrant Shares shall be adjusted immediately after the applicable
record date with respect to such Adjustment Event as follows. The adjusted
Number of Warrant Shares shall be a number equal to the Number of Warrant Shares
immediately prior to such event multiplied by a fraction (i) the numerator of
which is the number of shares of Outstanding Common Stock immediately after the
record date with respect to such Adjustment Event, and (ii) the denominator of
which is the number of shares of Outstanding Common Stock immediately before
such record date. Any such adjustment shall be calculated to the nearest 0.001
Warrant Share.
3.3 REORGANIZATION EVENT. Upon the occurrence of a Reorganization
Event, there shall thereafter be issuable or deliverable upon the exercise of
this Warrant (in lieu of the Warrant Shares), as appropriate, the number of
shares of stock, other securities or property to which the Holder of the number
of shares of Common Stock equal to the Number of Warrant Shares at the date of
the Reorganization Event would have been entitled to as a result of such
Reorganization Event.
Prior to and as a condition of the consummation of any Reorganization
Event, the Company shall cause effective provisions to be made to effect the
purposes of this Section 3.3, including, if appropriate, an agreement among the
Company, any successor to the Company and the Holder.
3.4 OTHER EVENT. In case any event shall occur as to which the
other provisions of this Section 3 are not strictly applicable but the failure
to make any adjustment would not fairly protect the purchase rights represented
by this Warrant in accordance with the essential intent and principles hereof,
then the Holder may request in writing within one hundred twenty (120) days
after the occurrence of such event that the Company examine the propriety of an
adjustment to the Number of Warrant Shares. Unless the Company and the Holder
shall have mutually agreed upon an adjustment, or that no adjustment is
required, within thirty (30) days after the receipt of such request, the Company
shall appoint a firm of independent certified public accountants of recognized
national standing (which may be the regularly engaged accountants of the
Company), to give an opinion upon the adjustment, if any, on a basis consistent
with the essential intent and principles established in this Section 3,
necessary to preserve, the purchase rights represented by this Warrant. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to the
holder of this Warrant and shall make the
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adjustments described therein. If such opinion states that no such adjustment is
necessary, the holder hereof shall reimburse the Company for one-half of the
cost and expense of such opinion.
3.5 RIGHTS OFFERING. In the event the Company shall effect an
offering of Common Stock or Convertible Securities pro rata among its
stockholders, the Holder shall be entitled, at its option, to elect to
participate in each and every such offering as if this Warrant had been
exercised and such Holder were, at the time of any such rights offering, then a
holder of that number of shares of Common Stock to which such holder is then
entitled on the exercise hereof.
3.6 PREEMPTIVE RIGHTS. In the event of any Preemption Offering, (i)
the Company shall notify the Holder in writing of the number of shares of Common
Stock or Convertible Securities subject to such Preemption Offering and the cash
or cash equivalent purchase price (determined by the Board of Directors of the
Company in good faith) thereof, and (ii) the Holder shall have the right for a
period of thirty (30) days following the consummation of such Preemption
Offering to purchase (A) prior to the exercise of this Warrant, up to that
number of shares of Common Stock or Convertible Securities that is sufficient to
permit the Holder to maintain the percentage of shares of Outstanding Common
Stock which the Holder owns or would be entitled to purchase upon exercise of
this Warrant and after giving effect to such purchase and the sale of all
remaining shares subject to such Preemption Offering, and (B) after the exercise
of this Warrant, up to that percentage of such shares of Common Stock or
Convertible Securities determined by dividing (a) the total number of shares of
Common Stock then owned by the Holder, and (b) the total number of shares of
Outstanding Common Stock.
The Holder shall have the right, during the period specified in the
Preemption Offering, to purchase any or all of the new shares that it is
entitled to purchase under this provision at the purchase price and on the terms
stated in the Preemption Offering. Notice by the Holder of its acceptance, in
whole or in part, of the Preemption Offering shall be in writing and signed by
the Holder and shall be delivered to the Company prior to the end of the period
specified in the Preemption Offering, setting forth the number of new shares of
Common Stock the Holder elects to purchase. With respect to any of the new
shares of Common Stock not purchased by the Holder hereunder, the Company may
during the period of sixty (60) days following the date of expiration of the
Preemption Offering sell to any other person or persons all or any part of such
shares, but only on terms and conditions that are no more favorable to such
person or persons or less favorable to the Company than those set forth in the
Preemption Offering.
SECTION 4. RESTRICTIONS ON TRANSFER.
4.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Section 4, this Warrant and each Warrant issued in exchange or substitution for
any Warrant, and each Warrant issued upon the registration of transfer of any
Warrant and each certificate representing Warrant Shares and each certificate
issued upon the registration of transfer of any Warrant Shares, shall be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
10
<PAGE>
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD,
TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A
REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR
THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER FROM
THE COMMISSION INDICATING THAT SUCH DISTRIBUTION, SALE, TRANSFER,
ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS."
4.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to any
transfer of any Restricted Securities, the Holder will give written notice to
the Company of the Holder's intention to effect such transfer and to comply in
all other respects with this Section 4.2. Each such notice of a proposed
transfer (a) shall describe the manner and circumstances of the proposed
transfer in sufficient detail to enable counsel to render the opinion referred
to below, and (b) shall designate counsel for the Holder. The Holder will submit
a copy thereof to the counsel designated in such notice and the Company will
promptly submit a copy thereof to its counsel. The following provisions shall
then apply:
(i) If in the opinion of counsel to the Company the proposed
transfer may be effected without registration of such
Restricted Securities under the Securities Act, the
Company will promptly notify the Holder and the Holder
shall thereupon be entitled to transfer such Restricted
Securities in accordance with the terms of the notice
delivered by the Holder to the Company. Each Warrant or
certificate, if any, issued upon or in connection with
such transfer shall bear the restrictive legend set forth
in section 4.1, unless in the opinion of such counsel such
legend is no longer required to ensure compliance with the
Securities Act. If for any reason counsel for the Company
(after having been furnished with the information required
to be furnished by clause (a) of this Section 4.2) shall
fail to deliver an opinion to the Company, or the Company
shall fail to notify the Holder as aforesaid, within
thirty (30) days after receipt of notice of the Holder's
intention to effect a transfer, then for all purposes of
this Warrant the opinion of counsel for the Holder shall
be sufficient to authorize the proposed transfer and the
opinion of counsel for the Company shall not be required
in connection with such proposed transfer; and
(ii) If in the opinion of counsel to the Company the proposed
transfer may not be effected without registration of such
Restricted Securities under the Securities Act, the
Company will promptly so notify the Holder and the Holder
shall not be entitled to transfer such Restricted
Securities until receipt of a further notice from the
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Company under clause (i) above or until registration of
such Restricted Securities under the Securities Act has
become effective.
SECTION 5. AVAILABILITY OF INFORMATION.
Within ninety (90) days after a registration statement under the Securities
Act is declared effective with respect to an Initial Public Offering, the
Company will comply with the reporting requirements of Sections 13 and 15(d) of
the Securities Exchange Act insofar as they are applicable to the Company and
will comply with all other public information reporting requirements of the
Commission (including the requirements of Rule 144 promulgated by the Commission
under the Securities Act) from time to time in effect and relating to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities or the sale of securities by Affiliates. The Company will
also cooperate with the Holder at the Holder's expense to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Restricted Securities or the sale of securities by Affiliates.
SECTION 6. RESERVATION OF STOCK, ETC.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant and free from preemptive
rights other than any rights created pursuant to Section 3J of the Stock
Purchase Agreement, a sufficient number of shares of Common Stock to cover the
Warrant Shares issuable upon the exercise of this Warrant. All such shares shall
be duly authorized and, when issued upon such exercise, shall be validly issued,
fully paid and non-assessable with no liability on the part of the holders
thereof.
SECTION 7. DUE ORGANIZATION; NO VIOLATION.
7.1 The Company shall at all times be a corporation duly organized
and existing and in good standing under the laws of its state of incorporation.
7.2 The Company shall not be in violation of (i) any applicable
statute, regulation or ordinance (including, without limitation the Internal
Revenue Code) of any federal, state, local or other jurisdiction, or any agency
thereof, in any respect materially and adversely affecting its financial or
business condition, and (ii) any material indenture, mortgage, deed, agreement,
instrument or document to which it is or may become a party or by which it is or
may become bound; provided, however, that the Company may exercise in good faith
-------- -------
its right to protest and actively pursue the same diligently and by appropriate
proceedings.
7.3 The Certificate of Incorporation or by-laws of the Company
shall not, without the prior written consent of the Holder, be amended to (i)
authorize shares of Capital Stock in addition to the shares described in Section
8, (ii) create a classified board of directors or provide for terms for
directors in excess of one year, or (iii) provide for preemptive rights with
respect to any shares of Capital Stock.
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SECTION 8. ISSUANCE OF COMMON STOCK; COMPANY'S REPRESENTATION.
The Company represents and warrants that its authorized, issued and
outstanding Capital Stock as of the date hereof consists solely of 9,000,000
shares of Class A Stock of which 110,410 shares are issued and outstanding,
500,000 shares of Class B Stock of which 8,340 shares are issued and outstanding
and 500,000 shares of 6% Redeemable Preferred Stock of which 18,125 shares are
issued and outstanding and that it has no other Capital Stock, authorized,
issued or outstanding. All of the shares of issued and outstanding Capital Stock
of the Company are duly authorized, validly issued, fully paid and nonassessable
and are not subject to any preemptive rights of stockholders. There are no
outstanding options, warrants or other rights to acquire from the Company any
shares of its Capital Stock, other than this Warrant and the warrant issued to
BOCP II pursuant to the Purchase Agreement and the Company's employee stock
option plans.
SECTION 9. OWNERSHIP; REGISTRATION OF TRANSFER; EXCHANGE AND SUBSTITUTION
OF WARRANT.
9.1 OWNERSHIP OF WARRANT. Until due presentment for registration,
the Company may treat the Person in whose name this Warrant is registered on the
register kept at the Company's principal office as the owner and holder thereof
for all purposes, notwithstanding any notice to the contrary, except that, if
and when this Warrant is properly assigned to another Person, the Company may
(but shall not be obligated to) treat such Person as the owner of this Warrant
for all purposes, notwithstanding any notice to the contrary. Subject to the
foregoing provisions and to Section 4, this Warrant, if properly assigned, may
be exercised by the assignee without first having a new Warrant issued.
9.2 REGISTRATION OF TRANSFERS. Subject to Section 4 hereof, the
Company shall register the transfer of this Warrant permitted under the terms
hereof upon records to be maintained by the Company for that purpose, upon
surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at the Company's principal office. Upon any
such registration of transfer, a new Warrant, in substantially the form of this
Warrant, shall be issued to the transferee.
9.3 REPLACEMENT OF WARRANT CERTIFICATE. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and upon delivery of indemnity reasonably
satisfactory to the Company in form and amount, or, in the case of any such
mutilation, upon surrender of this Warrant for cancellation at the Company's
principal office, the Company at its expense will promptly execute and deliver,
in lieu thereof, a new Warrant of like tenor.
9.4 EXPENSES. The Company will pay all expenses, taxes (other than
transfer and income taxes) and other charges payable by the Holder in connection
with the preparation, issuance and delivery from time to time of this Warrant or
the Warrant Shares.
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SECTION 10. REGISTRATION RIGHTS.
The Holder's Warrants and/or Purchase Shares shall have registration rights
as provided in the Registration Agreement dated as of the date hereof by and
between the Holder and the Company.
SECTION 11. PUT OPTION.
11.1 PUT OPTION EXERCISE PERIOD. Unless and until an Initial Public
Offering has occurred, the Holder shall have the option (the "Put Option") to
require the Company to purchase all, but not less than all, of the Warrants or
Warrant Shares and Purchase Shares, if any, at any time within two years after a
Put Event has occurred.
11.2 MANNER OF EXERCISE. The Put Option may be exercised by the
Holder giving written notice to the Company that the Holder elects to sell the
Warrant or Warrant Shares and Purchase Shares then held by the Holder to the
Company ("Put Date") at the repurchase price set forth in Section 11.3 (the
"Repurchase Price"). Such written notice of election by the Holder shall be
irrevocable. Upon final determination of the Repurchase Price as set forth in
Section 11.3, the Company shall be required to repurchase the Warrant or Warrant
Shares and Purchase Shares, if any, then held by the Holder. The Company shall
not be obligated to repurchase the Warrant, Warrant Shares or Purchase Shares,
if any, if the Company shall be unable to do so without a breach or violation of
the provisions of applicable law. Notwithstanding the foregoing, the Company
shall use its best efforts to remove all limitations upon its ability to
repurchase the Warrant or Warrant Shares and Purchase Shares, if any, such
obligation shall remain a continuing obligation of the Company and the Company
shall repurchase the Warrant or Warrant Shares and Purchase Shares, if any,
immediately after all such limitations have been removed.
11.3 THE REPURCHASE PRICE. The Repurchase Price per share shall be
equal to the Valuation Amount divided by the number of shares of Outstanding
Common Stock determined as of the date of the Put Event.
11.4 CLOSING AND PAYMENT. The closing for the repurchase of the
Warrant or Warrant Shares and Purchase Shares, if any, by the Company pursuant
to this Section 11 shall occur within ten (10) Business Days following the date
of the determination of the Repurchase Price which shall be payable by the
Company by delivery of a certified or cashiers' check to the Holder.
SECTION 12. NO RIGHTS OR LIABILITIES AS STOCKHOLDER.
Nothing contained in this Warrant shall be construed as conferring upon the
Holder any rights as a stockholder of the Company or as imposing any liabilities
on the Holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.
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SECTION 13. NOTICES.
All notices and other communications provided for herein shall be mailed by
first class mail, postage prepaid, addressed (a) if to the Holder, at the
registered address of the Holder as set forth in the register kept at the
Company's office, or (b) if to the Company, at its principal office, being on
the date of original issuance of this Warrant, 1732 Reynolds Street, Irvine,
California 92714, or at such other address of which the Company shall have given
written notice to the Holder, provided that the exercise of this Warrant shall
--------
be effective if effected in the manner provided in Section 2.
SECTION 14. MISCELLANEOUS.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be governed by the laws of the State of Ohio. The headings in this
Warrant are inserted for convenience only and shall not be deemed to constitute
a part hereof.
SECTION 15. EXPIRATION.
The right to exercise this Warrant and all other rights and obligations
hereunder shall expire on the Warrant Exercise Expiration Date.
SECTION 16. ASSIGNMENT.
The Holder may not assign or otherwise transfer this Warrant or any of its
rights hereunder without the express written consent of the Company, which will
not be unreasonably withheld. Any transferee of Warrant Shares exceeding less
than all of the Warrant Shares shall not be entitled to any rights hereunder and
any transferee of all of the Warrant Shares shall only be entitled to such
rights as provided in the foregoing sentence.
CORINTHIAN SCHOOLS, INC.
By:/s/ David G. Moore
-----------------------------
David G. Moore, President
15
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NOTICE OF EXERCISE
CORINTHIAN SCHOOLS, INC.
The undersigned, hereby elects to exercise the Warrant evidenced by this
Warrant Certificate, and to purchase thereunder, the shares covered by said
Warrant Certificate and herewith makes payment in full therefor [by delivery
herewith of a certified or official bank check payable to the order of the
Company in the amount of $____________] [by agreeing hereby to reduce the
outstanding principal balance of the Company's Subordinated Secured Note payable
to the undersigned by the amount of $______________] and requests that
certificates for such shares be issued in the name of and delivered to _______,
whose address is ____________________.
_____________________________
Signature guaranteed:
Dated: ______________________
16
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FORM OF ASSIGNMENT
FOR VALUED RECEIVED, ______________ hereby sells, assigns
and transfers to the_____________________ all of the rights of the undersigned
in and to this Warrant, the foregoing Warrant Certificate with respect to said
Warrant and the shares of Common Stock issuable upon exercise of said Warrant.
Name of Holder
(Print): _________________________
Dated: ___________________________
(By:) ____________________________
(Title:) _________________________
17
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EXHIBIT 10.10
___________________________________________________
CORINTHIAN SCHOOLS, INC.
SECURITY AGREEMENT
___________________________________________________
Dated as of June 30, 1995
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
BACKGROUND.................................................................................................... 1
A. Purchase Agreement........................................................................................ 1
B. Senior Loans.............................................................................................. 1
STATEMENT OF AGREEMENT.............................................................................................. 2
Section 1. Defined Terms............................................................................ 2
Section 2. Grant of Security Interest............................................................... 4
Section 3. Default, Enforcement, Remedies and Application of Proceeds............................... 5
3.1 Default.................................................................................. 5
3.2 Remedies................................................................................. 5
3.3 Power of Attorney........................................................................ 7
Section 4. Warranties, Covenants and Agreements..................................................... 7
4.1 Records.................................................................................. 7
4.2 Accounting............................................................................... 7
4.3 Cooperation.............................................................................. 7
4.4 Discharge Taxes, Assessments, Etc........................................................ 8
4.5 Inventory................................................................................ 8
4.6 Maintenance of Equipment................................................................. 8
4.7 Expenses................................................................................. 8
4.8 Limitations on Dispositions of Inventory and Equipment................................... 8
4.9 Limitations on Dispositions of Accounts and Contracts.................................... 8
4.10 Location of the Collateral............................................................... 9
4.11 Negative Pledge.......................................................................... 9
4.12 Notices.................................................................................. 9
Section 5. Termination.............................................................................. 9
Section 6. Financing Statements..................................................................... 9
Section 7. Waivers.................................................................................. 10
Section 8. Security Interest Absolute............................................................... 10
Section 9. Release.................................................................................. 10
Section 10. Indemnification.......................................................................... 11
Section 11. Equalization of Amounts Received by Secured Parties...................................... 11
Section 12. Subordination by Secured Parties......................................................... 11
Section 13. Miscellaneous............................................................................ 12
13.1 Entire Agreement......................................................................... 12
13.2 Amendments and Waivers................................................................... 12
13.3 Governing Law............................................................................ 12
13.4 Severability............................................................................. 12
13.5 Third Party Beneficiaries................................................................ 12
13.6 Rules of Construction.................................................................... 12
13.7 Notices.................................................................................. 13
13.8 Assignment............................................................................... 14
</TABLE>
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<TABLE>
<S> <C>
13.9 Further Acts and Documents................................................................. 14
13.10 Counterparts............................................................................... 14
Section 14. No Personal Liability...................................................................... 14
</TABLE>
Schedule A Additional Places of Business
ii
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SECURITY AGREEMENT
This is a SECURITY AGREEMENT dated as of June 30, 1995 ("Agreement") made
by CORINTHIAN SCHOOLS, INC. ("Debtor"), a Delaware corporation, for the benefit
of BANC ONE CAPITAL PARTNERS II, LIMITED PARTNERSHIP ("BOCP II"), a Delaware
limited partnership under the Credit Facility Agreement dated as of the date
hereof ("Senior Credit Agreement") and for the benefit of BOCP II and PRIMUS
CAPITAL FUND III LIMITED PARTNERSHIP ("Primus"), an Ohio limited partnership,
under the Subordinated Secured Note and Warrant Purchase Agreement dated as of
the date hereof ("Purchase Agreement") by and among the Debtor, as seller and
BOCP II and Primus, as purchasers.
BOCP II in its capacity as lender under the Senior Credit Agreement is
referred to as the "Senior Lender." BOCP II in its capacity as a purchaser under
the Purchase Agreement and Primus are referred to collectively as the "Secured
Parties." The Debtor, Primus and BOCP II are referred to collectively as the
Parties and individually as a "Party."
BACKGROUND
A. PURCHASE AGREEMENT.
Upon the terms and subject to the conditions set forth in the Purchase
Agreement, (i) the Debtor has agreed to issue and sell Subordinated Secured
Notes due June 30, 2000 in the aggregate principal amount of $2,000,000 to BOCP
II and BOCP II has agreed to purchase such Notes; and the Debtor has agreed to
issue and sell Subordinated Secured Notes due June 30, 2000 in the aggregate
principal amount of $500,000 to Primus and Primus has agreed to purchase such
Notes (collectively, the "Notes" and individually, a "Note") and (ii) Debtor has
issued and sold warrants ("Warrants") to purchase 5,000 shares of its Class B
Common Stock, par value $.01 per share ("Class B Common"), and 1,250 shares of
its Class A Common Stock, par value $.01 per share ("Class A Common") to BOCP II
and Primus, respectively ("Warrant Shares"), and the Secured Parties have
purchased such Warrants. The Warrants are evidenced by certificates dated as of
the date hereof ("Warrant Certificates") issued to the Secured Parties.
B. SENIOR LOANS.
Pursuant to the Senior Credit Agreement, the Senior Lender has agreed to
advance up to a maximum of $2,000,000 aggregate principal amount at any one time
outstanding to the Debtor on a revolving credit basis (together with any
modifications, renewals or refinancings thereof, "Senior Loans"). Pursuant to
this Security Agreement, payment of the Senior Loans is secured by the grant by
the Debtor of a first priority security interest in all the assets herein and
all of the documents related thereto ("Collateral"), which constitute the
Collateral that is now or hereafter owned by the Debtor and payment of the
Obligations (as hereinafter defined) of the Debtor to the Secured Parties is
secured by the grant by the Debtor of a second priority security interest in
such Collateral. Pursuant to the terms of the Senior Credit Agreement, the
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note evidencing the Senior Loans must be paid in full on or before June 30,
1996. It is anticipated, however, that the Debtor will refinance its Obligations
under the Senior Credit Agreement prior to June 30, 1996, pursuant to the terms
of an agreement with a third party bank or financial institution providing for
revolving credit loans secured by the Collateral. Such agreement shall be
subject to the consent of the Purchasers, which consent shall not be
unreasonably withheld, and the lender with respect thereto shall be granted a
first perfected security interest in the Collateral on terms substantially
equivalent to those set forth in this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing, the Parties hereby agree as follows:
SECTION 1. DEFINED TERMS.
As used in this Security Agreement the following terms shall have the
following meanings, unless the context otherwise requires:
1.1 "Accounts" means any "Account," as such term is defined in
Section 9-106 of the Code which Debtor may now have or hereafter acquire.
1.2 "Agreement" means this Security Agreement as modified, amended or
restated from time to time as provided for herein.
1.3 "BOCP II" means Banc One Capital Partners II, Limited Partnership, a
Delaware limited partnership, together with its successors and assigns.
1.4 "Class A Common" shall have the meaning set forth in Paragraph A.
1.5 "CLass B Common" shall have the meaning set forth in Paragraph A.
1.6 "Code" means the Uniform Commercial Code as the same may from time to
time be in effect in the State of Ohio. The section numbers used in this
Agreement in reference to particular sections of the Code are actually the
numbers of sections of the Uniform Commercial Code as approved by the National
Conference of Commissioners on Uniform State Laws but are meant as, and are to
be construed as, references to the corresponding sections of the Ohio Uniform
Commercial Code.
1.7 "Collateral" shall have the meaning set forth in Section 2 of this
Agreement.
1.8 "Contracts" means agreements, instruments, undertakings, documents,
any right of the Debtor to payment for the sale or lease of goods, the rendering
of services, or the loaning of money which is at this time unearned, and other
agreements in or under which the Debtor may now or hereafter have any right,
title or interest.
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1.9 "Debtor" means Corinthian Schools, Inc., a Delaware corporation,
together with its successors and assigns.
1.10 "Equipment" means any "equipment," as such term is defined in Section
9-109(2) of the Code, now or hereafter owned by the Debtor, and shall also mean
and include all machinery, equipment, furnishings and fixtures now owned or
hereafter acquired by the Debtor.
1.11 "General Intangibles" means any "general intangibles" as such term is
defined in Section 9-106 of the Code, including, without limitation, all
patents, trademarks, service marks, trade names, copyrights, permits, licenses,
computer software programs, customer lists and information, and any and all
rights in intellectual property and goodwill now owned or hereafter acquired by
the Debtor.
1.12 "Instruments" means any "instruments" as such term is defined in
Section 9-109(5) of the Code, now or hereafter owned by the Debtor, wherever
located.
1.13 "Inventory" means any "inventory," as such term is defined in Section
9-109(4) of the Code, now or hereafter owned by the Debtor, wherever located,
including Inventory now owned or hereafter acquired by the Debtor or in which
the Debtor now or hereafter may acquire any right, title or interest.
1.14 "Lock Box" shall have the meaning set forth in Section 3.2(a)(iv).
1.15 "Note(s)" shall have the meaning set forth in Paragraph A.
1.16 "Obligations" means (i) all amounts owed by the Debtor to the Senior
Lender under the Senior Credit Agreement, (ii) all amounts owed by the Debtor to
the Secured Parties evidenced by the Notes, (iii) any amounts owed by the Debtor
to the Secured Parties under the terms of the Purchase Agreement, and (iv) all
other present and future indebtedness and obligations however created, arising
or evidenced, direct or indirect, absolute or contingent, due or to become due,
now or hereafter existing (other than under the Warrant Certificates).
1.17 "Parties" means the Debtor, BOCP II and Primus, collectively, and
"Party" means any one of the Parties.
1.18 "Primus" means Primus Capital Fund III Limited Partnership, an Ohio
limited partnership, together with its successors and assigns.
1.19 "Proceeds" means any "proceeds" as such term is defined in Section 9-
306 of the Code and, in any event, shall include, but not be limited to, the
following at any time whatsoever arising or receivable: (i) whatever is received
upon any collection, exchange, sale or other disposition, of any of the
Collateral, and any property into which any of the Collateral is converted,
whether cash or non-cash proceeds, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to the Debtor from time to time with
respect to any of the Collateral, (iii) any and all payments (in any form
whatsoever) made or due and payable to the Debtor from time to time in
connection with any requisition, confiscation, condemnation,
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seizure or forfeiture of all or any part of the Collateral by any governmental
authority, and (iv) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
1.20 "Purchase Agreement" means the Subordinated Secured Note and Warrant
Purchase Agreement by and among the Debtor and the Secured Parties dated as of
the date hereof as modified, amended or restated from time to time as provided
for therein.
1.21 "Secured Parties" means BOCP II and Primus in their capacities as
purchasers of the Notes and the Warrant Certificates pursuant to the Purchase
Agreement.
1.22 "Senior Credit Agreement" the Credit Facility Agreement dated as of
the date hereof between the BOCP II and the Debtor and any extension, renewal or
refinancing thereof.
1.23 "Senior Lender" means BOCP II, in its capacity as lender under the
Senior Credit Agreement, together with its successors and assigns.
1.24 "Senior Loans" shall have the meaning set forth in Paragraph B.
1.25 "Warrant Certificates" shall have the meaning set forth in Paragraph
A.
1.26 "Warrant" shall have the meaning set forth in Paragraph A.
1.27 "Warrant Shares" shall have the meaning set forth in Paragraph A.
SECTION 2. GRANT OF SECURITY INTEREST.
As security for the prompt and complete payment and performance when due of
all the Obligations and in order to induce the Senior Lender to enter into the
Senior Credit Agreement and the Secured Parties to agree to purchase the Notes
and the Warrant Certificates, the Debtor hereby grants (i) to the Senior Lender
a first priority security interest in and (ii) to the Secured Parties a second
priority interest in all real and personal property of the Debtor, including but
not limited to each the Debtor's right, title and interest in, to and under the
following, whether now owned or hereafter acquired (collectively, the
"Collateral").
(a) all Accounts;
(b) all Contracts;
(c) all Equipment;
(d) all General Intangibles;
(e) all Inventory;
(f) all Instruments;
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(g) all books and records, data processing cards, tapes, tabulating
runs, programs and similar material evidencing, securing or relating to any of
the foregoing; and
(h) to the extent not otherwise included, all Proceeds and products
of any or all of the foregoing.
SECTION 3. DEFAULT, ENFORCEMENT, REMEDIES AND APPLICATION OF PROCEEDS.
3.1 DEFAULT. Upon the occurrence and during the continuation of any of
the following events (an "Event of Default"), Debtor shall be in default under
this Agreement:
(a) Any failure or neglect to comply with any of the terms,
provisions, representations, warranties or covenants of this Agreement and the
continuance of such failure or neglect for thirty (30) days after notice;
(b) Any Event of Default under the Senior Credit Agreement;
(c) Any Event of Default under the Notes;
(d) Any Event of Default under the Purchase Agreement; or
(e) Any loss, theft or destruction of, or substantial damage to,
any material portion of the Collateral not otherwise covered by insurance or the
issuance or filing of any attachment, levy, garnishment or other judicial
process of, upon, or in respect of, the Debtor or any material portion of the
Collateral, which issuance or filing is not dismissed within ninety (90) days.
3.2 REMEDIES.
(a) Upon the occurrence and during the continuation of any Event
of Default, the Senior Lender and Secured Parties may at their discretion, and
without presentment, demand, notice, protest or advertisement:
(i) declare any and all the Obligations (or any part thereof)
to be immediately due and payable, without notice or
demand; and/or
(ii) exercise any of the rights and remedies afforded to them
by this Agreement, by the Code, or by other provisions of
applicable law, including without limitation the right to
take possession and sell, lease, or otherwise dispose of
any or all of the Collateral and may offset against the
Obligations any amount which may be owing to the Debtor by
the Senior Lender or Secured Parties; and/or
(iii) direct the Debtor to assemble the Collateral and make it
available to the Senior Lender and Secured Parties at any
place designated
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by the Senior Lender or Secured Parties which is
reasonably convenient to the Debtor; and/or
(iv) request the Debtor, at the Debtor's sole expense, to
establish and maintain a United States Post Office lock
box (the "Lock Box"), to which the Senior Lender and
Secured Parties shall have exclusive access, and to which
the Debtor shall have no access. The Debtor expressly
authorize the Senior Lender and Secured Parties, from time
to time, to remove all contents from the Lock Box, for
disposition in accordance with this Agreement. The Debtor
agrees to notify all Account debtors for the receivables
and all obligors on Contracts and other parties obligated
to it that all payments made on any Account, Contract or
invoice shall be remitted, for the credit of the Debtor,
to the Lock Box, and Debtor shall include a like statement
on all invoices. The Debtor further shall execute all
documents, authorizations and other agreements necessary
to establish the Lock Box and the Senior Lender and
Secured Parties' exclusive access thereto.
(b) Nothing herein contained is intended, nor should it be
construed, to preclude the Senior Lender and Secured Parties from pursuing any
other remedy provided by law for the collection of the Obligations or any
portion thereof, or for the recovery of any other sums to which the Senior
Lender and Secured Parties may be or become entitled for the breach of this
Agreement by the Debtor.
(c) Until termination of this Agreement, the Senior Lender and
Secured Parties shall have and may exercise any and all of the rights and
remedies given by this Agreement or under any applicable law. This Agreement and
all such rights and remedies shall inure to the benefit of the Senior Lender's
and Secured Parties' successors and permitted assigns and to any other holder
who derives from the Senior Lender or Secured Parties title to or an interest in
the Obligations or any portion thereof, and shall bind the Debtor and the
successors and assigns of the Debtor.
(d) In the case of any sale or disposition of the Collateral, or
the realization of funds therefrom, the Proceeds thereof shall be applied in the
following order of priority: (i) to the payment of the reasonable expenses of
such sale, reasonable commissions, reasonable attorneys' fees and all reasonable
charges paid or incurred by the Senior Lender pertaining to said sale, including
any taxes or other charges imposed by law upon the Collateral and/or the owning,
holding or transferring thereof; (ii) to pay, satisfy and discharge Obligations
owing to the Senior Lender; (iii) to the payment of the reasonable expenses of
such sale, reasonable commissions, reasonable attorneys' fees and all reasonable
charges paid or incurred by the Secured Parties pertaining to said sale,
including any taxes or other charges imposed by law upon the Collateral and/or
the owning, holding or transferring thereof; (iv) to pay, satisfy and discharge
Obligations owing to the Secured Parties; and (v) to pay the surplus, if any, to
the Debtor; provided that the timing of any application of the Proceeds shall be
at the sole and absolute discretion of the Senior Lender and Secured Parties. To
the extent such Proceeds do
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not satisfy the foregoing items, the Debtor hereby promises and agrees to pay
any deficiency. Except for Collateral that is perishable or is of a type
customarily sold in a recognized market, the Senior Lender and Secured Parties
will give the Debtor at least ten (10) days written notice of the time and place
of any sale of the Collateral.
3.3 POWER OF ATTORNEY. The Debtor does hereby appoint the Senior Lender
and Secured Parties and their agents as the Debtor's attorney-in-fact upon the
occurrence and during the continuation of an Event of Default to: collect,
compromise, endorse, sell, service or otherwise deal with Collateral or Proceeds
thereof in their own name or in the name of the Debtor; to endorse the name of
the Debtor upon any notes, checks, drafts, money orders, or other instruments,
documents, receipts or Proceeds of the Collateral that may come into their
possession and to apply the same in full or part payment of any amounts owing to
the Senior Lender and Secured Parties.
SECTION 4. WARRANTIES, COVENANTS AND AGREEMENTS.
The Debtor warrants, covenants and agrees with the Senior Lender and
Secured Parties that from and after the date of this Agreement and until the
Obligations are fully satisfied:
4.1 RECORDS. The Debtor shall keep adequate records of the Collateral in a
manner consistent with the reasonable requirements of the Senior Lender and
Secured Parties and the requirements of any governmental agency and allow the
Senior Lender and Secured Parties, during regular business hours reasonable
access to examine, inspect and make abstracts from, or copy any of such books
and records.
4.2 ACCOUNTING. The Debtor shall at the reasonable request of the Senior
Lender or Secured Parties, which request shall be made no more frequently than
monthly, deliver to it all accounting and other records pertaining to, and all
writing evidencing, the Collateral or any portion thereof.
4.3 COOPERATION. The Debtor will do all acts and things, and will execute
all writings as may be reasonably requested by the Senior Lender or Secured
Parties to establish, maintain and continue perfected the security interest of
the Senior Lender and Secured Parties in the Collateral.
4.4 DISCHARGE TAXES, ASSESSMENTS, ETC. The Debtor will pay promptly and
within the time that they can be paid without interest or penalty, all taxes,
assessments and similar imposts and charges which are now, or hereafter during
the effective period of this Agreement may become, a lien, charge or encumbrance
upon any of the Collateral except to the extent contested in good faith. If the
Debtor fails to pay any such taxes, assessments or other charges as they become
due the Senior Lender or Secured Parties shall have the option to do so and the
Debtor agrees to repay, with interest, at the rate publicly established by Bank
One, Columbus, NA from time to time as its prime rate, all amounts so expended
by the Senior Lender or Secured Parties.
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4.5 INVENTORY. The Debtor will keep the Inventory in good condition and
shall safeguard and shall use all reasonable efforts to protect the same from
loss, damage or deterioration from any cause whatsoever, ordinary wear and tear
excepted.
4.6 MAINTENANCE OF EQUIPMENT. The Debtor will keep and maintain each item
of Equipment in good operating condition, ordinary wear and tear excepted, and
the Debtor will provide all maintenance and service and all repairs necessary
for such purpose.
4.7 EXPENSES. The Debtor will reimburse the Senior Lender and Secured
Parties in accordance with the provisions of the Code for all reasonable
expenses, including reasonable attorney fees and legal expenses incurred by the
Senior Lender and Secured Parties in seeking to collect the Obligations or any
part thereof, or in pursuing any of its rights or remedies hereunder.
4.8 LIMITATIONS ON DISPOSITIONS OF INVENTORY AND EQUIPMENT. The Debtor
will not at any time during a twelve-month period sell, transfer, lease or
otherwise dispose of any material portion of the Inventory or Equipment or
attempt, offer or contract to do so except for (i) sales of Inventory in the
ordinary course of its business and (ii) so long as no Event of Default has
occurred and is continuing, the disposition of Equipment which has become worn
out or obsolete in the ordinary course of business. For the purpose of this
paragraph 4.8, a sale, transfer, lease or other disposition will be deemed of a
material portion of Inventory (other than in the ordinary course of business) or
of Equipment if such sale, transfer, lease or other disposition of either
Inventory or Equipment, or a combination thereof, is in an amount equal to or in
excess of Two Hundred Fifty Thousand Dollars ($250,000).
4.9 LIMITATIONS ON DISPOSITIONS OF ACCOUNTS AND CONTRACTS. The Debtor will
not at any time during a twelve-month period sell, transfer or otherwise dispose
of any material portion of the Accounts or Contracts, or attempt, offer or
contract to do so except, so long as no Event of Default has occurred and is
continuing, for the disposition of Accounts and Contracts in the ordinary course
of business to third party purchasers without recourse to the Debtor. For the
purpose of this paragraph 4.9, a sale, transfer or other disposition will be
deemed of a material portion of Accounts and Contracts if such sale, transfer,
lease or other disposition (other than in the ordinary course of business) of
Accounts and Contracts is in an amount equal to or in excess of Five Hundred
Thousand Dollars ($500,000).
4.10 LOCATION OF THE COLLATERAL. The Debtor warrants that the Collateral
will be located only at those locations listed on Schedule A attached hereto and
incorporated herein by reference and that its principal place of business, and
the office where its records relating to the Collateral are kept, is presently
located at 1732 Reynolds Street, Irvine, California 92714, and that it has
additional places of business as listed in Schedule A attached hereto and
incorporated by reference. The Debtor will notify the Senior Lender and Secured
Parties in writing of any change in the location of its principal place of
business and the office where the records relating to the Collateral and the
Collateral is kept within (10) days of any such change.
4.11 NEGATIVE PLEDGE. The Debtor will not create or permit to be created
any lien, encumbrance or security interest of any kind on any of the Collateral
other than for the benefit
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of the Senior Lender and Secured Parties except as permitted by the terms of the
Purchase Agreement or unless authorized by the Senior Lender and Secured Parties
in writing.
4.12 NOTICES.
The Debtor will advise the Senior Lender and Secured Parties promptly, in
reasonable detail:
(i) of any material change in the composition of the
Collateral;
(ii) the occurrence of any other event which is likely to have
a materially adverse effect on the aggregate value of the
Collateral or on the security interests created
hereunder; and
(iii) any other notices specifically referred to in this
Agreement.
SECTION 5. TERMINATION.
This Agreement shall be terminated only upon payment in full of the
Obligations. Until terminated, the security interests created hereby shall
continue in full force and effect and shall secure and be applicable to all
advances now or hereafter made by the Senior Lender or Secured Parties to the
Debtor. Upon termination, the Senior Lender and Secured Parties shall cooperate
with the Debtor to secure the release of the security interests created hereby,
including the execution of any releases of financing statements reasonably
requested by the Debtor.
SECTION 6. FINANCING STATEMENTS.
(a) The Debtor agrees to execute, deliver and pay the costs of
filing any financing statement, or other notices appropriate under applicable
law, in respect of the security interests created pursuant to this Agreement
which may at any time be required or be deemed by the Senior Lender or Secured
Parties to be necessary or desirable and to execute such other documents as the
Senior Lender or Secured Parties shall reasonably request with respect to the
security interests created hereunder. In the event that any re-recording or
refiling thereof (or the filing of any statements of continuation or assignment
of any financing statement) is required to protect and preserve such liens or
security interests, the Debtor shall, at its cost and expense, cause the same to
be re-recorded and/or refiled at the time and in the manner requested by the
Senior Lender or Secured Parties.
(b) A carbon, photostatic or other reproduction of this Agreement
shall be sufficient as a financing statement even though only the original
hereof contains an original signature.
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SECTION 7. WAIVERS.
The Debtor waives demand, presentment and protest. No delay or omission or
forbearance by the Senior Lender or Secured Parties in exercising any rights
under this Agreement, the Senior Credit Agreement, the Notes or the Purchase
Agreement shall operate as a waiver of the rights of the Senior Lender or
Secured Parties under this Agreement, the Senior Credit Agreement, the Notes or
the Purchase Agreement or of any other rights and shall not affect, discharge,
diminish or impair the Debtor's obligations hereunder or the Obligations. Waiver
on any one occasion shall not be construed as a bar to or waiver of any rights
or remedy on any future occasion. All the Senior Lender and Secured Parties'
rights and remedies, whether evidenced hereby or by any other agreement or note,
shall be cumulative and may be exercised singularly or concurrently.
SECTION 8. SECURITY INTEREST ABSOLUTE.
All rights of the Senior Lender and Secured Parties and all
obligations of the Debtor hereunder, shall be absolute and unconditional
irrespective of:
8.1 any lack of validity or enforceability of the Senior Credit Agreement,
the Notes or any other agreement or instrument governing or evidencing any
Obligations;
8.2 any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Obligations; or
8.3 any other circumstance which might otherwise constitute a defense
available to, or a discharge of the Debtor.
SECTION 9. RELEASE.
The Debtor consents and agrees that the Senior Lender or Secured Parties
may at any time, or from time to time, in its discretion exchange, release
and/or surrender all or any of the Collateral, or any part thereof, by
whomsoever deposited, which is now or may hereafter be held by the Senior Lender
or Secured Parties in connection with all or any of the Obligations, all in such
manner and upon such terms as the Senior Lender and Secured Parties may deem
proper, and without notice to or further assent from the Debtor; it being hereby
agreed that the Debtor shall be and remain bound upon this Agreement,
irrespective of the existence, value or condition of any of the Collateral, and
notwithstanding any such exchange, surrender or release. The Debtor hereby
waives notice of Debtor of this Agreement, and promptness in commencing suit
against any party hereto or liable hereon, and in giving any notice to or of
making any claim or demand hereunder upon the Debtor. No act or omission of any
kind on the Senior Lender or Secured Parties' part shall in any event affect or
impair this Agreement.
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SECTION 10. INDEMNIFICATION.
The Debtor agrees to indemnify and hold the Senior Lender and Secured
Parties harmless from and against any taxes, liabilities, claims and damages,
including reasonable attorney's fees and disbursements, and other expenses
incurred or arising by reason of the taking or the failure to take action by the
Senior Lender or Secured Parties, in good faith, in respect of any transaction
effected under this Agreement or in connection with the lien provided for
herein, including, without limitation, any taxes payable in connection with the
delivery or registration of any of the Collateral as provided herein; provided,
however, the Debtor shall not be liable for such indemnification to the Senior
Lender or Secured Parties to the extent that such indemnified liability results
from the Senior Lender's or Secured Parties' gross negligence or willful
misconduct. The Debtor agrees to pay to the Senior Lender and Secured Parties
all out-of-pocket costs and expenses, including fees and disbursements of
counsel, reasonably incurred by the Senior Lender and Secured Parties in
connection with the performance by the Senior Lender and Secured Parties of the
provisions of this Agreement and of any transactions effected pursuant to this
Agreement. The obligations of the Debtor under this Section shall survive the
termination of this Agreement.
SECTION 11. EQUALIZATION OF AMOUNTS RECEIVED BY SECURED PARTIES.
Each of the Secured Parties agrees with the other that, with respect
to all amounts received by either one of the Secured Parties whether under the
Purchase Agreement or this Agreement, will be shared ratably by the Secured
Parties in the proportion of 80% to BOCP II and 20% to Primus whether received
by voluntary payment, by realization upon security or any other source. Either
Secured Party receiving any such non-pro rata amount shall remit to the other
Secured Party an amount of cash as shall result in the ratable sharing by the
Secured Parties in all amounts so received.
SECTION 12. SUBORDINATION BY SECURED PARTIES.
Each of the Secured Parties shall, and hereby does, subordinate all
Obligations owed to either of them by the Debtor in favor of the Obligations
owing to the Senior Lender pursuant to the Senior Credit Agreement. Each of the
Secured Parties may, however, accept regularly scheduled payments due under the
Notes so long as the Debtor is not in default under the Senior Credit Agreement.
All payments on account of the Notes accepted by either of the Secured Parties
from the Debtor after the Debtor is in default under the Senior Credit Agreement
and after such Secured Party has received notice of such default, from whatever
source, shall be received by such Secured Party in trust for the benefit of the
Senior Lender, shall at all times be and remain the property of the Senior
Lender and shall be promptly paid over by such Secured Party to the Senior
Lender in exactly the form received.
SECTION 13. MISCELLANEOUS.
13.1 ENTIRE AGREEMENT. This Agreement including the Exhibits or Schedules
hereto, constitutes the entire agreement relating to the subject matter hereof
among the Parties hereto. Each Party acknowledges that no representation,
inducement, promise or agreement has been
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made, orally or otherwise, by any other Party, or anyone acting on behalf of any
other Party, unless such representation, inducement, promise or agreement is
embodied in this Agreement expressly or by incorporation.
13.2 AMENDMENTS AND WAIVERS. This Agreement may not be amended and
compliance with any provision of this Agreement may not be waived except in a
writing signed by all of the Parties hereto.
13.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
13.4 SEVERABILITY. If any provision of this Agreement is held to be
invalid, void or unenforceable, the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
13.5 THIRD PARTY BENEFICIARIES. The obligations of each Party under this
Agreement shall inure solely to the benefit of the other Parties, and no other
person or entity shall be a third party beneficiary of this Agreement.
13.6 RULES OF CONSTRUCTION. Unless otherwise specified, the following rules
shall be applied in construing the provisions of this Agreement.
(a) Terms that imply gender shall be construed to imply all genders.
(b) References to Sections, Exhibits or Schedules refer to the
numbered Sections of, the Exhibits and the Schedules attached to this Agreement.
(c) Headings to the various Sections of this Agreement are included
solely for purposes of reference and shall be ignored in construing the
provisions of this Agreement.
(d) The Schedules or Exhibits attached to this Agreement are
incorporated herein by reference.
(e) "Herein," "hereto," "hereof" and words of similar import refer
to this Agreement.
(f) The word "and" connotes "each and every", and the word "or"
connotes "any one or more".
(g) The word "including" connotes "including without limitation".
(h) Any reference to any law or regulation refers to that law or
regulation as amended from time-to-time after the date of this Agreement and to
the corresponding provision of any successor law or regulation.
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(i) Any reference to any agreement or other document in this
Agreement refers to that agreement or other document as amended from time-to-
time after the date of this Agreement.
(j) The recitals included in this Agreement are the mutual
representations of the Parties and are a part of this Agreement.
13.7 NOTICES. Any notice or other communication required or permitted to be
made or given under this Agreement, shall be in writing and shall be deemed to
have been received by the Party to whom it is addressed: (i) on the date
indicated on the certified mail return receipt if sent by certified mail return
receipt requested; (ii) on the date actually received if hand delivered or if
transmitted by telefax (receipt of which is confirmed to sender); (iii) three
business days after such notice was deposited in the United States Mail postage
prepaid; or (iv) one business day after such notice was delivered to an
overnight delivery service, addressed, delivered or transmitted in each case as
follows:
IF TO THE SENIOR LENDER AND SECURED PARTIES:
Banc One Capital Partners II, Limited Partnership
90 North High Street
Columbus, Ohio 43215
ATTENTION: General Counsel
Telephone: (614) 227-7748
Telefax: (614) 227-7750
Primus Capital Fund III Limited Partnership
1375 East Ninth Street
Suite 2700
ATTENTION: Loyal W. Wilson
Telephone: (216) 621-2185
Telefax: (216) 621-4543
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
ATTENTION: Carter W. Emerson, Esq.
Telephone: (312) 861-2052
Telefax: (312) 861-2200
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IF TO THE DEBTOR:
Corinthian Schools, Inc.
1732 Reynolds Street
Irvine, California 92714
ATTENTION: David G. Moore
Telephone: (714) 261-7606
Telefax: (714) 222-3513
WITH A COPY TO:
O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660
ATTENTION: David A. Krinsky, Esq.
Telephone: (714) 669-7902
Telefax: (714) 669-6994
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
13.8 ASSIGNMENT. Neither this Agreement nor any of the rights or duties
hereunder may be assigned by any Party without the prior written consent of the
other Party, and any assignment attempted without such prior consent shall be
null and void.
13.9 FURTHER ACTS AND DOCUMENTS. Each of the Parties hereby agrees to
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
13.10 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which shall
constitute one and the same agreement.
SECTION 14. No Personal Liability.
Except as specifically provided for in this Agreement, no recourse may be
taken, directly or indirectly, with respect to the obligation of the Debtor
under the Notes, the Purchase Agreement or this Agreement against any officer or
director of the Debtor, and no provision of the Notes, the Purchase Agreement or
this Agreement shall be construed as creating any personal liability on the part
of any of them, except as such liability may arise as a result of fraud or
willful misconduct on the part of such individual.
14
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
DEBTOR: SENIOR LENDER AND
SECURED PARTIES:
CORINTHIAN SCHOOLS, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: Banc One Capital Partners II
By:/s/ David G. Moore Corporation
----------------------------
David G. Moore, President By: /s/ Earle J. Bensing
------------------------------
Its: Senior Vice President
------------------------------
PRIMUS CAPITAL FUND III,
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By:_______________________________
Its:______________________________
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
DEBTOR: SENIOR LENDER AND
SECURED PARTIES:
CORINTHIAN SCHOOLS, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By:____________________________
David G. Moore, President By: Banc One Capital Partners II
Corporation
By: /s/ Earle J. Bensing
------------------------------
Its: Senior Vice President
-----------------------------
PRIMUS CAPITAL FUND III, LIMITED
PARTNERSHIP
By: Primus Venture Partners, Inc.
By: /s/ Loyal W. Wilson
-------------------------------
Its: President
------------------------------
<PAGE>
SCHEDULE A
ADDITIONAL PLACES OF BUSINESS
1. 5514 Big Tyler Road
Cross Lanes, WV 25313
2. 825 East Hospitality Lane
San Bernardino, CA 92408
3. 1120 W. La Veta Avenue, Suite 100
Orange, CA 92668
4. 20835 Sherman Way
Winnetka, CA 91306
5. 3622 Fredericksburg Road
San Antonio, TX 78201
6. 2322 Canal Street
New Orleans, LA 70119
7. 803 Diligence Drive
Newport News, VA 23606
8. 731 Market Street
San Francisco, CA 94103
9. 2620 Remico S.W.
Wyoming, MI 49509
10. 2015 Naglee Avenue
San Jose, CA 95128
11. 3505 North Hart Avenue
Rosemead, CA 91770
12. 4212 West Artesia Boulevard
Torrance, CA 90504
<PAGE>
EXHIBIT 10.11
PURCHASE AGREEMENT
DATED JUNE 30, 1995
BETWEEN CORINTHIAN SCHOOLS, INC.
AND THE PURCHASERS LISTED HEREIN
<PAGE>
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of June 30, 1995 between Corinthian Schools,
Inc., a Delaware corporation (the "Company"), and the Persons listed on the
Schedule of Purchasers attached hereto (collectively referred to herein as the
"Purchasers" and individually as a "Purchaser"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1.1A. Authorization of the Preferred Stock and the Common Stock.
---------------------------------------------------------
The Company shall authorize the issuance and sale to the Purchasers of 18,125
shares of its Class A Preferred Stock, par value $1.00 per share (the "Class A
Preferred"), 60,410 shares of its Class A Common Stock, par value $.01 per share
(the "Class A Common"), and 8,340 shares of its Class B Common Stock, par value
$.01 per share (the "Class B Common") each having the rights and preferences set
forth in Exhibit A attached hereto. The Class A Common and the Class B Common
---------
are collectively referred to herein as the "Investor Common Stock." Together
with the Class A Preferred, they are collectively referred to as the "Investor
Stock".
1.1B. Purchase and Sale of Investor Stock. At the Closing, the
-----------------------------------
Company shall sell to each Purchaser and, subject to the terms and conditions
set forth herein, each Purchaser shall purchase from the Company the number of
shares of Investor Stock set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto at the prices specified therein. The
sale of the Investor Stock to each Purchaser shall constitute a separate sale
hereunder.
1.1C. The Closing. The closing of the separate purchases and
-----------
sales of the Investor Stock (the "Closing") shall take place at the offices of
National Education Corporation ("NEC"), 18400 Von Karman Avenue, Irvine,
California at 10:00 a.m. on June 30, 1995, or at such other place or on such
other date as may be mutually agreeable to the Company and each Purchaser, but
in no event later than July 7, 1995. At the Closing, the Company shall deliver
to each Purchaser stock certificates evidencing the Investor Stock to be
purchased by such Purchaser, registered in such Purchaser's or its nominee's
name, upon payment of the purchase price thereof by a cashier's or certified
check, or by wire transfer of immediately available funds to the Company's
account or such other account as may be reasonably specified in writing a
sufficient amount of time
-1-
<PAGE>
before Closing, in the aggregate amount set forth opposite such Purchaser's name
on the Schedule of Purchasers.
Section 2. Conditions of Each Purchaser's Obligation at the Closing.
--------------------------------------------------------
The obligation of each Purchaser to purchase and pay for the Investor Stock at
the Closing is subject to the satisfaction as of the Closing of the following
conditions:
2.1A. Representations and Warranties; Covenants. The
-----------------------------------------
representations and warranties contained in Section 5 hereof shall be true and
correct at and as of the Closing as though then made, except to the extent of
changes caused by the transactions expressly contemplated herein, and the
Company shall have performed all of the covenants required to be performed by it
hereunder prior to the Closing.
2.1B. Amendment of Certificate of Incorporation. The Company's
-----------------------------------------
Certificate of Incorporation (the "Certificate of Incorporation") shall have
been amended and restated as set forth in Exhibit A hereto (the "Restated
---------
Certificate of Incorporation"), shall be in full force and effect under the laws
of Delaware as of the Closing as so amended and shall not have been further
amended or modified.
2.1C. Amendment of the Company's Bylaws. The Company's bylaws
---------------------------------
shall have been duly amended to be in the form attached hereto as Exhibit B.
---------
The Company's bylaws shall be in full force and effect as of the Closing as so
amended and shall not have been further amended or modified.
2.1D. Registration Agreement. The Company, the Purchasers and the
----------------------
other persons specified therein shall have entered into a registration agreement
in form and substance as set forth in Exhibit C attached hereto (the
---------
"Registration Agreement"), and the Registration Agreement shall be in full force
and effect as of the Closing.
2.1E. Executive Stock Agreements. The Company shall have entered
--------------------------
into an executive stock agreement, in form and substance substantially similar
to Exhibit D attached hereto (an "Executive Stock Agreement"), with each of
---------
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux and Lloyd
W. Holland and each such Executive Stock Agreement shall not have been amended
or modified and shall be in full force and effect as of the Closing.
2.1F. Sale of Investor Stock to Each Purchaser. The Company shall
----------------------------------------
have simultaneously sold to each Purchaser the Investor Stock to be purchased by
such Purchaser hereunder at the Closing and shall have received payment therefor
in full.
2.1G. Key-Man Life Insurance. The Company shall have obtained
----------------------
key-man life insurance policies on the lives of David G. Moore and Paul St.
Pierre in the face amount of $1,500,000 and $1,000,000 respectively, which
policies shall be in full force and effect as of the Closing. Such insurance
policies shall name the Company as beneficiary and shall provide
<PAGE>
that such insurance policies may not be canceled unless the insurance carrier
gives at least 30 days prior written notice of such cancellation to each
Purchaser.
2.1H. Securities Law Compliance. The Company shall have made all
-------------------------
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Investor Stock pursuant to this Agreement in
compliance with such laws.
2.1I. Acquisition Agreement. The Asset Purchase Agreement, dated
---------------------
as of June 28, 1995, between the Company National Education Centers, Inc., and
NEC (the "Acquisition Agreement") shall be in full force and effect as of the
Closing and shall not have been amended or modified. The Company's closing
conditions in the Acquisition Agreement shall have been satisfied in full
(without reliance on any waiver by the Company), and the acquisition
contemplated by the Acquisition Agreement (the "Acquisition") shall have been
consummated simultaneously with the Closing hereunder in accordance with the
terms of the Acquisition Agreement.
2.1J. Borrowing Agreement. The Company and Banc One Capital
-------------------
Partners II, Limited Partnership (the "Lender") shall have entered into a loan
agreement and related documents (collectively, the "Borrowing Agreement")
providing for loans to the Company of up to $2,500,000 in form and substance
satisfactory to each Purchaser, and the Borrowing Agreement shall be in full
force and effect as of the Closing and shall not have been amended or modified.
2.1K. Opinion of the Company's Counsel. Each Purchaser shall have
--------------------------------
received from O'Melveney & Myers, counsel for the Company, an opinion with
respect to the matters set forth in Exhibit E attached hereto, which shall be
---------
addressed to each Purchaser, dated the date of the Closing and in form and
substance reasonably satisfactory to each Purchaser.
2.1L. Closing Documents. The Company shall have delivered to each
-----------------
Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A
through 2J, inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the filing of the amendment to the
Certificate of Incorporation referred to in paragraph 2B, the amendment to
the Company's bylaws referred to in paragraph 2C, the issuance and sale of
the Investor Stock,
-3-
<PAGE>
and the consummation of all other transactions contemplated by this
Agreement, and (b) the resolutions duly adopted by the Company's
stockholders adopting the amendment to the Certificate of Incorporation
referred to in paragraph 2B;
(iii) certified copies of the Certificate of Incorporation, and
the Company's bylaws, each as in effect at the Closing;
(iv) certified copies of the Acquisition Agreement and the
Borrowing Agreement, each as in effect at the Closing;
(v) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal);
and
(vi) such other documents relating to the transactions
contemplated by this Agreement as any Purchaser or its special counsel may
reasonably request.
2.1M. Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be satisfactory in form and substance to each
Purchaser and its special counsel.
2.1N. Waiver. Any condition specified in this Section 2 may be
------
waived if consented to by each Purchaser; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
2.1O. Expenses. At the Closing, the Company shall have
--------
reimbursed the Purchasers for the fees and expenses of their special counsel as
provided in paragraph 7A hereof.
Section 3. Covenants.
---------
3.1A. Financial Statements and Other Information. The Company
------------------------------------------
shall deliver to each Purchaser (so long as such Purchaser holds any Class A
Preferred or any Underlying Common Stock) and to each holder of at least 5% of
the outstanding Class A Preferred and each holder of at least 5% of the
Underlying Common Stock:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from
-4-
<PAGE>
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each
case comparisons to the Company's annual budget and to the corresponding
period in the preceding fiscal year, and all such statements shall be
prepared in accordance with generally accepted accounting principles,
consistently applied and shall be certified by the Company's chief
financial officer;
(ii) accompanying the financial statements referred to in
subparagraph (i) an Officer's Certificate stating that there is no Event of
Noncompliance in existence and that neither the Company nor any of its
Subsidiaries is in default under any of its other material agreements or,
if any Event of Noncompliance or any such default exists, specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
Company's annual budget and to the preceding fiscal year, all prepared in
accordance with generally accepted accounting principles, consistently
applied, and accompanied by (a) with respect to the consolidated portions
of such statements, an opinion containing no exceptions or qualifications
(except for qualifications regarding specified contingent liabilities) of
an independent accounting firm of recognized national standing acceptable
to the holders of a majority of the outstanding Class A Preferred and the
holders of a majority of the Underlying Common Stock, (b) a certificate
from such accounting firm, addressed to the Company's board of directors,
stating that [in the course of its examination nothing came to its
attention that caused it to believe that there was an Event of
Noncompliance in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any other material
agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any Event of Noncompliance or other
default by the Company or any Subsidiary exists, a certificate specifying
the nature and period of existence thereof,] and (c) a copy of such firm's
annual management letter to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations
-5-
<PAGE>
or financial affairs given to the Company by its independent accountants
(and not otherwise contained in other materials provided hereunder);
(v) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), except
that a budget for the period ending December 31, 1995 shall be delivered to
the Purchasers by July 31, 1995 and a budget for the six-month period
ending June 30, 1996 shall be so delivered by November 30, 1995, and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such or other budgets, and within 30 days
after any monthly period in which there is a material adverse deviation
from such budget, an Officer's Certificate explaining the deviation and
what actions the Company has taken and proposes to take with respect
thereto;
(vi) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Event of Noncompliance, any
default under any material agreement to which it or any of its Subsidiaries
is a party or any other material adverse change, event or circumstance
affecting the Company or any Subsidiary (including, without limitation, the
filing of any material litigation against the Company or any Subsidiary or
the existence of any dispute with any Person which involves a reasonable
likelihood of such litigation being commenced), an Officer's Certificate
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange Commission or with
any securities exchange on which any of its securities are then listed, and
copies of all press releases and other statements made available generally
by the Company to the public concerning material developments in the
Company's and its Subsidiaries' businesses; and
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
-6-
<PAGE>
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments for recurring accruals (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
For purposes of this Agreement and the Registration Agreement, all
holdings of Preferred Stock and Underlying Common Stock by Persons who are
Affiliates of each other shall be aggregated for purposes of meeting any
threshold tests under this Agreement and Registration Agreement. "Affiliate"
means any Person which controls, is controlled by or is under common control
with another Person and Persons which have received distributions of securities
from a partnership holding such securities.
3.1B. Inspection Rights. The Company shall permit any
-----------------
representatives designated by any Purchaser (so long as such Purchaser holds any
Class A Preferred or Underlying Common Stock) or any holder of at least 5% of
the outstanding Class A Preferred or at least 5% of the Underlying Common Stock,
upon reasonable notice and during normal business hours, to (i) visit and
inspect any of the properties of the Company and its Subsidiaries, (ii) examine
the corporate and financial records of the Company and its Subsidiaries and make
copies thereof or extracts therefrom and (iii) discuss the affairs, finances and
accounts of any such corporations with the directors, officers, key employees
and independent accountants of the Company and its Subsidiaries. The
presentation of an executed copy of this Agreement by any Purchaser or any such
holder of Class A Preferred or Underlying Common Stock to the Company's
independent accountants shall constitute the Company's permission to its
independent accountants to participate in discussions with such Persons.
3.1C. Attendance at Board Meetings. The Company shall give each
----------------------------
Purchaser (so long as such Purchaser holds any Class A Preferred or Underlying
Common Stock) and each holder of at least 10% of the outstanding Class A
Preferred or at least 10% of Underlying Common Stock written notice of each
meeting of its board of directors and each committee thereof at the same time
and in the same manner as notice is given to the directors (which notice shall
be promptly confirmed in writing to each such Person), and the Company shall
permit a representative of each such Person to attend as an observer all
meetings of its board of directors and all committees thereof; provided that in
the case of telephonic meetings conducted in accordance with the Company's
bylaws and applicable law, each such Person need receive only actual notice
thereof at least 48 hours prior to any such meeting, and each such Person's
representative shall be given the opportunity to listen to such telephonic
meetings. Each
-7-
<PAGE>
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the directors. If the Company proposes to take any
action by written consent in lieu of a meeting of its board of directors or of
any committee thereof, the Company shall give written notice thereof to each
such Person prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action. The Company shall pay the
reasonable out-of-pocket expenses of each representative incurred in connection
with attending such board and committee meetings. The obligations of the Company
under paragraphs 3A, 3B and 3C shall terminate upon a Qualified Public Offering.
3.1D. Expenses of Directors. All out-of-pocket expenses of each
---------------------
board member incurred in connection with attending regular and special board
meetings and any meeting of any board committee shall be paid by the Company.
3.1E. Restrictions. The Company shall not, without the consent of
------------
the holders of a majority of the Preferred Stock so long as at least 5% of the
original amount thereof is outstanding or with the approval of the Board of
Directors if the approving directors include at least one director affiliated
with one of the Purchasers:
(i) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities
other than the Preferred Stock pursuant to the terms of the Certificate of
Incorporation, except for dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities) other than
the Preferred Stock pursuant to the terms of the Certificate of
Incorporation and other than as required by the Borrowing Agreement or this
Agreement or directly or indirectly redeem, purchase or make any payments
with respect to any stock appreciation rights, phantom stock plans or
similar rights or plans; except for repurchases of Common Stock from
employees of the Company and its Subsidiaries upon termination of
employment pursuant to arrangements approved by the Company's board of
directors so long as no Event of Noncompliance is in existence immediately
prior to or is otherwise caused by any such repurchase;
-8-
<PAGE>
(iii) except as expressly contemplated by this Agreement and the
Borrowing Agreement and except for stock options to be granted to key
employees and outside directors of the Company covering no more than 2,500
shares of common stock and granted on terms approved by the Board of
Directors of the Company, authorize, issue or enter into any agreement
providing for the issuance (contingent or otherwise) of, (a) any notes or
debt securities containing equity features (including, without limitation,
any notes or debt securities convertible into or exchangeable for capital
stock or other equity securities, issued in connection with the issuance of
capital stock or other equity securities or containing profit participation
features) or (b) any capital stock or other equity securities (or any
securities convertible into or exchangeable for any capital stock or other
equity securities) which are senior to or on a parity with the Class A
Preferred with respect to the payment of dividends, redemptions or
distributions upon liquidation or otherwise or (c) any additional shares of
Class A Preferred.
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary established under the laws of a
jurisdiction of the United States or any of its territorial possessions),
except for (a) reasonable advances to employees in the ordinary course of
business, (b) acquisitions permitted pursuant to subparagraph (viii) below
and (c) Investments having a stated maturity no greater than one year from
the date the Company makes such Investment in (1) obligations of the United
States government or any agency thereof or obligations guaranteed by the
United States government, (2) certificates of deposit of commercial banks
having combined capital and surplus of at least $50 million or (3)
commercial paper with a rating of at least "Prime-1" by Moody's Investors
Service, Inc.;
(v) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a
Wholly-Owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than $250,000 of
the consolidated assets of the Company and its Subsidiaries (computed on
the basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Company's board of directors in its reasonable good faith
judgment) in any 12-month period in any transaction or series of related
transactions (other than sales in the ordinary course of business);
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction
-9-
<PAGE>
(including, without limitation, any reorganization into a limited liability
company, a partnership or any other non-corporate entity which is treated
as a partnership for federal income tax purposes);
(viii) acquire, or permit any Subsidiary to acquire, any
interest in any company or business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture,
involving an aggregate consideration in excess of $250,000 (including,
without limitation, the assumption of liabilities whether direct or
indirect);
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
businesses of operating and acquiring schools;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to
or modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict (a) the right of any Subsidiary to make
loans or advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Certificate of Incorporation or the Company's
bylaws (including, without limitation, provisions relating to the
declaration and payment of dividends on and the making of redemptions of
the Class A Preferred;
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Certificate of Incorporation, or the Company's
bylaws, or file any resolution of the board of directors with the Delaware
Secretary of State containing any provisions, which would increase the
number of authorized shares of the Class A Preferred or adversely affect or
otherwise impair the rights or the relative preferences and priorities of
the holders of the Class A Preferred or the Underlying Common Stock under
this Agreement, the Certificate of Incorporation, the Company's bylaws or
the Registration Agreement;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers or directors or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such Person
or individual owns a beneficial interest, except for employment
arrangements and benefit programs approved by the Board;
-10-
<PAGE>
(xiii) increase any compensation (including salary, bonuses and
other forms of current and deferred compensation) payable to any officer or
director of the Company or any Subsidiary;
(xiv) establish or acquire (a) any Subsidiaries other than
Wholly-Owned Subsidiaries or (b) any Subsidiaries organized outside of the
United States and its territorial possessions;
(xv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness
exceeding an aggregate principal amount of $4,500,000 outstanding at any
time on a consolidated basis;
(xvi) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens other
than Permitted Liens;
(xvii) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently
applied) exceeding $550,000 in the aggregate on a consolidated basis during
any twelve-month period;
(xviii) borrow against, pledge, assign, modify, cancel or
surrender any key-man life insurance policies required to be maintained
under paragraph 3F(vii) hereof; or
(xix) use the proceeds from the sale of the Investor Stock and
the Borrowing Agreement other than for the acquisition of schools pursuant
to the Acquisition Agreement and the operation thereof.
3.1F. Affirmative Covenants. So long as at least 5% of the
---------------------
authorized Class A Preferred remains outstanding, the Company shall, and shall
cause each Subsidiary to:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted in all material respects at all
times;
(iii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its
-11-
<PAGE>
properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all claims
for labor, materials or supplies which if unpaid would by law become a Lien
upon any of its property unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its books with
respect thereto;
(iv) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(v) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and its Subsidiaries taken as a whole;
(vi) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
(vii) maintain the key-man life insurance policies referred to
in paragraph 2G hereof; and
(viii) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with generally
accepted accounting principles, consistently applied.
3.1G. Compliance with Agreements. The Company shall perform and
--------------------------
observe (i) all of its obligations to each holder of the Class A Preferred and
all of its obligations to each holder of the Underlying Common Stock set forth
in the Certificate of Incorporation and the Company's bylaws, and (ii) all of
its obligations to each holder of Registrable Securities set forth in the
Registration Agreement.
3.1H. Current Public Information. At all times after the Company
--------------------------
has filed a registration statement with the
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Securities and Exchange Commission pursuant to the requirements of either the
Securities Act or the Securities Exchange Act, the Company shall file all
reports required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations adopted by the Securities and
Exchange Commission thereunder and shall take such further action as any holder
or holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to (i)
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission or (ii) a
registration statement on Form S-2 or S-3 or any similar registration form
hereafter adopted by the Securities and Exchange Commission. Upon request, the
Company shall deliver to any holder of Restricted Securities a written statement
as to whether it has complied with such requirements.
3.1I. Amendment of Other Agreements. The Company shall not amend,
-----------------------------
modify or waive any provision of the Acquisition Agreement, the Borrowing
Agreement or any Executive Stock Agreement without the prior written consent of
the holders of a majority of the Underlying Common Stock, and the Company shall
enforce the provisions of the Acquisition Agreement, the Borrowing Agreement and
the Executive Stock Agreements and shall exercise all of its rights and remedies
thereunder (including, without limitation, any repurchase options and first
refusal rights).
3.1J. First Refusal Rights.
--------------------
(i) Except for issuances of Common Stock (a) as otherwise contemplated
herein or in the Borrowing Agreement or (b) pursuant to a public offering
registered under the Securities Act, if the Company authorizes the issuance or
sale of any shares of Common Stock or any securities containing options or
rights to acquire any shares of Common Stock (other than as a dividend on the
outstanding Common Stock), the Company shall first offer to sell to each holder
of Underlying Common Stock and Executive Stock a portion of such stock or
securities equal to the product of the aggregate amount of such stock or
securities authorized for sale multiplied by the quotient determined by dividing
(1) the number of shares of Underlying Common Stock or Executive Stock held by
such holder by (2) the sum of the total number of shares of Underlying Common
Stock and Executive Stock and the number of shares of Common Stock outstanding
which are not shares of Underlying Common Stock or Executive Stock. Each holder
of Underlying Common Stock and Executive Stock shall be entitled to purchase
such stock or securities at the most favorable price and on the most favorable
terms as such stock or securities are to be offered to any other Persons.
(ii) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock or Executive Stock
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must within 15 days after receipt of written notice from the Company describing
in reasonable detail the stock or securities being offered, the purchase price
thereof, the payment terms and such holder's percentage allotment deliver a
written notice to the Company describing its election hereunder. If all of the
stock and securities offered to the holders of Underlying Common Stock and
Executive Stock is not fully subscribed by such holders, the remaining stock and
securities shall be reoffered by the Company to the holders purchasing their
full allotment upon the terms set forth in this paragraph, except that such
holders must exercise their purchase rights within five days after receipt of
such reoffer.
(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of Underlying Common Stock and Executive Stock have not elected to purchase
during the 90 days following such expiration on terms and conditions no more
favorable to the purchasers thereof than those offered to such holders. Any
stock or securities offered or sold by the Company after such 90-day period must
be reoffered to the holders of Underlying Common Stock and Executive Stock
pursuant to the terms of this paragraph.
(iv) The rights under this paragraph and paragraph 3M shall terminate
upon a Qualified Public Offering.
3.1K. Regulatory Compliance Cooperation.
---------------------------------
Before the Company redeems, purchases or otherwise acquires, directly
or indirectly, or converts or takes any action with respect to the voting rights
of, any shares of any class of its capital stock or any securities convertible
into or exchange able for any shares of any class of its capital stock (other
than a redemption of Class A Preferred or a conversion of Class B Common), the
Company shall give written notice of such pending action to the Purchasers.
Upon the written request of any Purchaser made within 10 days after its receipt
of any such notice stating that after giving effect to such action such
Purchaser would have a Regulatory Problem, the Company shall defer taking such
action for such period (not to extend beyond 45 days after such Purchaser's
receipt of the Company's original notice) as such Purchaser requests to permit
it and its Affiliates to reduce the quantity of the Company's securities they
own in order to avoid the Regulatory Problem. In addition, the Company shall not
be a party to any merger, consolidation, recapitalization or other transaction
pursuant to which any Purchaser would be required to take any voting securities,
or any securities convertible into voting securities, which might reasonably be
expected to cause such Purchaser to have a Regulatory Problem. For purposes of
this paragraph, a Person shall be deemed to have a "Regulatory Problem" when
such Person and such Person's Affiliates would own, control or have power over a
greater quantity of securities of any kind issued by the
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Company or any other entity than are permitted under any requirement of any
governmental authority.
3.1L. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose any Purchaser's name or identity as an investor in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of such Purchaser, unless such disclosure is required by applicable law
or governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
3.1M. Put. Subject to paragraph 3L(iv), at any time after June 30,
---
2001, each holder of Underlying Common Stock shall have the right, so long as
the Underlying Common Stock represents less than 50% of the Company's Common
Stock (of all classes) outstanding and then required to be issued upon exercise
of any option, warrant, conversion privilege or similar right, to sell to the
Company any or all of its Underlying Common Stock for an amount in cash equal to
its fair market value upon thirty days' prior written notice to the Company.
The Company shall take all such actions, including selling assets, borrowing
funds and giving liens in connection therewith, determining its capital surplus
based upon appraisals or valuations of its assets and obtaining assets of its
lenders, as may be required to permit it to purchase any shares so requested to
be purchased. The closing of any such purchase and sale shall take place at
such time and place as the holder electing to make such sale shall reasonably
determine. In the event that, notwithstanding compliance with its obligations
hereunder the Company is legally prohibited from completing such purchase, the
Company shall unless waived by the selling holder, purchase the maximum number
of shares then legally permitted, thereafter conduct its affairs so as to
purchase any remaining shares as quickly as possible and offer to purchase any
shares which cannot be purchased for cash for promissory notes which bear the
highest interest rate, have the shortest maturity rate and are secured by the
most collateral as is then or subsequently permitted. "Fair market value" means
for purposes of this paragraph the value determined in accordance with the
definition thereof in the Executive Stock Agreements or such higher value as may
be determined by an investment banking firm selected by the seller, with the
consent of the Company which shall not be unreasonably withheld, the fees of
which firm shall be equally shared by the Company and the seller.
3.1N. Exchange of Class A Common for Class B Common. Whenever Class A
---------------------------------------------
Common may be exchanged for Class B Common, under the Warrants, the same shall
be done, to the extent permitted under the Warrants, at the request of holders
of Class B Common issued hereunder.
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Section 4. Transfer of Restricted Securities.
---------------------------------
4.1A. General Provisions. Restricted Securities are transferable
------------------
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4.1B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of Kirkland & Ellis or other counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters to the
effect that such transfer of Restricted Securities may be effected without
registration of such Restricted Securities under the Securities Act. In
addition, if the holder of the Restricted Securities delivers to the Company an
opinion of Kirkland & Ellis or such other counsel that no subsequent transfer of
such Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in paragraph 7C. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the holder
thereof shall not transfer the same until the prospective transferee has
confirmed to the Company in writing its agreement to be bound by the conditions
contained in this paragraph and paragraph 7C.
4.1C. Rule 144A. Upon the request of any Purchaser, the Company
---------
shall promptly supply to such Purchaser or its prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
4.1D. Legend Removal. If any Restricted Securities become eligible
--------------
for sale pursuant to Rule 144(k), the Company shall, upon the request of the
holder of such Restricted Securities, remove the legend set forth in paragraph
7C from the certificates for such Restricted Securities.
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Investor Stock hereunder, the Company hereby represents and warrants that
(such representations and warranties assume that the transactions contemplated
in this Acquisition Agreement and hereby have been consummated):
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<PAGE>
5.1A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The
Company possesses all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's and each Subsidiary's charter documents
and bylaws which have been furnished to the Purchasers' special counsel reflect
all amendments made thereto at any time prior to the date of this Agreement and
are correct and complete.
5.1B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 500,000 shares of preferred
stock, of which 18,125 shares shall be designated as Class A Preferred (all of
which shall be issued and outstanding), (b) 9,000,000 shares of Class A Common,
of which 110,410 shares shall be issued and outstanding and 33,340 shares shall
be reserved for issuance upon exchange of the Class B Common issued hereunder
and issuable upon exchange of the Warrants and 1,250 shares shall be reserved
for issuance upon exercise of the Warrants, (c) 500,000 shares of Class B
Common, of which 27,090 shares shall be issued and outstanding and 5,000 shares
shall be reserved for issuance upon exercise of the Warrants. Except as set
forth on the "Capitalization Schedule," as of the Closing, neither the Company
nor any Subsidiary shall have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or securities
convertible into or exchangeable for its capital stock or any stock appreciation
rights or phantom stock plans, except for the Class B Common and the Warrants.
As of the Closing, neither the Company nor any Subsidiary shall be subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any warrants, options or other rights
to acquire its capital stock, except pursuant to this Agreement, the Certificate
of Incorporation, the Executive Stock Agreements and the Borrowing Agreement. As
of the Closing, all of the outstanding shares of the Company's capital stock
shall be validly issued, fully paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's knowledge,
contractual stockholders' preemptive rights or rights of refusal with respect to
the issuance of the Investor Stock hereunder or the issuance of the Class A
Common upon conversion of the Class B Common or upon exercise of the Warrants.
The Company has not violated any applicable federal or
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state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Investor Stock do not
require registration under the Securities Act or any applicable state securities
laws. To the best of the Company's knowledge, there are no agreements between
the Company's stockholders with respect to the voting or transfer of the
Company's capital stock or with respect to any other aspect of the Company's
affairs, except as contemplated herein.
5.1C. Subsidiaries; Investments. The Company does not own or hold
-------------------------
any rights to acquire any shares of stock or any other security or interest in
any other Person, and the Company has never had any Subsidiary.
5.1D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Registration Agreement, the Acquisition
Agreement, the Borrowing Agreement and all other agreements contemplated hereby
to which the Company is a party, the amendment of the Certificate of
Incorporation and the amendment of the Company's bylaws have been duly
authorized by the Company. This Agreement, the Registration Agreement, the
Acquisition Agreement, the Borrowing Agreement, the preferred stock provisions
of the Certificate of Incorporation and all other agreements contemplated hereby
to which the Company is a party each constitutes a valid and binding obligation
of the Company, enforceable in accordance with its terms. The execution and
delivery by the Company of this Agreement, the Registration Agreement, the
Acquisition Agreement, the Borrowing Agreement and all other agreements
contemplated hereby to which the Company is a party, the offering, sale and
issuance of the Investor Stock hereunder and the Warrants under the Borrowing
Agreement, the issuance of the Class A Common upon conversion of the Class B
Common, the amendment of the Certificate of Incorporation and the Company's
bylaws and the fulfillment of and compliance with the respective terms hereof
and thereof by the Company, do not and shall not (i) conflict with or result in
a breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's capital stock or assets pursuant to, (iv) give
any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency pursuant to,
the charter or bylaws of the Company or any law, statute, rule or regulation to
which the Company is subject, or any agreement, instrument, order, judgment or
decree to which the Company or any Subsidiary is subject.
5.1E. [Intentionally Blank]
5.1F. Absence of Undisclosed Liabilities. Except as set forth on
----------------------------------
the attached "Liabilities Schedule," the Company
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and its Subsidiaries do not have any material obligation or liability (whether
accrued, absolute, contingent, unliquidated or otherwise, whether or not known
to the Company or any Subsidiary, whether due or to become due and regardless of
when asserted) arising out of transactions entered into at or prior to the
Closing, or any action or inaction at or prior to the Closing, or any state of
facts existing at or prior to the Closing other than: (i) liabilities set forth
on the Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business (none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
5.1G. No Material Adverse Change. Since the date of the Latest
--------------------------
Balance Sheet, there has been no material adverse change in the financial
condition, operating results, assets, operations, business prospects, employee
relations or customer or supplier relations of the Company.
5.1H. Absence of Certain Developments.
-------------------------------
(i) Except as expressly contemplated by this Agreement or as set forth
on the attached "Developments Schedule," since the date of the Latest Balance
Sheet, the Company has not:
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(b) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the
ordinary course of business;
(c) discharged or satisfied any material Lien or paid any material
obligation or liability, other than current liabilities paid in the
ordinary course of business;
(d) declared or made any payment or distribution of cash or other
property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock
or other equity securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other equity
securities);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet
due and payable;
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(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any material debts
or claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets;
(h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $75,000;
(j) made any loans or advances to, guarantees for the benefit of,
or any Investments in, any Persons in excess of $5,000 in the aggregate;
(k) made any charitable contributions or pledges in excess of
$5,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss exceeding
in the aggregate $50,000, whether or not covered by insurance;
(m) made any Investment in or taken steps to incorporate any
Subsidiary; or
(n) entered into any other material transaction, whether or not
in the ordinary course of business.
(ii) The Company has not at any time made any payments for political
contributions or made any bribes, kickback payments or other illegal payments.
5.1I. Assets. The Company has good and marketable title to, or a
------
valid leasehold interest in, the properties and assets used by it, located on
its premises or shown on the Latest Balance Sheet or acquired thereafter, free
and clear of all Liens, except for properties and assets disposed of in the
ordinary course of business since the date of the Latest Balance Sheet and
except for Liens disclosed on the Latest Balance Sheet (including any notes
thereto) and Liens for current property taxes not yet due and payable, except
for liens created by the Acquisition Agreement created or permitted by the
Borrowing Agreement and except for Permitted Liens. Except as described on the
Assets Schedule, the Company's buildings, equipment and other tangible assets
are in good operating condition in all material respects and are fit for use in
the ordinary course of business. The Company owns, or have a valid leasehold
interest in, all assets necessary for the conduct of their respective businesses
as presently conducted and as presently proposed to be conducted.
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5.1J. Tax Matters.
-----------
(i) The Company has filed all Tax Returns which they are required to
file under applicable laws and regulations; all such Tax Returns are complete
and correct in all material respects and have been prepared in compliance with
all applicable laws and regulations in all material respects; the Company in all
material respects has paid all Taxes due and owing by them (whether or not such
Taxes are required to be shown on a Tax Return) and have withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party; the Company has not waived any statute of limitations with respect to any
Taxes or agreed to any extension of time with respect to any Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of the Company if their current tax year were treated
as ending on the date of the Latest Balance Sheet (excluding any amount recorded
which is attributable solely to timing differences between book and Tax income);
since the date of the Latest Balance Sheet, the Company has not incurred any
material liability for Taxes other than in the ordinary course of business; the
assessment of any additional Taxes for periods for which Tax Returns have been
filed by the Company is not expected to exceed the recorded liability therefor
on the Latest Balance Sheet (excluding any amount recorded which is attributable
solely to timing differences between book and Tax income); no foreign, federal,
state or local tax audits or administrative or judicial proceedings are pending
or being conducted with respect to the Company, no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority and no written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign, federal, state or
local taxing authority; and there are no material unresolved questions or claims
concerning the Company's Tax liability.
(ii) "Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not. "Tax Return" means any return, information
report or filing with respect to Taxes, including any schedules attached thereto
and including any amendment thereof.
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5.1K. Contracts and Commitments.
-------------------------
(i) Except as expressly contemplated by this Agreement or as set forth
on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," the Company is not a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock purchase
or other plan or arrangement providing for deferred or other compensation
to employees or any other employee benefit plan or arrangement, or any
collective bargaining agreement or any other contract with any labor union,
or severance agreements, programs, policies or arrangements;
(b) written contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis or contract relating to loans to officers, directors or Affiliates;
(c) contract under which the Company has advanced or loaned any
other Person amounts in the aggregate exceeding $25,000;
(d) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company;
(e) guarantee of any obligation in excess of $5,000;
(f) lease or agreement under which the Company is lessee of or
holds or operates any property, real or personal, owned by any other party,
except for any lease of real or personal property under which the aggregate
annual rental payments do not exceed $20,000;
(g) lease or agreement under which the Company is lessor of or
permits any third party to hold or operate any property, real or personal,
owned or controlled by the Company;
(h) contract or group of related contracts with the same party or
group of affiliated parties the performance of which involves consideration
in excess of $30,000;
(i) assignment, license, indemnification or agreement with respect
to any intangible property (including, without limitation, any Intellectual
Property);
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(j) warranty agreement with respect to its services rendered or its
products sold or leased except in the ordinary course of business;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) agreement with a term of more than six months which is not
terminable by the Company or any Subsidiary upon less than 30 days notice
without penalty;
(n) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
(o) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $100,000
annually.
(ii) All of the contracts, agreements and instruments set forth on the
Contracts Schedule are valid, binding and enforceable in accordance with their
respective terms. The Company has performed all material obligations required
to be performed by it and is not in default under or in breach of nor in receipt
of any claim of default or breach under any contract, agreement or instrument to
which the Company is subject; no event has occurred which with the passage of
time or the giving of notice or both would result in a material default, breach
or event of noncompliance by the Company under any contract, agreement or
instrument to which the Company is subject; the Company does not have any
present expectation or intention of not fully performing all such obligations;
the Company does not have knowledge of any breach or anticipated breach by the
other parties to any contract, agreement, instrument or commitment to which it
is a party; and the Company is not a party to any materially adverse contract or
commitment.
5.1L. Intellectual Property Rights.
----------------------------
(i) The attached "Intellectual Property Schedule" contains a complete
and accurate list of all (a) patented or registered Intellectual Property Rights
owned or used by the Company, (b) pending patent applications and applications
for registrations of other Intellectual Property Rights filed by the Company,
(c) unregistered trade names and corporate names owned or used by the Company
and (d) unregistered trademarks, service marks, copyrights, mask works and
computer software owned or used by the Company. The Intellectual Property
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company to any third party with respect to any
Intellectual Property Rights and all licenses and other rights
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granted by any third party to the Company with respect to any Intellectual
Property Rights, in each case identifying the subject Intellectual Property
Rights. The Company owns all right, title and interest to, or has the right to
use pursuant to a valid license, all Intellectual Property Rights necessary for
the operation of the businesses of the Company as presently conducted. The loss
or expiration of any Intellectual Property Right or related group of
Intellectual Property Rights owned or used by the Company would not reasonably
be expected to have a material adverse effect on the conduct of the Company's
businesses, and no such loss or expiration is threatened, pending or reasonably
foreseeable.
(ii) Except as set forth on the Intellectual Property Schedule, (a)
the Company owns all right, title and interest in and to all of the Intellectual
Property Rights listed on such schedule, (b) there have been no claims made
against the Company asserting the invalidity, misuse or unenforceability of any
of such Intellectual Property Rights, and, to the best of the Company's
knowledge, there are no grounds for the same, (c) the Company has not received
any notices of, and is not aware of any facts which indicate a likelihood of,
any infringement or misappropriation by, or conflict with, any third party with
respect to such Intellectual Property Rights (including, without limitation, any
demand or request that the Company license any rights from a third party), and
(d) the conduct of the Company's business has not infringed, misappropriated or
conflicted with and does not infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, nor would any future conduct as
presently contemplated infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, with the possible exception of
certain of the schools being acquired from Seller using similar names to other
NEC schools in the same area.
5.1M. Litigation, etc. Except as set forth on the attached
---------------
"Litigation Schedule," there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
threatened against or affecting the Company (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company with respect to their businesses or
proposed business activities), or pending or threatened by the Company or any
Subsidiary against any third party, at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitation, any actions, suits, proceedings or
investigations with respect to the transactions contemplated by this Agreement);
the Company is not subject to any arbitration proceedings under collective
bargaining agreements or otherwise or, to the best of the Company's knowledge,
any governmental investigations or inquiries; and, to the best of the Company's
knowledge, there is no basis for any of the foregoing. Except as set forth in
the "Litigation Schedule," the Company is not subject to any
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<PAGE>
judgment, order or decree of any court or other governmental agency, and the
Company has not received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business.
5.1N. Brokerage. Except as set forth on the attached "Brokerage
---------
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company. The
Company shall pay, and hold each Purchaser harmless against, any liability, loss
or expense (including, without limitation, reasonable attorneys' fees and out-
of-pocket expenses) arising in connection with any such claim.
5.1O. Governmental Consent, etc. Except as contemplated in the
-------------------------
Acquisition Agreement, no permit, consent, approval or authorization of, or
declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Company of any other transactions contemplated hereby or thereby.
5.1P. Employees. The Company is not aware that any executive or key
---------
employee of the Company or any group of employees of the Company has any plans
to terminate employment with the Company. The Company has complied in all
material respects with all laws relating to the employment of labor (including,
without limitation, provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes), and the Company is not aware that it has any material labor relations
problems (including, without limitation, any union organization activities,
threatened or actual strikes or work stoppages or material grievances). Neither
the Company, nor to the best of the Company's knowledge, any of its employees is
subject to any noncompete, nondisclosure, confidentiality, employment,
consulting or similar agreements relating to, affecting or in conflict with the
present or proposed business activities of the Company, except for agreements
between the Company and its present and former employees.
5.1Q. ERISA.
-----
(i) Multiemployer Plans. The Company does not have any obligation to
-------------------
contribute to (or any other liability, including current or potential withdrawal
liability, with respect to) any "multiemployer plan" (as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")).
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(ii) Retiree Welfare Plans. The Company does not maintain or have
---------------------
any obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical, health,
life insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued medical benefit coverage
required to be provided under Section 4980B of the IRC or as required under
applicable state law).
(iii) Defined Benefit Plans. Except as set forth on the "Employee
---------------------
Benefits Schedule," the Company does not maintain, contribute to or have any
liability under (or with respect to) any employee plan which is a tax-qualified
"defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not
terminated (any such plans, collectively with the Other Plans defined below, the
"Plans").
(iv) Defined Contribution Plans. The Company does not maintain,
--------------------------
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined contribution plan" (as defined in Section
3(34) of ERISA), whether or not terminated.
(v) Other Plans. Except as set forth in the "Employee Benefits
-----------
Schedule," the Company does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current
or former employees, including any bonus plan, plan for deferred compensation,
employee health or other welfare benefit plan or other arrangement, whether or
not terminated. Such plans and other arrangements are referred to as the "Other
Plans."
(vi) The Company. For purposes of this paragraph, the term "Company"
-----------
includes all organizations under common control with the Company pursuant to
Section 414(b) or (c) of the IRC.
(vii) Compliance. The Plans and all related trusts, insurance contracts
----------
and funds have been maintained, funded and administered in compliance in all
material respects with the applicable provisions of ERISA, the IRC and other
applicable laws. Neither the Company nor any trustee or administrator of any
Plan has engaged in any transaction with respect to the Plans which could
subject the Company or any trustee or administrator or the Plans, or any party
dealing with any such Plan, nor do the transactions contemplated by this
Agreement constitute transactions which could subject any such party, to either
a civil penalty assessed pursuant to Section 502(i) of ERISA or the tax or
penalty on prohibited transactions imposed by Section 4975 of the IRC. No
actions, suits or claims with respect to the assets of the Plans (other than
routine claims for benefits) are pending or threatened which could result in or
subject the Company to any material liability, and there are no circumstances
which could give rise to or be expected to give rise to any such actions, suits
or claims.
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<PAGE>
5.1R. Compliance with Laws. The Company has not violated any law or
--------------------
any governmental regulation or requirement which violation has had or would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company, and the Company has not received notice of any such violation. The
Company is not subject to, or has no reason to believe it may become subject to,
any liability (contingent or otherwise) or corrective or remedial obligation
arising under any federal, state, local or foreign law, rule or regulation
(including the common law) relating to or regulating health, safety, pollution
or the protection of the environment ("Environmental Laws").
5.1S. Environmental and Safety Matters.
--------------------------------
(i) For purposes of this Agreement, the term "Environmental and
Safety Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual
obligations and all common law, in each case concerning public health and
safety, worker health and safety and pollution or protection of the environment
(including, without limitation, all those relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation); "Release" shall have the meaning
set forth in CERCLA (as defined below); and "Environmental Lien" shall mean any
Lien, whether recorded or unrecorded, in favor of any governmental entity,
relating to any liability of the Company arising under any Environmental and
Safety Requirements.
(ii) Except as set forth on the attached "Environmental Schedule":
(a) The Company has complied with and is currently in
compliance with all Environmental and Safety Requirements, and the Company
has not received any oral or written notice, report or information
regarding any liabilities (whether accrued, absolute, contingent, unliqui-
dated or otherwise) or any corrective, investigatory or remedial
obligations arising under Environmental and Safety Requirements which
relate to the Company or any of its properties or facilities.
(b) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is currently in compliance
with, all permits, licenses and other authorizations that may be required
pursuant to any Environmental and Safety Requirements for the occupancy of
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<PAGE>
its properties or facilities or the operation of their businesses.
(c) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on
the Company for site investigation or cleanup, or notification to or
consent of any government agencies or third parties under any Environmental
and Safety Requirements (including, without limitation, any so called
"transaction-triggered" or "responsible property transfer" laws and
regulations).
(d) None of the following exists at any property or facility
owned, occupied or operated by the Company:
(1) underground storage tanks or surface impoundments;
(2) asbestos-containing materials in any form or condition; or
(3) materials or equipment containing polychlorinated
biphenyls.
(e) The Company has not treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled or Released any
substance (including, without limitation, any hazardous substance) or
owned, occupied or operated any facility or property, so as to give rise to
liabilities of the Company for response costs, natural resource damages or
attorneys fees pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), as amended, or any other
Environmental and Safety Requirements.
(f) Without limiting the generality of the foregoing, no facts,
events or conditions relating to the past or present properties, facilities
or operations of the Company or its Subsidiaries shall prevent, hinder or
limit continued compliance with Environmental and Safety Requirements,
give rise to any corrective, investigatory or remedial obligations pursuant
to Environmental and Safety Requirements or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including,
without limitation, those liabilities relating to onsite or offsite
Releases or threatened Releases of hazardous materials, substances or
wastes, personal injury, property damage or natural resources damage.
5.1T. Affiliated Transactions. Except as set forth on the
-----------------------
attached "Affiliated Transactions Schedule," no officer or director of the
Company or any individual related by blood, marriage or adoption to any such
individual or any entity in
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<PAGE>
which any such Person or individual owns any beneficial interest, is a party to
any agreement, contract, commitment or transaction with the Company has any
material interest in any material property used by the Company.
5.1U. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, attachments, written statements, documents, certificates or other
items prepared or supplied to any Purchaser by or on behalf of the Company with
respect to the transactions contemplated hereby contain any untrue statement of
a material fact or omit a material fact necessary to make each statement
contained herein or therein not misleading. There is no fact which the Company
has not disclosed to the Purchasers in writing and of which any of its officers,
directors or executive employees is aware (other than general economic
conditions) and which has had or would reasonably be expected to have a material
adverse effect upon the existing or expected financial condition, operating
results, assets, customer or supplier relations, employee relations or business
prospects of the Company.
5.1V. Closing Date. The representations and warranties of the
------------
Company contained in this Section 5 and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, the Company to any
Purchaser shall be true and correct in all material respects on the date of the
Closing as though then made, except as affected by the transactions expressly
contemplated by this Agreement, the Acquisition Agreement and the Borrowing
Agreement.
5.1W. Acquisition Agreement Representations. To the best of the
-------------------------------------
Company's knowledge after due inquiry, the representations and warranties made
by Seller and NEC in the Acquisition Agreement are true and correct in all
material respects.
5.1X. Projections and Pro Forma Financial Statements. The
----------------------------------------------
projected financial statements and financial information of the Company included
in the Company's Private Placement Memorandum for a $2.5 million Equity
Investment, dated April 21, 1995, are based on fair and reasonable assumptions
in light of the historical performance of the business to be acquired, the plans
to change the operations thereof and reasonably forseeable business conditions.
5.1Y. Knowledge. As used in this Section 5, the terms "knowledge"
---------
or "aware" shall mean the actual knowledge or awareness of the Company (which
shall include the actual knowledge and awareness of the officers, directors and
key employees of the Company.
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<PAGE>
Section 6. Definitions.
-----------
6.1A. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Borrowing Agreement" means the loan agreement and the related
-------------------
agreements between the Company and the Lender referred to in paragraph 2G, as
such agreements are in effect at the closing and amended, modified or waived
from time to time as permitted by paragraph.
"Executive Stock" means all shares of Class A Common and all shares
---------------
of vested Class B Common held by each executive party to an Executive Stock
Agreement who, at the time in question, is employed by the Company or one of its
Subsidiaries.
"Event of Noncompliance" has the meaning set forth in the Certificate
----------------------
of Incorporation.
"Indebtedness" means all indebtedness for borrowed money (including
-------------
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendible at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Intellectual Property Rights" means all (i) patents, patent
----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual
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<PAGE>
property rights and (viii) copies and tangible embodiments thereof (in whatever
form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"Permitted Liens" means:
---------------
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established in accordance with
generally accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security
obligations;
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<PAGE>
(iii) purchase money security interests in any property acquired
by the Company or any Subsidiary to the extent permitted by this Agreement;
(iv) interests or title of a lessor under any lease permitted
by this Agreement;
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due and
payable;
(vi) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value
of the assets of the Company and its Subsidiaries;
(vii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement;
and
(viii) liens assumed by the Company or a Subsidiary in connection
with the Acquisition permitted by this Agreement, and liens created under
or contemplated by the Acquisition Agreement and the Borrowing Agreement.
"Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Qualified Public Offering" has the meaning specified in the
-------------------------
Executive Stock Agreements.
"Restricted Securities" means (i) the Investor Stock issued
---------------------
hereunder, (ii) the Class A Common issued upon exchange of Class B Common and
(iii) any securities issued with respect to the securities referred to in
clauses (i) or (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7C have been
delivered by the Company in accordance with paragraph 4. Whenever any particular
securities cease to be Restricted
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<PAGE>
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in paragraph 7C.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Subsidiary" means any corporation of which the securities having a
----------
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
"Underlying Common Stock" means (i) the Class A Common issued
-----------------------
hereunder, (ii) the Class A Common issued or issuable upon exchange of the Class
B Common and (iii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) or (ii) above by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular shares of
Underlying Common Stock, such shares shall cease to be Underlying Common Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them, (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar provision then in force) or
(c) repurchased by the Company or any Subsidiary.
"Warrants" means the warrants to be issued under the Borrowing
--------
Agreement.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
-------------
7.1A. Expenses. The Company shall pay, and hold each Purchaser
--------
and all holders of Class A Preferred and Underlying Common Stock harmless
against liability for the payment of, (i) the reasonable fees and expenses of
their special counsel arising in connection with the negotiation and execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing or, if
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<PAGE>
the Closing does not occur, payable upon demand, (ii) the reasonable fees and
expenses incurred with respect to any amendments or waivers (whether or not the
same become effective) under or in respect of this Agreement, the agreements
contemplated hereby, the Certificate of Incorporation, (iii) stamp and other
taxes which may be payable in respect of the execution and delivery of this
Agreement or the issuance, delivery or acquisition of any shares of Investor
Stock or any shares of Class A Common issuable upon conversion of Class B
Common, (iv) the reasonable fees and expenses incurred with respect to the
enforcement of the rights granted under this Agreement, the agreements
contemplated hereby and, the Certificate of Incorporation and (v) the reasonable
fees and expenses incurred by each such Person in any filing with any
governmental agency with respect to its investment in the Company or in any
other filing with any governmental agency with respect to the Company which
mentions such Person.
7.1B. Remedies. Each holder of Class A Preferred and Underlying
--------
Common Stock shall have all rights and remedies set forth in this Agreement, the
Certificate of Incorporation and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
7.1C. Purchaser's Investment Representations. Each Purchaser
--------------------------------------
hereby represents that it is acquiring the Restricted Securities purchased
hereunder or acquired pursuant hereto for its own account with the present
intention of holding such securities for purposes of investment, and that it has
no intention of selling such securities in a public distribution in violation of
the federal securities laws or any applicable state securities laws; provided
that nothing contained herein shall prevent any Purchaser and subsequent holders
of Restricted Securities from transferring such securities in compliance with
the provisions of Section 4 hereof. Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate were originally issued on
June 30, 1995, and have not been registered under the Securities Act of
1933, as amended. The transfer of the securities represented by this
certificate is subject to the conditions specified in the Purchase
Agreement, dated as of June 30, 1995 and as amended and modified from time
to time, between the issuer (the "Company") and certain investors, and the
Company reserves the right to refuse the transfer of such securities until
such conditions have been
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<PAGE>
fulfilled with respect to such transfer. A copy of such conditions shall be
furnished by the Company to the holder hereof upon written request and
without charge."
7.1D. Treatment of the Preferred Stock. The Company covenants and
--------------------------------
agrees that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports. The Company acknowledges and
agrees that the increased dividend rate on the Preferred Stock provided for in
the Certificate of Incorporation upon the occurrence of certain Events of
Noncompliance has been negotiated by (and is intended by) the Company and the
Purchasers as a reasonable increase in yield necessitated by the increased risk
to the holders of the Preferred Stock which would arise upon any such
occurrence.
7.1E. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding Class A Preferred; pro vided that if
there is no Class A Preferred outstanding, the provisions of this Agreement may
be amended and the Company may take any action herein prohibited, only if the
Company has obtained the written consent of the holders of a majority of the
Underlying Common Stock. No other course of dealing between the Company and the
holder of any Class A Preferred or Underlying Common Stock or any delay in
exercising any rights hereunder or under the Certificate of Incorporation shall
operate as a waiver of any rights of any such holders. For purposes of this
Agreement, shares of Class A Preferred or Underlying Common Stock held by the
Company shall not be deemed to be outstanding. If the Company pays any
consideration to any holder of Class A Preferred or Underlying Common Stock for
such holder's consent to any amendment, modification or waiver hereunder, the
Company shall also pay each other holder granting its consent hereunder
equivalent consideration computed on a pro rata basis.
7.1F. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Purchaser or on its behalf.
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<PAGE>
7.1G. Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not. In addition, and whether or not any express assignment has been made,
the provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Class A Preferred or Underlying Common Stock are also for
the benefit of, and enforceable by, any subsequent holder of such Class A
Preferred or such Underlying Common Stock.
7.1H. Capital and Surplus; Special Reserves. The Company agrees
-------------------------------------
that the capital of the Company (as such term is used in Section 154 of the
General Corporation Law of Delaware) in respect of the Class A Preferred issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement. The Company also agrees that it shall not create any special
reserves under Section 171 of the General Corporation Law of Delaware without
the prior written consent of the holders of a majority of the outstanding Class
A Preferred except as may be required by law.
7.1I. Generally Accepted Accounting Principles. Where any
----------------------------------------
accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, such determination or calculation
shall continue to be made in accordance with the Company's previous accounting
methods and policies.
7.1J. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7.1K. Counterparts. This Agreement may be executed simultaneously
------------
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
7.1L. Descriptive Headings; Interpretation. The descriptive
------------------------------------
headings of this Agreement are inserted for
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<PAGE>
convenience only and do not constitute a substantive part of this Agreement. The
use of the word "including" in this Agreement shall be by way of example rather
than by limitation.
7.1M. Governing Law. The corporate law of the State of Delaware
-------------
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stockholders. All other issues and questions
concerning the construction, validity, enforcement and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California. In furtherance of the foregoing, the internal law of the State of
California shall control the interpretation and construction of this Agreement
(and all schedules and exhibits hereto), even though under that jurisdiction's
choice of law or conflict of law analysis, the substantive law of some other
jurisdiction would ordinarily apply.
7.1N. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Purchaser at the address indicated on the
Schedule of Purchasers and to the Company at the address indicated below:
1732 Reynolds Street
Irvine, CA 92714
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7.1O. Understanding Among the Purchasers. The determination of
----- ----------------------------------
each Purchaser to purchase the Investor Stock pursuant to this Agreement has
been made by such Purchaser independent of any other Purchaser and independent
of any statements or opinions as to the advisability of such purchase or as to
the properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
Purchaser or by any agent or employee of any other Purchaser.
7.1P. No Strict Construction. The parties hereto have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By /s/ David G. Moore
--------------------------
Its PRESIDENT
-------------------------
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By:Primus Venture Partners, Inc.
By __________________________
Its _________________________
BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By:__________________________
By __________________________
Its _________________________
-38-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By __________________________
Its _________________________
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By:Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
-------------------------
Its President
------------------------
BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By:_________________________
By _________________________
Its ________________________
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By __________________________________________
Its _________________________________________
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By:Primus Venture Partners, Inc.
By __________________________________________
Its _________________________________________
BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: Banc One Capital Partners II, Corporation
-----------------------------------------
By /s/ Earle J. Bensing
-----------------------------------------
Its Senior Vice President
------------------------------------------
-40-
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Total
No. of No. of No. of Purchase
Shares Shares Shares Price
of of of for
Names and Class A Class A Class B Investor
Addresses Preferred Common Common Stock
- ------------------------- --------- ------- ------- -----------
<S> <C> <C> <C> <C>
Primus Capital Fund III 14,500 55,000 -0- $2,000,000
Limited Partnership
Attn: Loyal W. Wilson
1375 East Ninth Street
Suite 2700
Cleveland, Ohio 44114
Banc One Capital 3,625 5,410 8,340 $ 500,000
Partners II, Limited
Partnership
Attn: Earle J. Bensing
10 West Broad Street
Suite 400
Columbus, Ohio 43215
______ ______ _____ __________
TOTAL 18,125 60,410 8,340 $2,500,000
</TABLE>
-41-
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Restated Certificate of Incorporation
Exhibit B - Bylaws
Exhibit C - Registration Agreement
Exhibit D - Executive Stock Agreement
Exhibit E - Opinion of Counsel
-42-
<PAGE>
LIST OF DISCLOSURE SCHEDULES
----------------------------
Capitalization Schedule
Assets Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Brokerage Schedule
Employees Schedule
Employee Benefits Schedule
Environmental Schedule
Affiliated Transactions Schedule
-43-
<PAGE>
EXHIBIT 10.12
AMENDED AND RESTATED REGISTRATION AGREEMENT
-------------------------------------------
THIS AGREEMENT is made as of October 17, 1996 between Corinthian Colleges,
Inc., a Delaware corporation (the "Company"), Primus Capital Fund III Limited
Partnership, an Ohio limited partnership ("Primus"), BOCP II, Limited Liability
Company, an Ohio limited liability company and successor by merger to Bank One
Capital Partners II, Limited Partnership ("BancOne, LLC"), and Banc One Capital
Partners II, Ltd., an Ohio limited liability company ("BancOne, Ltd."), and
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux and Lloyd
W. Holland (such individuals being referred to as the "Executives") and The
Prudential Insurance Company of America ("Prudential").
The Company is a party to a Note Purchase and Revolving Credit Agreement
(the "Note Agreement"), dated as of October 17, 1996 with Prudential, and a
Subordinate Note and Warrant Purchase Agreement (the "Subordinated Note
Agreement") dated as of October 17, 1996 with BancOne, Ltd. and Primus pursuant
to which the Company has agreed, among other things, to issue to Prudential,
BancOne, Ltd. and Primus warrants to purchase shares of its common stock.
Corinthian Schools, Inc., a Delaware corporation ("CSI"), Primus and
BancOne, LLC entered into a Purchase Agreement on June 30, 1995 (the "Purchase
Agreement") pursuant to which Primus and BancOne, LLC purchased among other
things, common stock of CSI. At the same time, Primus and BancOne, LLC acquired
warrants to purchase common stock of CSI. Each Executive and CSI entered into an
Executive Stock Agreement ("Executive Stock Agreement") on June 30, 1995
pursuant to which the Executives purchased common stock of CSI. The Executives,
Primus and BancOne, LLC entered into a Registration Agreement on June 30, 1995
(the "Original Registration Agreement") pursuant to which Primus and BancOne,
LLC acquired registration rights for securities purchased under the Purchase
Agreement. The Company has succeeded to all rights and obligations of CSI under
the Purchase Agreement and the Executive Stock Agreements and the stock of CSI
has been converted into stock of the Company.
In order to induce Prudential to enter into the Note Agreement and to
induce Primus and BancOne, Ltd. to enter into the Subordinated Note Agreement,
the Company has agreed to amend and restate the Original Registration Agreement
to provide the registration rights set forth in this Agreement. Unless otherwise
provided in this Agreement, capitalized terms used herein shall have the
meanings set forth in paragraph 9 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
<PAGE>
(a) Requests for Registration by Holders of the Investor Registrable
Securities. At any time the holders of a majority of the Investor Registrable
Securities may request registration under the Securities Act of all or any
portion of their Registrable Securities on Form S-l or any similar long-form
registration ("Long-Form Registrations"), and the holders of at least 10% of the
Investor Registrable Securities may request registration under the Securities
Act of all or any portion of their Registrable Securities on Form S-2 or S-3 or
any similar short-form registration ("Short-Form Registrations") if available.
All registrations requested pursuant to this paragraph 1(a) are referred to
herein as ("Investor Demand Registrations"). Each request for an Investor Demand
Registration shall specify the approximate number of Investor Registrable
Securities requested to be registered and the anticipated per share price range
for such offering. Within ten days after receipt of any such request, the
Company shall give written notice of such requested registration to all other
holders of Investor Registrable Securities and all holders of Prudential
Registrable Securities and shall include, subject to the provisions hereof, in
such registration all Investor Registrable Securities and Prudential Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Request for Registration by Holders of the Prudential Registrable
Securities. At any time after October 17, 1998, the holders of a majority of the
Prudential Registrable Securities may request registration under the Securities
Act of all or any portion of their Registrable Securities on Form S-1 or any
similar long-form registration ("Long-Form Registrations"), and the holders of
at least 10% of the Prudential Registrable Securities may request registration
under the Securities Act of all or any portion of their Registrable Securities
on Form S-2 or S-3 or any similar short-form registration ("Short-Form
Registrations") if available. All registrations requested pursuant to this
paragraph 1(b) are referred to herein as ("Prudential Demand Registrations" and
collectively with the Investor Demand Registrations ("Demand Registrations")).
Each request for a Prudential Demand Registration shall specify the approximate
number of Prudential Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Prudential Registrable Securities
and all holders of Investor Registrable Securities and shall include, subject to
the provisions hereof, in such registration all Prudential Registrable
Securities and Investor Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 15 days after the
receipt of the Company's notice.
(c) Long-Form Registrations.
(i) The holders of Investor Registrable Securities shall be
entitled to request (1) two Long-Form Registrations in which the Company shall
pay all Registration Expenses ("Company-paid Long-Form Registrations") and (2)
an unlimited number of Long-Form Registrations in which the holders of
Registrable Securities shall pay their share of the Registration Expenses as set
forth in paragraph 5(c) hereof ("Holder-paid Long-Form Registrations"); provided
-2-
<PAGE>
that the aggregate offering value of the Registrable Securities requested to be
registered in any such Long-Form Registration must equal at least $1,000,000. A
registration shall not count as one of the Long-Form Registrations permitted
under this subparagraph (i) until it has become effective, and neither the last
nor any subsequent Company-paid Long-Form Registration nor the last or any
subsequent Holder-paid Long-Form Registration shall count as one of such Long-
Form Registrations permitted unless the holders of Investor Registrable
Securities are able to register and sell at least 90% of the Investor
Registrable Securities requested to be included in such registration; provided
that in any event the Company shall pay all Registration Expenses in connection
with any registration initiated as a Company-paid Long-Form Registration whether
or not it has become effective and whether or not such registration has counted
as one of the permitted Company-paid Long-Form Registrations.
(ii) The holders of the Prudential Registrable Securities shall be
entitled to request two Company-paid Long-Form Registrations, provided, however,
in the event that the aggregate number of shares of Prudential Registrable
Securities sold pursuant to both such Company-paid Long-Form Registrations is
less than two-thirds of the aggregate number of the Prudential Registrable
Securities initially issuable upon the exercise of the Warrants, the holders of
the Prudential Registrable Securities shall be entitled to request one
additional Long-Form Registration; provided that the aggregate offering value of
the Registrable Securities requested to be registered in any such Long-Form
Registration must equal at least $1,000,000. A registration shall not count as
one of the Long-Form Registrations permitted under this subparagraph (ii) until
it has become effective, and neither the last nor any subsequent Company-paid
Long-Form Registration shall count as one of such permitted Long-Form
Registrations unless the holders of Prudential Registrable Securities are able
to register and sell at least 90% of the Prudential Registrable Securities
requested to be included in such registration; provided that in any event the
Company shall pay all Registration Expenses in connection with any registration
initiated as a Company-paid Long-Form Registration whether or not it has become
effective and whether or not such registration has counted as one of the
permitted Company-paid Long-Form Registrations.
(d) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to paragraph 1(c), the holders of the Investor
Registrable Securities and the holders of the Prudential Registrable Securities
shall be entitled to request an unlimited number of Short-Form Registrations in
which the Company shall pay all Registration Expenses; provided that the
aggregate offering value of the Registrable Securities requested to be
registered in any Short-Form Registration must equal at least $500,000. Demand
Registrations shall be Short-Form Registrations whenever the Company is
permitted to use any applicable short form. After the Company has become subject
to the reporting requirements of the Securities Exchange Act, the Company shall
use its best efforts to make Short-Form Registrations available for the sale of
Investor Registrable Securities and the Prudential Registrable Securities.
(e) Priority on Investor Demand Registrations. The Company shall not
include in any Investor Demand Registration any securities which are not
Registrable Securities without the prior written consent of the holders of a
majority of the Investor Registrable Securities initially
-3-
<PAGE>
requesting such registration. If an Investor Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Investor Registrable Securities
initially requesting registration, the Company shall include in such
registration prior to the inclusion of any securities which are not Registrable
Securities first the number of Investor Registrable Securities requested to be
included which in the opinion of such underwriters can be sold in an orderly
manner within the price range of such offering, pro rata among the respective
holders thereof on the basis of the amount of Investor Registrable Securities
owned by each such holder and second, after the inclusion of all Investor
Registrable Securities, the number of Prudential Registrable Securities
requested to be included which in the opinion of such underwriters can be sold
in an orderly manner within such price range, pro rata among the respective
holders thereof on the basis of the amount of Prudential Registrable Securities
owned by each such holder and third, after the inclusion of all Prudential
Registrable Securities, the number of Executive Registrable Securities
requested to be included which in the opinion of such underwriters can be sold
in an orderly manner within such price range, pro rata among the respective
holders thereof on the basis of the amount of Executive Registrable Securities
owned by each such holder.
(f) Priority on Prudential Demand Registration. The Company shall not
include in any Prudential Demand Registration any securities which are not
Registrable Securities without the prior written consent of the holders of the
Prudential Registrable Securities initially requesting such registration. If a
Prudential Demand Registration is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the number of
Registrable Securities and, if permitted hereunder, other securities requested
to be included in such offering exceeds the number of Registrable Securities and
other securities, if any, which can be sold in an orderly manner in such
offering within a price range acceptable to the holders of the Prudential
Registrable Securities initially requesting registration,the Company shall
include in such registration prior to the inclusion of any securities which are
not Registrable Securities first the number of Prudential Registrable Securities
requested to be included which in the opinion of such underwriters can be sold
in an orderly manner within the price range of such offering, pro rata among the
respective holders thereof on the basis of the amount of Prudential Registrable
Securities owned by each such holder and second, after the inclusion of all
Prudential Registrable Securities, the number of Investor Registrable Securities
requested to be included which in the opinion of such underwriters can be sold
in an orderly manner within such price range, pro rata among the respective
holders thereof on the basis of the amount of Investor Registrable Securities
owned by each such holder and third, after the inclusion of all Investor
Registrable Securities, the number of Executive Registrable Securities requested
to be included which in the opinion of such underwriters can be sold in an
orderly manner within such price range, pro rata among the respective holders
thereof on the basis of the amount of Executive Registrable Securities owned by
each such holder.
(g) Restrictions on Long-Form Registrations. The Company shall not be
obligated to effect any Long-Form Registration within 180 days after the
effective date of a previous
-4-
<PAGE>
Long-Form Registration or a previous registration in which the holders of
Priority Registrable Securities were given piggyback rights pursuant to
paragraph 2 and in which there was no reduction in the number of Priority
Registrable Securities requested to be included. The Company may postpone for up
to 180 days the filing or the effectiveness of a registration statement for a
Demand Registration if the Company and the holders of a majority of the
Investor Registrable Securities agree in the case of an Investor Demand
Registration or the holders of a majority of Prudential Registrable Securities
in the case of a Prudential Demand Registration or if the Company's board of
directors determines in its reasonable good faith judgment that such Demand
Registration would reasonably be expected to have a material adverse effect on
any proposal or plan by the Company or any of its Subsidiaries to engage in any
material financing or acquisition of assets (other than in the ordinary course
of business) or any merger, consolidation, tender offer, reorganization or
similar transaction; provided that in such event, the holders of Investor
Registrable Securities or Prudential Registerable Securities initially
requesting such Demand Registration shall be entitled to withdraw such request
and, if such request is withdrawn, such Demand Registration shall not count as
one of the permitted Demand Registrations hereunder and the Company shall pay
all Registration Expenses in connection with such registration. The Company may
delay a Demand Registration hereunder only once in any twelve-month period.
(h) Selection of Underwriters. The holders of a majority of the
Registrable Securities included in any Demand Registration initially requesting
registration hereunder shall have the right to select the investment banker(s)
and manager(s) to administer the offering, subject to the approval of the
Company which shall not be unreasonably withheld.
(i) Other Registration Rights. Except as provided in this Agreement,
the Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of a majority of the Priority Registrable Securities;
provided that the Company may grant rights to employees of the Company and its
Subsidiaries to participate in Piggyback Registrations so long as such rights
are subordinate to the rights of the holders of Registrable Securities with
respect to such Piggyback Registrations as provided in paragraphs 2(c) and 2(d)
below.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"),the Company
shall give prompt written notice to all holders of Registrable Securities of its
intention to effect such a resitration and shall include, subject to the
provisions hereof, in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
20 days after the receipt of the Company's notice.
-5-
<PAGE>
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company shall include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Priority
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Priority Registrable Securities on the basis of the
number of shares owned by each such holder, (iii) third, the Executive
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Executive Registrable Securities on the basis of the
number of shares owned by each such holder, and (iv) fourth, other securities
requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities other than a Demand Registration, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the holders initially requesting such registration, the Company shall include in
such registration (i) first, the securities requested to be included therein by
the holders requesting such registration, (ii) second, the Priority Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Priority Registrable Securities on the basis of the number of
shares owned by each such holder, (iii) third, the Executive Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Executive Registrable Securities on the basis of the number of
shares owned by each such holder, and (iv) fourth, other securities requested to
be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by the holders of a majority of the Priority
Registrable Securities included in such Piggyback Registration. Such approval
shall not be unreasonably withheld.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to the Priority Registrable Securities
pursuant to paragraph 1 or pursuant to this paragraph 2, and if such previous
registration has not been withdrawn or abandoned, the Company shall not without
the consent of holders of a majority of the Priority Registrable Securities file
or cause to be effected any other registration of any of its equity securities
or securities convertible or exchangeable into or exercisable for its equity
securities under the Securities Act (except on Form S-8 or any successor form),
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least 180 days has elapsed from the effective
date of such previous registration.
-6-
<PAGE>
3. Holdback Agreements.
(a) Each holder of Registrable Securities shall not effect any public
sale or distribution (including sales pursuant to Rule 144) of equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 180-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration in which Registrable Securities are
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) Unless the holders of a majority of the Priority Registrable
Securities consent to the contrary, the Company (i) shall not effect any public
sale or distribution of its equity securities, or any securities convertible
into or exchangeable or exercisable for such securities, during the seven days
prior to and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) shall cause each holder of
at least 1% (on a fully-diluted basis) of its Common Stock, or any securities
convertible into or exchangeable or exercisable for Common Stock, purchased from
the Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Priority Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof (including the registration of Class B
Common and Warrants held by a holder of Registrable Securities requesting
registration as to which the Company has received reasonable assurances that
only Registrable Securities shall be distributed to the public), and pursuant
thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Investor Registrable Securities covered by such
registration in the event of an Investor Demand Registration, or the holders of
the Prudential Registrable Securities covered by such registration statement in
the event of a Prudential Demand Registration, copies of all such documents
proposed to be filed, which documents shall be subject to the review and comment
of such counsel);
-7-
<PAGE>
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
-8-
<PAGE>
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Investor Registrable Securities being sold in the case of an
Investor Demand Registration, or the holders of a majority of the Prudential
Registrable Securities being sold in the case of a Prudential Demand
Registration, or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities (including
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) permit holder of Registrable Securities which holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included; and
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses,
-9-
<PAGE>
fees and disbursements of custodians, and fees and disbursements of counsel for
the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons retained by the Company
(all such expenses being herein called "Registration Expenses"), shall be borne
as provided in this Agreement, except that the Company shall, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for listing the securities to be registered
on each securities exchange on which similar securities issued by the Company
are then listed or on the NASD automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Investor Registrable
Securities in the case of an Investor Demand Registration, or the holders of a
majority of the Prudential Registrable Securities in the case of a Prudential
Demand Registration, or by the holders of a majority of the Priority Registrable
Securities in the case of a Piggyback Registration and for the reasonable fees
and disbursements of each additional counsel retained by any holder of
Registrable Securities for the purpose of rendering a legal opinion on behalf of
such holder in connection with any underwritten Demand Registration or Piggyback
Registration.
(c) To the extent Registration Expenses are not required to be paid
by the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. Indemnification
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
-10-
<PAGE>
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or al1eged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunderto the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement shall remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (i)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
-11-
<PAGE>
powers of attorney, indemnities, underwriting agreements, lock-up agreements and
other documents required under the terms of such underwriting arrangements.
8. Merger of Previous Registration Agreements. This Agreement supersedes
and replaces any and all previous registration agreements executed between the
parties to this Agreement including the Registration Agreement dated June 30,
1995 between CSI, Primus, BancOne, LLC, and the Executives.
9. Definitions.
(a) "Common Stock" means (i) the Company's Class A Common Stock, $0.01
per share par value ("Class A Common"), and (ii) Class B Common Stock, $0.01 per
share par value ("Class B Common") and (iii) any Common Stock issued or issuable
with respect to the securities referred to in clause (i) or (ii) above by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular shares of Common Stock, such shares shall cease to be Common Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them, (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar provision then in force), or
(c) repurchased by the Company or any Subsidiary.
(b) "Executive Registrable Securities" means (i) any Class A Common
issued in the Merger in exchange for stock issued pursuant to an Executive Stock
Agreement, (ii) any Class A Common issued upon exchange for any Class B Common
issued in the Merger in exchange for stock issued pursuant to an Executive Stock
Agreement and (iii) any other Common Stock issued or issuable with respect to
the securities referred to in clause (i) or (ii) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
(c) "Investor Registrable Securities" means (i) any Class A Common
issued in the Merger in exchange for stock issued pursuant to the Purchase
Agreement, (ii) any Class A Common issued upon exchange for any Class B Common
issued upon exercise of the Warrants or issued in the Merger in exchange for
stock issued pursuant to the Purchase Agreement, (iii) any Common Stock issued
or issuable upon exercise of the Warrants issued pursuant to the Subordinated
Note Agreement, and (iv) any other Common Stock issued or issuable with respect
to the securities referred to in clause (i), (ii) or (iii) above by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
(d) "Merger" means the merger of a subsidiary of the Company into CSI
in which the then existing CSI securities were converted into securities of the
the Company.
(e) "Priority Registrable Securities" means all Registrable Securities
with the exception of the Executive Registrable Securities.
-12-
<PAGE>
(f) "Prudential Registrable Securities" means (i) any Common Stock
issued or issuable upon exercise of the Warrants issued pursuant to the Note
Agreement and (ii) any other Common Stock issued or issuable with respect to the
securities referred to in clause (i) by way or a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(g) "Registrable Securities" means Investor Registrable Securities,
Prudential Registrable Securities and Executive Registrable Securities. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when they have been distributed to the public pursuant to
an offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144 under the Securities
Act (or any similar rule then in force). For purposes of this Agreement, a
Person shall be deemed to be a holder of Registrable Securities, and the
Registrable Securities shall be deemed to be in existence, whenever such Person
has the right to acquire directly or indirectly such Registrable Securities
(upon conversion or exercise in connection with a transfer of securities or
otherwise, but disregarding any restrictions or limitations upon the exercise of
such right), whether or not such acquisition has actually been effected, and
such Person shall be entitled to exercise the rights of a holder of Registrable
Securities hereunder.
(h) "Warrants" means the warrants, including any contingent stock
warrants, issued under the Note Agreement and the Subordinated Note Agreement.
(i) Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement.
10. Miscellaneous.
(a) Selection of Investment Bankers. Except as otherwise provided
herein in connection with Demand Registrations, the selection of investment
banker(s) and manager(s) for any public offering or private sale by the Company
of its securities must be approved by the holders of a majority of the Priority
Registrable Securities, which approval shall not be unreasonably withheld.
(b) No Inconsistent Agreements. The Company shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(c) Adjustments Affecting Registrable Securities. The Company shall
not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
-13-
<PAGE>
(d) Remedies. Any Person having rights under any provision of this
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(e) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of a majority of the Registrable
Securities; provided, however, that if any such action adversely affects the
rights or adds to or changes the obligations hereunder of the holders of
Investor Registrable Securities, Prudential Registrable Securities or Executive
Registrable Securities, the consent of holders of a majority of each type of
Registrable Securities with such rights adversely affected or such obligations
added to or changed shall be required.
(f) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of and
enforceable by any subsequent holder of Registrable Securities permitted under
the Purchase Agreement, the Note Agreement, the Subordinated Note Agreement or
an Executive Stock Agreement, as the case may be.
(g) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(h) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
(i) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(j) Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other issues and questions concerning the
construction, validity, interpretation and enforcement of this
-14-
<PAGE>
Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
(k) Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Investor at the address indicated on the
Schedule of Purchasers to the Purchase Agreement, to Prudential at the address
indicated in the Note Agreement, to each Executive at his address indicated in
his Executive Stock Agreement and to the Company at the address indicated below:
Corinthian Colleges, Inc.
1932 East Deere, Suite 2-10
Santa Ana, CA 92705
or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above.
CORINTHIAN COLLEGES, INC. EXECUTIVES:
By /s/ David G. Moore /s/ David G. Moore
------------------------- -------------------------
Its David G. Moore
-------------------------
/s/ Paul St. Pierre
BOCP II, LIMITED LIABILITY COMPANY -------------------------
Paul St. Pierre
By: BOCP Holdings Corporation, Manager
/s/ Frank J. McCord
By: -------------------------
------------------------- Frank J. McCord
Its: Authorized Signer
BANC ONE CAPITAL PARTNERS II, LTD. -------------------------
Dennis L. Devereux
By: BOCP Holdings Corporation, Manager
/s/ Lloyd W. Holland
By: -------------------------
------------------------- Lloyd W. Holland
Its: Authorized Signer
PRIMUS CAPITAL FUND III THE PRUDENTIAL INSURANCE
LIMITED PARTNERSHIP COMPANY OF AMERICA
By: Primus Venture Partners III By:
Its: General Partner. ---------------------
By: Primus Venture Partners, Inc. Its:
Its: General Partner ---------------------
By: /s/ Loyal W. Wilson
-----------------------------
Title: President
---------------------------
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above.
CORINTHIAN COLLEGES, INC. EXECUTIVES:
By
------------------------- -------------------------
Its David G. Moore
-------------------------
BOCP II, LIMITED LIABILITY COMPANY -------------------------
Paul St. Pierre
By: BOCP Holdings Corporation, Manager
By: -------------------------
------------------------- Frank J. McCord
Its: Authorized Signer
/s/ Dennis L. Devereux
BANC ONE CAPITAL PARTNERS II, LTD. -------------------------
Dennis L. Devereux
By: BOCP Holdings Corporation, Manager
By: -------------------------
------------------------- Lloyd W. Holland
Its: Authorized Signer
PRIMUS CAPITAL FUND III THE PRUDENTIAL INSURANCE
LIMITED PARTNERSHIP COMPANY OF AMERICA
By: Primus Venture Partners III By:
Its: General Partner. ---------------------
By: Primus Venture Partners, Inc. Its:
Its: General Partner ---------------------
By:
-----------------------------
Title:
---------------------------
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above.
CORINTHIAN COLLEGES, INC. EXECUTIVES:
By
------------------------- -------------------------
Its David G. Moore
-------------------------
BOCP II, LIMITED LIABILITY COMPANY -------------------------
Paul St. Pierre
By: BOCP Holdings Corporation, Manager
By: /s/ Earle J. Bensing -------------------------
------------------------- Frank J. McCord
Its: Authorized Signer
BANC ONE CAPITAL PARTNERS II, LTD. -------------------------
Dennis L. Devereux
By: BOCP Holdings Corporation, Manager
By: /s/ Earle J. Bensing -------------------------
------------------------- Lloyd W. Holland
Its: Authorized Signer
PRIMUS CAPITAL FUND III THE PRUDENTIAL INSURANCE
LIMITED PARTNERSHIP COMPANY OF AMERICA
By: Primus Venture Partners III By:
Its: General Partner. ---------------------
By: Primus Venture Partners, Inc. Its:
Its: General Partner ---------------------
By:
-----------------------------
Title: President
---------------------------
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above.
CORINTHIAN COLLEGES, INC. EXECUTIVES:
By
------------------------- -------------------------
Its David G. Moore
-------------------------
BOCP II, LIMITED LIABILITY COMPANY -------------------------
Paul St. Pierre
By: BOCP Holdings Corporation, Manager
By: -------------------------
------------------------- Frank J. McCord
Its: Authorized Signer
BANC ONE CAPITAL PARTNERS II, LTD. -------------------------
Dennis L. Devereux
By: BOCP Holdings Corporation, Manager
By: -------------------------
------------------------- Lloyd W. Holland
Its: Authorized Signer
PRIMUS CAPITAL FUND III THE PRUDENTIAL INSURANCE
LIMITED PARTNERSHIP COMPANY OF AMERICA
By: Primus Venture Partners III By:
Its: General Partner. ---------------------
By: Primus Venture Partners, Inc. Its:
Its: General Partner ---------------------
By: /s/ Loyal W. Wilson
-----------------------------
Title: President
---------------------------
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above.
CORINTHIAN COLLEGES, INC. EXECUTIVES:
By
------------------------- -------------------------
Its David G. Moore
-------------------------
BOCP II, LIMITED LIABILITY COMPANY -------------------------
Paul St. Pierre
By: BOCP Holdings Corporation, Manager
By: -------------------------
------------------------- Frank J. McCord
Its: Authorized Signer
BANC ONE CAPITAL PARTNERS II, LTD. -------------------------
Dennis L. Devereux
By: BOCP Holdings Corporation, Manager
By: -------------------------
------------------------- Lloyd W. Holland
Its: Authorized Signer
PRIMUS CAPITAL FUND III THE PRUDENTIAL INSURANCE
LIMITED PARTNERSHIP COMPANY OF AMERICA
By: Primus Venture Partners III By: /s/
Its: General Partner. ---------------------
By: Primus Venture Partners, Inc. Its: Vice President
Its: General Partner ---------------------
By:
-----------------------------
Title:
---------------------------
-20-
<PAGE>
EXHIBIT 10.13
FIRST AMENDMENT TO THE
AMENDED AND RESTATED REGISTRATION AGREEMENT
-------------------------------------------
THIS AMENDMENT is made as of November 24, 1997 between Corinthian Colleges,
Inc., a Delaware corporation (the "Company"), Primus Capital Fund III Limited
-------
Partnership, an Ohio limited partnership ("Primus"), BOCP II, Limited Liability
------
Company, an Ohio limited liability company and successor by merger to Banc One
Capital Partners II, Limited Partnership ("Old BancOne, LLC"), and Banc One
----------------
Capital Partners II, LLC., an Ohio limited liability company ("New BancOne,
------------
LLC", and collectively with Primus, the "Investors"), and David G. Moore, Paul
- --- ---------
St. Pierre, Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland (such
individuals being referred to as the "Executives") and The Prudential Insurance
----------
Company of America ("Prudential").
----------
Corinthian Schools, Inc., a Delaware corporation ("CSI"), Primus and Old
---
Banc One, LLC entered into a Purchase Agreement on June 30, 1995 (the "First
-----
Purchase Agreement") pursuant to which Primus and Old Banc One, LLC purchased
- ------------------
among other things, common stock of CSI. At the same time, Primus and Old Banc
One, LLC acquired warrants to purchase common stock of CSI. Each Executive and
CSI entered into an Executive Stock Agreement ("Executive Stock Agreement") on
-------------------------
June 30, 1995 pursuant to which the Executives purchased common stock of CSI.
Primus and Old Banc One, LLC entered into a Registration Agreement on June 30,
1995 (the "Original Registration Agreement") pursuant to which Primus and Old
-------------------------------
Banc One, LLC acquired registration rights for securities purchased under the
First Purchase Agreement. The Company has succeeded to all rights and
obligations of CSI under the First Purchase Agreement and the Executive Stock
Agreements and the stock of CSI has been converted into stock of the Company.
The Company entered into a Note Purchase and Revolving Credit Agreement
(the "Note Agreement"), dated as of October 17, 1996 with Prudential, and a
--------------
Subordinate Note and Warrant Purchase Agreement (the "Subordinated Note
-----------------
Agreement") dated as of October 17, 1996 with New Banc One, LLC and Primus
- ---------
pursuant to which the Company agreed, among other things, to issue to
Prudential, New Banc One, LLC and Primus warrants to purchase shares of its
common stock. In order to induce Prudential to enter into the Note Agreement and
to induce Primus and New Banc One, LLC to enter into the Subordinated Note
Agreement, the Company entered into an Amended and Restated Registration
Agreement, dated October 17, 1996 with Primus, Prudential, New Banc One, LLC and
Old Banc One, LLC (the "Amended and Restated Registration Agreement").
-------------------------------------------
The Company is a party to a Purchase Agreement, dated as of the date hereof
(the "Second Purchase Agreement") with Primus and New BancOne LLC pursuant to
-------------------------
which the Company has agreed, among other things, to issue to the Investors
shares of its Class A Series 2 Preferred Stock, par value $1.00 per share (the
"A-2 Preferred") and its Class A Series 3 Preferred Stock, par value $1.00 per
-------------
share (the "A-3 Preferred"), each convertible into shares of its common stock.
-------------
The execution and delivery of this Amendment by the Company, BOCP II, Prudential
and each Executive
<PAGE>
is a condition to each Investors' obligation to close the transactions
contemplated by the Second Purchase Agreement. All capitalized terms not
otherwise defined herein shall have the meaning set forth in the Second Purchase
Agreement.
The parties hereto agree to amend and revise the Amended and Restated
Registration Agreement as follows:
1. The definition of "Investor Registrable Securities," as set forth in
-------------------------------
subparagraph 9(c) of the Amended and Restated Registration Agreement is hereby
deleted in its entirety and replaced with the following:
"Investor Registrable Securities" means (i) any Class A Common issued
-------------------------------
in the Merger in exchange for stock issued pursuant to the Purchase Agreement,
(ii) any Class A Common issued upon exchange for any Class B Common (a) issued
upon exercise of the Warrants, (b) issued in the Merger in exchange for stock
issued pursuant to the Purchase Agreement or (c) issued upon conversion of the
A-2 Preferred, (iii) any Class A Common Stock issued or issuable upon exercise
of the Warrants issued pursuant to the Subordinated Note Agreement, (iv) any
Class A Common issued upon conversion of the A-3 Preferred and (v) any other
Common Stock issued or issuable with respect to the securities referred to in
clause (i), (ii), (iii) or (iv) above by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
2. The definition of "Prudential Registrable Securities," as set forth in
---------------------------------
subparagraph 9(f) of the Amended and Restated Registration Agreement is hereby
deleted in its entirety and replaced with the following:
"Prudential Registrable Securities" means (i) any Common Stock issued
---------------------------------
or issuable upon exercise of the Warrants issued pursuant to the Note Agreement,
(ii) any Common Stock issued or issuable upon exercise of the warrant issued to
Prudential by the Company in connection with the amendment, dated October 31,
1997, to the Note Agreement and (iii) any other Common Stock issued or issuable
with respect to the securities referred to in clause (i) or (ii) above by way of
a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
3. On and after the effectiveness of the amendments contemplated hereby,
each reference in the Amended and Restated Registration Agreement to "this
Agreement", "hereunder", "hereof", or words of like import referring to the
Amended and Restated Registration Agreement, and each reference in the other
documents delivered to the Investors pursuant to the Second Purchase Agreement
to the "the Registration Agreement", "thereunder", "thereof" or words of like
import referring to the Amended and Restated Registration Agreement, shall mean
the Amended and Restated Registration Agreement as amended by this Amendment.
The Amended and Restated Registration Agreement, as amended by this Amendment,
is and shall continue to be in full force and effect and is hereby in all
respects ratified and is confirmed.
<PAGE>
4. This Amendment shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Delaware
without giving effect to principles of conflicts of law.
5. This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CORINTHIAN COLLEGES, INC. EXECUTIVES:
By: /s/ Frank J. McCord /s/ David G. Moore
---------------------------------- ----------------------------------
Its: Vice President & CFO David G. Moore
/s/ Paul St. Pierre
----------------------------------
BOCP II, LIMITED LIABILITY COMPANY Paul St. Pierre
By: BOCP Holdings Corporation, Manager /s/ Frank J. McCord
----------------------------------
Frank J. McCord
By: __________________________________
Its: Authorized Signer /s/ Dennis I. Devereux
----------------------------------
Dennis I. Devereux
BANC ONE CAPITAL PARTNERS II, LLC /s/ Lloyd W. Holland
----------------------------------
Lloyd W. Holland
By: BOCP Holdings Corporation, Manager
By: _________________________________ THE PRUDENTIAL INSURANCE COMPANY OF
Its: Authorized Signer AMERICA
By: _______________________________
PRIMUS CAPITAL FUND III Its: ______________________________
LIMITED PARTNERSHIP
By: Primus Venture Partners III
Its: General Partner
By: Primus Venture Partners, Inc.
Its: General Partner
By: /s/ Loyal W. Wilson
-------------------------
Title: President
<PAGE>
EXHIBIT 10.14
AMENDED AND RESTATED
EXECUTIVE STOCK AGREEMENT
-------------------------
THIS AMENDED AND RESTATED EXECUTIVE STOCK AGREEMENT (the "Agreement")
is made as of November 24, 1997, between Corinthian Schools, Inc., a Delaware
-----------------
corporation (the "Company"), and Dennis L. Devereux ("Executive").
The Company and Executive desire to amend and restate the agreement,
dated June 30, 1995, as amended pursuant to the First Amendment to Executive
Stock Agreement, dated October 17, 1996 (the "Original Executive Stock
------------------------
Agreement"), pursuant to which Executive purchased, and the Company sold, 10,000
- ---------
shares of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common"), and 2,500 shares of the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common" and, together with the Class A
Common, the "Common Stock"). All of such shares of Common Stock and all shares
of Common Stock hereafter acquired by Executive are referred to herein as
"Executive Stock". Certain definitions are set forth in paragraph 11 of this
Agreement. Executive paid a portion of such purchase price by delivering to the
Company for cancellation shares of common stock purchased by Executive prior to
the Original Executive Stock Agreement (the "Old Common"), and with respect to
which Executive has made additional capital contributions, the total amount
previously paid being $20,000.
Certain provisions of this Agreement are intended for the benefit of,
and shall be enforceable by, the Investors and the other persons who are
entering into similar agreements ("Executive Stock Agreements") with the Company
as of the date hereof (Executive and such persons are collectively referred to
as "Executives").
The parties hereto agree to amend and restate the Original Executive
Stock Agreement as follows:
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive shall purchase, and
the Company shall sell, 10,000 shares of Class A Common at a price of $10.00 per
share and 2,500 shares of Class B Common at a price of $10.00 per share. The
Company shall deliver to Executive a copy of the certificates representing such
shares of Common Stock, and Executive shall deliver to the Company a cashier's
or certified check or wire transfer of funds in the aggregate amount of
$80,025.00, a promissory note in the form of Annex A attached hereto in an
-------
aggregate principal amount of $24,975 (the "Executive Note") and the
certificates for the Old Common. Executive's obligations under the Executive
Note shall be secured by a pledge of all of the shares of Class B Common to the
Company, and in connection therewith, Executive shall enter into a pledge
agreement in the form of Annex B attached hereto.
-------
<PAGE>
(b) The Company shall hold each certificate representing Executive
Stock until such time as the Executive Stock represented by such certificate is
released from the pledge to the Company, if any, and is fully vested hereunder.
(c) Within 30 days after Executive purchases any Executive Stock from
the Company, Executive shall make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder and the equivalent election with the State of
California.
(d) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement shall be acquired for Executive's own account and not with a
view to, or intention of, distribution thereof in violation of the 1933
Act, or any applicable state securities laws, and the Executive Stock shall
not be disposed of in contravention of the 1933 Act or any applicable state
securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive Stock has not been registered under the 1933 Act and,
therefore, cannot be sold unless subsequently registered under the 1933
Act or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested. Executive has reviewed, or has
had an opportunity to review, a copy of the Asset Purchase Agreement (the
"Asset Purchase Agreement") between the Company, National Education
Centers, Inc. ("Seller") and National Education Corporation pursuant to
which the Company is acquiring certain of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) the Company's Certificate of Incorporation and Bylaws; (B)
the agreements, notes and related documents with Company's lenders and
equity investors; and (C) the Company's Private Placement Memorandum for a
$2.5 million Equity Investment dated April 21, 1995.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and shall not conflict with, violate or
-2-
<PAGE>
cause a breach of any agreement, contract or instrument to which Executive
is a party or any judgment, order or decree to which Executive is subject.
(vi) Executive has obtained advice form persons other than the
Investors and their counsel regarding the tax effects of the transaction
contemplated hereby.
(e) Executive acknowledges and agrees that neither the issuance of
the Executive Stock to Executive nor any provision contained herein shall
entitle Executive to remain in the employment of the Company and its
Subsidiaries.
(f) The Company and Executive acknowledge and agree that this
Agreement has been executed and delivered, and the Executive Stock has been
issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Company and Executive.
(g) The Company acknowledges that Executive is given certain
contractual preemptive rights, together with the Investors, in the Purchase
Agreement (paragraph 3J) with respect to future issuances of equity securities
of the Company notwithstanding the fact that Executive is not a named party
thereto.
(h) Executive represents and warrants to the Company and the
Investors that he has not entered and will not during the term of this Agreement
enter into any agreement with any of the other Executives with respect to the
voting of his or their shares or the sharing of the economic benefits thereof.
2. Vesting of Executive Stock.
--------------------------
(a) (i) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class A Common shall become vested in accordance with
the following schedule, if as of each such date Executive is employed by the
Company or any of its Subsidiaries:
<TABLE>
<CAPTION>
Cumulative
Percentage of Class A Executive
Date Stock Vested
------- --------------------------------
<S> <C>
the date hereof 75.0%
June 30, 1998 87.5%
June 30, 1999 100.0%
</TABLE>
(ii) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class B Common (the "Performance Vesting Shares") shall
become vested if:
(A) The Executive is employed by the Company and any of its
Subsidiaries on June 30, 2005 and there has been no Sale of the Company (as
defined herein); or
-3-
<PAGE>
(B) (1) on or before December 31, 1999, a Trigger Event, as defined
below, has occurred, (2) Executive is employed by the Company or any of its
Subsidiaries on the date of closing of such Trigger Event and (3):
(I) as to one-third of the Performance Vesting Shares (the "2.5%
Shares")the Total Company Value shall equal or exceed $50,000,000 and
(II) as to the remaining Performance Vesting Shars (the "5% Shares")
to the extent that the Total Company Value exceeds $50,000,000, the number
of 5% Shares which shall vest is equal to the product of (I) the quotient
determined ny dividing the amount that the Total Company Value exceeds
$50,000,000 by $20,000,000 and (II) the maximum of 5% Shares.
For example, if the Total Company Value at the time of the
Trigger Event is $58,000,000 and the maximum number of 5% Shares
is 3,333 (assuming, for purposes of this example only, a maximum
of 5,000 Performance Vesting Shares) then the number of 5% Shares
which shall become vested is 1333 (8,000,000 divided by
20,000,000 x 3,333 = 1333).
The determination of the Total Company Value, shall be made upon occurrence of
and as of the date of closing of either of the following "Trigger Events":
(A) the Company has closed an underwritten initial public offering
("IPO") of Common Stock registered under the 1933 Act in which the net proceeds
to the Company is at least $20,000,000, provided however, that prior to or as a
result of the IPO all outstanding shares of the Company's Series A Preferred
Stock (the "Preferred Stock") are redeemed by the Company, or;
(B) a "Sale of the Company" as defined herein
(b) Upon the occurrence of a Sale of the Company, a Qualified Public
Offering or the death or permanent disability of Executive, all shares of
Executive Stock which are Class A Common which have not yet become vested shall
become vested at the time of such event. For purposes of this paragraph 2(b),
the determination of permanent disability shall be made in good faith by the
Company's board of directors (the "Board"). Shares of Executive Stock which
have become vested are referred to herein as "Vested Shares", and all other
shares of Executive Stock are referred to herein as "Unvested Shares."
(c) The Company shall upon the written request of a holder of
Executive Stock which is Class B Common Stock issue and exchange therefor shares
of Class A Common on a share-for-share basis at any time on or after a Sale of
the Company or a Qualified Public Offering.
3. Repurchase Option.
-----------------
-4-
<PAGE>
(a) In the event (i) Executive ceases to be employed by the Company
and its Subsidiaries for any reason (the "Termination"), the Executive Stock
(whether held by Executive or one or more of Executive's transferees) or (ii)
there is a Sale of the Company after December 31, 1999, the Unvested Shares of
the Performance Vesting Shares (whether held by Executive or one or more of
Executive's transferees) shall be subject to repurchase by the Company and the
Investors pursuant to the terms and conditions set forth in this paragraph 3
(the "Repurchase Option"); provided that the Repurchase Option shall not apply
to the shares which vest on the date hereof unless Executive voluntarily
terminated such employment prior to the second anniversary of the date hereof
(in which event the Repurchase Option will apply to such shares).
(b) The purchase price for each Unvested Share shall be Executive's
Original Cost for such share (with shares having the lowest cost subject to
repurchase prior to shares with a higher cost), and the purchase price for each
Vested Share shall be the Fair Market Value for such share.
(c) The Board may elect to purchase all or any portion of the
Unvested Shares and the Vested Shares by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 30
days after the Termination. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be acquired from each holder of Executive
Stock, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction. If the number of shares of Executive
Stock then held by Executive is less than the total number of shares of
Executive Stock the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Executive Stock under this Agreement, pro rata according to the number of shares
of Executive Stock held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as close as practicable to the nearest whole
shares). The number of shares to be repurchased by the Company shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, the Investors and the
other Executives who are then employed by the Company or one of its Subsidiaries
(the "Continuing Executives") shall be entitled to exercise the Repurchase
Option for the shares of Executive Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 45 days
after the Termination, the Company shall give written notice (the "Option
Notice") to the Investors and the Continuing Executives setting forth the number
of Available Shares and the purchase price for the Available Shares. The
Investors and the Continuing Executives may elect to purchase any or all of the
Available Shares by giving written notice to the Company within 30 days after
the Option Notice has been given by the Company. If the Investors and the
Continuing Executives elect to purchase an aggregate number of shares greater
than the number of Available Shares, the Available Shares shall be allocated
among the Investors and the Continuing Executives based upon the number of
shares of Common Stock owned by each Investor and the Continuing Executive on a
fully-diluted basis (provided, however, that no Class B Common which is not yet
vested under the Executive Stock Agreements will be counted for this purpose).
As soon as practicable, and in any event within ten days after the expira-
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<PAGE>
tion of the 15-day period set forth above, the Company shall notify each holder
of Executive Stock as to the number of shares being purchased from such holder
by the Investors and the Continuing Executives (the "Supplemental Repurchase
Notice"). At the time the Company delivers the Supplemental Repurchase Notice
to the holders(s) of Executive Stock, the Company shall also deliver written
notice to each Investor and Continuing Executive setting forth the number of
shares such Person is entitled to purchase, the aggregate purchase price and the
time and place of the closing of the transaction. The number of shares to be
repurchased by the Investors and the Continuing Executives shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(e) The closing of the purchase of the Executive Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 30 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investors and
Continuing Executives shall pay for the Executive Stock to be purchased pursuant
to the Repurchase Option by delivery of, a check or wire transfer of funds. In
addition, the Company may pay the purchase price for such shares by offsetting
amounts outstanding under the Executive Note issued to the Company hereunder
and any other bona fide debts owed by Executive to the Company. The Sellers of
Executive Stock hereunder shall be deemed to make customary representations and
warranties to the purchasers regarding such sale of shares (including
representations and warranties regarding good title to such shares, free and
clear of any liens or encumbrances). The purchasers may require written
confirmation of such representations and require all sellers' signatures be
guaranteed by a national bank or reputable securities broker.
(f) The right of the Company and the Investors and the Continuing
Executives to repurchase Vested Shares pursuant to this paragraph 3 shall
terminate upon the first to occur of the Sale of the Company or a Qualified
Public Offering.
(g) If Executive's employment by the Company and its Subsidiaries, if
any, is terminated by the Company other than for Cause, the Company shall pay
Executive as severance an amount equal to his cash base salary compensation
(i.e., excluding any bonuses) during the preceding 12 months in equal monthly
installments on the first business day of each of the next 12 months.
4. RESTRICTIONS ON TRANSFER.
------------------------
(a) RETENTION OF EXECUTIVE STOCK. Until the expiration of 54 months
-----------------------------
after the date of this Agreement, Executive shall not sell, transfer, assign,
pledge or otherwise dispose of any interest in any shares of Executive Stock,
except for Exempt Transfers (as defined in paragraph 4(b) below) and sales to
the public pursuant to Rule 144 promulgated under the 1933 Act or any similar
rule then in force.
(b) TRANSFER OF EXECUTIVE STOCK. Executive shall not sell, transfer,
---------------------------
assign, pledge or otherwise dispose of (whether with or without consideration
and whether voluntarily or involun-
<PAGE>
tarily or by operation of law) any interest in any shares of Executive Stock (a
"Transfer"), except pursuant to (i) the provisions of paragraph 3 hereof, a Sale
of the Company or a Public Sale ("Exempt Transfers") or (ii) the provisions of
this paragraph 4; provided that in no event shall any Transfer of Executive
Stock pursuant to this paragraph 4 be made for any consideration other than cash
payable upon consummation of such Transfer or in installments over time. Prior
to making any Transfer other than an Exempt Transfer, Executive shall deliver
written notice (the "Sale Notice") to the Company and the Investors. The Sale
Notice shall disclose in reasonable detail the identity of the prospective
transferee(s), the number of shares to be transferred and the terms and
conditions of the proposed transfer. Executive shall not consummate any Transfer
until 30 days after the sale Notice has been given to the Company and to the
Investors, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 4 prior to the expiration of such 30-day period. (The
date of the first to occur of such events is referred to herein as the
"Authorization Date".)
(c) First Refusal Rights. The Company may elect to purchase all
--------------------
(but not less than all) of the shares of Executive Stock to be transferred upon
the same terms and conditions as those set forth in the Sale Notice by
delivering a written notice of such election to Executive and the Investors
within 10 days after the Sale Notice has been delivered to the Company. If the
Company has not elected to purchase all of the Executive Stock to be
transferred, the Investors may elect to purchase all (but not less than all) of
the Executive Stock to be transferred upon the same terms and conditions as
those set forth in the Sale Notice by delivering written notice of such election
to Executive within 10 days after the Sale Notice has been given to the
Investors. If more than one Investor elects to purchase the Executive Stock,
the shares of Executive Stock to be sold shall be allocated among the Investors
pro rata according to the number of shares of Common Stock owned by each
Investor on a fully-diluted basis. If neither the Company nor the Investors
elect to purchase all of the shares of Executive Stock specified in the Sale
Notice, Executive may transfer the shares of Executive Stock specified in the
Sale Notice at a price and on terms no more favorable to the transferee(s)
thereof than specified in the Sale Notice during the 60-day period immediately
following the Authorization Date. Any shares of Executive Stock not transferred
within such 60-day period shall be subject to the provisions of this paragraph
4(c) upon subsequent transfer. If the Company or any of the Investors have
elected to purchase shares of Executive Stock hereunder, the transfer of such
shares shall be consummated as soon as practical after the delivery of the
election notice(s) to Executive, but in any event within 15 days after the
expiration of the Election Period. The Company may pay the purchase price for
such shares by offsetting amounts outstanding under the Executive Note issued to
the Company hereunder and any other bona fide debts owed by Executive to the
Company.
(d) Certain Permitted Transfers. The restrictions contained in
---------------------------
this paragraph 4 shall not apply with respect to transfers of shares of
Executive Stock (i) pursuant to applicable laws of descent and distribution or
(ii) among Executive's family group; provided that such restrictions shall
continue to be applicable to the Executive Stock after any such transfer and the
transferees of such Executive Stock shall have agreed in writing to be bound by
the provisions of this Agreement. Executive's "family group" means Executive's
spouse and descendants (whether natural or adopted) and any trust solely for the
benefit of Executive and/or Executive's spouse and/or descendants.
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<PAGE>
(e) Pledges. Notwithstanding the provisions of this paragraph 4.
-------
Executive may pledge any shares of Executive Stock to the Company to secure
payment of the Executive Note.
(f) Termination of Restrictions. The restrictions on the transfer of
---------------------------
shares of Executive Stock set forth in this paragraph 4 shall continue with
respect to each share of Executive Stock following any Transfer thereof (other
than a Public Sale); provided that in any event such restrictions shall
terminate on the first to occur of a Sale of the Company or a Qualified Public
Offering.
5. Additional Restrictions on Transfer.
-----------------------------------
(a) The certificates representing the Executive Stock shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON JUNE 30, 1995, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAW, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS
SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE COMPANY AND
DENNIS L. DEVEREUX DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of
any Executive Stock (except pursuant to an effective registration statement
under the 1933 Act) without first delivering to the Company an opinion of
counsel (reasonably acceptable in form and substance to the Company) that
neither registration nor qualification under the 1933 Act applicable state
securities laws is required in connection with such transfer.
(c) Each holder of Executive Stock agrees not to effect any public
sale or distribution of any Executive Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
6. Sale of the Company.
-------------------
-8-
<PAGE>
(a) If the Board and the holders of a majority of the Company's
Preferred Stock and Common Stock approve a Sale of the Company (the "Approved
Sale"), the holders of Executive Stock shall consent to and raise no objections
against the Approved Sale of the Company, and if the Approved Sale of the
Company is structured as a sale of stock, the holders of Executive Stock shall
agree to sell their shares of Executive Stock and surrender their stock options
on the terms and conditions approved by the Board and the holders of a majority
of the Company's Preferred Stock and Common Stock. The holders of Executive
Stock shall take all necessary and desirable actions in connection with the
consummation of the Approved Sale of the Company.
(b) The obligations of the holders of Executive Stock with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, all of the
holders of Common Stock shall receive the same form and amount of consideration
per share of Common Stock, or if any holders of Common Stock are given an option
as to the form and amount of consideration to be received, all holders shall be
given the same option; and (ii) all holders of then currently exercisable rights
to acquire shares of Common Stock shall be given an opportunity to either (A)
exercise such rights prior to the consummation of the Approved Sale and
participate in such sale as holders of Common Stock or (B) upon the consummation
of the Approved Sale, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price per share of Common Stock of such
rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such rights.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock shall at
the request of the Company, appoint a "purchaser representative" (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company shall pay the fees of such purchaser representative. However, if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and such holder shall be
responsible for the fees of the purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any) shall
bear their pro-rata share (based upon the number of all shares sold by each
seller including the Investors and each other Executive) of the costs of any
sale of Executive Stock pursuant to an Approved Sale to the extent such costs
are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf shall not
be considered costs of the transaction hereunder.
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<PAGE>
(e) The provisions of this paragraph 6 shall terminate upon the
completion of a Qualified Public Offering.
7. Voting Agreement and Tag-Along.
--------------------------------
(a) So long as the Investors hold any shares of Common Stock, each
Investor and Executive shall vote all of their shares of Common Stock (and, in
the event such holder is entitled to vote any of the Company's other securities
for the election of directors, such holder shall vote all such securities) and
take all other reasonably necessary actions in such holder's capacity as a
stockholder of the Company, and the Company shall take all necessary or
desirable actions as are requested by the Investors and Executive, in order to
cause two of the executive officers of the Company (one of which should be the
Company's Chief Executive Officer) representatives designated by Executives
holding a majority of the Common Stock held by all Executives to be elected as
members of the Board and to cause two representatives designated by Investors
holding a majority of the Common Stock held by the Investors to be elected to
the Board. The provisions of this paragraph 7 shall terminate upon the first to
occur of a Qualified Public Offering and the tenth anniversary of this
Agreement.
(b) If either Investor desires to sell any of its Common Stock or if
holders of Executive Stock, after complying with the other provisions of this
Agreement, including paragraph 3, desire to sell any of their shares of Common
Stock, the proposed seller shall give written notice thereof (a "Sale Notice")
to the Company, the Investors and each holder of Common Stock issued under this
Agreement and the other Executive Stock Agreements at least 10 days prior to the
proposed sale and each such Person other than the seller may elect to
participate in the sale by written notice to the Company and the seller given
within 10 days after receipt of the Sale Notice. The electing Persons shall be
entitled to sell in the contemplated sale, at the same price and on the same
terms, a number of shares of the Company's Common Stock equal to the product of
(i) the quotient determined by dividing the percentage of the Company's Common
Stock (on a fully-diluted basis) held by such electing Person, by the aggregate
percentage of the Company's Common Stock (on a fully-diluted basis) owned by the
Seller and all electing Persons and (ii) the number of shares of Common Stock to
be sold in the contemplated sale.
For example, if the Executive delivered a Sale Notice contemplated a sale
of 100 shares of Common Stock, and if Executive was at such time the owner
of 5% of the Company's Common Stock (on a fully-diluted basis) and if one
Investor elected to participate and the Investor owned 20% of the Company's
Common Stock (on a fully-diluted basis), Executive would be entitled to
sell 20 shares (5% divided by 25% x 100 shares) and the Investor would be
entitled to sell 80 shares (20% divided by 25% x 100 shares).
The provisions of this paragraph (b) shall terminate upon a Qualified Public
Offering.
8. Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
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<PAGE>
(a) Executive shall not disclose or use at any time, either during
his employment with the Company or thereafter, any Confidential Information (as
defined below) of which Executive is or becomes aware, whether or not such
information is developed by him, except to the extent that such disclosure or
use is directly related to and required by Executive's performance of duties
assigned to Executive by the Company. Executive shall take all appropriate steps
to safeguard Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft.
(b) As used in this Agreement, the term "Confidential Information"
means information that is not generally known to the public and that is used,
developed or obtained by the Company in connection with its business, including
but not limited to (i) products or services, (ii) fees, costs and pricing
structures, (iii) designs, (iv) analysis, (v) drawings, photographs and reports,
(vi) computer software, including operating systems, applications and program
listings, (vii) flow charts, manuals and documentation, (viii) data bases, (ix)
accounting and business methods, (x) inventions, devices, new developments,
methods and processes, whether patentable or unpatentable and whether or not
reduced to practice, (xi) customers and clients and customer or client lists,
(xii) copyrightable works, (xiii) all information comprising the Transferred
Property, (xiv) all technology and trade secrets, and (xv) all similar and
related information in whatever form. Confidential Information shall not include
any information that has been published in the form generally available to the
public prior to the date Executive purposes to disclose or use such information.
Information shall not be deemed to have been published merely because individual
portions of the information have been separately published, but only if all
material features comprising such information have been published in
combination.
9. Consulting and Noncompetition. Executive acknowledges and agrees
-----------------------------
with the Company that Executive's services to the Company are unique in nature
and that the Company would be irreparably damaged if Executive were to provide
similar services to any person or entity competing with the Company or engaged
in a similar business. Executive accordingly covenants and agrees with the
Company that during the period commencing with the date of this Agreement and,
as long as the Company compensates Executive as a consultant at an amount
payable monthly equal to 10% of Executive's cash compensation in the 12 months
preceding his termination of employment, thereafter until the third anniversary
of the date of the termination of Executive's employment with the Company (the
"Noncompetition Period"), Executive shall not, directly or indirectly, either
for himself or for any other individual, corporation, partnership, joint venture
or other entity, participate in any business (including, without limitation, any
division, group or franchise of a larger organization) which (i) engages or
which proposes to engage in the acquisition, disposition, operation or
management of allied health schools anywhere in the U.S. or (ii) which operates
or plans to operate schools of any type in the same geographic areas as Company
at the time of such termination. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any director or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise).
-11-
<PAGE>
10. Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
11. Definitions.
-----------
"Cause" means (i) the commission of a felony or a crime involving
-----
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to the Company or any of its Subsidiaries or (v) any material
breach of this Agreement which is not cured within 15 days after written notice
thereof to Executive.
"Executive Stock" shall continue to be Executive Stock in the hands of
---------------
any holder other than Executive (except for the Company and the Investors and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock shall succeed to all rights
and obligations attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock shall also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Executive Stock after any Transfer thereof.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of the Company's Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq National Market as of
4:00 P.M., New York time, or, if on any day the Common Stock is not quoted in
the Nasdaq National Market, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which the Fair Market Value is being determined and the 20 consecutive business
days prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq National Market or the over-the-
counter market, the Fair Market Value shall be the fair value of the Common
Stock determined in good faith by the Board or, if the Executive disagrees with
such value, the fair market
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<PAGE>
value determined by an independent appraiser mutually acceptable to the Board
and Executive (in each case without taking into account the effect of any
contemporaneous repurchase of Unvested Shares under paragraph 3 hereof):
provided that if such appraised value is higher than that established by the
Board the purchasers of the shares involved shall not be required to consummate
the related purchase.
"Independent Third Party" means any person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis, who is not controlling, controlled by or
under common control with any such 5% owner of the Company's Common Stock and
who is not the spouse or descendent (by birth or adoption) of any such 5% owner
of the Company's Common Stock.
"Investors" means Primus Capital Partners III Limited Partnership and
---------
BOCPII, Limited Liability Company, successor by merger to Bank One Capital
Partners II, Limited Partnership.
"1933 Act" means the Securities Act of 1933, as amended from time to
--------
time.
"Original Cost" of each share of Common Stock purchased hereunder
-------------
shall be equal to $10.00 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Qualified Public Offering" means the sale by the Company, in an
-------------------------
underwritten public offering registered under the 1933 Act, of shares of the
Company's Common Stock having an aggregate offering value of at least $10
million and where the per share price to the public multiplied by the number of
shares of Common Stock issued under the Purchase Agreement and this and the
other Executive Stock Agreements (adjusted for stock splits and other
recapitalizations) is at least $30,000,000.
"Permitted Transferee" means any holder of Executive Stock who
--------------------
acquired such stock pursuant to a transfer permitted by paragraph 4(d).
"Public Sale" means any sale pursuant to a registered public offering
-----------
under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated
under the 1933 Act effected through a broker, dealer or market maker.
"Sale of the Company" means the sale of the Company to an Independent
-------------------
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of directors (whether by
merger, consolidation or sale or transfer of the Company's capital stock) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
-13-
<PAGE>
"Subsidiary" means any corporation of which the Company owns
----------
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Total Company Value" means the product of (i) as to an IPO, the price
-------------------
per share to the public in such IPO, and as to a Sale of the Company, the price
per share received by holders of common stock and (ii) 134,408.60 (adjusted for
any stock splits, stock dividends, combinations of shares or the like after the
date hereof).
12. Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company:
1932 East Deere Avenue, Suite 210
Santa Ana, CA 92705
Attention: President
With copies to:
David A. Krinsky, Esq.
O'Melveney & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660-6429
To Executive:
Dennis L. Devereux
24795 San Pedro Avenue
Laguna Hills, CA 92653
To the Investors: As specified in the Purchase Agreement
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
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<PAGE>
13. General Provisions.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceble provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(f) Choice of Law. The corporate law of the State of Delaware shall
-------------
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
California.
(g) Remedies. Each of the parties to this Agreement (including the
--------
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of
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<PAGE>
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company. Executive
and Investors owning a majority of the Common Stock on a fully-diluted basis
held by all Investors.
(i) Third-Party Beneficiaries. Certain provisions of this Agreement
-------------------------
are entered into for the benefit of and shall be enforceable by the Investors
and other Executives as provided herein.
(j) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief executive office is located, the time
period shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.
14. Initial Public Offering. In the event that the Board and the
-----------------------
holders of a majority of the shares of Common Stock (voting as a single class)
then outstanding approve an initial public offering of Common Stock (a "Public
Offering") pursuant to an effective registration statement under the Securities
Act, Executive shall take all reasonably necessary or desirable actions in
connection with the consummation of the Public Offering as requested by the
Company.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By /s/ Frank McCord
----------------------------
Its VP & CFO
/s/ Dennis L. Devereux
------------------------------
DENNIS L. DEVEREUX
/s/ Frank McCord
------------------------------
Witness
Agreed and Accepted:
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
----------------------------------
Its President
---------------------------------
BOCPII, LIMITED LIABILITY COMPANY
By /s/ Earle J. Bensing
----------------------------------
Its Authorized Signer
---------------------------------
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<PAGE>
EXHIBIT 10.15
AMENDED AND RESTATED
EXECUTIVE STOCK AGREEMENT
-------------------------
THIS AMENDED AND RESTATED EXECUTIVE STOCK AGREEMENT (the "Agreement")
is made as of November 24, 1997, between Corinthian Schools, Inc., a Delaware
-----------------
corporation (the "Company"), and Lloyd W. Holland ("Executive").
The Company and Executive desire to amend and restate the agreement,
dated June 30, 1995, as amended pursuant to the First Amendment to Executive
Stock Agreement, dated October 17, 1996 (the "Original Executive Stock
------------------------
Agreement"), pursuant to which Executive purchased, and the Company sold, 10,000
- ---------
shares of the Company's Class A Common Stock, par value $.0l per share (the
"Class A Common"), and 2,500 shares of the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common" and, together with the Class A
Common, the "Common Stock"). All of such shares of Common Stock and all shares
of Common Stock hereafter acquired by Executive are referred to herein as
"Executive Stock". Certain definitions are set forth in paragraph 11 of this
Agreement. Executive paid a portion of such purchase price by delivering to the
Company for cancellation shares of common stock purchased by Executive prior to
the Original Executive Stock Agreement (the "Old Common"), and with respect to
which Executive has made additional capital contributions, the total amount
previously paid being $20,000.
Certain provisions of this Agreement are intended for the benefit of,
and shall be enforceable by, the Investors and the other persons who are
entering into similar agreements ("Executive Stock Agreements") with the Company
as of the date hereof (Executive and such persons are collectively referred to
as "Executives").
The parties hereto agree to amend and restate the Original Executive
Stock Agreement as follows:
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive shall purchase, and
the Company shall sell, 10,000 shares of Class A Common at a price of $10.00 per
share and 2,500 shares of Class B Common at a price of $10.00 per share. The
Company shall deliver to Executive a copy of the certificates representing such
shares of Common Stock, and Executive shall deliver to the Company a cashier's
or certified check or wire transfer of funds in the aggregate amount of
$80,025.00, a promissory note in the form of Annex A attached hereto in an
-------
aggregate principal amount of $24,975 (the "Executive Note") and the
certificates for the Old Common. Executive's obligations under the Executive
Note shall be secured by a pledge of all of the shares of Class B Common to the
Company, and in connection therewith, Executive shall enter into a pledge
agreement in the form of Annex B attached hereto.
-------
<PAGE>
(b) The Company shall hold each certificate representing Executive
Stock until such time as the Executive Stock represented by such certificate is
released from the pledge to the Company, if any, and is fully vested hereunder.
(c) Within 30 days after Executive purchases any Executive Stock from
the Company, Executive shall make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder and the equivalent election with the State of
California.
(d) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
1933 Act, or any applicable state securities laws, and the Executive Stock
shall not be disposed of in contravention of the 1933 Act or any applicable
state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive Stock has not been registered under the 1933 Act and,
therefore, cannot be sold unless subsequently registered under the 1933 Act
or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested. Executive has reviewed, or has
had an opportunity to review, a copy of the Asset Purchase Agreement (the
"Asset Purchase Agreement") between the Company, National Education
Centers, Inc. ("Seller") and National Education Corporation pursuant to
which the Company is acquiring certain of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) the Company's Certificate of Incorporation and Bylaws; (B)
the agreements, notes and related documents with the Company's lenders and
equity investors; and (C) the Company's Private Placement Memorandum for a
$2.5 million Equity Investment dated April 21, 1995.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and shall not conflict with, violate or
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<PAGE>
cause a breach of any agreement, contract or instrument to which Executive
is a party or any judgment, order or decree to which Executive is subject.
(vi) Executive has obtained advice from persons other than the
Investors and their counsel regarding the tax effects of the transaction
contemplated hereby.
(e) Executive acknowledges and agrees that neither the issuance of
the Executive Stock to Executive nor any provision contained herein shall
entitle Executive to remain in the employment of the Company and its
Subsidiaries.
(f) The Company and Executive acknowledge and agree that this
Agreement has been executed and delivered, and the Executive Stock has been
issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Company and Executive.
(g) The Company acknowledges that Executive is given certain
contractual preemptive rights, together with the Investors, in the Purchase
Agreement (paragraph 3J) with respect to future issuances of equity securities
of the Company notwithstanding the fact that Executive is not a named party
thereto.
(h) Executive represents and warrants to the Company and the
Investors that he has not entered and will not during the term of this Agreement
enter into any agreement with any of the other Executives with respect to the
voting of his or their shares or the sharing of the economic benefits thereof.
2. Vesting of Executive Stock.
--------------------------
(a) (i) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class A Common shall become vested in accordance with
the following schedule, if as of each such date Executive is employed by the
Company or any of its Subsidiaries:
Cumulative
Percentage of Class A Executive
Date Stock Vested
------ --------------------------------
the date hereof 75.0%
June 30, 1998 87.5%
June 30, 1999 100.0%
(ii) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class B Common (the "Performance Vesting Shares") shall
become vested if:
(A) The Executive is employed by the Company and any of its
Subsidiaries on June 30, 2005 and there has been no Sale of the Company (as
defined herein); or
-3-
<PAGE>
(B) (1) on or before December 31, 1999, a Trigger Event, as defined
below, has occurred, (2) Executive is employed by the Company or any of its
Subsidiaries on the date of closing of such Trigger Event and (3):
(I) as to one-third of the Performance Vesting Shares (the "2.5%
Shares") the Total Company Value shall equal or exceed $50,000,000, and
(II) as to the remaining Performance Vesting Shares (the "5% Shares")
to the extent that the Total Company Value exceeds $50,000,000, the number
of 5% Shares which shall vest is equal to the product of (I) the quotient
determined by dividing the amount that the Total Company Value exceeds
$50,000,000 by $20,000,000 and (II) the maximum number of 5% Shares.
For example, if the Total Company Value at the time of the
Trigger Event is $58,000,000 and the maximum number of 5% Shares
is 3,333 (assuming, for purposes of this example only, a maximum
of 5,000 Performance Vesting Shares) then the number of 5% Shares
which shall become vested is 1333 (8,000,000 divided by
20,000,000 x 3,333 = 1333).
The determination of the Total Company Value, shall be made upon occurrence of
and as of the date of closing of either of the following "Trigger Events":
(A) the Company has closed an underwritten initial public offering
("IPO") of Common Stock registered under the 1933 Act in which the net proceeds
to the Company is at least $20,000,000, provided however, that prior to or as a
result of the IPO all outstanding shares of the Company's Series A Preferred
Stock (the "Preferred Stock") are redeemed by the Company, or;
(B) a "Sale of the Company" as defined herein.
(b) Upon the occurrence of a Sale of the Company, a Qualified Public
Offering or the death or permanent disability of Executive, all shares of
Executive Stock which are Class A Common which have not yet become vested shall
become vested at the time of such event. For purposes of this paragraph 2(b),
the determination of permanent disability shall be made in good faith by the
Company's board of directors (the "Board"). Shares of Executive Stock which have
become vested are referred to herein as "Vested Shares," and all other shares of
Executive Stock are referred to herein as "Unvested Shares."
(c) The Company shall upon the written request of a holder of
Executive Stock which is Class B Common Stock issue and exchange therefor shares
of Class A Common on a share-for-share basis at any time on or after a Sale of
the Company or a Qualified Public Offering.
3. Repurchase Option.
-----------------
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<PAGE>
(a) In the event (i) Executive ceases to be employed by the Company
and its Subsidiaries for any reason (the "Termination"), the Executive Stock
(whether held by Executive or one or more of Executive's transferees) or (ii)
there is a Sale of the Company after December 31, 1999, the Unvested Shares of
the Performance Vesting Shares (whether held by Executive or one or more of
Executive's transferees) shall be subject to repurchase by the Company and the
Investors pursuant to the terms and conditions set forth in this paragraph 3
(the "Repurchase Option"); provided that the Repurchase Option shall not apply
to the shares which vest on the date hereof unless Executive voluntarily
terminated such employment prior to the second anniversary of the date hereof
(in which event the Repurchase Option will apply to such shares).
(b) The purchase price for each Unvested Share shall be Executive's
Original Cost for such share (with shares having the lowest cost subject to
repurchase prior to shares with a higher cost), and the purchase price for each
Vested Share shall be the Fair Market Value for such share.
(c) The Board may elect to purchase all or any portion of the
Unvested Shares and the Vested Shares by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 30
days after the Termination. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be acquired from each holder of Executive
Stock, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction. If the number of shares of Executive
Stock then held by Executive is less than the total number of shares of
Executive Stock the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Executive Stock under this Agreement, pro rata according to the number of shares
of Executive Stock held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as close as practicable to the nearest whole
shares). The number of shares to be repurchased by the Company shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, the Investors and the
other Executives who are then employed by the Company or one of its Subsidiaries
(the "Continuing Executives") shall be entitled to exercise the Repurchase
Option for the shares of Executive Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 45 days
after the Termination, the Company shall give written notice (the "Option
Notice") to the Investors and the Continuing Executives setting forth the number
of Available Shares and the purchase price for the Available Shares. The
Investors and the Continuing Executives may elect to purchase any or all of the
Available Shares by giving written notice to the Company within 30 days after
the Option Notice has been given by the Company. If the Investors and the
Continuing Executives elect to purchase an aggregate number of shares greater
than the number of Available Shares, the Available Shares shall be allocated
among the Investors and the Continuing Executives based upon the number of
shares of Common Stock owned by each Investor and the Continuing Executive on a
fully-diluted basis (provided, however, that no Class B Common which is not yet
vested under the Executive Stock Agreements will be counted for this purpose).
As soon as practicable, and in any event within ten days after the expira-
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<PAGE>
tion of the 15-day period set forth above, the Company shall notify each holder
of Executive Stock as to the number of shares being purchased from such holder
by the Investors and the Continuing Executives (the "Supplemental Repurchase
Notice"). At the time the Company delivers the Supplemental Repurchase Notice to
the holder(s) of Executive Stock, the Company shall also deliver written notice
to each Investor and Continuing Executive setting forth the number of shares
such Person is entitled to purchase, the aggregate purchase price and the time
and place of the closing of the transaction. The number of shares to be
repurchased by the Investors and the Continuing Executives shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(e) The closing of the purchase of the Executive Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 30 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investors and
Continuing Executives shall pay for the Executive Stock to be purchased pursuant
to the Repurchase Option by delivery of, a check or wire transfer of funds. In
addition, the Company may pay the purchase price for such shares by offsetting
amounts outstanding under the Executive Note issued to the Company hereunder and
any other bona fide debts owed by Executive to the Company. The sellers of
Executive Stock hereunder shall be deemed to make customary representations and
warranties to the purchasers regarding such sale of shares (including
representations and warranties regarding good title to such shares, free and
clear of any liens or encumbrances). The purchasers may require written
confirmation of such representations and require all sellers' signatures be
guaranteed by a national bank or reputable securities broker.
(f) The right of the Company and the Investors and the Continuing
Executives to repurchase Vested Shares pursuant to this paragraph 3 shall
terminate upon the first to occur of the Sale of the Company or a Qualified
Public Offering.
(g) If Executive's employment by the Company and its Subsidiaries, if
any, is terminated by the Company other than for Cause, the Company shall pay
Executive as severance an amount equal to his cash base salary compensation
(i.e., excluding any bonuses) during the preceding 12 months in equal monthly
installments on the first business day of each of the next 12 months.
4. Restrictions on Transfer.
------------------------
(a) Retention of Executive Stock. Until the expiration of 54 months
----------------------------
after the date of this Agreement, Executive shall not sell, transfer, assign,
pledge or otherwise dispose of any interest in any shares of Executive Stock,
except for Exempt Transfers (as defined in paragraph 4(b) below) and sales to
the public pursuant to Rule 144 promulgated under the 1933 Act or any similar
rule then in force.
(b) Transfer of Executive Stock. Executive shall not sell, transfer,
---------------------------
assign, pledge or otherwise dispose of (whether with or without consideration
and whether voluntarily or involun-
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<PAGE>
tarily or by operation of law) any interest in any shares of Executive Stock (a
"Transfer"), except pursuant to (i) the provisions of paragraph 3 hereof, a Sale
of the Company or a Public Sale ("Exempt Transfers") or (ii) the provisions of
this paragraph 4; provided that in no event shall any Transfer of Executive
Stock pursuant to this paragraph 4 be made for any consideration other than cash
payable upon consummation of such Transfer or in installments over time. Prior
to making any Transfer other than an Exempt Transfer, Executive shall deliver
written notice (the "Sale Notice") to the Company and the Investors. The Sale
Notice shall disclose in reasonable detail the identity of the prospective
transferee(s), the number of shares to be transferred and the terms and
conditions of the proposed transfer. Executive shall not consummate any Transfer
until 30 days after the Sale Notice has been given to the Company and to the
Investors, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 4 prior to the expiration of such 30-day period. (The
date of the first to occur of such events is referred to herein as the
"Authorization Date".)
(c) First Refusal Rights. The Company may elect to purchase all (but
--------------------
not less than all) of the shares of Executive Stock to be transferred upon the
same terms and conditions as those set forth in the Sale Notice by delivering a
written notice of such election to Executive and the Investors within 10 days
after the Sale Notice has been delivered to the Company. If the Company has not
elected to purchase all of the Executive Stock to be transferred, the Investors
may elect to purchase all (but not less than all) of the Executive Stock to be
transferred upon the same terms and conditions as those set forth in the Sale
Notice by delivering written notice of such election to Executive within 10 days
after the Sale Notice has been given to the Investors. If more than one Investor
elects to purchase the Executive Stock, the shares of Executive Stock to be sold
shall be allocated among the Investors pro rata according to the number of
shares of Common Stock owned by each Investor on a fully-diluted basis. If
neither the Company nor the Investors elect to purchase all of the shares of
Executive Stock specified in the Sale Notice, Executive may transfer the shares
of Executive Stock specified in the Sale Notice at a price and on terms no more
favorable to the transferee(s) thereof than specified in the Sale Notice during
the 60-day period immediately following the Authorization Date. Any shares of
Executive Stock not transferred within such 60-day period shall be subject to
the provisions of this paragraph 4(c) upon subsequent transfer. If the Company
or any of the Investors have elected to purchase shares of Executive Stock
hereunder, the transfer of such shares shall be consummated as soon as practical
after the delivery of the election notice(s) to Executive, but in any event
within 15 days after the expiration of the Election Period. The Company may pay
the purchase price for such shares by offsetting amounts outstanding under the
Executive Note issued to the Company hereunder and any other bona fide debts
owed by Executive to the Company.
(d) Certain Permitted Transfers. The restrictions contained in this
---------------------------
paragraph 4 shall not apply with respect to transfers of shares of Executive
Stock (i) pursuant to applicable laws of descent and distribution or (ii) among
Executive's family group; provided that such restrictions shall continue to be
applicable to the Executive Stock after any such transfer and the transferees of
such Executive Stock shall have agreed in writing to be bound by the provisions
of this Agreement. Executive's "family group" means Executive's spouse and
descendants (whether natural or adopted) and any trust solely for the benefit of
Executive and/or Executive's spouse and/or descendants.
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<PAGE>
(e) Pledges. Notwithstanding the provisions of this paragraph 4,
-------
Executive may pledge any shares of Executive Stock to the Company to secure
payment of the Executive Note.
(f) Termination of Restrictions. The restrictions on the transfer of
---------------------------
shares of Executive Stock set forth in this paragraph 4 shall continue with
respect to each share of Executive Stock following any Transfer thereof (other
than a Public Sale); provided that in any event such restrictions shall
terminate on the first to occur of a Sale of the Company or a Qualified Public
Offering.
5. Additional Restrictions on Transfer.
-----------------------------------
(a) The certificates representing the Executive Stock shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON JUNE 30, 1995, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAW, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS
SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE COMPANY AND
LLOYD W. HOLLAND DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
(c) Each holder of Executive Stock agrees not to effect any public
sale or distribution of any Executive Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering. except as
part of such underwritten public offering or if otherwise permitted by the
Company.
6. Sale of the Company.
-------------------
-8-
<PAGE>
(a) If the Board and the holders of a majority of the Company's
Preferred Stock and Common Stock approve a Sale of the Company (the "Approved
Sale"), the holders of Executive Stock shall consent to and raise no objections
against the Approved Sale of the Company, and if the Approved Sale of the
Company is structured as a sale of stock, the holders of Executive Stock shall
agree to sell their shares of Executive Stock and surrender their stock options
on the terms and conditions approved by the Board and the holders of a majority
of the Company's Preferred Stock and Common Stock. The holders of Executive
Stock shall take all necessary and desirable actions in connection with the
consummation of the Approved Sale of the Company.
(b) The obligations of the holders of Executive Stock with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, all of the
holders of Common Stock shall receive the same form and amount of consideration
per share of Common Stock, or if any holders of Common Stock are given an option
as to the form and amount of consideration to be received, all holders shall be
given the same option; and (ii) all holders of then currently exercisable rights
to acquire shares of Common Stock shall be given an opportunity to either (A)
exercise such rights prior to the consummation of the Approved Sale and
participate in such sale as holders of Common Stock or (B) upon the consummation
of the Approved Sale, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price per share of Common Stock of such
rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such rights.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock shall at
the request of the Company, appoint a "purchaser representative" (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company shall pay the fees of such purchaser representative. However, if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and such holder shall be
responsible for the fees of the purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any) shall
bear their pro-rata share (based upon the number of all shares sold by each
seller including the Investors and each other Executive) of the costs of any
sale of Executive Stock pursuant to an Approved Sale to the extent such costs
are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf shall not
be considered costs of the transaction hereunder.
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<PAGE>
(e) The provisions of this paragraph 6 shall terminate upon the
completion of a Qualified Public Offering.
7. Voting Agreement and Tag-Along.
------------------------------
(a) So long as the Investors hold any shares of Common Stock, each
Investor and Executive shall vote all of their shares of Common Stock (and, in
the event such holder is entitled to vote any of the Company's other securities
for the election of directors, such holder shall vote all such securities) and
take all other reasonably necessary actions in such holder's capacity as a
stockholder of the Company, and the Company shall take all necessary or
desirable actions as are requested by the Investors and Executive, in order to
cause two of the executive officers of the Company (one of which should be the
Company's Chief Executive Officer) representatives designated by Executives
holding a majority of the Common Stock held by all Executives to be elected as
members of the Board and to cause two representatives designated by Investors
holding a majority of the Common Stock held by the Investors to be elected to
the Board. The provisions of this paragraph 7 shall terminate upon the first to
occur of a Qualified Public Offering and the tenth anniversary of this
Agreement.
(b) If either Investor desires to sell any of its Common Stock or if
holders of Executive Stock, after complying with the other provisions of this
Agreement, including paragraph 3, desire to sell any of their shares of Common
Stock, the proposed seller shall give written notice thereof (a "Sale Notice")
to the Company, the Investors and each holder of Common Stock issued under this
Agreement and the other Executive Stock Agreements at least 10 days prior to the
proposed sale and each such Person other than the seller may elect to
participate in the sale by written notice to the Company and the seller given
within 10 days after receipt of the Sale Notice. The electing Persons shall be
entitled to sell in the contemplated sale, at the same price and on the same
terms, a number of shares of the Company's Common Stock equal to the product of
(i) the quotient determined by dividing the percentage of the Company's Common
Stock (on a fully-diluted basis) held by such electing Person, by the aggregate
percentage of the Company's Common Stock (on a fully-diluted basis) owned by the
Seller and all electing Persons and (ii) the number of shares of Common Stock to
be sold in the contemplated sale.
For example, if the Executive delivered a Sale Notice
contemplated a sale of 100 shares of Common Stock, and if
Executive was at such time the owner of 5% of the Company's
Common Stock (on a fully-diluted basis) and if one Investor
elected to participate and the Investor owned 20% of the
Company's Common Stock (on a fully-diluted basis), Executive
would be entitled to sell 20 shares (5% divided by 25% x 100
shares) and the Investor would be entitled to sell 80 shares (20%
divided by 25% x 100 shares).
The provisions of this paragraph (b) shall terminate upon a Qualified Public
Offering.
8. Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
-10-
<PAGE>
(a) Executive shall not disclose or use at any time, either during
his employment with the Company or thereafter, any Confidential Information (as
defined below) of which Executive is or becomes aware, whether or not such
information is developed by him, except to the extent that such disclosure or
use is directly related to and required by Executive's performance of duties
assigned to Executive by the Company. Executive shall take all appropriate steps
to safeguard Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft.
(b) As used in this Agreement, the term "Confidential Information"
means information that is not generally known to the public and that is used,
developed or obtained by the Company in connection with its business, including
but not limited to (i) products or services, (ii) fees, costs and pricing
structures, (iii) designs, (iv) analysis, (v) drawings, photographs and reports,
(vi) computer software, including operating systems, applications and program
listings, (vii) flow charts, manuals and documentation, (viii) data bases, (ix)
accounting and business methods, (x) inventions, devices, new developments,
methods and processes, whether patentable or unpatentable and whether or not
reduced to practice, (xi) customers and clients and customer or client lists,
(xii) copyrightable works, (xiii) all information comprising the Transferred
Property, (xiv) all technology and trade secrets, and (xv) all similar and
related information in whatever form. Confidential Information shall not include
any information that has been published in the form generally available to the
public prior to the date Executive purposes to disclose or use such information.
Information shall not be deemed to have been published merely because individual
portions of the information have been separately published, but only if all
material features comprising such information have been published in
combination.
9. Consulting and Noncompetition. Executive acknowledges and
-----------------------------
agrees with the Company that Executive's services to the Company are unique in
nature and that the Company would be irreparably damaged if Executive were to
provide similar services to any person or entity competing with the Company or
engaged in a similar business. Executive accordingly covenants and agrees with
the Company that during the period commencing with the date of this Agreement
and, as long as the Company compensates Executive as a consultant at an amount
payable monthly equal to 10% of Executive's cash compensation in the 12 months
preceding his termination of employment, thereafter until the third anniversary
of the date of the termination of Executive's employment with the Company (the
"Noncompetition Period"), Executive shall not, directly or indirectly, either
for himself or for any other individual, corporation, partnership, joint venture
or other entity, participate in any business (including, without limitation, any
division, group or franchise of a larger organization) which (i) engages or
which proposes to engage in the acquisition, disposition, operation or
management of allied health schools anywhere in the U.S. or (ii) which operates
or plans to operate schools of any type in the same geographic areas as Company
at the time of such termination. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any director or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise).
-11-
<PAGE>
10. Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
11. Definitions.
-----------
"Cause" means (i) the commission of a felony or a crime involving
-----
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to the Company or any of its Subsidiaries or (v) any material
breach of this Agreement which is not cured within 15 days after written notice
thereof to Executive.
"Executive Stock" shall continue to be Executive Stock in the hands
---------------
of any holder other than Executive (except for the Company and the Investors and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock shall succeed to all rights
and obligations attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock shall also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Executive Stock after any Transfer thereof.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of the Company's Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq National Market as of
4:00 P.M., New York time, or, if on any day the Common Stock is not quoted in
the Nasdaq National Market, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which the Fair Market Value is being determined and the 20 consecutive business
days prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq National Market or the over-the-
counter market, the Fair Market Value shall be the fair value of the Common
Stock determined in good faith by the Board or, if the Executive disagrees with
such value, the fair market
-12-
<PAGE>
value determined by an independent appraiser mutually acceptable to the Board
and Executive (in each case without taking into account the effect of any
contemporaneous repurchase of Unvested Shares under paragraph 3 hereof);
provided that if such appraised value is higher than that established by the
Board the purchasers of the shares involved shall not be required to consummate
the related purchase.
"Independent Third Party" means any person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis, who is not controlling, controlled by or
under common control with any such 5% owner of the Company's Common Stock and
who is not the spouse or descendent (by birth or adoption) of any such 5% owner
of the Company's Common Stock.
"Investors" means Primus Capital Partners III Limited Partnership
---------
and BOCPII, Limited Liability Company, successor by merger to Bank One
Capital Partners II, Limited Partnership.
"1933 Act" means the Securities Act of 1933, as amended from time to
--------
time.
"Original Cost" of each share of Common Stock purchased hereunder
-------------
shall be equal to $10.00 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Qualified Public Offering" means the sale by the Company, in an
-------------------------
underwritten public offering registered under the 1933 Act, of shares of the
Company's Common Stock having an aggregate offering value of at least $10
million and where the per share price to the public multiplied by the number of
shares of Common Stock issued under the Purchase Agreement and this and the
other Executive Stock Agreements (adjusted for stock splits and other
recapitalizations) is at least $30,000,000.
"Permitted Transferee" means any holder of Executive Stock who
--------------------
acquired such stock pursuant to a transfer permitted by paragraph 4(d).
"Public Sale" means any sale pursuant to a registered public offering
-----------
under the 1993 Act or any sale to the public pursuant to Rule 144 promulgated
under the 1933 Act effected through a broker, dealer or market maker.
"Sale of the Company" means the sale of the Company to an Independent
-------------------
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of directors (whether by
merger, consolidation or sale or transfer of the Company's capital stock) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
-13-
<PAGE>
"Subsidiary" means any corporation of which the Company owns
----------
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Total Company Value" means the product of (i) as to an IPO, the price
-------------------
per share to the public in such IPO, and as to a Sale of the Company, the price
per share received by holders of common stock and (ii) 134,408.60 (adjusted for
any stock splits, stock dividends, combinations of shares or the like after the
date hereof).
12. Notices. Any notice provided for in this Agreement must be writing
-------
and must be either personally delivered, mailed by first class mail (postage
prepaid and return receipt requested) or sent by reputable overnight courier
service (charges prepaid) to the recipient at the address below indicated:
To the Company:
1932 East Deere Avenue, Suite 210
Santa Ana, CA 92705
Attention: President
With copies to:
David A. Krinsky, Esq.
O'Melveney & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660-6429
To Executive:
Lloyd W. Holland
25661 Hazelnut Lane
Lake Forest, CA 92630
To the Investors: As specified in the Purchase Agreement
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
-14-
<PAGE>
13. General Provisions.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or
-----------------------------------
attempted Transfer of any Executive Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Executive Stock as the owner of
such stock for any purpose.
(b) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents
------------------
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(f) Choice of Law. The corporate law of the State of Delaware
-------------
shall govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
California.
(g) Remedies. Each of the parties to this Agreement (including
--------
the Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of
-15-
<PAGE>
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may
--------------------
be amended and waived only with the prior written consent of the Company,
Executive and Investors owning a majority of the Common Stock on a fully-diluted
basis held by all Investors.
(i) Third-Party Beneficiaries. Certain provisions of this
-------------------------
Agreement are entered into for the benefit of and shall be enforceable by the
Investors and other Executives as provided herein.
(j) Business Days. If any time period for giving notice or
-------------
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the state in which the Company's chief executive office is located,
the time period shall be automatically extended to the business day immediately
following such Saturday, Sunday or holiday.
14. Initial Public Offering. In the event that the Board and the
-----------------------
holders of a majority of the shares of Common Stock (voting as a single class)
then outstanding approve an initial public offering of Common Stock (a "Public
Offering") pursuant to an effective registration statement under the Securities
Act, Executive shall take all reasonably necessary or desirable actions in
connection with the consummation of the Public Offering as requested by the
Company.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
CORINTHIAN SCHOOLS, INC.
By /s/ Frank J. MCcord
------------------------------------
Its VP & CFO
/s/ Lloyd W. Holland
---------------------------------------
LLOYD W. HOLLAND
/s/ Frank J. MCcord
---------------------------------------
Witness
Agreed and Accepted:
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
----------------------------------
Its President
----------------------------------
BOCPII, LIMITED LIABILITY COMPANY
By /s/ Earle J. Bensing
----------------------------------
Its Authorized Signer
----------------------------------
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<PAGE>
EXHIBIT 10.16
AMENDED AND RESTATED
EXECUTIVE STOCK AGREEMENT
-------------------------
THIS AMENDED AND RESTATED EXECUTIVE STOCK AGREEMENT (the "Agreement")
is made as of November 24, 1997, between Corinthian Schools, Inc., a Delaware
corporation (the "Company"), and Frank J. McCord ("Executive").
The Company and Executive desire to amend and restate the agreement,
dated June 30, 1995, as amended pursuant to the First Amendment to Executive
Stock Agreement, dated October 17, 1996 (the "Original Executive Stock
------------------------
Agreement"), pursuant to which Executive purchased, and the Company sold, 10,000
- ---------
shares of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common"), and 2,500 shares of the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common" and, together with the Class A
Common, the "Common Stock"). All of such shares of Common Stock and all shares
of Common Stock hereafter acquired by Executive are referred to herein as
"Executive Stock". Certain definitions are set forth in paragraph 11 of this
Agreement. Executive paid a portion of such purchase price by delivering to the
Company for cancellation shares of common stock purchased by Executive prior to
the Original Executive Stock Agreement (the "Old Common"), and with respect to
which Executive has made additional capital contributions, the total amount
previously paid being $20,000.
Certain provisions of this Agreement are intended for the benefit of,
and shall be enforceable by, the Investors and the other persons who are
entering into similar agreements ("Executive Stock Agreements") with the Company
as of the date hereof (Executive and such persons are collectively referred to
as "Executives").
The parties hereto agree to amend and restate the Original Executive
Stock Agreement as follows:
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive shall purchase, and
the Company shall sell, 10,000 shares of Class A Common at a price of $10.00 per
share and 2,500 shares of Class B Common at a price of $10.00 per share. The
Company shall deliver to Executive a copy of the certificates representing such
shares of Common Stock, and Executive shall deliver to the Company a cashier's
or certified check or wire transfer of funds in the aggregate amount of
$80,025.00, a promissory note in the form of Annex A attached hereto in an
-------
aggregate principal amount of $24,975 (the "Executive Note") and the
certificates for the Old Common. Executive's obligations under the Executive
Note shall be secured by a pledge of all of the shares of Class B Common to the
Company, and in connection therewith, Executive shall enter into a pledge
agreement in the form of Annex B attached hereto.
-------
<PAGE>
(b) The Company shall hold each certificate representing Executive
Stock until such time as the Executive Stock represented by such certificate is
released from the pledge to the Company, if any, and is fully vested hereunder.
(c) Within 30 days after Executive purchases any Executive Stock from
the Company, Executive shall make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder and the equivalent election with the State of
California.
(d) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
1933 Act, or any applicable state securities laws, and the Executive Stock
shall not be disposed of in contravention of the 1933 Act or any applicable
state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive Stock has not been registered under the 1933 Act and,
therefore, cannot be sold unless subsequently registered under the 1933 Act
or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested. Executive has reviewed, or has
had an opportunity to review, a copy of the Asset Purchase Agreement (the
"Asset Purchase Agreement") between the Company, National Education
Centers, Inc. ("Seller") and National Education Corporation pursuant to
which the Company is acquiring certain of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) the Company's Certificate of Incorporation and Bylaws; (B)
the agreements, notes and related documents with the Company's lenders and
equity investors; and (C) the Company's Private Placement Memorandum for a
$2.5 million Equity Investment dated April 21, 1995.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and shall not conflict with, violate or
-2-
<PAGE>
cause a breach of any agreement, contract or instrument to which Executive is
a party or any judgment, order or decree to which Executive is subject.
(vi) Executive has obtained advice from persons other than the
Investors and their counsel regarding the tax effects of the transaction
contemplated hereby.
(e) Executive acknowledges and agrees that neither the issuance of the
Executive Stock to Executive nor any provision contained herein shall entitle
Executive to remain in the employment of the Company and its Subsidiaries.
(f) The Company and Executive acknowledge and agree that this Agreement
has been executed and delivered, and the Executive Stock has been issued
hereunder, in connection with and as a part of the compensation and incentive
arrangements between the Company and Executive.
(g) The Company acknowledges that Executive is given certain contractual
preemptive rights, together with the Investors, in the Purchase Agreement
(paragraph 3J) with respect to future issuances of equity securities of the
Company notwithstanding the fact that Executive is not a named party thereto.
(h) Executive represents and warrants to the Company and the Investors
that he has not entered and will not during the term of this Agreement enter
into any agreement with any of the other Executives with respect to the voting
of his or their shares or the sharing of the economic benefits thereof.
2. Vesting of Executive Stock.
--------------------------
(a) (i) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class A Common shall become vested in accordance with
the following schedule, if as of each such date Executive is employed by the
Company or any of its Subsidiaries:
Cumulative
Percentage of Class A Executive
Date Stock Vested
------ -------------------------------
the date hereof 75.0%
June 30, 1998 87.5%
June 30, 1999 100.0%
(ii) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class B Common (the "Performance Vesting Shares") shall
become vested if:
(A) The Executive is employed by the Company and any of its
Subsidiaries on June 30, 2005 and there has been no Sale of the Company (as
defined herein); or
-3-
<PAGE>
(B) (1) on or before December 31, 1999, a Trigger Event, as defined
below, has occurred, (2) Executive is employed by the Company or any of its
Subsidiaries on the date of closing of such Trigger Event and (3):
(I) as to one-third of the Performance Vesting Shares (the "2.5%
Shares") the Total Company Value shall equal or exceed $50,000,000, and
(II) as to the remaining Performance Vesting Shares (the "5% Shares")
to the extent that the Total Company Value exceeds $50,000,000, the number
of 5% Shares which shall vest is equal to the product of (I) the quotient
determined by dividing the amount that the Total Company Value exceeds
$50,000,000 by $20,000,000 and (II) the maximum number of 5% Shares.
For example, if the Total Company Value at the time of the
Trigger Event is $58,000,000 and the maximum number of 5% Shares
is 3,333 (assuming, for purposes of this example only, a maximum
of 5,000 Performance Vesting Shares) then the number of 5%
Shares which shall become vested is 1333 (8,000,000 divided by
20,000,000 x 3,333 = 1333).
The determination of the Total Company Value, shall be made upon occurrence of
and as of the date of closing of either of the following "Trigger Events":
(A) the Company has closed an underwritten initial public offering
("IPO") of Common Stock registered under the 1933 Act in which the net proceeds
to the Company is at least $20,000,000, provided however, that prior to or as a
result of the IPO all outstanding shares of the Company's Series A Preferred
Stock (the "Preferred Stock") are redeemed by the Company, or;
(B) a "Sale of the Company" as defined herein.
(b) Upon the occurrence of a Sale of the Company, a Qualified Public
Offering or the death or permanent disability of Executive, all shares of
Executive Stock which are Class A Common which have not yet become vested shall
become vested at the time of such event. For purposes of this paragraph 2(b),
the determination of permanent disability shall be made in good faith by the
Company's board of directors (the "Board"). Shares of Executive Stock which
have become vested are referred to herein as "Vested Shares," and all other
shares of Executive Stock are referred to herein as "Unvested Shares."
(c) The Company shall upon the written request of a holder of
Executive Stock which is Class B Common Stock issue and exchange therefor shares
of Class A Common on a share-for-share basis at any time on or after a Sale of
the Company or a Qualified Public Offering.
3. Repurchase Option.
-----------------
-4-
<PAGE>
(a) In the event (i) Executive ceases to be employed by the Company
and its Subsidiaries for any reason (the "Termination"), the Executive Stock
(whether held by Executive or one or more of Executive's transferees) or (ii)
there is a Sale of the Company after December 31, 1999, the Unvested Shares of
the Performance Vesting Shares (whether held by Executive or one or more of
Executive's transferees) shall be subject to repurchase by the Company and the
Investors pursuant to the terms and conditions set forth in this paragraph 3
(the "Repurchase Option"); provided that the Repurchase Option shall not apply
to the shares which vest on the date hereof unless Executive voluntarily
terminated such employment prior to the second anniversary of the date hereof
(in which event the Repurchase Option will apply to such shares).
(b) The purchase price for each Unvested Share shall be Executive's
Original Cost for such share (with shares having the lowest cost subject to
repurchase prior to shares with a higher cost), and the purchase price for each
Vested Share shall be the Fair Market Value for such share.
(c) The Board may elect to purchase all or any portion of the
Unvested Shares and the Vested Shares by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 30
days after the Termination. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be acquired from each holder of Executive
Stock, the aggregrate consideration to be paid for such shares and the time and
place for the closing of the transaction. If the number of shares of Executive
Stock then held by Executive is less than the total number of shares of
Executive Stock the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Executive Stock under this Agreement, pro rata according to the number of shares
of Executive Stock held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as close as practicable to the nearest whole
shares). The number of shares to be repurchased by the Company shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, the Investors and the
other Executives who are then employed by the Company or one of its Subsidiaries
(the "Continuing Executives") shall be entitled to exercise the Repurchase
Option for the shares of Executive Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 45 days
after the Termination, the Company shall give written notice (the "Option
Notice") to the Investors and the Continuing Executives setting forth the number
of Available Shares and the purchase price for the Available Shares. The
Investors and the Continuing Executives may elect to purchase any or all of the
Available Shares by giving written notice to the Company within 30 days after
the Option Notice has been given by the Company. If the Investors and the
Continuing Executives elect to purchase an aggregate number of shares greater
than the number of Available Shares, the Available Shares shall be allocated
among the Investors and the Continuing Executives based upon the number of
shares of Common Stock owned by each Investor and the Continuing Executive on a
fully-diluted basis (provided, however, than no Class B Common which is not yet
vested under the Executive Stock Agreements will be counted for this purpose).
As soon as practicable, and in any event within ten days after the expira-
-5-
<PAGE>
tion of the 15-day period set forth above, the Company shall notify each holder
of Executive Stock as to the number of shares being purchased from such holder
by the Investors and the Continuing Executives (the "Supplemental Repurchase
Notice"). At the time the Company delivers the Supplemental Repurchase Notice to
the holder(s) of Executive Stock, the Company shall also deliver written notice
to each Investor and Continuing Executive setting forth the number of shares
such Person is entitled to purchase, the aggregate purchase price and the time
and place of the closing of the transaction. The number of shares to be
repurchased by the Investors and the Continuing Executives shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(e) The closing of the purchase of the Executive Stock pursuant to the
Repurchase Option shall take place on the date designated by the Company in the
Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 30 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investors and
Continuing Executives shall pay for the Executive Stock to be purchased pursuant
to the Repurchase Option by delivery of, a check or wire transfer of funds. In
addition, the Company may pay the purchase price for such shares by offsetting
amounts outstanding under the Executive Note issued to the Company hereunder and
any other bona fide debts owed by Executive to the Company. The sellers of
Executive Stock hereunder shall be deemed to make customary representations and
warranties to the purchasers regarding such sale of shares (including
representations and warranties regarding good title to such shares, free and
clear of any liens or encumbrances). The purchasers may require written
confirmation of such representations and require all sellers' signatures be
guaranteed by a national bank or reputable securities broker.
(f) The right of the Company and the Investors and the Continuing
Executives to repurchase Vested Shares pursuant to this paragraph 3 shall
terminate upon the first to occur of the Sale of the Company or a Qualified
Public Offering.
(g) If Executive's employment by the Company and its Subsidiaries, if
any, is terminated by the Company other than for Cause, the Company shall pay
Executive as severance an amount equal to his cash base salary compensation
(i.e., excluding any bonuses) during the preceding 12 months in equal monthly
installments on the first business day of each of the next 12 months.
4. Restrictions on Transfer
------------------------
(a) Retention of Executive Stock. Until the expiration of 54 months
----------------------------
after the date of this Agreement, Executive shall not sell, transfer, assign,
pledge or otherwise dispose of any interest in any shares of Executive Stock,
except for Exempt Transfers (as defined in paragraph 4(b) below) and sales to
the public pursuant to Rule 144 promulgated under the 1933 Act or any similar
rule then in force.
(b) Transfer of Executive Stock. Executive shall not sell, transfer,
---------------------------
assign, pledge or otherwise dispose of (whether with or without consideration
and whether voluntarily or involun-
-6-
<PAGE>
tarily or by operation of law) any interest in any shares of Executive Stock
(a "Transfer"), except pursuant to (i) the provisions of paragraph 3 hereof, a
Sale of the Company or a Public Sale ("Exempt Transfers") or (ii) the provisions
of this paragraph 4; provided that in no event shall any Transfer of Executive
Stock pursuant to this paragraph 4 be made for any consideration other than
cash payable upon consummation of such Transfer or in installments over time.
Prior to making any Transfer other than an Exempt Transfer, Executive shall
deliver written notice (the "Sale Notice") to the Company and the Investors. The
Sale Notice shall disclose in reasonable detail the identity of the prospective
transferee(s), the number of shares to be transferred and the terms and
conditions of the proposed transfer. Executive shall not consummate any Transfer
until 30 days after the Sale Notice has been given to the Company and to the
Investors, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 4 prior to the expiration of such 30-day period. (The
date of the first to occur of such events is referred to herein as the
"Authorization Date".)
(c) First Refusal Rights. The Company may elect to purchase all
--------------------
(but not less than all) of the shares of Executive Stock to be transferred upon
the same terms and conditions as those set forth in the Sale Notice by
delivering a written notice of such election to Executive and the Investors
within 10 days after the Sale Notice has been delivered to the Company. If the
Company has not elected to purchase all of the Executive Stock to be
transferred, the Investors may elect to purchase all (but not less than all) of
the Executive Stock to be transferred upon the same terms and conditions as
those set forth in the Sale Notice by delivering written notice of such election
to Executive within 10 days after the Sale Notice has been given to the
Investors. If more than one Investor elects to purchase the Executive Stock,
the shares of Executive Stock to be sold shall be allocated among the Investors
pro rata according to the number of shares of Common Stock owned by each
Investor on a fully-diluted basis. If neither the Company nor the Investors
elect to purchase all of the shares of Executive Stock specified in the Sale
Notice, Executive may transfer the shares of Executive Stock specified in the
Sale Notice at a price and on terms no more favorable to the transferee(s)
thereof than specified in the Sale Notice during the 60-day period immediately
following the Authorization Date. Any shares of Executive Stock not transferred
within such 60-day period shall be subject to the provisions of this paragraph
4(c) upon subsequent transfer. If the Company or any of the Investors have
elected to purchase shares of Executive Stock hereunder, the transfer of such
shares shall be consummated as soon as practical after the delivery of the
election notice(s) to Executive, but in any event within 15 days after the
expiration of the Election Period. The Company may pay the purchase price for
such shares by offsetting amounts outstanding under the Executive Note issued to
the Company hereunder and any other bona fide debts owed by Executive to the
Company.
(d) Certain Permitted Transfers. The restrictions contained in
---------------------------
this paragraph 4 shall not apply with respect to transfers of shares of
Executive Stock(i) pursuant to applicable laws of descent and distribution or
(ii) among Executive's family group; provided that such restrictions shall
continue to be applicable to the Executive Stock after any such transfer and the
transferees of such Executive Stock shall have agreed in writing to be bound by
the provisions of this Agreement. Executive's "family group" means Executive's
spouse and descendants (whether natural or adopted) and any trust solely for the
benefit of Executive and/or Executive's spouse and/or descendants.
-7-
<PAGE>
(e) Pledges. Notwithstanding the provisions of this paragraph 4,
-------
Executive may pledge any shares of Executive Stock to the Company to secure
payment of the Executive Note.
(f) Termination of Restrictions. The restrictions on the transfer of
---------------------------
shares of Executive Stock set forth in this paragraph 4 shall continue with
respect to each share of Executive Stock following any Transfer thereof (other
than a Public Sale); provided that in any event such restrictions shall
terminate on the first to occur of a Sale of the Company or a Qualified Public
Offering.
5. Additional Restrictions on Transfer.
-----------------------------------
(a) The certificates representing the Executive Stock shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
JUNE 30, 1995, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
EXECUTIVE STOCK AGREEMENT BETWEEN THE COMPANY AND FRANK J. MCCORD DATED AS
OF JUNE 30, 1995, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL
PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
(c) Each holder of Executive Stock agrees not to effect any public
sale or distribution of any Executive Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
6. Sale of the Company.
-------------------
-8-
<PAGE>
(a) If the Board and the holders of a majority of the Company's
Preferred Stock and Common Stock approve a Sale of the Company (the "Approved
Sale"), the holders of Executive Stock shall consent to and raise no objections
against the Approved Sale of the Company, and if the Approved Sale of the
Company is structured as a sale of stock, the holders of Executive Stock
shall agree to sell their shares of Executive Stock and surrender their stock
options on the terms and conditions approved by the Board and the holders of a
majority of the Company's Preferred Stock and Common Stock. The holders of
Executive Stock shall take all necessary and desirable actions in connection
with the consummation of the Approved Sale of the Company.
(b) The obligations of the holders of Executive Stock with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, all of
the holders of Common Stock shall receive the same form and amount of
consideration per share of Common Stock, or if any holders of Common Stock are
given an option as to the form and amount of consideration to be received, all
holders shall be given the same option; and (ii) all holders of then currently
exercisable rights to acquire shares of Common Stock shall be given an
opportunity to either (A) exercise such rights prior to the consummation of the
Approved Sale and participate in such sale as holders of Common Stock or (B)
upon the consummation of the Approved Sale, receive in exchange for such rights
consideration equal to the amount determined by multiplying (1) the same amount
of consideration per share of Common Stock received by the holders of Common
Stock in connection with the Approved Sale less the exercise price per share of
Common Stock of such rights to acquire Common Stock by (2) the number of shares
of Common Stock represented by such rights.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock shall at
the request of the Company, appoint a "purchaser representative" (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company shall pay the fees of such purchaser representative. However, if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and such holder shall be
responsible for the fees of the purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any) shall
bear their pro-rata share (based upon the number of all shares sold by each
seller including the Investors and each other Executive) of the costs of any
sale of Executive Stock pursuant to an Approved Sale to the extent such costs
are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf shall not
be considered costs of the transaction hereunder.
-9-
<PAGE>
(e) The provisions of this paragraph 6 shall terminate upon the
completion of a Qualified Public Offering.
7. Voting Agreement and Tag-Along.
------------------------------
(a) So long as the Investors hold any shares of Common Stock, each
Investor and Executive shall vote all of their shares of Common Stock (and, in
the event such holder is entitled to vote any of the Company's other securities
for the election of directors, such holder shall vote all such securities) and
take all other reasonably necessary actions in such holder's capacity as a
stockholder of the Company, and the Company shall take all necessary or
desirable actions as are requested by the Investors and Executive, in order to
cause two of the executive officers of the Company (one of which should be the
Company's Chief Executive Officer) representatives designated by the Executives
holding a majority of the Common Stock held by the Executives to be elected as
members of the Board and to cause two representatives designated by Investors
holding a majority of the Common Stock held by the Investors to be elected to
the Board. The provisions of this paragraph 7 shall terminate upon the first to
occur of a Qualified Public Offering and the tenth anniversary of this
Agreement.
(b) If either Investor desires to sell any of its Common Stock or if
holders of Executive Stock, after complying with the other provisions of this
Agreement, including paragraph 3, desire to sell any of their shares of Common
Stock, the proposed seller shall give written notice thereof (a "Sale Notice")
to the Company, the Investors and each holder of Common Stock issued under this
Agreement and the other Executive Stock Agreements at least 10 days prior to the
proposed sale and each such Person other than the seller may elect to
participate in the sale by written notice to the Company and the seller given
within 10 days after receipt of the Sale Notice. The electing Persons shall be
entitled to sell in the contemplated sale, at the same price and on the same
terms, a number of shares of the Company's Common Stock equal to the product of
(i) the quotient determined by dividing the percentage of the Company's Common
Stock (on a fully-diluted basis) held by such electing Person, by the aggregate
percentage of the Company's Common Stock (on a fully-diluted basis) owned by the
Seller and all electing Persons and (ii) the number of shares of Common Stock to
be sold in the contemplated sale.
For example, if the Executive delivered a Sale Notice contemplated a sale
of 100 shares of Common Stock, and if Executive was at such time the owner
of 5% of the Company's Common Stock (on a fully-diluted basis) and if one
Investor elected to participate and the Investor owned 20% of the Company's
Common Stock (on a fully-diluted basis), Executive would be entitled to
sell 20 shares (5% divided by 25% x 100 shares) and the Investor would be
entitled to sell 80 shares (20% divided by 25% x 100 shares)
The provisions of this paragraph (b) shall terminate upon a Qualified Public
Offering.
8. Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
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<PAGE>
(a) Executive shall not disclose or use at any time, either during
his employment with the Company or thereafter, any Confidential Information (as
defined below) of which Executive is or becomes aware, whether or not such
information is developed by him, except to the extent that such disclosure or
use is directly related to and required by Executive's performance of duties
assigned to Executive by the Company. Executive shall take all appropriate steps
to safeguard Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft.
(b) As used in this Agreement, the term "Confidential Information"
means information that is not generally known to the public and that is used,
developed or obtained by the Company in connection with its business, including
but not limited to (i) products or services, (ii) fees, costs and pricing
structures, (iii) designs, (iv) analysis, (v) drawings, photographs and reports,
(vi) computer software, including operating systems, applications and program
listings, (vii) flow charts, manuals and documentation, (viii) data bases, (ix)
accounting and business methods, (x) inventions, devices, new developments,
methods and processes, whether patentable or unpatentable and whether or not
reduced to practice, (xi) customers and clients and customer or client lists,
(xii) copyrightable works, (xiii) all information comprising the Transferred
Property, (xiv) all technology and trade secrets, and (xv) all similar and
related information in whatever form. Confidential Information shall not include
any information that has been published in the form generally available to the
public prior to the date Executive purposes to disclose or use such information.
Information shall not be deemed to have been published merely because individual
portions of the information have been separately published, but only if all
material features comprising such information have been published in
combination.
9. Consulting and Noncompetition. Executive acknowledges and agrees
-----------------------------
with the Company that Executive's services to the Company are unique in nature
and that the Company would be irreparably damaged if Executive were to provide
similar services to any person or entity competing with the Company or engaged
in a similar business. Executive accordingly covenants and agrees with the
Company that during the period commencing with the date of this Agreement and,
as long as the Company compensates Executive as a consultant at an amount
payable monthly equal to 10% of Executive's cash compensation in the 12 months
preceding his termination of employment, thereafter until the third anniversary
of the date of the termination of Executive's employment with the Company (the
"Noncompetition Period"), Executive shall not, directly or indirectly, either
for himself or for any other individual, corporation, partnership, joint venture
or other entity, participate in any business (including, without limitation, any
division, group or franchise of a larger organization) which (i) engages or
which proposes to engage in the acquisition, disposition, operation or
management of allied health schools anywhere in the U.S. or (ii) which operates
or plans to operate schools of any type in the same geographic areas as Company
at the time of such termination. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any director or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise).
-11-
<PAGE>
10. Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
11. Definitions.
-----------
"Cause" means (i) the commission of a felony or a crime involving
-----
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to the Company or any of its Subsidiaries or (v) any material
breach of this Agreement which is not cured within 15 days after written notice
thereof to Executive.
"Executive Stock" shall continue to be Executive Stock in the hands of
---------------
any holder other than Executive (except for the Company and the Investors and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock shall succeed to all rights
and obligations attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock shall also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Executive Stock after any Transfer thereof.
"Fair Market Value" of each share of Executive Stock means the average
-----------------
of the closing prices of the sales of the Company's Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq National Market as of
4:00 P.M., New York time, or, if on any day the Common Stock is not quoted in
the Nasdaq National Market, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which the Fair Market Value is being determined and the 20 consecutive business
days prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq National Market or the over-the-
counter market, the Fair Market Value shall be the fair value of the Common
Stock determined in good faith by the Board or, if the Executive disagrees with
such value, the fair market
-12-
<PAGE>
value determined by an independent appraiser mutually acceptable to the Board
and Executive (in each case without taking into account the effect of any
contemporaneous repurchase of Unvested Shares under paragraph 3 hereof);
provided that if such appraised value is higher than that established by the
Board the purchasers of the shares involved shall not be required to consummate
the related purchase.
"Independent Third Party" means any person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis, who is not controlling, controlled by or
under common control with any such 5% owner of the Company's Common Stock and
who is not the spouse or descendent (by birth or adoption) of any such 5% owner
of the Company's Common Stock.
"Investors" means Primus Capital Partners III Limited Partnership and
---------
BOCPII, Limited Liability Company, successor by merger to Bank One Capital
Partners II, Limited Partnership.
"1933 Act" means the Securities Act of 1933, as amended from time to
--------
time.
"Original Cost" of each share of Common Stock purchased hereunder
-------------
shall be equal to $10.00 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Qualified Public Offering" means the sale by the Company, in an
-------------------------
underwritten public offering registered under the 1933 Act, of shares of the
Company's Common Stock having an aggregate offering value of at least $10
million and where the per share price to the public multiplied by the number of
shares of Common Stock issued under the Purchase Agreement and this and the
other Executive Stock Agreements (adjusted for stock splits and other
recapitalizations) is at least $30,000,000.
"Permitted Transferee" means any holder of Executive Stock who
---------------------
acquired such stock pursuant to a transfer permitted by paragraph 4(d).
"Public Sale" means any sale pursuant to a registered public offering
-----------
under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated
under the 1933 Act effected through a broker, dealer or market maker.
"Sale of the Company" means the sale of the Company to an Independent
-------------------
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of directors (whether by
merger, consolidation or sale or transfer of the Company's capital stock) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
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<PAGE>
"Subsidiary" means any corporation of which the Company owns
----------
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Total Company Value" means the product of (i) as to an IPO, the price
-------------------
per share to the public in such IPO, and as to a Sale of the Company, the price
per share received by holders of common stock and (ii) 134,408.60 (adjusted for
any stock splits, stock dividends, combinations of shares or the like after the
date hereof).
12. Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company:
1932 East Deere Avenue, Suite 210
Santa Ana, CA 92705
Attention: President
With copies to:
David A. Krinsky, Esq.
O'Melveney & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660-6429
To Executive:
Frank J. McCord
6213 Seville Court
Long Beach, CA 90803
To the Investors: As specified in the Purchase Agreement
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
-14-
<PAGE>
13. General Provisions.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement, shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(f) Choice of Law. The corporate law of the State of Delaware shall
-------------
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
California.
(g) Remedies. Each of the parties to this Agreement (including the
---------
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of
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<PAGE>
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, Executive
and Investors owning a majority of the Common Stock on a fully-diluted basis
held by all Investors.
(i) Third-Party Beneficiaries. Certain provisions of this Agreement
-------------------------
are entered into for the benefit of and shall be enforceable by the Investors
and other Executives as provided herein.
(j) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief executive office is located, the time
period shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.
14. Initial Public Offering. In the event that the Board and the
-----------------------
holders of a majority of the shares of Common Stock (voting as a single class)
then outstanding approve an initial public offering of Common Stock (a "Public
Offering") pursuant to an effective registration statement under the Securities
Act, Executive shall take all reasonably necessary or desirable actions in
connection with the consummation of the Public Offering as requested by the
Company.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By /s/ Frank J. McCord
----------------------------
Its VP & CFO
/s/ Frank J. McCord
------------------------------
FRANK J. MCCORD
/s/ Paul St. Pierre
------------------------------
Witness
Agreed and Accepted:
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
--------------------------------
Its President
-------------------------------
BOCPII, LIMITED LIABILITY COMPANY
By /s/ Earle J. Bensing
--------------------------------
Its Authorized Signer
-------------------------------
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<PAGE>
EXHIBIT 10.17
AMENDED AND RESTATED
EXECUTIVE STOCK AGREEMENT
-------------------------
THIS AMENDED AND RESTATED EXECUTIVE STOCK AGREEMENT (the "Agreement")
is made as of November 24, 1997, between Corinthian Schools, Inc., a Delaware
corporation (the "Company"), and David G. Moore ("Executive").
The Company and Executive desire to amend and restate the agreement,
dated June 30, 1995, as amended pursuant to the First Amendment to Executive
Stock Agreement, dated October 17, 1996 (the "Original Executive Stock
------------------------
Agreement"), pursuant to which Executive purchased, and the Company sold, 10,000
- ---------
shares of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common"), and 6,250 shares of the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common" and, together with the Class A
Common, the "Common Stock"). All of such shares of Common Stock and all shares
of Common Stock hereafter acquired by Executive are referred to herein as
"Executive Stock". Certain definitions are set forth in paragraph 11 of this
Agreement. Executive paid a portion of such purchase price by delivering to the
Company for cancellation shares of common stock purchased by Executive prior to
the Original Executive Stock Agreement (the "Old Common"), and with respect to
which Executive has made additional capital contributions, the total amount
previously paid being $20,000.
Certain provisions of this Agreement are intended for the benefit of,
and shall be enforceable by, the Investors and the other persons who are
entering into similar agreements ("Executive Stock Agreements") with the Company
as of the date hereof (Executive and such persons are collectively referred to
as "Executives").
The parties hereto agree to amend and restate the Original Executive
Stock Agreement as follows:
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive shall purchase, and
the Company shall sell, 10,000 shares of Class A Common at a price of $10.00 per
share and 6,250 shares of Class B Common at a price of $10.00 per share. The
Company shall deliver to Executive a copy of the certificates representing such
shares of Common Stock, and Executive shall deliver to the Company a cashier's
or certified check or wire transfer of funds in the aggregate amount of
$80,062.50, a promissory note in the form of Annex A attached hereto in an
-------
aggregate principal amount of $62,437.50 (the "Executive Note") and the
certificates for the Old Common. Executive's obligations under the Executive
Note shall be secured by a pledge of all of the shares of Class B Common to the
Company, and in connection therewith, Executive shall enter into a pledge
agreement in the form of Annex B attached hereto.
-------
<PAGE>
(b) The Company shall hold each certificate representing Executive
Stock until such time as the Executive Stock represented by such certificate is
released from the pledge to the Company, if any, and is fully vested hereunder.
(c) Within 30 days after Executive purchases any Executive Stock from
the Company, Executive shall make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder and the equivalent election with the State of
California.
(d) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
1933 Act, or any applicable state securities laws, and the Executive Stock
shall not be disposed of in contravention of the 1933 Act or any applicable
state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive Stock has not been registered under the 1933 Act and,
therefore, cannot be sold unless subsequently registered under the 1933 Act
or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested. Executive has reviewed, or has
had an opportunity to review, a copy of the Asset Purchase Agreement (the
"Asset Purchase Agreement") between the Company, National Education
Centers, Inc. ("Seller") and National Education Corporation pursuant to
which the Company is acquiring certain of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) the Company's Certificate of Incorporation and Bylaws; (B)
the agreements, notes and related documents with the Company's lenders and
equity investors; and (C) the Company's Private Placement Memorandum for a
$2.5 million Equity Investment dated April 21, 1995.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and shall not conflict with, violate or
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<PAGE>
cause a breach of any agreement, contract or instrument to which Executive
is a party or any judgment, order or decree to which Executive is subject.
(vi) Executive has obtained advice from persons other than the
Investors and their counsel regarding the tax effects of the transaction
contemplated hereby.
(e) Executive acknowledges and agrees that neither the issuance of
the Executive Stock to Executive nor any provision contained herein shall
entitle Executive to remain in the employment of the Company and its
Subsidiaries.
(f) The Company and Executive acknowledge and agree that this
Agreement has been executed and delivered, and the Executive Stock has been
issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Company and Executive.
(g) The Company acknowledges that Executive is given certain
contractual preemptive rights, together with the Investors, in the Purchase
Agreement (paragraph 3J) with respect to future issuances of equity securities
of the Company notwithstanding the fact that Executive is not a named party
thereto.
(h) Executive represents and warrants to the Company and the
Investors that he has not entered and will not during the term of this Agreement
enter into any agreement with any of the other Executives with respect to the
voting of his or their shares or the sharing of the economic benefits thereof.
2. Vesting of Executive Stock.
--------------------------
(a) (i) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class A Common shall become vested in accordance with
the following schedule, if as of each such date Executive is employed by the
Company or any of its Subsidiaries:
Cumulative
Percentage of Class A Executive
Date Stock Vested
-------- -------------------------------
the date hereof 75.0%
June 30, 1998 87.5%
June 30, 1999 100.0%
(ii) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class B Common (the "Performance Vesting Shares") shall
become vested if:
(A) The Executive is employed by the Company and any of its
Subsidiaries on June 30, 2005 and there has been no Sale of the Company (as
defined herein); or
-3-
<PAGE>
(B) (1) on or before December 31, 1999, a Trigger Event, as
defined below, has occurred, (2) Executive is employed by the Company or any of
its Subsidiaries on the date of closing of such Trigger Event and (3):
(I) as to one-third of the Performance Vesting Shares (the "2.5%
Shares") the Total Company Value shall equal or exceed $50,000,000, and
(II) as to the remaining Performance Vesting Shares (the "5%
Shares") to the extent that the Total Company Value exceeds $50,000,000,
the number of 5% Shares which shall vest is equal to the product of (I) the
quotient determined by dividing the amount that the Total Company Value
exceeds $50,000,000 by $20,000,000 and (II) the maximum number of 5%
Shares.
For example, if the Total Company Value at the time of the
Trigger Event is $58,000,000 and the maximum number of 5%
Shares is 3,333 (assuming, for purposes of this example only, a
maximum of 5,000 Performance Vesting Shares) then the number of
5% Shares which shall become vested is 1333 (8,000,000 divided
by 20,000,000 x 3,333 = 1333).
The determination of the Total Company Value, shall be made upon occurrence of
and as of the date of closing of either of the following "Trigger Events":
(A) the Company has closed an underwritten initial public offering
("IPO") of Common Stock registered under the 1933 Act in which the net proceeds
to the Company is at least $20,000,000, provided however, that prior to or as a
result of the IPO all outstanding shares of the Company's Series A Preferred
Stock (the "Preferred Stock") are redeemed by the Company, or;
(B) a "Sale of the Company" as defined herein.
(b) Upon the occurrence of a Sale of the Company, a Qualified
Public Offering or the death or permanent disability of Executive, all shares of
Executive Stock which are Class A Common which have not yet become vested shall
become vested at the time of such event. For purposes of this paragraph 2(b),
the determination of permanent disability shall be made in good faith by the
Company's board of directors (the "Board"). Shares of Executive Stock which have
become vested are referred to herein as "Vested Shares," and all other shares of
Executive Stock are referred to herein as "Unvested Shares."
(c) The Company shall upon the written request of a holder of
Executive Stock which is Class B Common Stock issue and exchange therefor shares
of Class A Common on a share-for-share basis at any time on or after a Sale of
the Company or a Qualified Public Offering.
3. Repurchase Option.
-----------------
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<PAGE>
(a) In the event (i) Executive ceases to be employed by the Company
and its Subsidiaries for any reason (the "Termination"), the Executive Stock
(whether held by Executive or one or more of Executive's transferees) or (ii)
there is a Sale of the Company after December 31, 1999 the Unvested Shares of
the Performance Vesting Shares (whether held by Executive or one or more of
Executive's transferees) shall be subject to repurchase by the Company and the
Investors pursuant to the terms and conditions set forth in this paragraph 3
(the "Repurchase Option"); provided that the Repurchase Option shall not apply
to the shares which vest on the date hereof unless Executive voluntarily
terminated such employment prior to the second anniversary of the date hereof
(in which event the Repurchase Option will apply to such shares).
(b) The purchase price for each Unvested Share shall be Executive's
Original Cost for such share (with shares having the lowest cost subject to
repurchase prior to shares with a higher cost), and the purchase price for each
Vested Share shall be the Fair Market Value for such share.
(c) The Board may elect to purchase all or any portion of the
Unvested Shares and the Vested Shares by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 30
days after the Termination. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be acquired from each holder of Executive
Stock, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction. If the number of shares of Executive
Stock then held by Executive is less than the total number of shares of
Executive Stock the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Executive Stock under this Agreement, pro rata according to the number of shares
of Executive Stock held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as close as practicable to the nearest whole
shares). The number of shares to be repurchased by the Company shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, the Investors and the
other Executives who are then employed by the Company or one of its Subsidiaries
(the "Continuing Executives") shall be entitled to exercise the Repurchase
Option for the shares of Executive Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 45 days
after the Termination, the Company shall give written notice (the "Option
Notice") to the Investors and the Continuing Executives setting forth the number
of Available Shares and the purchase price for the Available Shares. The
Investors and the Continuing Executives may elect to purchase any or all of the
Available Shares by giving written notice to the Company within 30 days after
the Option Notice has been given by the Company. If the Investors and the
Continuing Executives elect to purchase an aggregate number of shares greater
than the number of Available Shares, the Available Shares shall be allocated
among the Investors and the Continuing Executives based upon the number of
shares of Common Stock owned by each Investor and the Continuing Executive on a
fully-diluted basis (provided, however, that no Class B Common which is not yet
vested under the Executive Stock Agreements will be counted for this purpose).
As soon as practicable, and in any event within ten days after the expira-
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<PAGE>
tion of the 15-day period set forth above, the Company shall notify each holder
of Executive Stock as to the number of shares being purchased from such holder
by the Investors and the Continuing Executives (the "Supplemental Repurchase
Notice"). At the time the Company delivers the Supplemental Repurchase Notice to
the holder(s) of Executive Stock, the Company shall also deliver written notice
to each Investor and Continuing Executive setting forth the number of shares
such Person is entitled to purchase, the aggregate purchase price and the time
and place of the closing of the transaction. The number of shares to be
repurchased by the Investors and the Continuing Executives shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(e) The closing of the purchase of the Executive Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 30 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investors and
Continuing Executives shall pay for the Executive Stock to be purchased pursuant
to the Repurchase Option by delivery of, a check or wire transfer of funds. In
addition, the Company may pay the purchase price for such shares by offsetting
amounts outstanding under the Executive Note issued to the Company hereunder and
any other bona fide debts owed by Executive to the Company. The sellers of
Executive Stock hereunder shall be deemed to make customary representations and
warranties to the purchasers regarding such sale of shares (including
representations and warranties regarding good title to such shares, free and
clear of any liens or encumbrances). The purchasers may require written
confirmation of such representations and require all sellers' signatures be
guaranteed by a national bank or reputable securities broker.
(f) The right of the Company and the Investors and the Continuing
Executives to repurchase Vested Shares pursuant to this paragraph 3 shall
terminate upon the first to occur of the Sale of the Company or a Qualified
Public Offering.
(g) If Executive's employment by the Company and its Subsidiaries, if
any, is terminated by the Company other than for Cause, the Company shall pay
Executive as severance an amount equal to his cash base salary compensation
(i.e., excluding any bonuses) during the preceding 12 months in equal monthly
installments on the first business day of each of the next 12 months.
4. Restrictions on Transfer.
------------------------
(a) Retention of Executive Stock. Until the expiration of 54 months
----------------------------
after the date of this Agreement, Executive shall not sell, transfer, assign,
pledge or otherwise dispose of any interest in any shares of Executive Stock,
except for Exempt Transfers (as defined in paragraph 4(b) below) and sales to
the public pursuant to Rule 144 promulgated under the 1933 Act or any similar
rule then in force.
(b) Transfer of Executive Stock. Executive shall not sell, transfer,
---------------------------
as sign, pledge or otherwise dispose of (whether with or without consideration
and whether voluntarily or involun-
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<PAGE>
tarily or by operation of law) any interest in any shares of Executive Stock (a
"Transfer"), except pursuant to (i) the provisions of paragraph 3 hereof, a Sale
of the Company or a Public Sale ("Exempt Transfers") or (ii) the provisions of
this paragraph 4; provided that in no event shall any Transfer of Executive
Stock pursuant to this paragraph 4 be made for any consideration other than cash
payable upon consummation of such Transfer or in installments over time. Prior
to making any Transfer other than an Exempt Transfer, Executive shall deliver
written notice (the "Sale Notice") to the Company and the Investors. The Sale
Notice shall disclose in reasonable detail the identity of the prospective
transferee(s), the number of shares to be transferred and the terms and
conditions of the proposed transfer. Executive shall not consummate any Transfer
until 30 days after the Sale Notice has been given to the Company and to the
Investors, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 4 prior to the expiration of such 30-day period. (The
date of the first to occur of such events is referred to herein as the
"Authorization Date".)
(c) First Refusal Rights. The Company may elect to purchase all (but
--------------------
not less than all) of the shares of Executive Stock to be transferred upon the
same terms and conditions as those set forth in the Sale Notice by delivering a
written notice of such election to Executive and the Investors within 10 days
after the Sale Notice has been delivered to the Company. If the Company has not
elected to purchase all of the Executive Stock to be transferred, the Investors
may elect to purchase all (but not less than all) of the Executive Stock to be
transferred upon the same terms and conditions as those set forth in the Sale
Notice by delivering written notice of such election to Executive within 10 days
after the Sale Notice has been given to the Investors. If more than one Investor
elects to purchase the Executive Stock, the shares of Executive Stock to be sold
shall be allocated among the Investors pro rata according to the number of
shares of Common Stock owned by each Investor on a fully-diluted basis. If
neither the Company nor the Investors elect to purchase all of the shares of
Executive Stock specified in the Sale Notice, Executive may transfer the shares
of Executive Stock specified in the Sale Notice at a price and on terms no more
favorable to the transferee(s) thereof than specified in the Sale Notice during
the 60-day period immediately following the Authorization Date. Any shares of
Executive Stock not transferred within such 60-day period shall be subject to
the provisions of this paragraph 4(c) upon subsequent transfer. If the Company
or any of the Investors have elected to purchase shares of Executive Stock
hereunder, the transfer of such shares shall be consummated as soon as practical
after the delivery of the election notice(s) to Executive, but in any event
within 15 days after the expiration of the Election Period. The Company may pay
the purchase price for such shares by offsetting amounts outstanding under the
Executive Note issued to the Company hereunder and any other bona fide debts
owed by Executive to the Company.
(d) Certain Permitted Transfers. The restrictions contained in this
---------------------------
paragraph 4 shall not apply with respect to transfers of shares of Executive
Stock (i) pursuant to applicable laws of descent and distribution or (ii) among
Executive's family group; provided that such restrictions shall continue to be
applicable to the Executive Stock after any such transfer and the transferees of
such Executive Stock shall have agreed in writing to be bound by the provisions
of this Agreement. Executive's "family group" means Executive's spouse and
descendants (whether natural or adopted) and any trust solely for the benefit of
Executive and/or Executive's spouse and/or descendants.
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<PAGE>
(e) Pledges. Notwithstanding the provisions of this paragraph 4,
-------
Executive may pledge any shares of Executive Stock to the Company to secure
payment of the Executive Note.
(f) Termination of Restrictions. The restrictions on the transfer of
---------------------------
shares of Executive Stock set forth in this paragraph 4 shall continue with
respect to each share of Executive Stock following any Transfer thereof (other
than a Public Sale); provided that in any event such restrictions shall
terminate on the first to occur of a Sale of the Company or a Qualified Public
Offering.
5. Additional Restrictions on Transfer.
-----------------------------------
(a) The certificates representing the Executive Stock shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON JUNE 30, 1995, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE
COMPANY AND DAVID G. MOORE DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED
BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
(c) Each holder of Executive Stock agrees not to effect any public
sale or distribution of any Executive Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
6. Sale of the Company.
-------------------
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<PAGE>
(a) If the Board and the holders of a majority of the Company's
Preferred Stock and Common Stock approve a Sale of the Company (the "Approved
Sale"), the holders of Executive Stock shall consent to and raise no objections
against the Approved Sale of the Company, and if the Approved Sale of the
Company is structured as a sale of stock, the holders of Executive Stock shall
agree to sell their shares of Executive Stock and surrender their stock options
on the terms and conditions approved by the Board and the holders of a majority
of the Company's Preferred Stock and Common Stock. The holders of Executive
Stock shall take all necessary and desirable actions in connection with the
consummation of the Approved Sale of the Company.
(b) The obligations of the holders of Executive Stock with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, all of the
holders of Common Stock shall receive the same form and amount of consideration
per share of Common Stock, or if any holders of Common Stock are given an option
as to the form and amount of consideration to be received, all holders shall be
given the same option; and (ii) all holders of then currently exercisable rights
to acquire shares of Common Stock shall be given an opportunity to either (A)
exercise such rights prior to the consummation of the Approved Sale and
participate in such sale as holders of Common Stock or (B) upon the consummation
of the Approved Sale, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price per share of Common Stock of such
rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such rights.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock shall at
the request of the Company, appoint a "purchaser representative" (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company shall pay the fees of such purchaser representative. However, if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and such holder shall be
responsible for the fees of the purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any) shall
bear their pro-rata share (based upon the number of all shares sold by each
seller including the Investors and each other Executive) of the costs of any
sale of Executive Stock pursuant to an Approved Sale to the extent such costs
are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf shall not
be considered costs of the transaction hereunder.
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<PAGE>
(e) The provisions of this paragraph 6 shall terminate upon the
completion of a Qualified Public Offering.
7. Voting Agreement and Tag-Along.
------------------------------
(a) So long as the Investors hold any shares of Common Stock, each
Investor and Executive shall vote all of their shares of Common Stock (and, in
the event such holder is entitled to vote any of the Company's other securities
for the election of directors, such holder shall vote all such securities) and
take all other reasonably necessary actions in such holder's capacity as a
stockholder of the Company, and the Company shall take all necessary or
desirable actions as are requested by the Investors and Executive, in order to
cause two of the executive officers of the Company (one of which should be the
Company's Chief Executive Officer) representatives designated by Executives
holding a majority of the Common Stock held by all Executives to be elected as
members of the Board and to cause two representatives designated by Investors
holding a majority of the Common Stock held by the Investors to be elected to
the Board. The provisions of this paragraph 7 shall terminate upon the first to
occur of a Qualified Public Offering and the tenth anniversary of this
Agreement.
(b) If either Investor desires to sell any of its Common Stock or if
holders of Executive Stock, after complying with the other provisions of this
Agreement, including paragraph 3, desire to sell any of their shares of Common
Stock, the proposed seller shall give written notice thereof (a "Sale Notice")
to the Company, the Investors and each holder of Common Stock issued under this
Agreement and the other Executive Stock Agreements at least 10 days prior to the
proposed sale and each such Person other than the seller may elect to
participate in the sale by written notice to the Company and the seller given
within 10 days after receipt of the Sale Notice. The electing Persons shall be
entitled to sell in the contemplated sale, at the same price and on the same
terms, a number of shares of the Company's Common Stock equal to the product of
(i) the quotient determined by dividing the percentage of the Company's Common
Stock (on a fully-diluted basis) held by such electing Person, by the aggregate
percentage of the Company's Common Stock (on a fully-diluted basis) owned by the
Seller and all electing Persons and (ii) the number of shares of Common Stock to
be sold in the contemplated sale.
For example, if the Executive delivered a Sale Notice contemplated a sale
of 100 shares of Common Stock, and if Executive was at such time the owner
of 5% of the Company's Common Stock (on a fully-diluted basis) and if one
Investor elected to participate and the Investor owned 20% of the Company's
Common Stock (on a fully-diluted basis), Executive would be entitled to
sell 20 shares (5% divided by 25% x 100 shares) and the Investor would be
entitled to sell 80 shares (20% divided by 25% x 100 shares).
The provisions of this paragraph (b) shall terminate upon a Qualified Public
Offering.
8. Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
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<PAGE>
(a) Executive shall not disclose or use at any time, either
during his employment with the Company or thereafter, any Confidential
Information (as defined below) of which Executive is or becomes aware, whether
or not such information is developed by him, except to the extent that such
disclosure or use is directly related to and required by Executive's performance
of duties assigned to Executive by the Company. Executive shall take all
appropriate steps to safeguard Confidential Information and to protect it
against disclosure, misuse, espionage, loss and theft.
(b) As used in this Agreement, the term "Confidential
Information" means information that is not generally known to the public and
that is used, developed or obtained by the Company in connection with its
business, including but not limited to (i) products or services, (ii) fees,
costs and pricing structures, (iii) designs, (iv) analysis, (v) drawings,
photographs and reports, (vi) computer software, including operating systems,
applications and program listings, (vii) flow charts, manuals and documentation,
(viii) data bases, (ix) accounting and business methods, (x) inventions,
devices, new developments, methods and processes, whether patentable or
unpatentable and whether or not reduced to practice, (xi) customers and clients
and customer or client lists, (xii) copyrightable works, (xiii) all information
comprising the Transferred Property, (xiv) all technology and trade secrets, and
(xv) all similar and related information in whatever form. Confidential
Information shall not include any information that has been published in the
form generally available to the public prior to the date Executive purposes to
disclose or use such information. Information shall not be deemed to have been
published merely because individual portions of the information have been
separately published, but only if all material features comprising such
information have been published in combination.
9. Consulting and Noncompetition. Executive acknowledges
-----------------------------
and agrees with the Company that Executive's services to the Company are unique
in nature and that the Company would be irreparably damaged if Executive were
to provide similar services to any person or entity competing with the Company
or engaged in a similar business. Executive accordingly covenants and agrees
with the Company that during the period commencing with the date of this
Agreement and, as long as the Company compensates Executive as a consultant at
an amount payable monthly equal to 10% of Executive's cash compensation in the
12 months preceding his termination of employment, thereafter until the third
anniversary of the date of the termination of Executive's employment with the
Company (the "Noncompetition Period"), Executive shall not, directly or
indirectly, either for himself or for any other individual, corporation,
partnership, joint venture or other entity, participate in any business
(including, without limitation, any division, group or franchise of a larger
organization) which (i) engages or which proposes to engage in the acquisition,
disposition, operation or management of allied health schools anywhere in the
U.S. or (ii) which operates or plans to operate schools of any type in the same
geographic areas as Company at the time of such termination. For purposes of
this Agreement, the term "participate in" shall include, without limitation,
having any director or indirect interest in any corporation, partnership, joint
venture or other entity, whether as a sole proprietor, owner, stockholder,
partner, joint venturer, creditor or otherwise, or rendering any direct or
indirect service or assistance to any individual, corporation, partnership,
joint venture and other business entity (whether as a director, officer,
manager, supervisor, employee, agent, consultant or otherwise).
-11-
<PAGE>
10. Nonsolicitation. During the Noncompetition Period,
---------------
Executive shall not (i) induce or attempt to induce any employee of the Company
to leave the employ of the Company, or in any way interfere with the
relationship between the Company and any employee thereof, (ii) hire directly or
through another entity any person who was an employee of the Company at any time
during the Noncompetition Period, or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
11. Definitions.
-----------
"Cause" means (i) the commission of a felony or a crime
-----
involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to the Company or any of its Subsidiaries or (v) any material
breach of this Agreement which is not cured within 15 days after written notice
thereof to Executive.
"Executive Stock" shall continue to be Executive Stock in the
---------------
hands of any holder other than Executive (except for the Company and the
Investors and except for transferees in a Public Sale), and except as otherwise
provided herein, each such other holder of Executive Stock shall succeed to all
rights and obligations attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock shall also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Executive Stock after any Transfer thereof.
"Fair Market Value" of each share of Executive Stock means the
-----------------
average of the closing prices of the sales of the Company's Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq National Market as of
4:00 P.M., New York time, or, if on any day the Common Stock is not quoted in
the Nasdaq National Market, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which the Fair Market Value is being determined and the 20 consecutive business
days prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq National Market or the over-the-
counter market, the Fair Market Value shall be the fair value of the Common
Stock determined in good faith by the Board or, if the Executive disagrees with
such value, the fair market
-12-
<PAGE>
value determined by an independent appraiser mutually acceptable to the Board
and Executive (in each case without taking into account the effect of any
contemporaneous repurchase of Unvested Shares under paragraph 3 hereof);
provided that if such appraised value is higher than that established by the
Board the purchasers of the shares involved shall not be required to consummate
the related purchase.
"Independent Third Party" means any person who, immediately
-----------------------
prior to the contemplated transaction, does not own in excess of 5% of the
Company's Common Stock on a fully-diluted basis, who is not controlling,
controlled by or under common control with any such 5% owner of the Company's
Common Stock and who is not the spouse or descendent (by birth or adoption) of
any such 5% owner of the Company's Common Stock.
"Investors" means Primus Capital Partners III Limited
---------
Partnership and BOCPII, Limited Liability Company, successor by merger to Bank
One Capital Partners II, Limited Partnership.
"1933 Act" means the Securities Act of 1933, as amended from
--------
time to time.
"Original Cost" of each share of Common Stock purchased
-------------
hereunder shall be equal to $10.00 (as proportionately adjusted for all
subsequent stock splits, stock dividends and other recapitalizations).
"Qualified Public Offering" means the sale by the Company, in
-------------------------
an underwritten public offering registered under the 1933 Act, of shares of the
Company's Common Stock having an aggregate offering value of at least $10
million and where the per share price to the public multiplied by the number of
shares of Common Stock issued under the Purchase Agreement and this and the
other Executive Stock Agreements (adjusted for stock splits and other
recapitalizations) is at least $30,000,000.
"Permitted Transferee" means any holder of Executive Stock who
--------------------
acquired such stock pursuant to a transfer permitted by paragraph 4(d).
"Public Sale" means any sale pursuant to a registered public
-----------
offering under the 1933 Act or any sale to the public pursuant to Rule 144
promulgated under the 1933 Act effected through a broker, dealer or market
maker.
"Sale of the Company" means the sale of the Company to an
-------------------
Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) capital stock of the Company
possessing the voting power to elect a majority of the Company's board of
directors (whether by merger, consolidation or sale or transfer of the Company's
capital stock) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
-13-
<PAGE>
"Subsidiary" means any corporation of which the Company owns
----------
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Total Company Value" means the product of (i) as to an IPO,
-------------------
the price per share to the public in such IPO, and as to a Sale of the Company,
the price per share received by holders of common stock and (ii) 134,408.60
(adjusted for any stock splits, stock dividends, combinations of shares or the
like after the date hereof).
12. Notices. Any notice provided for in this Agreement must
-------
be in writing and must be either personally delivered, mailed by first class
mail (postage prepaid and return receipt requested) or sent by reputable
overnight courier service (charges prepaid) to the recipient at the address
below indicated:
To the Company:
1932 East Deere Avenue, Suite 210
Santa Ana, CA 92705
Attention: President
With copies to:
David A. Krinsky, Esq.
O'Melveney & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660-6429
To Executive:
David G. Moore
525 East Seaside, #1808
Long Beach, Ca 90802
To the Investors: As specified in the Purchase Agreement
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
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<PAGE>
13. General Provisions.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or
-----------------------------------
attempted Transfer of any Executive Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Executive Stock as the owner of
such stock for any purpose.
(b) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents
------------------
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
----------------------
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(f) Choice of Law. The corporate law of the State of
-------------
Delaware shall govern all questions concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the exhibits
hereto shall be governed by the internal law, and not the law of conflicts, of
the State of California.
(g) Remedies. Each of the parties to this Agreement (including
--------
the Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of
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<PAGE>
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may
--------------------
be amended and waived only with the prior written consent of the Company,
Executive and Investors owning a majority of the Common Stock on a fully-diluted
basis held by all Investors.
(i) Third-Party Beneficiaries. Certain provisions of this
-------------------------
Agreement are entered into for the benefit of and shall be enforceable by the
Investors and other Executives as provided herein.
(j) Business Days. If any time period for giving notice or
-------------
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the state in which the Company's chief executive office is located,
the time period shall be automatically extended to the business day immediately
following such Saturday, Sunday or holiday.
14. Initial Public Offering. In the event that the Board and
-----------------------
the holders of a majority of the shares of Common Stock (voting as a single
class) then outstanding approve an initial public offering of Common Stock (a
"Public Offering") pursuant to an effective registration statement under the
Securities Act, Executive shall take all reasonably necessary or desirable
actions in connection with the consummation of the Public Offering as requested
by the Company.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
CORINTHIAN SCHOOLS. INC.
By /s/ Frank J. McCord
--------------------------------
Its VP& CFO
/s/ David G. Moore
----------------------------------
DAVID G. MOORE
/s/ Frank J. McCord
----------------------------------
Witness
Agreed and Accepted:
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
-------------------------------
Its PRESIDENT
-------------------------------
BOCPII, LIMITED LIABILITY COMPANY
By /s/ Earle J. Bensing
-------------------------------
Its AUTHORIZED SIGNER
-------------------------------
-17-
<PAGE>
EXHIBIT 10.18
AMENDED AND RESTATED
EXECUTIVE STOCK AGREEMENT
-------------------------
THIS AMENDED AND RESTATED EXECUTIVE STOCK AGREEMENT (the "Agreement")
is made as of November 24, 1997, between Corinthian Schools, Inc., a Delaware
corporation (the "Company"), and Paul St. Pierre ("Executive").
The Company and Executive desire to amend and restate the agreement,
dated June 30, 1995, as amended pursuant to the First Amendment to Executive
Stock Agreement, dated October 17, 1996 (the "Original Executive Stock
------------------------
Agreement"), pursuant to which Executive purchased, and the Company sold, 10,000
- ---------
shares of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common"), and 5,000 shares of the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common" and, together with the Class A
Common, the "Common Stock"). All of such shares of Common Stock and all shares
of Common Stock hereafter acquired by Executive are referred to herein as
"Executive Stock". Certain definitions are set forth in paragraph 11 of this
Agreement. Executive paid a portion of such purchase price by delivering to the
Company for cancellation shares of common stock purchased by Executive prior to
the Original Executive Stock Agreement (the "Old Common"), and with respect to
which Executive has made additional capital contributions, the total amount
previously paid being $20,000.
Certain provisions of this Agreement are intended for the benefit of,
and shall be enforceable by, the Investors and the other persons who are
entering into similar agreements ("Executive Stock Agreements") with the Company
as of the date hereof (Executive and such persons are collectively referred to
as "Executives").
The parties hereto agree to amend and restate the Original Executive
Stock Agreement as follows:
1. Purchase and Sale of Executive Stock.
------------------------------------
(a) Upon execution of this Agreement, Executive shall purchase, and
the Company shall sell, 10,000 shares of Class A Common at a price of $10.00 per
share and 5,000 shares of Class B Common at a price of $10.00 per share. The
Company shall deliver to Executive a copy of the certificates representing such
shares of Common Stock, and Executive shall deliver to the Company a cashier's
or certified check or wire transfer of funds in the aggregate amount of
$80,050.00, a promissory note in the form of Annex A attached hereto in an
-------
aggregate principal amount of $49,950.00 (the "Executive Note") and the
certificates for the Old Common. Executive's obligations under the Executive
Note shall be secured by a pledge of all of the shares of Class B Common to the
Company, and in connection therewith, Executive shall enter into a pledge
agreement in the form of Annex B attached hereto.
-------
<PAGE>
(b) The Company shall hold each certificate representing Executive
Stock until such time as the Executive Stock represented by such certificate is
released from the pledge to the Company, if any, and is fully vested hereunder.
(c) Within 30 days after Executive purchases any Executive Stock from
the Company, Executive shall make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder and the equivalent election with the State of
California.
(d) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
1933 Act, or any applicable state securities laws, and the Executive Stock
shall not be disposed of in contravention of the 1933 Act or any applicable
state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time because
the Executive Stock has not been registered under the 1933 Act and,
therefore, cannot be sold unless subsequently registered under the 1933 Act
or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company as he has requested. Executive has reviewed, or has
had an opportunity to review, a copy of the Asset Purchase Agreement (the
"Asset Purchase Agreement") between the Company, National Education
Centers, Inc. ("Seller") and National Education Corporation pursuant to
which the Company is acquiring certain of the assets of Seller, and
Executive is familiar with the transactions contemplated thereby. Executive
has also reviewed, or has had an opportunity to review, the following
documents: (A) the Company's Certificate of Incorporation and Bylaws; (B)
the agreements, notes and related documents with the Company's lenders and
equity investors; and (C) the Company's Private Placement Memorandum for a
$2.5 million Equity Investment dated April 21, 1995.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and shall not conflict with, violate or
-2-
<PAGE>
cause a breach of any agreement, contract or instrument to which Executive
is a party or any judgment, order or decree to which Executive is subject.
(vi) Executive has obtained advice from persons other than
the Investors and their counsel regarding the tax effects of the
transaction contemplated hereby.
(e) Executive acknowledges and agrees that neither the
issuance of the Executive Stock to Executive nor any provision contained herein
shall entitle Executive to remain in the employment of the Company and its
Subsidiaries.
(f) The Company and Executive acknowledge and agree that this
Agreement has been executed and delivered, and the Executive Stock has been
issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Company and Executive.
(g) The Company acknowledges that Executive is given certain
contractual preemptive rights, together with the Investors, in the Purchase
Agreement (paragraph 3J) with respect to future issuances of equity securities
of the Company notwithstanding the fact that Executive is not a named party
thereto.
(h) Executive represents and warrants to the Company and the
Investors that he has not entered and will not during the term of this Agreement
enter into any agreement with any of the other Executives with respect to the
voting of his or their shares or the sharing of the economic benefits thereof.
2. Vesting of Executive Stock.
--------------------------
(a) (i) Except as otherwise provided in paragraph 2(b) below,
the Executive Stock which is Class A Common shall become vested in accordance
with the following schedule, if as of each such date Executive is employed by
the Company or any of its Subsidiaries:
Cumulative
Percentage of Class A Executive
Date Stock Vested
---- -------------------------------
the date hereof 75.0%
June 30, 1998 87.5%
June 30, 1999 100.0%
(ii) Except as otherwise provided in paragraph 2(b) below, the
Executive Stock which is Class B Common (the "Performance Vesting hares") shall
become vested if:
(A) The Executive is employed by the Company and any of its
Subsidiaries on June 30, 2005 and there has been no Sale of the Company (as
defined herein); or
-3-
<PAGE>
(B) (1) on or before December 31, 1999, a Trigger Event, as
defined below has occurred, (2) Executive is employed by the Company or any of
its Subsidiaries on the date of closing of such Trigger Event and (3):
(I) as to one-third of the Performance Vesting Shares (the "2.5%
Shares") the Total Company Value shall equal or exceed $50,000,000, and
(II) as to the remaining Performance Vesting Shares (the "5% Shares")
to the extent that the Total Company Value exceeds $50,000,000, the number
of 5% Shares which shall vest is equal to the product of (I) the quotient
determined by dividing the amount that the Total Company Value exceeds
$50,000,000 by $20,000,000 and (II) the maximum number of 5% Shares.
For example, if the Total Company Value at the time of the
Trigger Event is $58,000,000 and the maximum number of 5% Shares
is 3,333 (assuming, for purposes of this example only, a maximum
of 5,000 Performance Vesting Shares) then the number of 5%
Shares which shall become vested is 1333 (8,000,000 divided by
20,000,000 x 3,333 = 1333).
The determination of the Total Company Value, shall be made upon occurrence of
and as of the date of closing of either of the following "Trigger Events":
(A) the Company has closed an underwritten initial public offering
("IPO") of Common Stock registered under the 1933 Act in which the net proceeds
to the Company is at least $20,000,000, provided however, that prior to or as a
result of the IPO all outstanding shares of the Company's Series A Preferred
Stock (the "Preferred Stock") are redeemed by the Company, or;
(B) a "Sale of the Company" as defined herein.
(b) Upon the occurrence of a Sale of the Company, a Qualified Public
Offering or the death or permanent disability of Executive, all shares of
Executive Stock which are Class A Common which have not yet become vested shall
become vested at the time of such event. For purposes of this paragraph 2(b),
the determination of permanent disability shall be made in good faith by the
Company's board of directors (the "Board"). Shares of Executive Stock which have
become vested are referred to herein as "Vested Shares," and all other shares of
Executive Stock are referred to herein as "Unvested Shares."
(c) The Company shall upon the written request of a holder of
Executive Stock which is Class B Common Stock issue and exchange therefor shares
of Class A Common on a share-for-share basis at any time on or after a Sale of
the Company or a Qualified Public Offering.
3. Repurchase Option.
-----------------
-4-
<PAGE>
(a) In the event (i) Executive ceases to be employed by the
Company and its Subsidiaries for any reason (the "Termination"), the Executive
Stock (whether held by Executive or one or more of Executive's transferees) or
(ii) there is a Sale of the Company after December 31, 1999, the Unvested Shares
of the Performance Vesting Shares (whether held by Executive or one or more of
Executive's transferees) shall be subject to repurchase by the Company and the
Investors pursuant to the terms and conditions set forth in this paragraph 3
(the "Repurchase Option"); provided that the Repurchase Option shall not apply
to the shares which vest on the date hereof unless Executive voluntarily
terminated such employment prior to the second anniversary of the date hereof
(in which event the Repurchase Option will apply to such shares).
(b) The purchase price for each Unvested Share shall be
Executive's Original Cost for such share (with shares having the lowest cost
subject to repurchase prior to shares with a higher cost), and the purchase
price for each Vested Share shall be the Fair Market Value for such share.
(c) The Board may elect to purchase all or any portion of the
Unvested Shares and the Vested Shares by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 30
days after the Termination. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be acquired from each holder of Executive
Stock, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction. If the number of shares of Executive
Stock then held by Executive is less than the total number of shares of
Executive Stock the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Executive Stock under this Agreement, pro rata according to the number of shares
of Executive Stock held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as close as practicable to the nearest whole
shares). The number of shares to be repurchased by the Company shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(d) If for any reason the Company does not elect to purchase
all of the Executive Stock pursuant to the Repurchase Option, the Investors and
the other Executives who are then employed by the Company or one of its
Subsidiaries (the "Continuing Executives") shall be entitled to exercise the
Repurchase Option for the shares of Executive Stock the Company has not elected
to purchase (the "Available Shares"). As soon as practicable after the Company
has determined that there will be Available Shares, but in any event within 45
days after the Termination, the Company shall give written notice (the "Option
Notice") to the Investors and the Continuing Executives setting forth the number
of Available Shares and the purchase price for the Available Shares. The
Investors and the Continuing Executives may elect to purchase any or all of the
Available Shares by giving written notice to the Company within 30 days after
the Option Notice has been given by the Company. If the Investors and the
Continuing Executives elect to purchase an aggregate number of shares greater
than the number of Available Shares, the Available Shares shall be allocated
among the Investors and the Continuing Executives based upon the number of
shares of Common Stock owned by each Investor and the Continuing Executive on a
fully-diluted basis (provided, however, that no Class B Common which is not yet
vested under the Executive Stock Agreements will be counted for this purpose).
As soon as practicable, and in any event within ten days after the expira-
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<PAGE>
tion of the 15-day period set forth above, the Company shall notify each holder
of Executive Stock as to the number of shares being purchased from such holder
by the Investors and the Continuing Executives (the "Supplemental Repurchase
Notice"). At the time the Company delivers the Supplemental Repurchase Notice to
the holder(s) of Executive Stock, the Company shall also deliver written notice
to each Investor and Continuing Executive setting forth the number of shares
such Person is entitled to purchase, the aggregate purchase price and the time
and place of the closing of the transaction. The number of shares to be
repurchased by the Investors and the Continuing Executives shall first be
satisfied to the extent possible from the shares of Executive Stock held by
Executive at the time of delivery of the Repurchase Notice.
(e) The closing of the purchase of the Executive Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 30 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investors and
Continuing Executives shall pay for the Executive Stock to be purchased pursuant
to the Repurchase Option by delivery of, a check or wire transfer of funds. In
addition, the Company may pay the purchase price for such shares by offsetting
amounts outstanding under the Executive Note issued to the Company hereunder and
any other bona fide debts owed by Executive to the Company. The sellers of
Executive Stock hereunder shall be deemed to make customary representations and
warranties to the purchasers regarding such sale of shares (including
representations and warranties regarding good title to such shares, free and
clear of any liens or encumbrances). The purchasers may require written
confirmation of such representations and require all sellers' signatures be
guaranteed by a national bank or reputable securities broker.
(f) The right of the Company and the Investors and the
Continuing Executives to repurchase Vested Shares pursuant to this paragraph 3
shall terminate upon the first to occur of the Sale of the Company or a
Qualified Public Offering.
(g) If Executive's employment by the Company and its Subsidiaries,
if any, is terminated by the Company other than for Cause, the Company shall pay
Executive as severance an amount equal to his cash base salary compensation
(i.e., excluding any bonuses) during the preceding 12 months in equal monthly
installments on the first business day of each of the next 12 months.
4. Restrictions on Transfer.
------------------------
(a) Retention of Executive Stock. Until the expiration of 54
----------------------------
months after the date of this Agreement, Executive shall not sell, transfer,
assign, pledge or otherwise dispose of any interest in any shares of Executive
Stock, except for Exempt Transfers (as defined in paragraph 4(b) below) and
sales to the public pursuant to Rule 144 promulgated under the 1933 Act or any
similar rule then in force.
(b) Transfer of Executive Stock. Executive shall not sell, transfer,
---------------------------
assign, pledge or otherwise dispose of (whether with or without consideration
and whether voluntarily or involun-
-6-
<PAGE>
tarily or by operation of law) any interest in any shares of Executive Stock (a
"Transfer"), except pursuant to (i) the provisions of paragraph 3 hereof, a Sale
of the Company or a Public Sale ("Exempt Transfers") or (ii) the provisions of
this paragraph 4; provided that in no event shall any Transfer of Executive
Stock pursuant to this paragraph 4 be made for any consideration other than cash
payable upon consummation of such Transfer or in installments over time. Prior
to making any Transfer other than an Exempt Transfer, Executive shall deliver
written notice (the "Sale Notice") to the Company and the Investors. The Sale
Notice shall disclose in reasonable detail the identity of the prospective
transferee(s), the number of shares to be transferred and the terms and
conditions of the proposed transfer. Executive shall not consummate any Transfer
until 30 days after the Sale Notice has been given to the Company and to the
Investors, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 4 prior to the expiration of such 30-day period.
(The date of the first to occur of such events is referred to herein as the
"Authorization Date".)
(c) First Refusal Rights. The Company may elect to purchase all
--------------------
(but not less than all) of the shares of Executive Stock to be transferred upon
the same terms and conditions as those set forth in the Sale Notice by
delivering a written notice of such election to Executive and the Investors
within 10 days after the Sale Notice has been delivered to the Company. If the
Company has not elected to purchase all of the Executive Stock to be
transferred, the Investors may elect to purchase all (but not less than all) of
the Executive Stock to be transferred upon the same terms and conditions as
those set forth in the Sale Notice by delivering written notice of such election
to Executive within 10 days after the Sale Notice has been given to the
Investors. If more than one Investor elects to purchase the Executive Stock, the
shares of Executive Stock to be sold shall be allocated among the Investors pro
rata according to the number of shares of Common Stock owned by each Investor on
a fully-diluted basis. If neither the Company nor the Investors elect to
purchase all of the shares of Executive Stock specified in the Sale Notice,
Executive may transfer the shares of Executive Stock specified in the Sale
Notice at a price and on terms no more favorable to the transferee(s) thereof
than specified in the Sale Notice during the 60-day period immediately
following the Authorization Date. Any shares of Executive Stock not transferred
within such 60-day period shall be subject to the provisions of this paragraph
4(c) upon subsequent transfer. If the Company or any of the Investors have
elected to purchase shares of Executive Stock hereunder, the transfer of such
shares shall be consummated as soon as practical after the delivery of the
election notice(s) to Executive, but in any event within 15 days after the
expiration of the Election Period. The Company may pay the purchase price for
such shares by offsetting amounts outstanding under the Executive Note issued to
the Company hereunder and any other bona fide debts owed by Executive to the
Company.
(d) Certain Permitted Transfers. The restrictions contained in
---------------------------
this paragraph 4 shall not apply with respect to transfers of shares of
Executive Stock (i) pursuant to applicable laws of descent and distribution or
(ii) among Executive's family group; provided that such restrictions shall
continue to be applicable to the Executive Stock after any such transfer and the
transferees of such Executive Stock shall have agreed in writing to be bound by
the provisions of this Agreement. Executive's "family group" means Executive's
spouse and descendants (whether natural or adopted) and any trust solely for the
benefit of Executive and/or Executive's spouse and/or descendants.
-7-
<PAGE>
(e) Pledges. Notwithstanding the provisions of this paragraph
-------
4, Executive may pledge any shares of Executive Stock to the Company to secure
payment of the Executive Note.
(f) Termination of Restrictions. The restrictions on the transfer of
---------------------------
shares of Executive Stock set forth in this paragraph 4 shall continue with
respect to each share of Executive Stock following any Transfer thereof (other
than a Public Sale); provided that in any event such restrictions shall
terminate on the first to occur of a Sale of the Company or a Qualified Public
Offering.
5. Additional Restrictions on Transfer.
-----------------------------------
(a) The certificates representing the Executive Stock shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON JUNE 30, 1995, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE
COMPANY AND PAUL ST. PIERRE DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED
BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of
any Executive Stock (except pursuant to an effective registration statement
under the 1933 Act) without first delivering to the Company an opinion of
counsel (reasonably acceptable in form and substance to the Company) that
neither registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
(c) Each holder of Executive Stock agrees not to effect any public
sale or distribution of any Executive Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
6. Sale of the Company.
-------------------
-8-
<PAGE>
(a) If the Board and the holders of a majority of the Company's
Preferred Stock and Common Stock approve a Sale of the Company (the "Approved
Sale"), the holders of Executive Stock shall consent to and raise no objections
against the Approved Sale of the Company, and if the Approved Sale of the
Company is structured as a sale of stock, the holders of Executive Stock shall
agree to sell their shares of Executive Stock and surrender their stock options
on the terms and conditions approved by the Board and the holders of a majority
of the Company's Preferred Stock and Common Stock. The holders of Executive
Stock shall take all necessary and desirable actions in connection with the
consummation of the Approved Sale of the Company.
(b) The obligations of the holders of Executive Stock with respect
to the Approved Sale of the Company are subject to the satisfaction of the
following condition: (i) upon the consummation of the Approved Sale, all of the
holders of Common Stock shall receive the same form and amount of consideration
per share of Common Stock, or if any holders of Common Stock are given an option
as to the form and amount of consideration to be received, all holders shall be
given the same option; and (ii) all holders of then currently exercisable rights
to acquire shares of Common Stock shall be given an opportunity to either (A)
exercise such rights prior to the consummation of the Approved Sale and
participate in such sale as holders of Common Stock or (B) upon the consummation
of the Approved Sale, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price per share of Common Stock of such
rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such rights.
(c) If the Company or the holders of the Company's securities
enter into any negotiation or transaction for which Rule 506 (or any similar
rule then in effect) promulgated by the Securities Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock shall at
the request of the Company, appoint a "purchaser representative" (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company shall pay the fees of such purchaser representative. However, if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and such holder shall be
responsible for the fees of the purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any)
shall bear their pro-rata share (based upon the number of all shares sold by
each seller including the Investors and each other Executive) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf shall not
be considered costs of the transaction hereunder.
-9-
<PAGE>
(e) The provisions of this paragraph 6 shall terminate upon the
completion of a Qualified Public Offering.
7. Voting Agreement and Tag-Along.
------------------------------
(a) So long as the Investors hold any shares of Common Stock, each
Investor and Executive shall vote all of their shares of Common Stock (and, in
the event such holder is entitled to vote any of the Company's other securities
for the election of directors, such holder shall vote all such securities) and
take all other reasonably necessary actions in such holder's capacity as a
stockholder of the Company, and the Company shall take all necessary or
desirable actions as are requested by the Investors and Executive, in order to
cause two of the executive officers of the Company (one of which should be the
Company's Chief Executive Officer) representatives designated by Executives
holding a majority of the Common Stock held by all Executives to be elected as
members of the Board and to cause two representatives designated by Investors
holding a majority of the Common Stock held by the Investors to be elected to
the Board. The provisions of this paragraph 7 shall terminate upon the first to
occur of a Qualified Public Offering and the tenth anniversary of this
Agreement.
(b) If either Investor desires to sell any of its Common Stock or if
holders of Executive Stock, after complying with the other provisions of this
Agreement, including paragraph 3, desire to sell any of their shares of Common
Stock, the proposed seller shall give written notice thereof (a "Sale Notice")
to the Company, the Investors and each holder of Common Stock issued under this
Agreement and the other Executive Stock Agreements at least 10 days prior to the
proposed sale and each such Person other than the seller may elect to
participate in the sale by written notice to the Company and the seller given
within 10 days after receipt of the Sale Notice. The electing Persons shall be
entitled to sell in the contemplated sale, at the same price and on the same
terms, a number of shares of the Company's Common Stock equal to the product of
(i) the quotient determined by dividing the percentage of the Company's Common
Stock (on a fully-diluted basis) held by such electing Person, by the aggregate
percentage of the Company's Common Stock (on a fully-diluted basis) owned by the
Seller and all electing Persons and (ii) the number of shares of Common Stock to
be sold in the contemplated sale.
For example, if the Executive delivered a Sale Notice contemplated a sale
of 100 shares of Common Stock, and if Executive was at such time the owner
of 5% of the Company's Common Stock (on a fully-diluted basis) and if one
Investor elected to participate and the Investor owned 20% of the Company's
Common Stock (on a fully-diluted basis), Executive would be entitled to
sell 20 shares (5% divided by 25% x 100 shares) and the Investor would be
entitled to sell 80 shares (20% divided by 25% x 100 shares).
The provisions of this paragraph (b) shall terminate upon a Qualified Public
Offering.
8. Nondisclosure and Nonuse of Confidential Information.
----------------------------------------------------
-10-
<PAGE>
(a) Executive shall not disclose or use at any time, either during
his employment with the Company or thereafter, any Confidential Information (as
defined below) of which Executive is or becomes aware, whether or not such
information is developed by him, except to the extent that such disclosure or
use is directly related to and required by Executive's performance of duties
assigned to Executive by the Company. Executive shall take all appropriate steps
to safeguard Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft.
(b) As used in this Agreement, the term "Confidential Information"
means information that is not generally known to the public and that is used,
developed or obtained by the Company in connection with its business, including
but not limited to (i) products or services, (ii) fees, costs and pricing
structures, (iii) designs, (iv) analysis, (v) drawings, photographs and reports,
(vi) computer software, including operating systems, applications and program
listings, (vii) flow charts, manuals and documentation, (viii) data bases, (ix)
accounting and business methods, (x) inventions, devices, new developments,
methods and processes, whether patentable or unpatentable and whether or not
reduced to practice, (xi) customers and clients and customer or client lists,
(xii) copyrightable works, (xiii) all information comprising the Transferred
Property, (xiv) all technology and trade secrets, and (xv) all similar and
related information in whatever form. Confidential Information shall not include
any information that has been published in the form generally available to the
public prior to the date Executive purposes to disclose or use such information.
Information shall not be deemed to have been published merely because individual
portions of the information have been separately published, but only if all
material features comprising such information have been published in
combination.
9. Consulting and Noncompetition. Executive acknowledges and
-----------------------------
agrees with the Company that Executive's services to the Company are unique in
nature and that the Company would be irreparably damaged if Executive were to
provide similar services to any person or entity competing with the Company or
engaged in a similar business. Executive accordingly covenants and agrees with
the Company that during the period commencing with the date of this Agreement
and, as long as the Company compensates Executive as a consultant at an amount
payable monthly equal to 10% of Executive's cash compensation in the 12 months
preceding his termination of employment, thereafter until the third anniversary
of the date of the termination of Executive's employment with the Company (the
"Noncompetition Period"), Executive shall not, directly or indirectly, either
for himself or for any other individual, corporation, partnership, joint venture
or other entity, participate in any business (including, without limitation, any
division, group or franchise of a larger organization) which (i) engages or
which proposes to engage in the acquisition, disposition, operation or
management of allied health schools anywhere in the U.S. or (ii) which operates
or plans to operate schools of any type in the same geographic areas as Company
at the time of such termination. For purposes of this Agreement, the term
"participate in" shall include, without limitation, having any director or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise).
-11-
<PAGE>
10. Nonsolicitation. During the Noncompetition Period, Executive
---------------
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
such customer, supplier, licensee or business relation and the Company
(including, without limitation, making any negative statements or communications
concerning the Company).
11. Definitions.
-----------
"Cause" means (i) the commission of a felony or a crime involving
-----
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to the Company or any of its Subsidiaries or (v) any material
breach of this Agreement which is not cured within 15 days after written notice
thereof to Executive.
"Executive Stock" shall continue to be Executive Stock in the hands of
---------------
any holder other than Executive (except for the Company and the Investors and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock shall succeed to all rights
and obligations attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock shall also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Executive Stock after any Transfer thereof.
"Fair Market Value" of each share of Executive Stock means the
-----------------
average of the closing prices of the sales of the Company's Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq National Market as of
4:00 P.M., New York time, or, if on any day the Common Stock is not quoted in
the Nasdaq National Market, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which the Fair Market Value is being determined and the 20 consecutive business
days prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq National Market or the
over-the-counter market, the Fair Market Value shall be the fair value of the
Common Stock determined in good faith by the Board or, if the Executive
disagrees with such value, the fair market
-12-
<PAGE>
value determined by an independent appraiser mutually acceptable to the Board
and Executive (in each case without taking into account the effect of any
contemporaneous repurchase of Unvested Shares under paragraph 3 hereof),
provided that if such appraised value is higher than that established by the
Board the purchasers of the shares involved shall not be required to consummate
the related purchase.
"Independent Third Party" means any person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis, who is not controlling, controlled by or
under common control with any such 5% owner of the Company's Common Stock and
who is not the spouse or descendent (by birth or adoption) of any such 5% owner
of the Company's Common Stock.
"Investors" means Primus Capital Partners III Limited Partnership and
---------
BOCPII, Limited Liability Company, successor by merger to Bank One Capital
Partners II, Limited Partnership.
"1933 Act" means the Securities Act of 1933, as amended from time to
--------
time.
"Original Cost" of each share of Common Stock purchased hereunder
-------------
shall be equal to $10.00 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Qualified Public Offering" means the sale by the Company, in an
-------------------------
underwritten public offering registered under the 1933 Act, of shares of the
Company's Common Stock having an aggregate offering value of at least $10
million and where the per share price to the public multiplied by the number of
shares of Common Stock issued under the Purchase Agreement and this and the
other Executive Stock Agreements (adjusted for stock splits and other
recapitalizations) is at least $30,000,000.
"Permitted Transferee" means any holder of Executive Stock who
--------------------
acquired such stock pursuant to a transfer permitted by paragraph 4(d).
"Public Sale" means any sale pursuant to a registered public offering
-----------
under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated
under the 1933 Act effected through a broker, dealer or market maker.
"Sale of the Company" means the sale of the Company to an Independent
-------------------
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of directors (whether by
merger, consolidation or sale or transfer of the Company's capital stock) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
-13-
<PAGE>
"Subsidiary" means any corporation of which the Company owns
----------
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Total Company Value" means the product of (i) as to an IPO, the price
-------------------
per share to the public in such IPO, and as to a Sale of the Company, the price
per share received by holders of common stock and (ii) 134,408.60 (adjusted for
any stock splits, stock dividends, combinations of shares or the like after the
date hereof).
12. Notices. Any notice provided for in this Agreement must be
-------
in writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company:
1932 East Deere Avenue, Suite 210
Santa Ana, CA 92705
Attention: President
With copies to:
David A. Krinsky, Esq.
O'Melveney & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660-6429
To Executive:
Paul St. Pierre
31074 Via San Vicente
San Juan Capistrano, CA 92675
To the Investors: As specified in the Purchase Agreement
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
-14-
<PAGE>
13. General Provisions.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(f) Choice of Law. The corporate law of the State of Delaware shall
-------------
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
California.
(g) Remedies. Each of the parties to this Agreement (including the
--------
Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of
-15-
<PAGE>
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may
--------------------
be amended and waived only with the prior written consent of the Company,
Executive and Investors owning a majority of the Common Stock on a fully-diluted
basis held by all Investors.
(i) Third-Party Beneficiaries. Certain provisions of this Agreement
-------------------------
are entered into for the benefit of and shall be enforceable by the Investors
and other Executives as provided herein.
(j) Business Days. If any time period for giving notice or
-------------
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the state in which the Company's chief executive office is located,
the time period shall be automatically extended to the business day immediately
following such Saturday, Sunday or holiday.
14. Initial Public Offering. In the event that the Board and
-----------------------
the holders of a majority of the shares of Common Stock (voting as a single
class) then outstanding approve an initial public offering of Common Stock (a
"Public Offering") pursuant to an effective registration statement under the
Securities Act, Executive shall take all reasonably necessary or desirable
actions in connection with the consummation of the Public Offering as
requested by the Company.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By /s/ Frank Mccord
--------------------------
Its VP & CFO
/s/ Paul St. Pierre
----------------------------
PAUL ST. PIERRE
/s/ Frank J. McCord
----------------------------
Witness
Agreed and Accepted:
PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
----------------------------------
Its President
---------------------------------
BOCPII, LIMITED LIABILITY COMPANY
By /s/ Earle J. Bensing
----------------------------------
Its Authorized Signer
---------------------------------
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<PAGE>
EXHIBIT 10.19
EXECUTIVE STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of June 30, 1995, between Lloyd W.
Holland ("Pledgor"), and Corinthian Schools, Inc., a Delaware corporation (the
"Company").
The Company and Pledgor are parties to an Executive Stock Agreement,
dated June 30, 1995, pursuant to which Pledgor purchased 2,500 shares of the
Company's Class B Common Stock, $.01 par value per share (the "Pledged Shares"),
for an aggregate purchase price of $25,000. The Company has allowed Pledgor to
purchase the Pledged Shares by delivery to the Company of a promissory note (the
"Note") in the aggregate principal amount of $24,975. This Pledge Agreement
provides the terms and conditions upon which the Note is secured by a pledge to
the Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
partial payment for the Pledged Shares, Pledgor and the Company hereby agree as
follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note or hereunder, Pledgor shall be entitled
to all voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
<PAGE>
4. Stock Dividends; Distributions, etc. If, while this Pledge
-----------------------------------
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of California or otherwise
available to the Company under applicable law. Without limiting the foregoing,
the Company is authorized to sell, assign and deliver at its discretion, from
time to time, all or any part of the Pledged Shares at any private sale or
public auction, on not less than ten days written notice to Pledgor, at such
price or prices and upon such terms as the Company may deem advisable. Pledgor
shall have no right to redeem the Pledged Shares after any such sale or
assignment. At any such sale or auction, the Company may bid for, and become the
purchaser of, the whole or any part of the Pledged Shares offered for sale. In
case of any such sale, after deducting the costs, attorneys' fees and other
expenses of sale and delivery, the remaining proceeds of such sale shall be
applied to the principal of and accrued interest on the Note; provided that
after payment in full of the indebtedness evidenced by the Note, the balance of
the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall
be entitled to the return of any of the Pledged Shares remaining in the hands of
the Company. Pledgor shall be liable for any deficiency if the remaining
proceeds are insufficient to pay the indebtedness under the Note in full,
including the fees of any attorneys employed by the Company to collect such
deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
-------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder.
- 2 -
<PAGE>
7. Payment of Indebtedness and Release of Pledged Shares. Upon
-----------------------------------------------------
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
-------------------------------------
and warrants that he has good and valid title to all of the Pledge Shares, free
and clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on the Note has been repaid, Pledgor shall not (i) create, incur,
assume or suffer to exist any pledge, security interest, encumbrance, lien or
charge of any kind against the Pledged Shares or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement and the Executive Stock
Agreement, or (ii) sell or otherwise transfer any Pledged Shares or any interest
therein.
9. Further Assurances. Pledgor agrees that at any time and from time
------------------
to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and do such
further acts and things as the Company may reasonably request in order to effect
the purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
-------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any act,
------------------------------
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waiver, Amendments; Applicable Law. None of the terms or
----------------------------------
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all
- 3 -
<PAGE>
obligations of the Pledgor hereunder shall together with the rights and remedies
of the Company hereunder, inure to the benefit of the Company and its successors
and assigns. This Pledge Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
CORINTHIAN SCHOOLS, INC.
By /s/ Frank McCord
----------------------------
Its Vice President
----------------------------
/s/ Lloyd W. Holland
----------------------------
Lloyd W. Holland
- 4 -
<PAGE>
CONSENT
-------
The undersigned spouse of Executive hereby acknowledges that I have read
the foregoing Executive Stock Pledge Agreement and that I understand its
contents. I am aware that the Pledge Agreement provides for a security interest
in my spouse's shares of Common Stock. I agree that my spouse's interest in the
Common Stock is subject to this Pledge Agreement and any interest I may have in
such Common Stock shall be irrevocably bound by this Pledge Agreement and
further that my community property interest, if any, shall be similarly bound by
this Pledge Agreement.
I am aware that the legal, financial and other matters contained in the
Pledge Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Pledge Agreement that I will waive such right.
/s/ Barbara J. Holland
------------------------------
[Spouse]
/s/ [SIGNATURE APPEARS HERE]
------------------------------
Witness
<PAGE>
SEE RESTRICTIONS ON TRANSFER ON THE REVERSE OF THIS CERTIFICATE
February 22, 1995
Incorporated under the laws [ARTWORK OF EAGLE of the State of Delaware
APPEARS HERE]
NUMBER SHARES
9 **1,667**
CORINTHIAN SCHOOLS, INC.
Authorized Shares: 9,000,000 Class A Common Stock, $.01 par value per share
500,000 Class B Common Stock, $.01 par value per share
This Certifies that LLOYD W. HOLLAND is the registered holder of One Thousand
Six Hundred Sixty-Seven (1,667) Shares of Class B Common Stock of Corinthian
Schools, Inc. transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
offered this 30th day of June A.D. 1995
/s/ Paul St. Pierre /s/ David G. Moore
- ------------------------------- ------------------------------
Paul St. Pierre, Secretary David G. Moore, President
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JUNE
30, 1995, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE
COMPANY AND LLOYD W. HOLLAND DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
For Value Received, _____ hereby sell, assign and transfer
unto _______________________________________________________________________
_______________________________________________________________. Shares
represented by the within Certificate and do hereby irrevocably constitute and
appoint _____________________________ Attorney to transfer the said Shares on
the books of the within named Corporation with full power of substitution in
the premises.
Dated__________ 19__
In presence of
______________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
SEE RESTRICTIONS ON TRANSFER ON THE REVERSE OF THIS CERTIFICATE
February 22, 1995
Incorporated under the laws [ARTWORK OF EAGLE of the State of Delaware
APPEARS HERE]
NUMBER SHARES
10 **833**
CORINTHIAN SCHOOLS, INC.
Authorized Shares: 9,000,000 Class A Common Stock, $.01 par value per share
500,000 Class B Common Stock, $.01 par value per share
This Certifies that LLOYD W. HOLLAND is the registered holder of Eight Hundred
Thirty-Three (833) Shares of Class B Common Stock of Corinthian Schools, Inc.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 30th day of June A.D. 1995
/s/ Paul St. Pierre /s/ David G. Moore
- ------------------------------- ------------------------------
Paul St. Pierre, Secretary David G. Moore, President
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JUNE
30, 1995, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE
COMPANY AND LLOYD W. HOLLAND DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
For Value Received, _____ hereby sell, assign and transfer
unto _______________________________________________________________________
_______________________________________________________________. Shares
represented by the within Certificate and do hereby irrevocably constitute and
appoint _____________________________ Attorney to transfer the said Shares on
the books of the within named Corporation with full power of substitution in
the premises.
Dated__________ 19__
In presence of
______________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.20
EXECUTIVE STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of June 30, 1995, between Dennis L.
Devereux ("Pledgor"), and Corinthian Schools, Inc., a Delaware corporation (the
"Company").
The Company and Pledgor are parties to an Executive Stock Agreement, dated
June 30, 1995, pursuant to which Pledgor purchased 2,500 shares of the Company's
Class B Common Stock, $.01 par value per share (the "Pledged Shares"), for an
aggregate purchase price of $25,000. The Company has allowed Pledgor to purchase
the Pledged Shares by delivery to the Company of a promissory note (the "Note")
in the aggregate principal amount of $24,975. This Pledge Agreement provides the
terms and conditions upon which the Note is secured by a pledge to the Company
of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and in order to induce the Company to accept the Note as partial
payment for the Pledged Shares, Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the contrary
-----------------------------
contained herein, during the term of this Pledge Agreement until such time as
there exists a default in the payment of principal or interest on the Note or
any other default under the Note or hereunder, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
- 1 -
<PAGE>
cash dividends payable on the Pledged Shares as additional security hereunder.
4. Stock Dividends; Distributions, etc. If, while this Pledge Agreement is
-----------------------------------
in effect, Pledgor becomes entitled to receive or receives any securities or
other property in addition to, in substitution of, or in exchange for any of the
Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of California or otherwise
available to the Company under applicable law. Without limiting the foregoing,
the Company is authorized to sell, assign and deliver at its discretion, from
time to time, all or any part of the Pledged Shares at any private sale or
public auction, on not less than ten days written notice to Pledgor, at such
price or prices and upon such terms as the Company may deem advisable. Pledgor
shall have no right to redeem the Pledged Shares after any such sale or
assignment. At any such sale or auction, the Company may bid for, and become the
purchaser of, the whole or any part of the Pledged Shares offered for sale. In
case of any such sale, after deducting the costs, attorneys' fees and other
expenses of sale and delivery, the remaining proceeds of such sale shall be
applied to the principal of and accrued interest on the Note; provided that
after payment in full of the indebtedness evidenced by the Note, the balance of
the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall
be entitled to the return of any of the Pledged Shares remaining in the hands of
the Company. Pledgor shall be liable for any deficiency if the remaining
proceeds are insufficient to pay the indebtedness under the Note in full,
including the fees of any attorneys employed by the Company to collect such
deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including reasonable
-------------------------
attorneys' fees) incurred in exercising any right, power or remedy conferred by
this Pledge Agreement or in
- 2 -
<PAGE>
the enforcement thereof, shall become part of the indebtedness secured hereunder
and shall be paid by Pledgor or repaid from the proceeds of the sale of the
Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon payment in
-----------------------------------------------------
full of the indebtedness evidenced by the Note, the Company shall surrender the
Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents and
-------------------------------------
warrants that he has good and valid title to all of the Pledge Shares, free and
clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on the Note has been repaid, Pledgor shall not (i) create, incur,
assume or suffer to exist any pledge, security interest, encumbrance, lien or
charge of any kind against the Pledged Shares or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement and the Executive Stock
Agreement, or (ii) sell or otherwise transfer any Pledged Shares or any interest
therein.
9. Further Assurances. Pledgor agrees that at any time and from time to
------------------
time upon the written request of the Company, Pledgor shall execute and deliver
such further documents (including UCC financing statements) and do such further
acts and things as the Company may reasonably request in order to effect the
purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any act,
------------------------------
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
- 3 -
<PAGE>
12. Waivers Amendments; Applicable Law. None of the terms or provisions of
----------------------------------
this Pledge Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the parties hereto. This Agreement and
all obligations of the Pledgor hereunder shall together with the rights and
remedies of the Company hereunder, inure to the benefit of the Company and its
successors and assigns. This Pledge Agreement shall be governed by, and be
construed and interpreted in accordance with, the laws of the State of
California.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date
first above written.
CORINTHIAN SCHOOLS, INC.
By /s/ Frank McCord
----------------------------------
Its Vice President
----------------------------------
/s/ Dennis L. Devereux
----------------------------------
Dennis L. Devereux
- 4 -
<PAGE>
CONSENT
-------
The undersigned spouse of Executive hereby acknowledges that I have read
the foregoing Executive Stock Pledge Agreement and that I understand its
contents. I am aware that the Pledge Agreement provides for a security interest
in my spouse's shares of Common Stock. I agree that my spouse's interest in the
Common Stock is subject to this Pledge Agreement and any interest I may have in
such Common Stock shall be irrevocably bound by this Pledge Agreement and
further that my community property interest, if any, shall be similarly bound by
this Pledge Agreement.
I am aware that the legal, financial and other matters contained in the
Pledge Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Pledge Agreement that I will waive such right.
/s/ Cheryl V. Devereux
--------------------------------
[Spouse]
/s/ Dennis L. Devereux
--------------------------------
Witness
<PAGE>
SEE RESTRICTIONS ON TRANSFER ON THE REVERSE OF THIS CERTIFICATE
February 22, 1995
Incorporated under the laws [ARTWORK OF EAGLE of the State of Delaware
APPEARS HERE]
NUMBER SHARES
7 **1,667**
CORINTHIAN SCHOOLS, INC.
Authorized Shares: 9,000,000 Class A Common Stock, $.01 par value per share
500,000 Class B Common Stock, $.01 par value per share
This Certifies that DENNIS DEVEREUX is the registered holder of One Thousand Six
Hundred Sixty-Seven (1,677) Shares of Class B Common Stock of Corinthian
Schools, Inc. transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
offered this 30th day of June A.D. 1995
/s/ Paul St. Pierre /s/ David G. Moore
- ------------------------------- ------------------------------
Paul St. Pierre, Secretary David G. Moore, President
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JUNE
30, 1995, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE
COMPANY AND DENNIS L. DEVEREUX DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
For Value Received, _____ hereby sell, assign and transfer
unto _______________________________________________________________________
_______________________________________________________________. Share's
represented by the within Certificate and do hereby irrevocably constitute and
appoint _____________________________ Attorney to transfer the said Shares on
the books of the within named Corporation with full power of substitution in
the premises.
Dated__________ 19__
In presence of
______________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER
<PAGE>
SEE RESTRICTIONS ON TRANSFER ON THE REVERSE OF THIS CERTIFICATE
February 22, 1995
Incorporated under the laws [ARTWORK OF EAGLE of the State of Delaware
APPEARS HERE]
NUMBER SHARES
8 **833**
CORINTHIAN SCHOOLS, INC.
Authorized Shares: 9,000,000 Class A Common Stock, $.01 par value per share
500,000 Class B Common Stock, $.01 par value per share
This Certifies that DENNIS DEVEREUX is the registered holder of Eight Hundred
Thirty-Three (833) Shares of Class B Common Stock of Corinthian Schools, Inc.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
offered this 30th day of June A.D. 1995
/s/ Paul St. Pierre /s/ David G. Moore
- ------------------------------- ------------------------------
Paul St. Pierre, Secretary David G. Moore, President
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JUNE
30, 1995, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE STOCK AGREEMENT BETWEEN THE
COMPANY AND DENNIS L. DEVEREUX DATED AS OF JUNE 30, 1995, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
For Value Received, _____ hereby sell, assign and transfer
unto _______________________________________________________________________
_______________________________________________________________. Shares
represented by the within Certificate and do hereby irrevocably constitute and
appoint _____________________________ Attorney to transfer the said Shares on
the books of the within named Corporation with full power of substitution in
the premises.
Dated__________ 19__
In presence of
______________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.21
EXECUTIVE STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of June 30, 1995, between David G. Moore
("Pledgor"), and Corinthian Schools, Inc., a Delaware corporation (the
"Company").
The Company and Pledgor are parties to an Executive Stock Agreement, dated
June 30, 1995, pursuant to which Pledgor purchased 6,250 shares of the Company's
Class B Common Stock, $.01 par value per share (the "Pledged Shares"), for an
aggregate purchase price of $62,500. The Company has allowed Pledgor to purchase
the Pledged Shares by delivery to the Company of a promissory note (the "Note")
in the aggregate principal amount of $62,437.50. This Pledge Agreement provides
the terms and conditions upon which the Note is secured by a pledge to the
Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and in order to induce the Company to accept the Note as partial
payment for the Pledged Shares, Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the contrary
-----------------------------
contained herein, during the term of this Pledge Agreement until such time as
there exists a default in the payment of principal or interest on the Note or
any other default under the Note or hereunder, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
<PAGE>
4. Stock Dividends; Distributions, etc. If, while this Pledge Agreement is
-----------------------------------
in effect, Pledgor becomes entitled to receive or receives any securities or
other property in addition to, in substitution of, or in exchange for any of the
Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of California or otherwise
available to the Company under applicable law. Without limiting the foregoing,
the Company is authorized to sell, assign and deliver at its discretion, from
time to time, all or any part of the Pledged Shares at any private sale or
public auction, on not less than ten days written notice to Pledgor, at such
price or prices and upon such terms as the Company may deem advisable. Pledgor
shall have no right to redeem the Pledged Shares after any such sale or
assignment. At any such sale or auction, the Company may bid for, and become the
purchaser of, the whole or any part of the Pledged Shares offered for sale. In
case of any such sale, after deducting the costs, attorneys' fees and other
expenses of sale and delivery, the remaining proceeds of such sale shall be
applied to the principal of and accrued interest on the Note; provided that
after payment in full of the indebtedness evidenced by the Note, the balance of
the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall
be entitled to the return of any of the Pledged Shares remaining in the hands of
the Company. Pledgor shall be liable for any deficiency if the remaining
proceeds are insufficient to pay the indebtedness under the Note in full,
including the fees of any attorneys employed by the Company to collect such
deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including reasonable
-------------------------
attorneys' fees) incurred in exercising any right, power or remedy conferred by
this Pledge Agreement or in the enforcement thereof, shall become part of the
indebtedness secured hereunder and shall be paid by Pledgor or repaid from the
proceeds of the sale of the Pledged Shares hereunder.
-2-
<PAGE>
7. Payment of Indebtedness and Release of Pledged Shares. Upon payment in
-----------------------------------------------------
full of the indebtedness evidenced by the Note, the Company shall surrender the
Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents and
-------------------------------------
warrants that he has good and valid title to all of the Pledge Shares, free and
clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on the Note has been repaid, Pledgor shall not (i) create, incur,
assume or suffer to exist any pledge, security interest, encumbrance, lien or
charge of any kind against the Pledged Shares or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement and the Executive Stock
Agreement, or (ii) sell or otherwise transfer any Pledged Shares or any interest
therein.
9. Further Assurances. Pledgor agrees that at any time and from time to
------------------
time upon the written request of the Company, Pledgor shall execute and deliver
such further documents (including UCC financing statements) and do such further
acts and things as the Company may reasonably request in order to effect the
purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any act,
------------------------------
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or provisions
-----------------------------------
of this Pledge Agreement may be waived, altered, modified or amended except by
an instrument in writing, duly executed by the parties hereto. This Agreement
and all
- 3 -
<PAGE>
obligations of the Pledgor hereunder shall together with the rights and remedies
of the Company hereunder, inure to the benefit of the Company and its successors
and assigns. This Pledge Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date
first above written.
CORINTHIAN SCHOOLS, INC.
By /s/ Paul St. Pierre
------------------------------
Its Secretary
------------------------------
/s/ David G. Moore
------------------------------
David G. Moore
- 4 -
<PAGE>
EXHIBIT 10.22
EXECUTIVE STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of June 30, 1995, between Frank J. McCord
("Pledgor"), and Corinthian Schools, Inc., a Delaware corporation (the
"Company").
The Company and Pledgor are parties to an Executive Stock Agreement, dated
June 30, 1995, pursuant to which Pledgor purchased 2,500 shares of the Company's
Class B Common Stock, $.01 par value per share (the "Pledged Shares"), for an
aggregate purchase price of $25,000. The Company has allowed Pledgor to purchase
the Pledged Shares by delivery to the Company of a promissory note (the "Note")
in the aggregate principal amount of $24,975.00. This Pledge Agreement provides
the terms and conditions upon which the Note is secured by a pledge to the
Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and in order to induce the Company to accept the Note as partial
payment for the Pledged Shares, Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the Company
------
a security interest in, the Pledged Shares as security for the prompt and
complete payment when due of the unpaid principal of and interest on the Note
and full payment and performance of the obligations and liabilities of Pledgor
hereunder.
2. Delivery of Pledged Shares. Upon the execution of this Pledge Agreement,
--------------------------
Pledgor shall deliver to the Company the certificate(s) representing the Pledged
Shares, together with duly executed forms of assignment sufficient to transfer
title thereto to the Company.
3. Voting Riqhts; Cash Dividends. Notwithstanding anything to the contrary
-----------------------------
contained herein, during the term of this Pledge Agreement until such time as
there exists a default in the payment of principal or interest on the Note or
any other default under the Note or hereunder, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
- 1 -
<PAGE>
cash dividends payable on the Pledged Shares as additional security hereunder.
4. Stock Dividends; Distributions, etc. If, while this Pledge Agreement is
-----------------------------------
in effect, Pledgor becomes entitled to receive or receives any securities or
other property in addition to, in substitution of, or in exchange for any of the
Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or interest
-------
under the Note when it becomes due (whether upon demand, acceleration or
otherwise) or any other event of default under the Note or this Pledge Agreement
occurs (including the bankruptcy or insolvency of Pledgor), the Company may
exercise any and all the rights, powers and remedies of any owner of the Pledged
Shares (including the right to vote the shares and receive dividends and
distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of California or otherwise
available to the Company under applicable law. Without limiting the foregoing,
the Company is authorized to sell, assign and deliver at its discretion, from
time to time, all or any part of the Pledged Shares at any private sale or
public auction, on not less than ten days written notice to Pledgor, at such
price or prices and upon such terms as the Company may deem advisable. Pledgor
shall have no right to redeem the Pledged Shares after any such sale or
assignment. At any such sale or auction, the Company may bid for, and become the
purchaser of, the whole or any part of the Pledged Shares offered for sale. In
case of any such sale, after deducting the costs, attorneys' fees and other
expenses of sale and delivery, the remaining proceeds of such sale shall be
applied to the principal of and accrued interest on the Note; provided that
after payment in full of the indebtedness evidenced by the Note, the balance of
the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall
be entitled to the return of any of the Pledged Shares remaining in the hands of
the Company. Pledgor shall be liable for any deficiency if the remaining
proceeds are insufficient to pay the indebtedness under the Note in full,
including the fees of any attorneys employed by the Company to collect such
deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including reasonable
-------------------------
attorneys' fees) incurred in exercising any right, power or remedy conferred by
this Pledge Agreement or in
- 2 -
<PAGE>
the enforcement thereof, shall become part of the indebtedness secured hereunder
and shall be paid by Pledgor or repaid from the proceeds of the sale of the
Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon payment in
-----------------------------------------------------
full of the indebtedness evidenced by the Note, the Company shall surrender the
Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens: No Sales or Transfers. Pledgor hereby represents and
-------------------------------------
warrants that he has good and valid title to all of the Pledge Shares, free and
clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on the Note has been repaid, Pledgor shall not (i) create, incur,
assume or suffer to exist any pledge, security interest, encumbrance, lien or
charge of any kind against the Pledged Shares or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement and the Executive Stock
Agreement, or (ii) sell or otherwise transfer any Pledged Shares or any interest
therein.
9. Further Assurances. Pledgor agrees that at any time and from time to
------------------
time upon the written request of the Company, Pledgor shall execute and deliver
such further documents (including UCC financing statements) and do such further
acts and things as the Company may reasonably request in order to effect the
purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any act,
------------------------------
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
- 3 -
<PAGE>
12. Waivers, Amendments; Applicable Law. None of the terms or provisions of
----------------------------------
this Pledge Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the parties hereto. This Agreement and
all obligations of the Pledgor hereunder shall together with the rights and
remedies of the Company hereunder, inure to the benefit of the Company and its
successors and assigns. This Pledge Agreement shall be governed by, and be
construed and interpreted in accordance with, the laws of the State of
California.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date
first above written.
CORINTHIAN SCHOOLS, INC.
By /s/ Paul St. Pierre
-----------------------------------
Its SECRETARY
----------------------------------
/s/ Frank J. McCord
----------------------------------
Frank J. McCord
- 4 -
<PAGE>
CONSENT
-------
The undersigned spouse of Executive hereby acknowledges that I have read
the foregoing Executive Stock Pledge Agreement and that I understand its
contents. I am aware that the Pledge Agreement provides for a security interest
in my spouse's shares of Common Stock. I agree that my spouse's interest in the
Common Stock is subject to this Pledge Agreement and any interest I may have in
such Common Stock shall be irrevocably bound by this Pledge Agreement and
further that my community property interest, if any, shall be similarly bound by
this Pledge Agreement.
I am aware that the legal, financial and other matters contained in the
Pledge Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Pledge Agreement that I will waive such right.
/s/ Janet L. McCord
------------------------------------
[Spouse]
/s/ Frank J. McCord
------------------------------------
Witness
- 5(c) -
<PAGE>
EXHIBIT 10.23
EXECUTIVE STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of June 30, 1995, between
Paul St. Pierre ("Pledgor"), and Corinthian Schools, Inc., a Delaware
corporation (the "Company").
The Company and Pledgor are parties to an Executive Stock
Agreement, dated June 30, 1995, pursuant to which Pledgor purchased 5,000 shares
of the Company's Class B Common Stock, $.01 par value per share (the "Pledged
Shares"), for an aggregate purchase price of $50,000. The Company has allowed
Pledgor to purchase the Pledged Shares by delivery to the Company of a
promissory note (the "Note") in the aggregate principal amount of $49,950.00.
This Pledge Agreement provides the terms and conditions upon which the Note is
secured by a pledge to the Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained
herein and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, and in order to induce the Company to accept the
Note as partial payment for the Pledged Shares, Pledgor and the Company hereby
agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants
------
to the Company a security interest in, the Pledged Shares as security for the
prompt and complete payment when due of the unpaid principal of and interest on
the Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this
--------------------------
Pledge Agreement, Pledgor shall deliver to the Company the certificate(s)
representing the Pledged Shares, together with duly executed forms of assignment
sufficient to transfer title thereto to the Company.
3. Voting Rights: Cash Dividends. Notwithstanding anything to
-----------------------------
the contrary contained herein, during the term of this Pledge Agreement until
such time as there exists a default in the payment of principal or interest on
the Note or any other default under the Note or hereunder, Pledgor shall be
entitled to all voting rights with respect to the Pledged Shares and shall be
entitled to receive all cash dividends paid in respect of the Pledged Shares.
Upon the occurrence of and during the continuance of any such default, Pledgor
shall no longer be able to vote the Pledged Shares and the Company shall retain
all such
- 1 -
<PAGE>
cash dividends payable on the Pledged Shares as additional security hereunder.
4. Stock Dividends; Distributions, etc. If, while this Pledge
-----------------------------------
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the
-------
principal or interest under the Note when it becomes due (whether upon demand,
acceleration or otherwise) or any other event of default under the Note or this
Pledge Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of California or otherwise
available to the Company under applicable law. Without limiting the foregoing,
the Company is authorized to sell, assign and deliver at its discretion, from
time to time, all or any part of the Pledged Shares at any private sale or
public auction, on not less than ten days written notice to Pledgor, at such
price or prices and upon such terms as the Company may deem advisable. Pledgor
shall have no right to redeem the Pledged Shares after any such sale or
assignment. At any such sale or auction, the Company may bid for, and become the
purchaser of, the whole or any part of the Pledged Shares offered for sale. In
case of any such sale, after deducting the costs, attorneys' fees and other
expenses of sale and delivery, the remaining proceeds of such sale shall be
applied to the principal of and accrued interest on the Note; provided that
after payment in full of the indebtedness evidenced by the Note, the balance of
the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall
be entitled to the return of any of the Pledged Shares remaining in the hands of
the Company. Pledgor shall be liable for any deficiency if the remaining
proceeds are insufficient to pay the indebtedness under the Note in full,
including the fees of any attorneys employed by the Company to collect such
deficiency.
6. Costs and Attorneys' Fees. All costs and expenses
-------------------------
(including reasonable attorneys' fees) incurred in exercising any right, power
or remedy conferred by this Pledge Agreement or in
- 2 -
<PAGE>
the enforcement thereof, shall become part of the indebtedness secured hereunder
and shall be paid by Pledgor or repaid from the proceeds of the sale of the
Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares.
-----------------------------------------------------
Upon payment in full of the indebtedness evidenced by the Note, the Company
shall surrender the Pledged Shares to Pledgor together with all forms of
assignment.
8. No Other Liens: No Sales or Transfers. Pledgor hereby
-------------------------------------
represents and warrants that he has good and valid title to all of the Pledge
Shares, free and clear of all liens, security interests and other encumbrances,
and Pledgor hereby covenants that, until such time as all of the outstanding
principal of and interest on the Note has been repaid, Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights or a holder thereof, other than pursuant to this Agreement and the
Executive Stock Agreement, or (ii) sell or otherwise transfer any Pledged Shares
or any interest therein.
9. Further Assurances. Pledgor agrees that at any time and
------------------
from time to time upon the written request of the Company, Pledgor shall execute
and deliver such further documents (including UCC financing statements) and do
such further acts and things as the Company may reasonably request in order to
effect the purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which
------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by
------------------------------
any act, delay, omission or otherwise be deemed to have waived any of its rights
or remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
- 3 -
<PAGE>
12. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Pledge Agreement shall be governed
by, and be construed and interpreted in accordance with, the laws of the State
of California.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as
of the date first above written.
CORINTHIAN SCHOOLS, INC.
By /s/ Frank J. McCord
------------------------------
Its Vice President
-----------------------------
/s/ Paul St. Pierre
-----------------------------
- 4 -
<PAGE>
CONSENT
-------
The undersigned spouse of Executive hereby ackowledges that I
have read the foregoing Executive Stock Pledge Agreement and that I understand
its contents. I am aware that the Pledge Agreement provides for a security
interest in my spouse's shares of Common Stock. I agree that my spouse's
interest in the Common Stock is subject to this Pledge Agreement and any
interest I may have in such Common Stock shall be irrevocably bound by this
Pledge Agreement and further that my community property interest, if any, shall
be similarly bound by this Pledge Agreement.
I am aware that the legal, financial and other matters
contained in the Pledge Agreement are complex and I am free to seek advice with
respect thereto from independent counsel. I have either sought such advice or
determined after carefully reviewing this Pledge Agreement that I will waive
such right.
/s/ Mary St. Pierre
--------------------------------------
[Spouse]
/s/ Paul St. Pierre
--------------------------------------
Witness
- 5(c) -
<PAGE>
SEE RESTRICTIONS ON TRANSFER ON THE REVERSE OF THIS CERTIFICATE
February 22, 1995
Incorporated under the laws [ARTWORK OF EAGLE of the State of Delaware
APPEARS HERE]
NUMBER SHARES
4 **1,667**
CORINTHIAN SCHOOLS, INC.
Authorized Shares: 9,000,000 Class A Common Stock, $.01 par value per share
500,000 Class B Common Stock, $.01 par value per share
This Certifies that Paul St. Pierre is the registered holder of One Thousand Six
Hundred Sixty-Seven (1,667) Shares of Class B Common Stock of Corinthian
Schools, Inc. transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
offered this 30th day of June A.D. 1995
/s/ Paul St. Pierre /s/ David G. Moore
- ------------------------------- ------------------------------
Paul St. Pierre, Secretary David G. Moore, President
<PAGE>
SEE RESTRICTIONS ON TRANSFER ON THE REVERSE OF THIS CERTIFICATE
February 22, 1995
Incorporated under the laws [ARTWORK OF EAGLE of the State of Delaware
APPEARS HERE]
NUMBER SHARES
3 **3,333**
CORINTHIAN SCHOOLS, INC.
Authorized Shares: 9,000,000 Class A Common Stock, $.01 par value per share
500,000 Class B Common Stock, $.01 par value per share
This Certifies that Paul St. Pierre is the registered holder of Three Thousand
Three Hundred Thirty-Three (3,333) Shares of Class B Common Stock of Corinthian
Schools, Inc. transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
offered this 30th day of June A.D. 1995
/s/ Paul St. Pierre /s/ David G. Moore
- ------------------------------- ------------------------------
Paul St. Pierre, Secretary David G. Moore, President
<PAGE>
EXHIBIT 10.24
ESCROW AGREEMENT
THIS AGREEMENT, ("the Agreement") is entered into this 20 day of March, 1996
(the "Effective Date"), by and among Corinthian Schools, Inc., a Delaware
corporation ("Buyer"), Repose, Inc., a Washington corporation ("Seller")
(hereinafter collectively referred to as the "Parties" or in the singular as a
"Party"), and Key Trust Company of the Northwest, a Washington banking
corporation ("Escrow Agent").
WITNESSETH:
WHEREAS, with reference to that certain Asset Purchase Agreement of even date
herewith between the Parties, Buyer shall deposit the cash sum of two hundred
thousand dollars ($200,000) into an escrow account to be designated as the
"Corinthian/Repose Escrow Account" (the "Escrow Account") to be held and
administered by the Escrow Agent; and
WHEREAS, Escrow Agent hereby accepts appointment as escrow agent and agrees to
act as such on the terms and under the conditions of this Agreement.
NOW, THEREFORE, BE IT AGREED:
1. Deposit and Disbursement.
------------------------
The Parties hereby agree that Buyer has deposited with Escrow Agent the
amount of two hundred thousand dollars ($200,000) (the "Escrow Funds") for
deposit to the Escrow Account. Escrow Agent shall not pay, release or
distribute any portion or all of the Escrow Funds except in accordance with
the provisions set forth in Exhibit A-1 attached hereto.
2. Responsibilities and Obligations of Escrow Agent.
------------------------------------------------
a. Escrow Agent assumes no responsibilities, obligations, or liabilities
except those expressly provided for in this Agreement and as follows:
1. Escrow Agent shall have no responsibility, obligation or
liability to any person with respect to any action taken,
suffered or omitted to be taken by it in good faith under this
Agreement and shall in no event be liable hereunder except for
its gross negligence or willful misconduct.
2. Notwithstanding anything herein to the contrary, no reference in
this Agreement to any other agreement shall be construed or
deemed to
Page 1 of 7
<PAGE>
enlarge the responsibilities, obligations or liabilities of
Escrow Agent set forth in this Agreement, and Escrow Agent is not
charged with knowledge of any other agreement.
b. Escrow Agent shall be protected in relying upon the truth of any
statement contained in any Requisition and in acting upon any
Requisition, notice, request, certificate, approval, consent, or other
proper paper, which on its face and without inquiry as to any other
facts, appears to be genuine and to be signed by the proper Party or
Parties, and is entitled to believe all signatures are genuine and
that any person signing any such paper who claims to be duly
authorized is in fact so authorized.
c. Escrow Agent shall be entitled to act on any instruction given to it
in writing and signed by all Parties and shall be fully protected in
so doing.
d. Escrow Agent shall be entitled to act in accordance with any court
order or other final determination by any governmental authority with
jurisdiction of any matter arising hereunder.
e. Escrow Agent shall have no responsibility to make payments out of the
Escrow Account for any amount in excess of the amount of collected
funds deposited in the Escrow Account, together with any earnings
thereon, at the time any payment is to be made.
f. In the event that Escrow Agent should at any time be confronted with
inconsistent claims or demands by the Parties hereto, Escrow Agent
shall have the right to interplead said Parties in any court of
competent jurisdiction within the State of Washington, to which
jurisdiction the Parties hereby agree to submit, and request that such
court determine the respective rights of the Parties with respect to
this Agreement, and upon doing so, Escrow Agent shall be automatically
released from any obligations or liabilities as a consequence of any
such claims or demands.
g. Escrow Agent may execute any of its powers or responsibilities
hereunder and exercise any of its rights hereunder either directly or
by or through its agents or attorneys. Nothing in the Agreement shall
be deemed to impose upon the Escrow Agent any duty to qualify to do
business or to act as a fiduciary or otherwise in any jurisdiction.
Escrow Agent shall not be responsible for and shall not be under a
duty to examine or pass upon the validity, binding effect, execution
or sufficiency of this Agreement or of any agreement amendatory or
supplemental hereto or of any other agreement.
Page 2 of 7
<PAGE>
3. Investment of Escrow Funds.
--------------------------
Escrow Agent shall invest all amounts received by it and deposited into the
Escrow Account in the Victory Prime Obligations Fund (the "Fund"). Each of
the Parties hereto hereby affirms that it has received and read the
prospectus for the Fund, including the portions of the prospectus
describing investment advisory fees which may be paid to Escrow Agent and
its affiliates by the Fund and the additional fees described in the
prospectus under the sections entitled "Summary of Fund Expenses" and "Fund
Organization and Fees" including the subheadings "Shareholder Servicing
Agent," "Sub-Administrator" and "Custodian." While no charges will be
assessed to the Escrow Account for redeeming Fund shares, and commission
(load) charges will be waived, the investment advisory and other fees
described in the prospectuses which Escrow Agent or its affiliates will
receive as a result of monies from the Account being invested in the Fund
will be paid by the Fund as described in the prospectus and will not be
credited back to the Account. Income from all investments shall be taxable
to the Party to whom it is disbursed, and Escrow Agent shall have no
responsibility for preparing or filing any Federal or state tax returns in
connection therewith. Income shall become part of Escrow Funds and shall be
applied in accordance with the terms hereof.
4. Compensation of Escrow Agent.
----------------------------
In addition to fees disclosed under Paragraph 4 above, Escrow Agent shall
be entitled to compensation for its services rendered hereunder at the rate
of $1,000 per year or any portion thereof and to reimbursement of any
expenses, including without limitation reasonable attorneys' fees and
expenses, incurred in connection with its administration of the Escrow
Account. Additional fees may be payable in the event that Escrow Agent is
required to perform extraordinary services hereunder. All such compensation
and reimbursement shall be paid by Corinthian.
5. Indemnification of Escrow Agent.
-------------------------------
The Parties jointly and severally indemnify and hold harmless the Escrow
Agent against any and all claims, losses, and damages it may suffer in
connection with its carrying out the terms of this Agreement, including
without limitation Escrow Agent's unpaid fees and reimbursable expenses but
excluding any loss Escrow Agent may sustain as a result of its gross
negligence or willful misconduct. Escrow Agent shall have a lien or right
of setoff on all funds, monies or other assets held hereunder to pay all of
its fees and reimbursable expenses.
6. Termination and Resignation.
---------------------------
a. This Agreement shall terminate when Escrow Agent or its successor or
assign receives written notification of termination including final
disposition instructions signed by the Parties hereto and upon the
actual final disposition of
Page 3 of 7
<PAGE>
the monies held in escrow hereunder. The rights and obligations of the
Parties hereto and the Escrow Agent shall survive the termination of
this Agreement.
b. Escrow Agent may resign at any time and be discharged from its duties
as escrow agent hereunder by giving the Parties hereto not fewer than
thirty (30) days' prior notice thereof. As soon as practicable after
its resignation, Escrow Agent shall turn over to a successor escrow
agent appointed by the Parties all monies held hereunder upon
presentation of the document appointing a successor escrow agent and
its acceptance of appointment. If no successor escrow agent is
appointed within the thirty (30) day period following such notice of
resignation, Escrow Agent may designate its successor by written
notice to the Parties so long as any such successor is a bank or trust
company. Upon the designation of a successor escrow agent and the
delivery to a resigning escrow agent of the document appointing such
successor escrow agent and its acceptance of appointment and
acceptance by the resigning escrow agent thereof, the resigning escrow
agent shall be released from any and all liabilities arising
thereafter. If no successor escrow agent is appointed by the Parties
within the thirty (30) day period following such notice of
resignation, Escrow Agent reserves the right to forward the matter and
all Escrow Funds to a court of competent jurisdiction at the expense
of the Parties.
7. Notices.
-------
All notices provided for herein shall be in writing, shall be delivered by
hand or by registered or certified mail, shall be deemed given when
actually received, and shall be addressed to the Parties hereto and Escrow
Agent at their respective addresses, which may be changed by any party form
time to time by notice to all other parties, as follows:
a. If to Buyer:
Corinthian Schools, Inc.
1932 East Deere Avenue, Suite 210
Santa Ana, CA 92705
Attn: David Moore, President
with a copy to:
O'Melveny and Myers
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660
Attn: David A. Krinsky, Esq.
Page 4 of 7
<PAGE>
b. If to Seller:
Repose, Inc.
23310 - 14th Place West
Bothell, WA 98021
with a copy to:
Karr Tuttle Campbell
1201 Third Avenue, Suite 2900
Seattle, WA 98101
Attn: Diana R. Carey, Esq.
c. If to Escrow Agent:
Key Trust Company of the Northwest
700 Fifth Avenue, Suite 4700
Seattle, Washington 98104
Attn: Connie Doss
8. Parties Bound.
-------------
This Agreement shall extend to and be binding upon the successors,
representatives, and assigns of the Parties and Escrow Agent.
9. Amendments.
----------
This Agreement cannot be modified, amended, supplemented, or changed, nor
can any provision hereof be waived, except by a written instrument executed
by all Parties and Escrow Agent.
10. Assignment.
----------
No Party may assign its rights or obligations under this Agreement without
the written consent of all other Parties, which consent shall not be
unreasonably withheld, and notice to Escrow Agent.
11. Applicable Law.
--------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Washington.
Page 5 of 7
<PAGE>
12. Severability.
------------
If at any time subsequent to the date hereof, any provision of this
Agreement shall be held by a court of competent jurisdiction to be illegal,
void, or unenforceable, such provision shall be of no force or effect, and
shall be limited or expanded in scope so as to carry out the intent of the
Parties as expressed herein to the greatest extent possible. The illegality
or unenforceability of any such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this
Agreement.
13. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
BUYER
Corinthian Schools, Inc.
/s/ Frank J. McCord 3/20/96
- ---------------------------------------- --------------------
Name FRANK J. McCORD Date
Title VP & CEO
SELLER
Repose, Inc.,
/s/ Kristi R. Russell 3/20/96
- ---------------------------------------- --------------------
Name KRISTI R. RUSSELL Date
Title President
ESCROW AGENT
Key Trust Company of the Northwest
/s/ David A. Pringle 3/20/96
- ---------------------------------------- --------------------
Name DAVID A. PRINGLE Date
Title VP
Page 6 of 7
<PAGE>
EXHIBIT 10.25
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AGREEMENT
OF MERGER, WHICH MERGES:
"CORINTHIAN MERGER SUBSIDIARY, INC.", A DELAWARE CORPORATION,
WITH AND INTO "CORINTHIAN SCHOOLS, INC." UNDER THE NAME OF "CORINTHIAN
SCHOOLS, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE
OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRD DAY OF OCTOBER, A.D.
1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL APPEARS HERE]
/s/ Edward J. Freel
--------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8132034
DATE: 10-03-96
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "AGREEMENT") is entered into as of this
30th day of September, 1996, by and among CORINTHIAN MERGER SUBSIDIARY, INC., a
Delaware corporation ("MERGER SUBSIDIARY"), Corinthian Colleges, Inc., a
Delaware corporation ("CCI"), and CORINTHIAN SCHOOLS, INC., a Delaware
corporation ("CSI"; Merger Subsidiary and CSI being hereinafter collectively
referred to as the "CONSTITUENT CORPORATIONS").
WHEREAS, Merger Subsidiary is a wholly owned subsidiary of CCI, and
CCI is a wholly owned subsidiary of CSI; and
WHEREAS, the Board of Directors and stockholders of each of the
Constituent Corporations deem it advisable and in the best interests of the
Constituent Corporations that Merger Subsidiary be merged with and into CSI,
with CSI being the surviving corporation, under and pursuant to the laws of the
State of Delaware; and
WHEREAS, the parties to the transaction have agreed to adopt this
Agreement of Merger as a "plan of reorganization" within the meaning of Internal
Revenue Code Section 361(a) in order to effect a tax-free reorganization of the
parties to the transaction within the meaning of Internal Revenue Code Section
368(a)(1).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
MERGER
1.01. THE MERGER. In accordance with the provisions of this
----------
Agreement and the General Corporation Law of the State of Delaware (the
"CORPORATION LAW"), at the Effective Time (as defined in Article III hereof),
Merger Subsidiary shall be merged with and into CSI (the "MERGER"), the separate
existence of Merger Subsidiary shall cease, and CSI shall continue as the
surviving corporation (the "SURVIVING CORPORATION").
1.02. THE SURVIVING CORPORATION. Upon the consummation of the
-------------------------
Merger, the Surviving Corporation shall succeed, without other transfer, to all
of the rights and property of Merger Subsidiary and shall be subject to all of
the debts, obligations and liabilities of Merger Subsidiary in the same manner
as if the Surviving Corporation had itself incurred them; all rights of
creditors and all liens upon the property of each of the Constituent
Corporations shall be preserved unimpaired, provided that such liens on property
--------
of Merger
<PAGE>
Subsidiary shall be limited to property affected thereby immediately prior to
the Effective Time; any action or proceeding pending by or against Merger
Subsidiary may be prosecuted to judgment, which shall bind the Surviving
Corporation, or the Surviving Corporation may be proceeded against or
substituted in its place.
ARTICLE II
CERTIFICATE OF INCORPORATION; BYLAWS
2.01. CERTIFICATE OF INCORPORATION.
----------------------------
(a) The Certificate of Incorporation of CSI, as in effect at
the Effective Time and as amended in Section 2.01(b) hereof, shall be the
Certificate of Incorporation of the Surviving Corporation, until thereafter
amended in accordance with applicable law.
(b) The Certificate of Incorporation of the Surviving
Corporation is hereby amended as follows:
Article IV of the Certificate of Incorporation of the Surviving
Corporation is hereby amended and restated in its entirety to read as follows:
"ARTICLE IV: CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation has
authority to issue is 1,000,000 shares of Common Stock, par value $.01 per share
(the "Common Stock")."
Article VIII of the Certificate of Incorporation of the Surviving
Corporation is hereby amended and restated in its entirety to read as follows:
"ARTICLE VIII: AMENDMENT OF CORPORATE DOCUMENTS
--------------------------------
Section 1. Restated Certificate of Incorporation. The Corporation
-------------------------------------
reserves the right to amend, alter, repeal or rescind any provision contained in
this Restated Certificate of Incorporation in the manner now or hereafter
prescribed by law.
Section 2. Bylaws. The Board of Directors of the Corporation shall
------
have the power to adopt, amend, alter, change and repeal any Bylaws of the
Corporation by vote of a majority of the members of the Board of Directors of
the Corporation then in office."
Article X of the Certificate of Incorporation of the Surviving
Corporation is hereby deleted in its entirety.
2
<PAGE>
2.02. BYLAWS. The Bylaws of CSI, as in effect at the Effective Time,
------
shall be the Bylaws of the Surviving Corporation, until thereafter amended in
accordance with applicable law.
ARTICLE III
EFFECTIVE TIME OF THE MERGER
As used in this Agreement, the "EFFECTIVE TIME" of the Merger shall
mean the date on which this Agreement, together with officers' certificates duly
executed by the appropriate officers of CSI and Merger Subsidiary, is duly filed
with the Office of the Secretary of State of the State of Delaware.
ARTICLE IV
CONVERSION, EXCHANGE AND CANCELLATION OF SHARES
4.01. CONVERSION OF SHARES. At the Effective Time:
--------------------
(a) Each share of Class A Common Stock of CSI, $0.01 par value
("CSI Class A Common Stock"), issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive one share of Class
A Common Stock of CCI, $0.01 par value ("CCI Class A Common Stock"); each share
of Class B Common Stock of CSI, $0.01 par value ("CSI Class B Common Stock"),
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive one share of Class B Common Stock of CCI,
$0.01 par value ("CCI Class B Common Stock"); and each share of Class A
Preferred Stock of CSI, $1.00 par value ("CSI Class A Preferred Stock"), issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive one share of Class A Preferred Stock of CCI, $1.00 par
value ("CCI Class A Preferred Stock").
(b) Each share of Class A and Class B Common Stock, $0.01 par
value, of Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of Common Stock of the
Surviving Corporation.
(c) The issued and outstanding capital stock of each of the
Constituent Corporations is as set forth on Exhibit A hereto.
3
<PAGE>
4.02. CANCELLATION OF CCI SHARES. At the Effective Time, all shares
--------------------------
of CCI Class A Common Stock issued and outstanding in the name of CSI
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and retired
and assume the status of authorized and unissued shares of CCI Common Stock, and
no shares of capital stock of CCI shall be issued in respect thereof.
ARTICLE V
MISCELLANEOUS
5.01. TERMINATION. Notwithstanding the approval of this Agreement by
-----------
the stockholders of CSI and by CCI, as the sole stockholder of Merger
Subsidiary, this Agreement may be terminated at any time prior to the Effective
Time by mutual written consent of the Boards of Directors of CCI and CSI.
5.02. WAIVER; AMENDMENT. Any of the terms or conditions of this
-----------------
Agreement may be waived at any time by whichever of the parties is, or the
stockholders of which are, entitled to the benefit thereof by a writing executed
on behalf of such party; and this Agreement may be amended, modified or
supplemented in any manner at any time by an agreement in writing executed on
behalf of each of the parties hereto; provided, however, that no such waiver,
-------- -------
amendment, modification or supplement shall be made which shall change any of
the principal terms of this Agreement without the further approval of the
stockholders of CSI and Merger Subsidiary.
5.03. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same document.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto, pursuant to the
authority given by resolutions adopted by its Board of Directors, has caused
this Agreement to be executed as of the date first written above by its Chairman
of the Board, President or a Vice President and by its Secretary or an Assistant
Secretary.
CORINTHIAN MERGER SUBSIDIARY, INC.,
a Delaware corporation
By: /s/ David G. Moore
------------------------
Name: David G. Moore
Title: President
By: /s/ Paul St. Pierre
------------------------
Name: Paul St. Pierre
Title: Secretary
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: /s/ David G. Moore
------------------------
David G. Moore
President
By: /s/ Paul St. Pierre
------------------------
Name: Paul St. Pierre
Title: Secretary
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
By: /s/ David G. Moore
------------------------
Name: David G. Moore
Title: President
By: /s/ Paul St. Pierre
------------------------
Name: Paul St. Pierre
Title: Secretary
5
<PAGE>
EXHIBIT A
CAPITAL STOCK
<TABLE>
<S> <C>
I. CORINTHIAN SCHOOLS, INC.
Class A Common
- --------------
Authorized: 9,000,000
Outstanding: 111,660
Primus Capital Fund III Limited Partnership 56,250
Banc One Capital Partners II, Ltd. 5,410
David G. Moore 10,000
Paul St. Pierre 10,000
Dennis L. Devereux 10,000
Frank J. McCord 10,000
Lloyd W. Holland 10,000
Class B Common
- --------------
Authorized: 500,000
Outstanding: 32,090
Banc One Capital Partners II, Ltd. 13,340
David G. Moore 6,250
Paul St. Pierre 5,000
Dennis L. Devereux 2,500
Frank J. McCord 2,500
Lloyd W. Holland 2,500
Preferred
- ---------
Authorized: 500,000
Outstanding: 18,125 Class A
Primus Capital Fund III Limited Partnership 14,500
Banc One Capital Partners II, Ltd. 3,625
II. CORINTHIAN MERGER SUBSIDIARY, INC.
Class A Common Stock
- --------------------
Authorized: 500
Outstanding: 100
Corinthian Colleges, Inc. 100
Class B Common Stock
- --------------------
Authorized: 500
Outstanding: 0
</TABLE>
A-1
<PAGE>
CORINTHIAN SCHOOLS, INC.
OFFICERS' CERTIFICATE
The undersigned, David G. Moore and Paul St. Pierre, hereby certify
that they are the duly elected and presently incumbent President and Secretary,
respectively, of Corinthian Schools, Inc. a Delaware corporation (the
"Company"), and hereby further certify as follows:
1. The total number of shares of Class A Common Stock of the Company
entitled to vote on the Merger contemplated by the attached Agreement of Merger
is 111,660.
2. The total number of shares of Class B Common Stock of the Company
entitled to vote on the Merger contemplated by the attached Agreement of Merger
is 32,090.
3. The Class A Common Stock and the Class B Common Stock of the
Company are the only classes of shares entitled to vote on the Merger.
4. The principal terms of the Agreement of Merger, in the form
attached hereto, were approved by the Company by the affirmative vote of all of
the outstanding shares of Class A Common Stock and Class B Common Stock of the
Company.
We further declare under penalty of perjury that the matters set forth
in this certificate are true and correct of our own knowledge.
Dated: September 30, 1996
/s/ David G. Moore
-----------------------
David G. Moore
President
/s/ Paul St. Pierre
-----------------------
Paul St. Pierre
Secretary
<PAGE>
CORINTHIAN MERGER SUBSIDIARY, INC.
OFFICERS' CERTIFICATE
The undersigned, David G. Moore and Paul St. Pierre, hereby certify
that they are the duly elected and presently incumbent President and Secretary,
respectively, of Corinthian Merger Subsidiary, Inc. a Delaware corporation (the
"Company"), and hereby further certify as follows:
1. The total number of shares of Common Stock of the Company
entitled to vote on the Merger contemplated by the attached Agreement of Merger
is 100.
2. The Common Stock of the Company is the only class of shares
entitled to vote on the Merger.
3. The principal terms of the Agreement of Merger, in the form
attached hereto, were approved by the Company by the affirmative vote of all of
the outstanding shares of the Common Stock of the Company.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: September 30, 1996
/s/ David G. Moore
-----------------------
David G. Moore
President
/s/ Paul St. Pierre
-----------------------
Paul St. Pierre
Secretary
<PAGE>
EXHIBIT 10.26
October 17, 1996
Manager, Investment Operations Group
The Prudential Insurance Company of America
12 Gateway Center 3
Newark, New Jersey 07102
Dear Sir or Madam:
The undersigned, Corinthian Colleges, Inc., a Delaware
corporation (the "Company"), refers to the Note Purchase and Revolving Credit
Agreement, dated as of October 17, 1996 (amended, restated, modified or
supplemented from time to time, the "Agreement", the terms defined therein being
used herein as therein defined), between you and the Company, and hereby
requests pursuant to paragraph 2B(4) of the Agreement a Revolving Loan as
follows:
(i) The LIBOR Business Day of the proposed Revolving Loan is
October 17, 1996.
(ii) The aggregate amount of the proposed Revolving Loan is
$2,000,000.00
The undersigned hereby certifies that the following statements
are true and correct on the date hereof, and will be true and correct on the
date of the proposed Revolving Loan and in connection therewith represents and
warrants to you as follows:
(A) the representations and warranties contained in
paragraph 8 of the Agreement and in the other Transaction Documents are true and
correct on and as of the date hereof and will be true and correct upon giving
effect to the proposed Revolving Loan and the application of proceeds therefrom,
in each case as though made on and as of such date;
(B) no event has occurred and is continuing, or would result
from such proposed Revolving Loan or from the application of the proceeds
therefrom, which does or would constitute a Default or Event of Default;
(C) upon giving effect to the Revolving Loan requested
herein, the aggregate amount of outstanding Revolving Loans will not exceed the
Revolving Commitment; and
<PAGE>
(D) none of the proceeds of the Revolving Loan requested
herein will be used to finance directly or indirectly a Hostile Tender Offer or
to purchase any margin stock.
Very truly yours,
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
------------------------------
Title: President
<PAGE>
EXHIBIT 10.27
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING THE WARRANT AND/OR THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION
THEREFROM.
No. W-_______
October 17, 1996
CONTINGENT STOCK WARRANT
To Subscribe for and Purchase Common Stock
of Corinthian Colleges, Inc.
Corinthian Colleges, Inc., a Delaware corporation (the "Company"), has
heretofore issued stock warrants to the person named below as the Initial Holder
(the "Initial Holder") and has also issued 18,750 shares of its Class B Common
Stock (the "Executive Stock") to certain executives of the Company pursuant to
Executive Stock Agreements dated as of June 30, 1995, as amended (the "Executive
Stock Agreements"). The Executive Stock Agreements provide that the shares of
Executive Stock will vest, in whole or in part, upon the occurrence of certain
specified events. In connection with various financing transactions in which the
Company is engaged, the Company has agreed to permit the Initial Holder, or
registered assigns, to purchase an amount of Common Stock from the Company based
upon the degree to which the Executive Stock vests as provided herein.
For purposes of this Contingent Stock Warrant:
1. The "Initial Holder" of this Contingent Stock Warrant is The
Prudential Insurance Company of America.
2. The class of Common Stock which may be purchased under this
Contingent Stock Warrant is A.
3. The "Participation Percentage" is 4.62693%.
4. The terms and conditions of (including the definitions contained
in) the Stock Subscription Warrant attached hereto as Exhibit A shall, except to
the extent they are inconsistent with the terms and conditions hereof, apply to
and govern this Contingent Stock Warrant.
<PAGE>
THE COMPANY HEREBY CERTIFIES that the Holder may purchase from the
Company, at the price of $0.01 per share, that number of shares of Common Stock
which equals the product of:
(A) the number of shares of Executive Stock which
become vested under the Executive Stock Agreements, and
(B) the Participation Percentage.
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of October 17, 1996.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
----------------------------
(CORPORATE SEAL)
Attest:
/s/ Frank J. McCord
- ----------------------------------
-2-
<PAGE>
EXHIBIT 10.28
- --------------------------------------------------------------------------------
Corinthian Colleges, Inc.
Subordinated Note
and
Warrant Purchase Agreement
- --------------------------------------------------------------------------------
Dated as of October 17, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
STATEMENT OF AGREEMENT...................................................... 3
Section 1. Defined Terms........................................... 3
Section 2. Purchase and Sale of the Notes.......................... 15
Section 3. Issuance of Warrants.................................... 16
Section 4. Conditions to Closings.................................. 16
Section 5. Representations and Warranties of Company............... 18
Section 6. Representations and Warranties of the Purchasers........ 21
Section 7. Financial Reporting..................................... 23
Section 8. Affirmative Covenants................................... 26
Section 9. Negative Covenants...................................... 27
Section 10. Financial Tests......................................... 32
Section 11. Events of Default....................................... 33
Section 12. Consequences of Event of Default........................ 35
Section 13. Miscellaneous........................................... 36
Form of Note Between CCI and Purchasers.......................... Exhibit A
</TABLE>
i
<PAGE>
Subordinated Note and
Warrant Purchase Agreement
This is a SUBORDINATED NOTE and WARRANT PURCHASE AGREEMENT dated as of
October 17, 1996 ("Agreement") by and among Corinthian Colleges, Inc. ("CCI"), a
Delaware corporation, Primus Capital Fund III Limited Partnership ("Primus"), an
Ohio limited partnership and Banc One Capital Partners II, Ltd., an Ohio limited
liability company ("BOCP II").
Primus and BOCP II are referred to collectively as the "Purchasers." The
CCI and the Purchasers are referred to individually as a "Party" and
collectively as the "Parties."
BACKGROUND
A. CCI.
CCI is engaged in the business of acquiring and operating post-secondary
vocational schools.
B. Acquisition Transaction.
CCI is a party to a Master Purchase Agreement, dated as of October 17,
1996, by and among CCI, Phillips College, Inc. ("Phillips") and certain
subsidiaries of Phillips listed therein, and the Schools Acquisition Agreement,
dated as of October 17, 1996, by and among Rhodes Colleges, Inc., a Delaware
corporation, Florida Metropolitan University, Inc., a Florida corporation,
Phillips and certain subsidiaries of Phillips listed therein (collectively the
"Asset Purchase Agreements"). The Asset Purchase Agreements provides for the
acquisition by CCI of certain colleges ("Phillips Schools") owned by Phillips
(the "Acquisition").
C. Existing Notes.
Pursuant to a Subordinated Secured Note and Warrant Purchase Agreement
dated June 30, 1995 ("Prior Purchase Agreement") CSI (as defined herein) issued
and sold to (i) Primus Subordinated Secured Notes due June 30,2000, in the
aggregate principal amount of $500,000, and (ii) LLC Subordinated Secured Notes
due June 30, 2000, in the aggregate principal amount of $2,000,000 (collectively
the "Existing Notes"). The Existing Notes will be paid in full and canceled on
the Closing Date.
D. Existing Advances.
Pursuant to a Credit Facility Agreement dated as of June 30, 1995 ("Prior
Credit Facility") by and between CSI and LLC, LLC agreed to make advances to CSI
in an amount not to exceed $2,000,000 at any one time outstanding. Any such
advances outstanding at the Closing Date ("Existing Advances") shall be paid in
full and canceled as of the Closing Date.
<PAGE>
E. Senior Loans.
Pursuant to a Note Purchase and Revolving Credit Agreement dated as of
October 17, 1996, ("Senior Credit Agreement") by and between Prudential and CCI,
CCI will issue and sell and Prudential will purchase $22,500,000 aggregate
principal amount of 10.27% Senior Secured Term Notes due October 17, 2003
("Senior Notes"). Pursuant to the Senior Credit Agreement, Prudential will also
provide CCI with a revolving credit facility of up to $5,000,000 of principal
amount at any one time outstanding ("Senior Advances").
F. Prudential Warrants.
CCI has agreed, pursuant to the Senior Credit Agreement to issue to
Prudential a Stock Subscription Warrant dated as of the date hereof,
("Prudential Warrants") to purchase 5,376.34 shares of Class A Common of CCI.
G. Purchase and Sale of Notes.
Upon the terms and subject to the conditions set forth in this Agreement,
CCI shall issue and sell to (i) BOCP II and BOCP II shall purchase Subordinated
Notes in the aggregate principal amount of $4,000,000, and (ii) Primus and
Primus shall purchase Subordinated Notes in the aggregate principal amount of
$1,000,000 for $1,000,000, each due September 30, 2004 (collectively, the
"Notes").
H. Capitalization.
The capital stock of CCI consists of 9,000,000 shares of Class A voting
common stock, $0.01 par value ("Class A Common") authorized, of which 111,660
shares are issued and outstanding, 500,000 shares of Class B non-voting common
stock, $0.01 par value, ("Class B Common") authorized, of which 32,090 shares
are issued and outstanding, and 500,000 shares of preferred stock, of which 18,
125 shares of 6% Redeemable Class A preferred stock, $1.00 par value, $100
liquidation value ("Class A Preferred") are issued and outstanding.
I. Warrants.
Upon the terms and subject to the conditions set forth in this Agreement,
CCI shall issue and sell to Primus warrants to purchase 806.45 shares of Class A
Common, and to BOCP II warrants to purchase 3225.81 shares of Class B Common
(collectively, the "Warrants").
The shares of Class A Common and Class B Common issuable upon exercise of
the Warrants are referred to collectively as the "Warrant Shares" and represent,
as of the date hereof, in the aggregate approximately 3% of the Outstanding
Common Stock after giving effect to the issuance of the Warrant Shares and the
exercise of the Prudential Warrants.
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J. Use of Proceeds.
The proceeds from the sale and issuance of the Senior Notes and the Notes
shall be used for among other things the Acquisition and the payment in full of
the Existing Notes and Existing Advances.
STATEMENT OF AGREEMENT
In consideration of their mutual promises set forth in this Agreement, the
Parties hereby agree as follows.
Section 1. Defined Terms.
As used herein, the following terms shall have the following meanings,
unless the context otherwise requires, as modified, amended or restated from
time to time as provided for herein.
1.1 "Accountant" means the Company's independent public accountant
selected and approved in the manner provided for in this Agreement.
1.2 "Accountant'S Statement" means, with respect to each Annual Financial
Statement, a written statement of such Accountant stating in effect that in the
course of their Audit with respect to such Financial Statement no Default has
come to their attention, or, if a Default has come to their attention, stating
the nature and period of existence of such Default.
1.3 "Accounting Periods" means the Fiscal Year, Quarter or Month, as
applicable.
1.4 "Accounting Statements" means collectively, with respect to any
Accounting Period, statements of income, changes in financial position (cash
flow) and shareholders' equity for such Accounting Period and a statement of
financial condition as at the end of such Accounting Period.
1.5 "Acquisition" means the acquisition by CCI of the Phillips Schools
from Phillips pursuant to the Asset Purchase Agreements.
1.6 "Affiliate" means any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, CCI or another
specified Person, except a Subsidiary. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
1.7 "Agreement" means this Subordinated Note and Warrant Purchase
Agreement dated October 17, 1996.
1.8 "Affirmative Covenants" means the covenants of CCI set forth in
Section 8.
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1.9 "Annual Financial Statements" means, with respect to each Fiscal
Year, the consolidated and consolidating Accounting Statements of the Company
with respect to such Fiscal Year, presented with corresponding Accounting
Statements for the preceding Fiscal Year, which Accounting Statements shall be
Audited, prepared in accordance with GAAP and presented in reasonable detail
(including appropriate footnotes) and in a form satisfactory to the Purchasers.
1.10 "Asset Purchase Agreements" shall have the meaning set forth in
Paragraph B.
1.11 "Audit" or "Audited" means, with respect to the consolidated Annual
Financial Statements, an examination without limitation as to scope by the
Accountant in accordance with generally accepted auditing standards for the
purpose of expressing an opinion of such Accounting Statements.
1.12 "Audit Report" means, with respect to the consolidated (but not the
consolidating) Annual Financial Statements, the report of the Accountant
indicating the scope of the Audit with respect to such Statements and setting
forth the opinion of such Accountant with respect to such Annual Financial
Statements as a whole, or an assertion to the effect that an overall opinion
cannot be expressed. The Audit Report shall set forth any qualification to such
opinion and, when such an overall opinion cannot be expressed, set forth the
reasons therefore.
1.13 "Board of Directors" means the board of directors of CCI and, as
applicable and to the extent permitted by law, any committee of such board of
directors authorized to exercise the powers of the board of directors.
1.14 "BOCP II" means Banc One Capital Partners II, Ltd., an Ohio limited
liability company, together with its successors and assigns.
1.15 "Business Day" means any day other than a Saturday, Sunday or day
upon which banking institutions are authorized or required by law or executive
order to be closed in the City of Columbus, Ohio.
1.16 "CCI" means Corinthian Colleges, Inc., a Delaware corporation,
together with its successors and assigns.
1.17 "CSI" means Corinthian Schools, Inc., a Delaware corporation and a
wholly owned subsidiary of CCI.
1.18 "Capitalization" means, at any time of determination, Senior
Indebtedness plus (i) Subordinated Debt designated in writing by BOCP II in
their sole discretion as eligible for inclusion in computing Capitalization and
(ii) shareholders equity.
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1.19 "Capital Stock" of any Person means, any and all shares, interests,
participations or other equivalents (however designated) of corporate stock,
including each class of common stock and preferred stock of such Person or
partnership interests and any warrants, options or other rights to acquire such
stock or interests.
1.20 "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within 90 days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within 90 days from the date of acquisition, of any domestic commercial bank
having capital and surplus in excess of $200,000,000, which has, or the holding
company of which has, a commercial paper rating of at least A-1 or the
equivalent thereof by Standard & Poors Corporation or P-1 or the equivalent
thereof by Moody's.
1.21 "Cash Flow" means, as to any period, Net Income plus (i) depreciation
and amortization expense, (ii) Interest Expense and (iii) income tax expense.
1.22 "Cash Flow from Operations" means, as to any period, cash flow from
operations calculated in accordance with GAAP and as set forth on the Company's
statement of cash flows delivered to the Purchasers pursuant to Section 7.
1.23 "CFO Certificate" means, with respect to the Quarterly Financial
Statements and the consolidating Annual Financial Statements, a certificate
signed by the chief financial officer of CCI stating in effect that such
Financial Statements, when delivered, (i) were, to the best of his knowledge,
complete and correct in all material respects, (ii) were prepared in accordance
with GAAP, and (iii) fairly present the results of operations for the applicable
Accounting Period and the financial condition as at the end of such Accounting
Period. The CFO Certificate shall be presented in a standard form reasonably
satisfactory to the Purchaser.
1.24 "Change of Control" means (i) an event or series of events by which
any Person or Persons or other entities acting in concert as a partnership or
other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of CCI, (ii) CCI is merged with or into another corporation with the
effect that immediately after such transaction the stockholders of CCI
immediately prior to such transaction hold less than a majority of the combined
Voting Power of the Person surviving the transaction, or (iii) the direct or
indirect, sale, lease, exchange or other transfer of all or substantially all of
the assets of CCI to any Person or group of Persons.
1.25 "Class A Common" shall have the meaning set forth in Paragraph H.
1.26 "Class B Common" shall have the meaning set forth in Paragraph H.
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1.27 "Class A Preferred" shall have the meaning set forth in Paragraph H.
1.28 "Closing Date" means October 17, 1996, or such later date as the
Parties shall mutually agree.
1.29 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.30 "Common Stock" means the shares of Class A Common and Class B Common
of CCI treated as a single class of stock, at any time outstanding.
1.31 "Company" means CCI, together with its Subsidiaries, treated as a
consolidated entity for accounting purposes.
1.32 "Compliance Certificate" means, with respect to each Fiscal Year and
each Quarter, a certificate signed by the chief financial officer of CCI (i)
stating that no Default has occurred and is continuing, (ii) stating that, to
the best of his knowledge, CCI is in compliance with each of the Affirmative
Covenants and each of the Negative Covenants, and (iii) setting forth in
reasonable detail a computation of each of the Financial Tests as of the end of
the applicable Fiscal Year or Quarter. The Compliance Certificate shall be
presented in a standard form reasonably satisfactory to the Purchasers.
1.33 "Convertible Securities" shall have the meaning set forth in the
Warrant Certificates.
1.34 "Default" means an Event of Default, or an event which with notice,
lapse of time or both, as provided for in Section 11 would constitute an Event
of Default.
1.35 "Disposition" means (i) a merger, consolidation or other business
combination in which CCI is the surviving entity and CCI's stockholders receive
cash or non-cash consideration in exchange for or in respect of their shares of
Capital Stock of CCI or (ii) the sale, lease, conveyance, transfer or other
disposition (other than the grant of a security interest) in any single
transaction or series of related transactions of all or substantially all of the
assets of CCI.
1.36 "Dividends" in respect of any corporation means:
(i) Cash distributions or any other distributions on, or in
respect of, any class of equity security of such
corporation, except for distributions made solely in shares
of securities of the same class; and
(ii) Any and all funds, cash or other payments made in respect
of the redemption, repurchase or acquisition of such
securities.
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1.37 "EBIT" means, as to any period, Net Income plus all amounts deducted
in arriving at such Net Income amount in respect of (i) Interest Expense and
(ii) income tax expense.
1.38 "EBITDA" means, as of any date, the earnings (before extraordinary
items, interest income or expense, taxes, depreciation, amortization, other non-
cash charges and rents) of the Company for the preceding four (4) Quarters
determined in accordance with GAAP.
1.39 "Environmental Laws" means any and all laws, statutes, judgments,
ordinances, rules, regulations, orders, determinations, interpretations, or
guidance of any governmental authority pertaining to health or the environment
in effect in any and all jurisdictions in which CCI, if any, is conducting or at
any time has conducted business, or where any property of CCI, if any, whether
leased or owned, is located, or where any hazardous substances generated or
disposed of by CCI, if any, are located, including, without limitation, the
Federal Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation and Liability Act of 1980, as amended, the Federal Clean Water Act,
as amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conversion and Recovery Act of 1976, as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Emergency
Planning and Community Right-to-Know Act, as amended, the Oil Pollution Act of
1990, the National Environmental Policy Act, as amended, the Hazardous Materials
Transportation Act, as amended, the Atomic Energy Act, as amended, the Federal
Insecticide, Fungicide and Rodenticide Act, as amended, and other environmental
conservation or protection laws, now existing or hereafter enacted.
1.40 "ERISA" means the Employee Retirement Security Act of 1974, as
amended from time to time.
1.41 "ERISA Affiliate" means all members of the group of corporations and
trades or businesses (whether or not incorporated) which, together with CCI, are
treated as a single employer under Section 414 of the Code.
1.42 "ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA or Section 412 of the Code maintained or contributed to by CCI or any
ERISA Affiliate with respect to which CCI has a fixed or contingent liability.
1.43 "Event of Default" shall have the meaning set forth in Section 11.
1.44 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor law.
1.45 "Existing Advances" means advances made by LLC to CSI pursuant to the
Prior Credit Facility in an amount not to exceed $2,000,000 at any one time
outstanding, which will be paid in full and canceled as of tile Closing Date.
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1.46 "Existing Notes" means the $2,500,000 principal amount of
Subordinated Secured Notes due June 30, 2000 issued and sold by CSI to BOCP II,
LP and Primus pursuant to the Prior Purchase Agreement, which will be paid in
full and canceled as of the Closing Date.
1.47 "Existing Warrant Shares" means the 1,250 shares of Class A Common
issued to Primus and the 5,000 shares of Class B Common issued to LLC upon the
exercise of warrants purchased by Primus and LLC pursuant to the Prior Purchase
Agreement.
1.48 "Financial Statements" means the Annual Financial Statements, Monthly
Financial Statements and Quarterly Financial Statements of the Company.
1.49 "Financial Tests" means the financial tests with respect to the
Company set forth in Section 10, which tests are based upon the Annual, Monthly
and Quarterly Financial Statements and determined as of the end of each
Fiscal Year, Month and Quarter.
1.50 "Fiscal Year" means each year ended on June 30, or other fiscal year
of CCI adopted in the manner provided for in this Agreement. Each Fiscal Year
consists of four Quarters.
1.51 "Fixed Charges" means, as to any period, the sum of (i) Interest
Expense, (ii) scheduled principal payments in respect of the Indebtedness of the
Company, including without limitation the Notes, and (iii) Operating Lease
Payments.
1.52 "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor).
1.53 "Indebtedness" means with respect to the Company, as of any date of
determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.54 "Inflation Factor" for a year means the quotient (expressed as a
decimal fraction) of (i) the Consumer Price Index for Southern California
published by the U.S. Department of Labor, Bureau of Labor Statistics (if the
issuance of this index is discontinued, the official index published by a
federal governmental agency, which is most nearly equivalent to such index, as
determined by the Purchasers and CCI), as at the end of such year, divided by
(ii) the same index as at the end of the previous year.
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1.55 "Initial Public Offering" means the first offer and sale to the
public by CCI or any holders of shares of any class of its Capital Stock,
pursuant to a registration statement that has been declared effective by the
SEC; provided, however, that the gross proceeds of the shares issued and sold by
CCI are at least $20,000,000.
1.56 "Intellectual Property" means patents, trademarks, service marks,
trade names, copyrights, curricula, knowhow or similar intellectual property.
1.57 "Interest Expense" means, as to any period, all interest expense,
including without limitation, all commission, discounts, or related amortization
or other fees and charges with respect to letters of credit and bankers'
acceptance financing and the net costs associated with interest swap
obligations, amortization of debt expense and original issue discount and the
interest portion of any deferred payment obligation (including leases of all
types), calculated in accordance with the effective interest method.
1.58 "Interest Rate" shall have the meaning set forth in Section 2.2(b).
1.59 "Investment" means any loan, advance or capital contribution to, or
investment in, or purchase or otherwise acquisition of any Capital Stock,
securities or evidences of Indebtedness of any Person.
1.60 "Key Man Policies" shall have the meaning set forth in Section 4(d).
1.61 "Lender Reports" means, without duplication of statements,
certificates, notices or reports furnished to the Purchasers pursuant to Section
7.1 of this Agreement, copies of all financial statements, certificates,
notices, reports or other information furnished to any bank, financial
institution or note purchaser pursuant to the requirements of any loan or note
purchase or similar agreement with respect to any material Indebtedness of the
Company.
1.62 "Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (whether statutory or otherwise), or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the uniform commercial code or comparable law
of any jurisdiction in respect of any of the foregoing).
1.63 "LLC" means BOCP II, Limited Liability Company, an Ohio limited
liability company and successor by merger to BancOne Capital Partners II,
Limited Partnership, a Delaware limited partnership. LLC is an Affiliate of
BOCP II.
1.64 "Management Group" means collectively, David G. Moore, Paul St.
Pierre, Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland.
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1.65 "Management Letters" means any letter or report furnished by the
Accountants to management of CCI in connection with any Audit or otherwise
describing findings or recommendations with respect to the accounting or
management practices or procedures of CCI and, including, all reports submitted
to CCI by the Accountants in connection with any interim or special audit made
by the Accountants.
1.66 "Maturity Date" means with respect to the Notes, September 30, 2004.
1.67 "Minutes" means all minutes, minutes of written action or reports
(including schedules and exhibits thereto) of a shareholder's meeting or actions
and all meetings of actions of the board of directors or any committee thereof
or appointed thereby of CCI or any subsidiary.
1.68 "Month" means a calendar month.
1.69 "Monthly Financial Statements" means, with respect to each Month, the
consolidated Accounting Statements of the Company with respect to such Month,
which Accounting Statements shall be prepared and presented in the manner
customary for purposes of dissemination for management of CCI.
1.70 "Negative Covenants" means the covenants of CCI set forth in Section
9.
1.71 "Net Income" means, as to any period, gross revenues of the Company
less all expenses and other proper charges (including taxes on income), but
excluding (i) extraordinary gains, (ii) any gains or losses resulting from the
sale or other disposition of capital assets, (iii) undistributed earnings of any
Person) which is not a Subsidiary, (iv) gains arising from changes in accounting
principles, (v) gains arising from the write-up of assets, (vi) any earnings of
a Person acquired through purchase, merger or consolidation or otherwise by the
Company for any period prior to the date of acquisition and (vii) any gains or
losses resulting from the retirement or extinguishment of Indebtedness.
1.72 "Non-Surviving Combination" means any merger, consolidation or other
business combination by CCI with one or more other entities in a transaction in
which CCI is not the surviving entity.
1.73 "Notes" means $4,000,000 aggregate principal amount Subordinated
Notes issued and sold by CCI to BOCP II and the $1,000,000 aggregate principal
amount of Subordinated Notes issued and sold to Primus, pursuant to this
Agreement, each due September 30, 2004, and "Note" means any one of such Notes.
The Notes are in the form of Exhibit A.
1.74 "Obligations" means (i) all amounts owed by CCI to the Purchasers
evidenced by the Notes, and (ii) all other present and future indebtedness and
obligations of CCI to the Purchasers however created, arising or evidenced,
direct or indirect, absolute or contingent, due or to become
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due, now or hereafter existing (other than under the Warrant Certificates,
Existing Warrant Shares or the Purchased Capital Stock).
1.75 "Operating Lease Payments" means, as to any period, all payments
under operating leases.
1.76 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable under
the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date shall be adjusted in accordance with the "treasury stock" method determined
under generally accepted accounting principles pursuant to Accounting Principles
Board Opinion 15.
1.77 "Parties" means CCI and the Purchasers collectively, and "Party"
means any one of the Parties.
1.78 "Percentage of Net Income Capacity Transferred" means, with respect
to each asset Transferred by CCI or a Subsidiary, the percentage of Company Net
Income produced by, or attributable to, such asset during the twelve Quarter
period most recently ended prior to the effective date of such Transfer.
1.79 "Permitted Liens" means Liens securing Senior Indebtedness.
1.80 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, Governmental Authority or any other form of equity.
1.81 "Phillips" means Phillips College, Inc., together with its successors
and assigns.
1.82 "Phillips Schools" means the colleges to be acquired by CCI from
Phillips pursuant to the Asset Purchase Agreements.
1.83 "Primus" means Primus Capital Fund III Limited Partnership, an Ohio
limited partnership, together with its successors and assigns.
1.84 "Prior Credit Facility" means the Credit Facility Agreement dated as
of June 30, 1995, by and between CSI and LLC.
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1.85 "Prior Purchase Agreement" means the Subordinated Secured Note and
Warrant Purchase Agreement dated as of June 30, 1995 by and among CSI, LLC, and
Primus, which Agreement will be canceled effective as of the Closing Date.
1.86 "Prudential" means The Prudential Insurance Company of America,
together with its successors and assigns.
1.87 "Prudential Warrants" means the warrants held by Prudential which are
evidenced by a Stock Subscription Warrant dated as of the date hereof.
1.88 "Purchase Shares" shall have the meaning set forth in the Warrant
Certificate.
1.89 "Purchased Assets" shall have the meaning set forth in the Asset
Purchase Agreements.
1.90 "Purchased Capital Stock" means (i) the 14,500 shares of Class A
Preferred and the 55,000 shares of Class A Common purchased by Primus, and (ii)
the 3,625 shares of Class A Preferred, the 5,410 shares of Class A Common and
the 8,340 shares of Class B Common purchased by LLC pursuant to the Stock
Purchase Agreement.
1.91 "Purchasers" means BOCP II and Primus.
1.92 "Put Option" shall have the meaning set forth in the Rights
Agreement.
1.93 "Quarter" means each of the three Month fiscal periods ending
March 31, June 30, September 30 and December 31.
1.94 "Quarterly Financial Statements" means, with respect to each Quarter,
the consolidated Accounting Statements of the Company with respect to such
Quarter and the current Fiscal Year to date, presented with corresponding
Accounting Statements for the same Quarter and Fiscal Year to date period for
the preceding Fiscal Year, which Accounting Statements shall be prepared in
accordance with GAAP (subject to applicable year end adjustments) and presented
in reasonable detail (but omitting footnotes that would substantially duplicate
footnotes contained in the most recent Annual Financial Statements).
1.95 "Quick Assets" means at any time of determination, all cash, Cash
Equivalents, marketable securities and accounts receivable (net of bad debt
reserve).
1.96 "Related Documents" means the Warrant Certificates, Rights Agreements
and the Registration Rights Agreement.
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1.97 "Registration Rights Agreement" means the Amended and Restated
Registration Agreement dated as of the date hereof by and among CCI, Prudential,
Primus, LLC, Management Group and BOCP II.
1.98 "Responsible Officer" means the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of CCI or
any other officer of CCI involved principally in its financial administration of
its controllership function.
1.99 "Restricted Payments" means any of the following:
(i) any dividend on any class of CCI's Capital Stock;
(ii) any other distribution on account of any class of CCI's
Capital Stock; and
(iii) any redemption, purchase or other acquisition, direct or
indirect, of any shares of CCI's Capital Stock.
1.100 "Rights Agreement" means the Rights Agreement dated as of the date
hereof by and among CCI, Purchasers, Management Group and LLC providing for
certain preemption rights and put options.
1.101 "SEC" means the United States Securities and Exchange Commission (or
any governmental body or agency succeeding to its functions).
1.102 "Securities Act" means the Securities Act of 1933, as amended, and
any successor law.
1.103 "Security Reports" means all financial statements, proxy statements,
notices and reports furnished to the shareholders or securities holders of CCI
and all registration statements and reports (including reports on Forms 10-K,
10-Q and 8-K) filed with the SEC.
1.104 "Senior Advances" means advances of up to $5,000,000 of principal
amount at any one time outstanding against the revolving credit facility
provided for in the Senior Credit Agreement, including all extensions, renewals
and refinancings.
1.105 "Senior Credit Agreement" means the Note Purchase and Revolving
Credit Agreement dated as of the date hereof, by and between Prudential and CCI
providing for the issue and sale of $22,500,000 principal amount of Senior Notes
and up to $5,000,000 of Senior Advances, including all extensions, renewals and
refinancings thereof.
1.106 "Senior Indebtedness" means the Senior Notes and the Senior
Advances.
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1.107 "Senior Lender" means Prudential.
1.108 "Senior Notes" means the $22,500,000 aggregate principal amount of
10.27% Senior Secured Term Notes due September 30, 2003, issued pursuant to the
Senior Credit Agreement, including all extensions, renewals and refinancings
thereof.
1.109 "Subordinated Debt" means Indebtedness of the Company which is
subordinated, in a manner satisfactory to and approved in writing by the
Purchasers, to the Indebtedness of CCI evidenced by the Notes.
1.110 "Subordination Agreement" means the Subordination and Standstill
Agreement dated as of the date hereof, by and among Prudential, BOCP II and
Primus.
1.111 "Subsidiary" means any corporation, all of the stock of every class
of which, except directors' qualifying shares, shall at the time as of which any
determination is being made, be owned by CCI either directly or through
Subsidiaries.
1.112 "Transfer" means, with respect to any item, the sale, exchange,
conveyance, lease, transfer or other disposition of such item.
1.113 "Trigger Event" means any of the following events: (i) an Initial
Public Offering; (ii) a Change of Control; (iii) a Disposition; or (iv) a Non-
Surviving Combination.
1.114 "Twelve Month Percentage of Net Income Capacity Transferred" means,
with respect to any twelve Month period ending on any date after June 30, 1998,
the sum of the Percentages of Net Income Capacities Transferred for each asset
of CCI and its subsidiaries that is Transferred during such period.
1.115 "UCC" means the Uniform Commercial Code as in effect in the State of
Ohio.
1.116 "Voting Power" means with respect to any corporation the power to
vote for or designate members of the board of directors of such corporation,
whether exercised by virtue of the record ownership of stock, under a close
corporation or similar agreement or under an irrevocable proxy.
1.117 "Warrant Certificates" means the certificates issued by CCI to the
Purchasers evidencing the Warrants.
1.118 "Warrant Shares" means the shares of Class A Common of CCI issuable
to Primus and the shares of Class B Common of CCI issuable to BOCP II upon
exercise of the Warrants, together with other shares of Common Stock or
Convertible Securities purchased or acquired as provided for in the Warrant
Certificates.
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1.119 "Warrants" means the warrants to purchase an aggregate of 806.45
shares of Class A Common issued and sold by CCI to Primus and 3,225.81 shares of
Class B Common issued and sold by CCI to BOCP II pursuant to this Agreement. The
Warrants are evidenced by Warrant Certificates.
Section 2. Purchase and Sale of the Notes.
Upon the terms and subject to the conditions set forth in this Agreement,
CCI shall issue and sell to BOCP II and BOCP II shall purchase from CCI Notes in
the aggregate principal amount of $4,000,000, for a purchase price of $4,000,000
and CCI shall issue and sell to Primus and Primus shall purchase from CCI Notes
in the aggregate principal amount of $1,000,000, for a purchase price of
$1,000,000. Such purchases and sales shall be consummated on the Closing Date
as provided for in this Agreement, and on such date the Purchasers shall make
payment of the purchase price of the Notes being purchased by wire transfer to
an account designated by CCI.
2.1 Application of Proceeds.
On the Closing Date, CCI shall apply the proceeds from the sale of the
Notes to the payment in full of the Existing Notes and the Existing Advances,
together with all accrued but unpaid interest thereon, and shall thereupon cause
the Prior Purchase Agreement and Prior Credit Facility to be cancelled. The
balance of such proceeds, if any, may thereafter be applied to any proper
corporate purpose, including the funding of the Acquisition.
2.2 Terms of the Notes
The Notes shall include the following terms and shall be substantially in
the form of Exhibit A.
(a) Term. The Notes shall be dated the date of this Agreement and
shall be due and payable in full on or before the Maturity Date.
(b) Interest Rate. Interest shall accrue on the unpaid principal
balance of the Notes at a fixed rate equal to 12% per annum. Interest shall be
calculated on the basis of the actual number of days elapsed over a year
consisting of four Quarters each consisting of 90 days.
(c) Interest Payment Dates. Interest on each Note shall be payable
quarterly in arrears on the last Business Day of each Quarter commencing on the
last Business Day of the Quarter immediately succeeding the Quarter in which
such Note was issued.
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(d) Principal Payments. The unpaid principal amount of the Notes
shall be due and payable pro-rata between the Notes in quarterly installments of
$281,250 beginning October 17, 2000, with the outstanding balance due on the
Maturity Date.
(e) Prepayments. The Notes may be prepaid pro-rata in whole or in
part in amounts of not less than $100,000. Each prepayment of principal shall be
accompanied by the payment of all accrued but unpaid interest through the date
of prepayment.
(f) Subordination. The Notes shall be subordinated to the Senior
Indebtedness pursuant to the Subordination Agreement.
(g) Payments. All payments or prepayments to be made by CCI, with
respect to principal or interest on the Notes shall be due at 1:30 p.m.
Columbus, Ohio time on the day when due and shall be made to the Purchasers in
federal funds or other immediately available lawful money of the United States
of America. Whenever any payment to be made hereunder shall be due other than on
a Business Day, such payment shall be made on the Business Day preceding the due
date.
(h) Financing Fee. As additional consideration for the purchase of
the Notes, CCI shall pay to BOCP II a financing fee of $40,000 and to Primus a
financing fee of $10,000.
Section 3. Issuance of Warrants.
Upon the terms and subject to the conditions set forth in this Agreement,
CCI shall issue and sell to Primus and Primus shall purchase from Company for a
purchase price of $100 warrants to purchase 806.45 shares of Class A Common, and
CCI shall issue and sell to BOCP II and BOCP II shall purchase from CCI for a
purchase price of $100 Warrants to purchase 3,225.81 shares of Class B Common,
which shares collectively represent, as of the date hereof, in the aggregate 3%
of the Outstanding Common Stock, of CCI, after giving effect to the issuance of
such Warrant Shares and exercise of the Prudential Warrants. Such sales and
purchases shall be consummated on the Closing Date as provided for in this
Agreement. The terms and conditions of exercise of such Warrants, including the
time of exercise and the number of Warrant Shares which may be purchased upon
exercise shall be as provided in the Warrant Certificates.
Section 4. Conditions to Closings.
The obligations of the Purchasers to purchase the Notes and Warrants on the
Closing Date is subject to the fulfillment, in a manner reasonably satisfactory
to the Purchasers and their counsel, of each of the following conditions
precedent.
(a) No Event of Default. No Event of Default or event which with
notice, lapse of time or both would constitute an Event of Default has occurred.
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(b) Representations and Warranties. Each of the representations and
warranties of CCI set forth in this Agreement and the Security Agreement shall
be true and correct in all material respects as of the Closing Date.
(c) Senior Credit Agreement. The Senior Credit Agreement shall have
been duly executed and delivered by CCI and the Senior Lender, shall be in full
force and effect, and no event of default under such agreement or event which
with notice, lapse of time or both would constitute an event of default under
such agreement shall have occurred thereunder.
(d) Execution and Delivery of Documents. Each of the following
documents, in form and substance reasonably satisfactory to the Purchasers and
their counsel, shall have been duly executed and delivered:
(i) Warrant Certificates for the purchase of initially 806.45
Warrant Shares issued in the name of Primus and 3,225.81
Warrant Shares issued in the name of BOCP II;
(ii) Senior Credit Agreement;
(iii) Registration Rights Agreement;
(iv) Rights Agreement;
(v) Certified copies of the corporate resolutions of CCI
authorizing the execution, delivery and performance of its
obligations under this Agreement, the Notes, the Related
Documents and any other documents to be delivered pursuant to
this Agreement;
(vi) Certified copies of CCI's Certificate of Incorporation,
including any and all amendments thereto, and a certified
copy of the bylaws of CCI as in effect on the Closing Date;
(vii) A certificate of the Secretary of CCI certifying the names of
the officers of CCI authorized to sign this Agreement, the
Notes, the Warrant Certificates, the Related Documents and
any other documents or certificates to be delivered pursuant
to this Agreement by CCI, together with the true signatures
of such officers;
(viii) Evidence of the issuance to CCI of a key man life insurance
policy in the amount of One Million Five Hundred Thousand
Dollars ($1,500,000) on the life of David G. Moore, and One
Million Dollars ($1,000,000) on the life of Paul St. Pierre,
naming CCI as the sole beneficiary ("Key Man Policies");
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(ix) Payment of the closing fee of $40,000 and $10,000 shall
have been made to BOCP II and Primus, respectively;
(x) An opinion of counsel for CCI, addressed to the
Purchasers, in form and substance satisfactory to the
Purchasers and their counsel; and
(xi) Such other opinions, certificates, affidavits, documents
and filings, including any and all UCC filings, as the
Purchasers may deem reasonably necessary or appropriate.
(e) Asset Purchase Agreements. The Asset Purchase Agreements shall
be in full force and effect as of the Closing Date and shall not have been
amended or modified. The conditions precedent to the obligations of CCI to
complete the purchase of the Purchased Assets pursuant to the terms of the Asset
Purchase Agreements shall have been satisfied in full (without reliance on any
waiver by CCI) and the Closing shall have been consummated in accordance with
the terms of the Asset Purchase Agreements. The Seller shall not have any right
under the Asset Purchase Agreements to terminate, and shall not have terminated,
CCI's right to purchase or manage any of the Phillips Schools.
Section 5. Representations and Warranties of Company.
The representations and warranties of CCI set forth in this Section 5 shall
survive the purchase and sale of the Notes and Warrants, and any investigation
made by the Purchasers shall not diminish the right of the Purchasers to rely
upon such representations and warranties. The Company represents and warrants to
the Purchasers as follows.
(a) Organization. CCI is a corporation duly organized and validly
existing under the laws of the state of its incorporation and the execution,
delivery and performance of this Agreement, each of the Related Documents and of
any instrument or agreement required by this Agreement and each of the Related
Documents are within CCI's powers, have been duly authorized, and are not in
conflict with the terms of any charter, bylaw or other organizational documents
of CCI.
(b) Good Standing. The Company is properly licensed and in good
standing in each state in which CCI is doing business and CCI has qualified
under, and complied with, where required, the fictitious name statute of each
state in which CCI is doing business and where the failure to do so would have
a material adverse affect on the Company's financial condition or operations.
(c) Information Submitted. Any audited consolidated Annual Financial
Statements and unaudited Monthly and Quarterly Financial Statements of the
Company submitted by CCI to the Purchasers have been prepared in accordance with
GAAP consistently applied, are true
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and correct in all material respects and are complete insofar as may be
necessary to give the Purchasers a true and accurate knowledge of the subject
matter thereof.
(d) No Material Adverse Change. There has been no material adverse
change in the consolidated financial condition of Company since the later of (i)
June 30, 1996, and (ii) date of the most recent Financial Statements submitted
to the Purchasers.
(e) Disclosure. Neither this Agreement nor any other document,
opinion, Accounting Statement, certificate or statement by an officer of CCI
furnished or made by or on behalf of CCI in connection with the transactions
contemplated in this Agreement, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained therein not misleading. There is no fact peculiar to CCI which
materially and adversely affects or in the future may (so far as CCI can
reasonably foresee) materially and adversely affects the business, property or
assets or financial condition of the Company which has not been disclosed to the
Purchasers in this Agreement or in other documents, opinion, Accounting
Statements, certificates or statements furnished to or made by or on behalf of
to the Purchasers in connection with the transactions contemplated by this
Agreement.
(f) No Conflicts. The execution, delivery and performance of this
Agreement, the Related Documents and any other instrument or agreement required
by this Agreement are not in conflict with any law or any material indenture,
agreement or undertaking to which CCI is a party or by which CCI is bound or
affected.
(g) Enforceability. This Agreement is a legal, valid and binding
agreement of CCI, enforceable against CCI in accordance with its terms and each
Related Document, and any instrument or agreement required under this Agreement,
when executed and delivered, will be similarly legal, valid, binding and
enforceable in accordance with their respective terms, except, in either case,
as enforcement thereof may be affected by bankruptcy, moratorium, insolvency or
similar laws affecting creditors' rights generally or by the application by a
court of equitable principles.
(h) Authorization and Consents. No approval, consent, compliance,
exemption or authorization or other action by or notice to, or filing with, any
governmental authority or any other Person pursuant to applicable law, and no
lapse of the waiting period under the applicable law, is necessary or required
in connection with the execution, delivery and performance by the company or
enforcement against CCI of this Agreement or the transactions contemplated
hereby.
(i) Environmental Compliance. The Company and all of its properties
and facilities have, at all time and in all respects, complied with all
Environmental Laws, except where the failure to comply would not have a material
adverse effect on the business, condition (financial or otherwise) or operations
of CCI, assuming all such instances of non-compliance were brought to the
attention of appropriate governmental authorities.
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(j) Labor and Employee Relations Matters.
(i) The Company is not and does not expect to be the subject
of any union organizing activity or labor dispute, nor has
there been any strike of any kind called or, to the
knowledge of CCI, threatened to be called against CCI and
CCI has not violated any applicable federal or state law
or regulation relating to labor or labor practices.
(ii) No present or former employees of CCI have advanced claims
in writing against CCI (whether under any foreign,
federal, state or common law, through a government agency,
under an employment agreement, collective bargaining
agreement, personal service or independent contractor
agreement or otherwise) that are currently pending for (a)
overtime pay, other than overtime pay for the current
payroll period; (b) wages, salaries or profit sharing
(excluding wages, salaries or profit sharing for the
current payroll period); (c) vacations, time off
(including, without limitation, potential sick leave) or
pay in lieu of vacation or time off, other than vacation
or time off (or pay in lieu thereof) earned in respect of
the current Fiscal Year; (d) any violation of any statute,
ordinance or regulation relating to minimum wages or
maximum hours of work; (e) discrimination against
employees on any basis; (f) unlawful employment or
termination practices; (g) unfair labor practices or
alleged violations of collective bargaining agreements;
(h) any violation of occupational safety and/or health
standards; (i) benefits under any employee plans or
compensation arrangement; and (j) breach of any
employment, personal service or independent contractor
agreement, except any such claims which, in the aggregate,
do not exceed $100,000.
(iii) There is not pending against CCI or, to the knowledge of
CCI threatened, any labor dispute, strike or work stoppage
that does or may materially affect or materially interfere
with CCI's operations.
(iv) There is not pending or, to the knowledge of CCI
threatened, any charge or complaint against CCI by or
before the National Labor Relations Board, any
representative thereof, or any comparable foreign or state
agency or authority.
(v) All collective bargaining agreements to which CCI is a
party have been furnished to the Purchaser hereto.
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(k) No Event of Default. No event has occurred and is continuing or
would result from the transactions described in this Agreement which constitutes
or would constitute an Event of Default or which, upon a lapse of time or notice
or both, would become an Event of Default.
(l) Litigation. There is no litigation, tax claim, proceeding or
dispute pending, or, to the knowledge of CCI threatened, against or affecting
CCI or its property, the adverse determination of which will have a material
adverse affect CCI's financial condition or operation or impair CCI's ability to
perform its obligations hereunder or under any instrument or agreement required
hereunder.
(m) Taxes. All tax returns required to be filed by CCI in any
jurisdiction have been filed or extended and all taxes, assessments, fees and
other governmental charges upon CCI or upon any of its properties, income or
franchises have been paid prior to the time that such taxes could give rise to a
lien thereon, unless protested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been established on the
books of CCI. The Company has no knowledge of any proposed tax assessment
against CCI.
(n) Securities Act. The Company has not issued any unregistered
securities in violation of the registration requirements of the Securities Act,
any applicable state securities law, or of any other requirement of law, and is
not violating any rule, regulation, or requirement under the Securities Act or
the Securities and Exchange Act. The Company is not required to qualify an
indenture under the Trust Indenture Act of 1939, as amended, in connection with
its execution and delivery of the Notes.
(o) Indebtedness. Immediately after the date of Closing, CCI will
not have any outstanding Indebtedness other than the Notes, the Senior
Indebtedness, accounts payable and other indebtedness incurred in the ordinary
course of business.
Section 6. Representations and Warranties of the Purchasers.
The representations and warranties of the Purchasers set forth in this
Section 6 shall survive the purchase and sale of the Notes and Warrants, and any
investigation made by CCI shall not diminish the right of CCI to rely upon such
representations and warranties. The Purchasers represent and warrant to CCI as
follows.
(a) Organization. BOCP II represents and warrants that it is a
limited liability company duly organized and validly existing under the laws of
the state of its formation and the execution, delivery and performance of this
Agreement, each of the Related Documents and of any instrument or agreement
required by this Agreement, or each of the Related Documents are within its
powers, have been duly authorized, and are not in conflict with the terms of any
provision of its operating agreement or other organizational papers. Primus
represents and warrants that it is a limited partnership duly organized and
validly existing under the laws of the state of its formation and the execution,
delivery and performance of this Agreement, each of the Related Documents and
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of any instrument or agreement required by this Agreement, or each of the
Related Documents are within its powers, have been duly authorized, and are not
in conflict with the terms of any provision of its partnership agreement or
other organizational papers.
(b) No Conflicts. The execution, delivery and performance of this
Agreement, the Related Documents and any other instrument or agreement required
by this Agreement are not in conflict with any law or of any material indenture,
agreement or undertaking to which either Purchaser is a party or by which either
Purchaser is bound or affected.
(c) Enforceability. This Agreement is a legal, valid and binding
agreement of each Purchaser, enforceable against each Purchaser in accordance
with its terms, the Related Documents and any other instrument or agreement
required under this Agreement, when executed or delivered, will be legal, valid,
binding and enforceable.
(d) Authorization and Consents. No approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
governmental authority or any other Person pursuant to applicable law, and no
lapse of the waiting period under the applicable law, is necessary or required
in connection with the execution, delivery and performance by each Purchaser or
enforcement against each Purchaser of this Agreement or the transactions
contemplated hereby.
(e) Experience. Each Purchaser is an accredited investor within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act and
has substantial experience in evaluating and investing in securities of
companies similar to CCI and has made investments of securities other than those
of CCI. Each Purchaser acknowledges that by reason of its business or financial
experience and financial condition, it has the ability to analyze and bear the
entire risk of its investment pursuant to this Agreement.
(f) Investment Intent. Each Purchaser is acquiring its Notes,
Warrant Certificate and Warrant Shares for investment for its own account, not
as a nominee or agent and not with a view to, or for resale in connection with,
any distribution thereof. Each Purchaser understands that the issuance and sale
of such securities purchased by it hereunder (and the issuance to each Purchaser
of Warrant Shares upon the conversion of the Warrant Certificate) have not been,
and will not be, subject to a registration statement filed under the Securities
Act or any applicable state securities law by reason of a specific exemption
from the registration provisions of the Securities Act and such state securities
laws which depend upon, among other things, the bona fide nature of the
investment intent and the accuracy of each Purchaser's representation as
expressed herein.
(g) Rule 144. Each Purchaser acknowledges that the securities which
could be acquired hereunder are restricted securities within the meaning of Rule
144 promulgated under the Securities Act and must be held indefinitely unless
subsequently registered under the Securities Act and applicable state securities
laws or unless an exemption from such registration is available. Each Purchaser
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permits the limited resale of securities purchased in a private placement
subject to the satisfaction of certain
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conditions including, without limitation, the existence of a public market for
the securities, the availability of certain current public information about
CCI, the resale occurring not less than two years after a party has purchased
and paid for any security to be sold, the sale being effected through a
"broker's transaction" or a transaction directly with a "market maker" as
provided by Rule 144(f), and the number of securities being sold during any
three-month period not exceeding specified limitations.
(h) No Public Market. Each Purchaser understands that no public market
now exists for any of the securities to be purchased by it hereunder and that
CCI has given no assurance that a public market will ever exist for any of CCI's
securities.
(i) Knowledge of Offer. Each Purchaser is aware of and has
investigated CCI's business, management and financial condition, has had the
opportunity to inspect CCI's facilities and has had access to such other
information about CCI as each Purchaser has deemed necessary and desirable to
reach an informed and knowledgeable decision to acquire the securities to be
purchased by it hereunder. The purchase of such securities is not a result of an
advertisement of an offering in connection with the sale of such securities.
Section 7. Financial Reporting.
The obligations and covenants of CCI set forth in this Section 7 shall
terminate upon the later to occur of (i) the exercise of all of the Put Options
(as defined in the Warrant Certificates), and (ii) the date upon which the
Purchasers and LLC are no longer the holder of any Notes, Warrants, Warrant
Shares, Exercised Warrant Shares or Purchased Capital Stock.
7.1 Financial Reports.
The Company shall deliver, or shall cause to be delivered to the Purchasers
the following financial reports within the applicable time periods specified in
this Section.
(a) Annual Financial Statements. The Annual Financial Statements shall
be delivered within ninety (90) days after the end of each Fiscal Year, and
shall be accompanied by the applicable Audit Report, Accountant's Statement, CFO
Certificate and Compliance Certificate.
(b) Quarterly Financial Statements. The Quarterly Financial Statements
shall be delivered within forty-five (45) days after the end of each Quarter
(other than the fourth Quarter) of each Fiscal Year, and shall be accompanied by
the applicable CFO Certificate and Compliance Certificate.
(c) Monthly Financial Statements. The Monthly Financial Statements
shall be delivered promptly upon their dissemination to management of CCI.
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(d) Projected Financial Statements. The projected Financial Statements
with respect to each succeeding Fiscal Year shall be delivered with sixty (60)
days after the end of the preceding Fiscal Year.
(e) Securities Reports. Any Securities Reports shall be delivered
promptly upon their delivery to shareholders, securities holders or the SEC.
(f) Lender Reports. Any Lender Reports shall be delivered promptly
upon their delivery to any lender or note holder.
(g) Management Letters. Any Management Letters shall be delivered
promptly after receipt thereof.
(h) Minutes. Any Minutes shall be delivered promptly upon the
recording of such Minutes in the records of CCI.
7.2 Other Information.
Promptly upon reasonable written request therefor, CCI shall furnish (or
cause to be furnished) to each Purchaser other financial or other information
with respect to CCI available in the books, records and files of CCI; provided,
however, that if such information cannot be furnished without undue expense, CCI
may require the Purchasers to reimburse it for all reasonable out-of-pocket
expenses incurred in connection with furnishing such information.
7.3 Rule 144A.
The Company shall upon the reasonable written request of a Purchaser,
furnish to any qualified institutional buyer (as such term is defined in Rule
144A under the Securities Act) designated by the Purchaser, such financial or
other information as the Purchaser reasonably determines is necessary in order
to afford compliance with the applicable information requirements under Rule
144A under the Securities Act in connection with any proposed sale of the
Warrants or Warrant Shares, except at such times as CCI is subject to the
reporting requirements of Section 13 or l5(d) of the Exchange Act.
7.4 Preparation of Annual, Monthly and Quarterly Financial Statements in
Accordance with GAAP.
The Company shall maintain adequate books, accounts and records, and to
prepare all Annual and Quarterly Financial Statements required to be delivered
to the Purchasers pursuant to this Section in accordance with GAAP applied in a
manner consistent with the practices, policies and procedures applied in
connection with the preparation of the financial statements of the Company
initially delivered to the Purchasers, except for any changes in such practices,
policies and procedures permitted or approved in the manner provided for in this
Section.
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7.5 Changes in GAAP and in Practices, Policies and Procedures.
In the event that any such change in policies, practice or procedures would
materially affect the computation of any Financial Test, and unless this
Agreement is amended to make appropriate modifications to such Financial Test,
compliance with all such Financial Test shall be determined on a proforma basis
without giving effect to any such change.
7.6 Notice of Certain Events.
The Company shall give prompt written notice to each Purchaser of the
occurrence of any of the following events:
(i) a Default;
(ii) the occurrence of any event which with notice, lapse of
time or both would constitute an event of default under any
Senior Indebtedness;
(iii) all litigation affecting CCI where the amount claimed is
Two Hundred Fifty Thousand Dollars ($250,000) or more;
(iv) any substantial dispute which may exist between CCI and any
governmental regulatory body or law enforcement authority;
(v) Any other matter which has resulted or might result in a
material adverse change in the Company's financial
condition or operations;
(vi) the loss or destruction of any material asset of CCI; and
(vii) the occurrence of or the entering into any agreement or
letter of intent with respect to any Trigger Event.
7.7 Inspections.
Books, Records, Audits and Inspections. The Company shall maintain adequate
books, accounts and records and prepare all Annual, Quarterly or Monthly
Financial Statements required hereunder in accordance with GAAP consistently
applied, and in compliance with the regulations of any governmental regulatory
body having jurisdiction over CCI or CCI's business and permit employees or
agents of the Purchasers at any reasonable time to inspect Company's properties,
and to examine or audit the Company's books, accounts and records and make
copies and memoranda thereof. In the event any properties, books, accounts or
records are in the possession of or under the control of a third party, CCI
shall direct and hereby authorize such third party to permit access to the
Purchasers' employees or agents for the purpose of performing the inspections,
appraisals, examinations or audits permitted under this Section, and to respond
to any reasonable requests from
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the Purchasers for information concerning the amount, status or condition of any
assets in a third party's possession or control.
Section 8. Affirmative Covenants.
Until payment in full of the Notes and the performance by CCI of all of its
other obligations hereunder, CCI shall, unless each Purchaser waives compliance
therewith in writing:
(a) Insurance. Insure and maintain insurance upon all of its assets
and business properties and public and product liability insurance with
responsible and reputable insurers of such character and in such amounts as are
usually maintained by companies engaged in like business.
(b) Payment of Taxes and Claims. Pay all taxes, assessments and other
governmental charges imposed upon its properties or assets or in respect of any
of its franchises, business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become due and payable or become a lien
or charge upon any of its properties or assets, provided that (unless any
material item of property would be lost, forfeited or materially damaged as a
result thereof) no such charge, tax, assessment or claim need be paid if the
amount, applicability or validity thereof is currently being contested in good
faith and if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor.
(c) Compliance with Laws. Comply in all material respects with all
applicable statutes, laws, ordinances and governmental rules, regulations and
orders including, but not limited to, all Environmental Laws, to which it is
subject or which are applicable to its business, properties and assets if
noncompliance therewith would materially adversely affect such business.
(d) Preservation of Existence. Preserve and maintain its corporate
existence, as the case may be, and its rights, franchises and privileges in the
jurisdiction of its incorporation and qualify and remain qualified as a foreign
corporation in each jurisdiction in which the failure to do so would have a
material adverse affect on the Company's financial condition or operations.
(e) Maintenance of Tangible Assets. Maintain its tangible assets in
good condition and repair in accordance with the requirements of its business
and shall not permit any action or omission which might materially impair the
value thereof, normal wear and tear excepted.
(f) Performance of Contracts. Perform and comply with, in accordance
with its terms, all material provisions of each and every material contract,
agreement or instrument now or hereafter binding upon it, except to the extent
it may contest the provisions thereof in good faith and by proper proceedings.
Section 9. Negative Covenants.
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Until payment in full of the Notes and the performance by CCI of all of its
other obligations hereunder, CCI shall not, unless the prior written consent of
each Purchaser is obtained:
(a) Prepayments. Pay any Indebtedness prior to its scheduled maturity
or scheduled payment date other than the Notes or the Senior Indebtedness.
(b) Liens. Grant, create, incur, assume, permit or suffer to exist any
Lien, upon any of its properties or assets, whether now owned or hereafter
acquired, except, to the extent not otherwise prohibited hereunder:
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings;
(ii) other Liens incidental to the conduct of its business or the
ownership of its property and assets which do not secure
Indebtedness and which do not in the aggregate materially
detract from the value of its property or assets or
materially impair the use thereof in the operation of its
business;
(iii) Liens on property or assets of a Subsidiary to secure
obligations of such Subsidiary to CCI or another Subsidiary;
(iv) Liens consisting of mortgages on the real property on which
the Phillips Schools are located and which are described on
Schedule 9(b)(iv), provided, that the obligations secured by
such mortgages are non-recourse (on terms satisfactory to
the Purchasers) to CCI or any other obligor;
(v) Liens in favor of the National Education Centers, Inc. on
the assets listed on Schedule 9(b)(v); and
(vi) Permitted Liens.
(c) Capital Expenditures. Make capital expenditures in any Fiscal Year
in an aggregate amount in excess of (i) $2,400,000 for the Fiscal Years ended
June 30, 1997 and 1998 and (ii) for each Fiscal Year thereafter, 2.2% of
Company gross revenues for the Fiscal Year immediately preceding the Fiscal Year
in which such capital expenditures is made.
(d) Leases. Except with respect to any lease of any real property,
enter into or permit to remain in effect any operating lease as lessee, other
operating leases the aggregate amount payable under which (i) for the Quarter
ending December 31, 1996, shall not exceed $300,000; (ii) for the two
consecutive Quarters ending March 3l, 1997, shall not exceed $600,000; (iii)
for the
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three consecutive Quarters ending June 30, 1997 shall not exceed $900,000; (iv)
for the four consecutive Quarters ending September30, 1997, shall not exceed
$1,200,000; and (v) for any four consecutive Quarters ending on the last day of
a Quarter ending after September 30, 1997, shall not exceed $1,200,000
multiplied by the Inflation Factor for such four Quarters.
(e) Loans, Advances and Investments. Make any loan, advance, or
capital contribution to, or investment in (including any investment in any
corporation, joint venture or partnership), or purchase or otherwise acquire any
of the Capital Stock, securities or evidences of indebtedness of, any Person
(collectively "Investment"), or otherwise acquire any interest in, or control
of, another Person, except for the following:
(i) Cash Equivalents;
(ii) Any acquisition of securities or evidences of indebtedness
of others when acquired by CCI in settlement of accounts
receivable or other debts arising in the ordinary course of
its business, so long as the aggregate amount of any such
securities or evidences of indebtedness is not material to
the business or condition (financial or otherwise) of CCI;
(iii) Make or permit to remain outstanding travel and other
advances to officers and employees of CCI in the ordinary
course of business; and
(iv) other loans, advances and investments (including loans,
advances and investments to or in Subsidiaries), provided
that the aggregate amount thereof, at original cost, at no
time exceeds $300,000.
(f) No Acquisition or Merger. Acquire by purchase or otherwise all or
substantially all of the assets or capital stock, in a single acquisition an
aggregate-amount greater than $250,000, and for all such acquisitions
consummated or committed to be consummated, or with respect to which CCI or a
Subsidiary has entered into an agreement to make such acquisition, in any twelve
consecutive Month period shall not exceed $1,000,000, of any Person. Merge or
consolidate with or into any Person, except that:
(i) Any Subsidiary may merge or consolidate with or into CCI,
provided that CCI is the continuing or surviving
corporation;
(ii) Any Subsidiary may merge or consolidate with or into another
Subsidiary; and
(iii) Subject to the provisions of Section 3 of the Warrant
Certificates, CCI may merge with any other solvent
corporation, provided that (A) CCI shall be the continuing
or surviving corporation and (B) no
28
<PAGE>
Event of Default exists or would exist immediately after
giving effect to such merger.
(g) Sale of Stock or Indebtedness of Subsidiaries. Sell or otherwise
dispose of, or part with control of, any shares of stock or Indebtedness of any
Subsidiary, except to CCI or another Subsidiary, and except that all shares of
stock and Indebtedness of any Subsidiary at the time owned by or owed to CCI and
all Subsidiaries may be sold as an entirety for a cash consideration which
represents the fair value (as determined in good faith by the Board of Directors
of CCI) at the time of sale of the shares of stock and Indebtedness sold;
provided, that (i) such sale or other disposition, if treated as a transfer of
assets of such Subsidiary, would be permitted by Section 9(j) and (ii) at the
time of such sale, such Subsidiary shall not own, directly or indirectly, any
shares of stock or Indebtedness of any other Subsidiary (unless all of the
shares of stock and Indebtedness of such other Subsidiary owned directly or
indirectly, by CCI and all Subsidiaries are simultaneously being sold as
permitted by this Section 9(g)).
(h) Sales and Leasebacks. Dispose of any of its assets except for
full, fair and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed or capital assets.
(i) Transfers, Liquidations and Dispositions of Substantial Assets.
Dissolve or liquidate or sell, transfer, lease or otherwise dispose of any
material portion of its property or assets or business, (other than Transfers by
a Subsidiary to CCI or any other Subsidiary incorporated under the laws of any
state of the United States) if at the time of such Transfer and immediately
after giving effect thereto:
(i) the greater of the aggregate net book value or fair market
value of all property Transferred during the twelve month
period prior to such Transfer exceeds $250,000 ; or
(ii) the Twelve Month Percentage of Net Income Capacity
Transferred exceeds 5%.
(j) Restricted Payments. CCI covenants that it shall not, and shall
not permit any Subsidiary to, make, pay or declare, or commit to make, pay or
declare, any Restricted Payment, other than:
(i) dividends paid in cash by CCI on the Class A Preferred,
provided that the dividend rate on the Class A Preferred
shall not exceed 6% (or to the extent shares of Class A
Preferred have not been optionally redeemed by CCI on or
prior to the fifth anniversary of the Closing Date, 12%);
29
<PAGE>
(ii) optional redemption of the Class A Preferred on or after
the fifth anniversary of the Closing Date;
(iii) mandatory redemption of the Class A Preferred if the
Company completes an Initial Public Offering;
(iv) repurchase Common Stock from employees of the Company
upon termination of employment pursuant to arrangements
approved by the Board of Directors; and
(v) Restricted Payments made by any Subsidiary to CCI
provided, however, that no Restricted Payment shall be declared, ordered, paid
or made, or committed for, nor shall any sum or property be set aside for any
Restricted Payment, unless at the time thereof and immediately after giving
effect thereto (i) no default or Event of Default is in existence and (ii) the
sum of all Restricted Payments made after June 30, 1996 does not exceed an
amount equal to the sum of(a) 40% (or, in the case of a loss or deficit, minus
100%) of Company Net Income for each Quarter ending after June 30, 1996 and
prior to the date of such proposed Restricted Payment and (b) all interest paid
on the Notes after June 30, 1996 and prior to the date of such proposed
Restricted Payment (including the proposed Restricted Payment if it is an
interest payment on the Notes).
(k) Business Activities. Engage in any business activities or
operations substantially different from or unrelated to its present business.
(l) Transactions with Affiliates. Enter into any transaction,
including without limitation, the purchase, sale or exchange of property or the
rendering of any services, with any affiliate or any partner, officer or
director thereof, enter into, assume or suffer to exist any employment or
consulting contract with any affiliate or any partner, officer or director
thereof or any former or current officer or director of CCI, except any
transaction or contract which is in the ordinary course of CCI's business and
which is upon fair and reasonable terms no less favorable to CCI than it would
obtain in a comparable arms-length transaction with a person not an affiliate.
(m) Compensation of Management Group. Make any payment (whether in
cash or other Property) to the Management Group (other than in Capital Stock of
CCI paid solely in connection with an incentive compensation plan approved by
the Board of Directors of CCI and advances and reimbursement for travel,
entertainment and other customary out-of-pocket expenses in reasonable amounts)
in an aggregate amount in excess of(i) $1,250,000 for the Fiscal Year ending
June 30, 1997 and (ii) for each Fiscal Year thereafter, an amount equal to the
product of (A) the amount permitted to be paid to the Management Group under
this paragraph for the immediately preceding Fiscal Year and (B) the greater of
1.05 and the Inflation Factor for the immediately preceding calendar year;
30
<PAGE>
(n) Change of Control. Without the prior written consent of each
Purchaser, permit a Change of Control, or permit at any time more than 70% of
the total issued and outstanding Common Stock to be owned by persons other than
the Management Group.
(o) Fiscal Year, Method of Accounting. Change its Fiscal Year or make
any material change in its method of accounting without prior written consent of
each Purchaser.
(p) ERISA Plans. Adopt or agree to maintain or contribute to any ERISA
Plan without the prior written consent of each Purchaser which consent shall not
be unreasonably withheld. The Company shall promptly notify each Purchaser in
writing in the event an ERISA Affiliate adopts and ERISA Plan.
(q) Change in Principal Office. Moves its principal office, executive
office or principal place of business without prior written notice to each
Purchaser.
Section 10. Financial Tests.
Until payment in full of the Notes and the performance by CCI of all its
obligations hereunder, CCI shall, unless each Purchaser waives compliance
therewith in writing, meet the following Financial Tests.
10.1 Quick Ratio. The ratio (expressed as a percentage) of the Company's
Quick Assets to Company current liabilities to be less than (i) 60% at any time
from the Closing Date through June 30, 1997; (ii) 65% at any time during the
Fiscal Year ending June 30, 1998; (iii) 120% at any time during the Fiscal Year
ending June 30, 1999; and (iv) 135% at any time after June 30, 1999.
10.2 Maximum Ratio of Senior Debt to Cash Flow. The ratio (expressed as a
percentage) of Company Senior Indebtedness as at the end of any Quarter to
Company Cash Flow for the four Quarter period ended at the end of such Quarter
to exceed (j) 330% from the Closing Date through September 30, 1997; (ii) 220%
from October 1, 1997 through September 30, 1998; (iii) 165% from October 1, 1998
through September 30, 1999; and (iv) 140% after September 30, 1999.
10.3 Maximum Ratio of Senior Debt to Capitalization. The ratio (expressed
as a percentage) of Company Senior Indebtedness to Company Capitalization to
exceed:
(i) 83% at any time from the Closing Date through March 31, 1997;
(ii) 80% at any time from April 1, 1997 through September 30, 1997;
(iii) 80% at any time from October 1, 1997 through March 31, 1998;
(iv) 80% at any time from April 1, 1998 through September 30, 1998;
(v) 68% at any time from October 1, 1998 through March 31, 1999;
(vi) 58% at any time from April 1, 1999 through September 30, 1999;
(vii) 48% at any time from October 1, 1999 through September 30,
2000; and
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<PAGE>
(viii) 43% at all times after September 30, 2000.
10.4 Maximum Ratio of Total Indebtedness to Capitalization. The ratio
(expressed as a percentage) of Company total Indebtedness to Company
Capitalization to exceed:
(i) 95% at any time from the Closing Date through
September 30, 1997;
(ii) 90% at any time from October 1, 1997 through March 31,
1998;
(iii) 88% at any time from April 1, 1998 through September 30,
1998;
(iv) 70% at any time from October 1, 1998 through
September 30, 1999;
and
(v) 60% at all times after September 30, 1999.
10.5 Minimum Ratio of Cash Flow and Operating Lease Payments to Fixed
Charges. The ratio (expressed as a percentage) of (i) the sum of Company Cash
Flow and Company Operating Lease Payments to (ii) Company Fixed Charges, in each
case for the four Quarter period ending at the end of any Quarter, to be less
than (a) 90% from the Closing Date through September 30, 1998, (b) 135% from
October 1, 1998 through September 30, 1999, and (v) 160% at any time after
September 30, 1999.
10.6 Maximum Ratio of EBIT and Operating Lease Payments to Interest Expense
and Operating Lease Payments. The ratio (expressed as a percentage) of (i) the
sum of EBlT and Company Operating Lease Payments to (ii) Company Interest
Expense and Company Operating Lease Payments, in each case for the four Quarter
period ending at the end of any fiscal quarter to be less than (a) 110% from the
Closing Date through September 30, 1997; (b) 125% from October 1, 1997 through
September 30, 1998; (c) 145% from October 1, 1998 through September 30, 1999;
(d) 158% from October 1, 1999 through September 30, 2000; and (e) 180% after
September 30, 2000.
10.7 Minimum Company Cash Flow. Company Cash Flow From Operations for the
Fiscal Year set forth below to be less than the amount set forth in the table
opposite such Fiscal Year:
<TABLE>
<CAPTION>
Minimum Company
Fiscal Year Cash Flow From Operations
----------- -------------------------
<S> <C>
1997 $675,000
1998 $5,700,000
1999 $8,200,000
2000 $10,350,000
2001 and each Fiscal $11,250,000
Year thereafter
</TABLE>
32
<PAGE>
For purposes of determining the Company's compliance with paragraphs 10.2,
10.4 and 10.5, (i) the Company may include the financial results of the Phillips
Schools as though the Phillips Schools had been acquired by the Company on July
1, 1996 and (ii) prior to June 30, 1997, the Company may annualize the financial
results of the Quarters ending prior to such date and after the Closing Date.
Section 11. Events of Default.
The occurrence of any of the following events shall, at the option of
either Purchaser, constitute an Event of Default ("Event of Default") hereunder
and under the Notes:
(a) Failure to Pay. The Company fails to pay, within two (2) Business
Days of the date when due, any installment of interest or any other sum due
under this Agreement or the Notes in accordance with the terms hereof or
thereof;
(b) Put Option Default. The Company fails to purchase all the
Warrants, Warrant Shares, Purchase Shares, Exercised Warrant Shares or Purchased
Capital Stock required to be purchased by it upon the exercise of a Put Option.
(c) Breach of Representation or Warranty. Any representation or
warranty herein or in any agreement, instrument or certificate executed pursuant
hereto or in connection with any transaction contemplated hereby proves to have
been false or misleading in any material respect when made;
(d) Falsity of Information. Any financial or other information
delivered by CCI to the Purchasers proves to be false or misleading in any
material respect when delivered;
(e) Judgments. A final nonappealable judgment or judgments is or are
entered against CCI in the aggregate amount of Five Hundred Thousand Dollars
($500,000) or more on a claim or claims not covered by insurance;
(f) Failure to Pay Debts; Voluntary Bankruptcy. The Company fails to
pay its debts generally as they come due (or within any applicable grace or cure
periods), or files any petition, proceeding, case or action for relief under any
bankruptcy, reorganization, insolvency, or moratorium law, or any other law or
laws for the relief of, or relating to, debtors;
(g) Involuntary Bankruptcy. An involuntary petition is filed under
any bankruptcy or similar statute against CCI, or a receiver, trustee,
liquidator, assignee, custodian, sequestrator or other similar official is
appointed to take possession of the properties of CCI and such petition or
appointment is not dismissed within ninety (90) days;
33
<PAGE>
(h) Governmental Action. Any governmental regulatory authority takes
or institutes action which will materially adversely affect the condition,
operations or ability to pay CCI's obligations under this Agreement, the Notes
or any instrument or agreement required under this Agreement;
(i) Default of Other Financial Obligations. Any default occurs under
the Senior Credit Agreement, any agreement, note or document related to any such
agreement or any other agreement involving the borrowing of money or the advance
of credit to which CCI may be a party as obligor or guarantor, if such default
consists of the failure to pay any Indebtedness in an aggregate principal amount
greater than $500,000 when due or if such default gives to the holder of the
obligation concerned the right to accelerate such Indebtedness;
(j) Default Under Warrant Certificate or Other Agreement. The Company
breaches or defaults in any material respect under any of its obligations
contained in the Warrant Certificates or any other agreement with the
Purchasers;
(k) Financial Reporting Default. The Company fails for a period of
thirty (30) days after notice thereof to comply with the requirements of Section
7.
(l) Affirmative Covenants. The Company fails for a period of thirty
(30) days after written notice thereof to comply in any material respect with
any Affirmative Covenant.
(m) Negative Covenants. The Company fails to comply in any material
respect with any Negative Covenant (i) for a period of thirty (30) days after
written notice thereof with respect to any such breach that is subject to cure,
and (ii) with respect to any other such breach, and a Purchaser gives written
notice thereof.
(n) Financial Tests. The Company fails to comply with any Financial
Test and a Purchaser gives written notice thereof.
(o) Change in Ownership. The Management Group ceases to own 30% of
CCI's Outstanding Common Stock; and
(p) Other Breach Under Agreement. The Company breaches, or defaults in
any material respect under, any term, condition, provision, representation or
warranty contained in this Agreement not specifically referred to in this
Section, provided that with respect to any of the foregoing (other than (a), (g)
and (j)) that is capable of being cured, CCI have failed to cure the same within
thirty (30) days from the receipt of notice thereof from a Purchaser.
34
<PAGE>
Section 12. Consequences of Event of Default.
(a) If any Event of Default specified under Section 11, other than
subsections (g) and (h) hereof, shall occur and be continuing, the Purchasers
may, by written notice to CCI, declare the principal and interest accrued on the
Notes and all other obligations of CCI hereunder to be forthwith due and
payable, and the same shall thereupon become immediately due and payable,
without any other or further presentment, demand, protest, notice of default,
notice of intent to accelerate, notice of acceleration or other notice of any
kind, all of which are hereby expressly waived.
(b) If an Event of Default specified under subsections (g) and (h) of
Section 11 hereof shall occur, the unpaid balance of the principal and interest
accrued on the Notes and all other obligations of CCI hereunder shall be
immediately due and payable automatically without presentment, demand, protest,
notice of default, notice of intent to accelerate, notice of acceleration or
other notice of any kind, all of which are hereby expressly waived.
Section 13. Miscellaneous.
(a) No Implied Rights or Waivers. No notice to or demand on CCI in any
case shall entitle CCI to any other or further notice or demand in the same,
similar and other circumstances. Neither any failure nor any delay on the part
of a Purchaser in exercising any right, power or privilege hereunder or under
the Notes or Warrant Certificates shall operate as a waiver thereof, nor shall
a single or partial exercise thereof preclude any other or further exercise of
the same or the exercise of any other right, power or privilege.
(b) Modifications, Amendments or Waivers. The Company and the
Purchasers may from time to time enter into written agreements amending or
changing any provision of this Agreement or the rights hereunder or give waivers
or consents to a departure from the due performance of their obligations
hereunder provided that no departure from CCI's due performance of its
obligations hereunder shall be effective unless agreed to in writing by each
Purchaser.
(c) Expenses. The Company shall pay or cause to be paid and save the
Purchasers harmless against liability for the payment of all reasonable out-of-
pocket expenses, including counsel fees (including fees of BOCP II's outside
counsel and Legal Department not to exceed $25,000) and disbursements, incurred
or paid by the Purchasers in connection with (i) the due diligence inquiries,
negotiation, development, preparation, execution and performance of this
Agreement, the Notes, the Warrant Certificates and the related transactions;
(ii) any requested amendments, waivers or consents pursuant to the provisions
hereof and thereof; and (iii) the enforcement of this Agreement, the Notes, and
the Warrant Certificates, including such reasonable expenses as may be incurred
by the Purchasers in collection of the Notes.
35
<PAGE>
(d) Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.
(e) Entire Agreement. This Agreement including the Exhibits or
Schedules hereto, constitutes the entire agreement relating to the subject
matter hereof among the Parties hereto. Each Party acknowledges that no
representation, inducement, promise or agreement has been made, orally or
otherwise, by any other Party, or anyone acting on behalf of any other Party,
unless such representation, inducement, promise or agreement is embodied in this
Agreement expressly or by incorporation.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
(g) Severability. If any provision of this Agreement is held to be
invalid, void or unenforceable, the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
(h) Third Party Beneficiaries. The obligations of each Party under
this Agreement shall inure solely to the benefit of the other Parties, and no
other person or entity shall be a third party beneficiary of this Agreement.
(i) Rules of Construction. Unless otherwise specified, the following
rules shall be applied in construing the provisions of this Agreement.
(i) Terms that imply gender shall be construed to apply to all
genders.
(ii) References to Sections, Schedules and Exhibits refer to the
numbered Sections of, the Schedules of and the Exhibits
attached to this Agreement.
(iii) Headings to the various Sections of this Agreement are
included solely for purposes of reference and shall be
ignored in construing the provisions of this Agreement.
(iv) The Exhibits and Schedules attached to this Agreement are
incorporated herein by reference.
(v) "Herein", "hereto", "hereof" and words of similar import
refer to this Agreement.
(vi) The word "and" connotes "each and every", and the word "or"
connotes "any one or more".
36
<PAGE>
(vii) The word "including" connotes "including without
limitation".
(viii) Any reference to any law or regulation refers to that law
or regulation as amended from time-to-time after the date
of this Agreement and to the corresponding provision of any
successor law or regulation.
(ix) Any reference to any agreement or other document in this
Agreement refers to that agreement or other document as
amended from time-to-time after the date of this Agreement.
(x) The recitals included in this Agreement are the mutual
representations of the Parties and are a part of this
Agreement.
(j) Notices. Any notice or other communication required or permitted
to be made or given under this Agreement, shall be in writing and shall be
deemed to have been received by the Party to whom it is addressed: (i) on the
date indicated on the certified mail return receipt if sent by certified mail
return receipt requested; (ii) on the date actually received if hand delivered
or if transmitted by telefax (receipt of which is confirmed to sender); (iii)
three business days after such notice was deposited in the United States Mail
postage prepaid; or (iv) one business day after such notice was delivered to an
overnight delivery service, addressed, delivered or transmitted in each case as
follows:
PURCHASERS:
Banc One Capital Partners II, Ltd.
300 Crescent Court, Suite 1600
Dallas, Texas 75201
ATTENTION: Earle J. Bensing
Telephone: (214) 979-4343
Telefax: (214) 974-4355
With A Copy to:
Banc One Capital Corporation
150 East Gay Street, 24th Floor
Columbus, Ohio 43215
ATTENTION: General Counsel
Telephone: (614) 217-1100
Telefax: (614) 217-1217
Primus Capital Fund III Limited Partnership
1375 East Ninth Street
Suite 2700
37
<PAGE>
Cleveland, Ohio 44114
ATTENTION: Loyal W. Wilson
Telephone: (216) 621-2185
Telefax: (216) 621-4543
With A Copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
ATTENTION: Carter W. Emerson, Esq.
Telephone: (312) 861-2052
Telefax: (312) 861-2200
COMPANY:
Corinthian Colleges, Inc.
1932 East Deere Avenue, Suite 210
Santa Ana, California 92705-5735
ATTENTION: David G. Moore
Telephone: (714) 261-7606
Telefax: (714) 222-3529
With a Copy to:
O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660
ATTENTION: John D. Hudson, Esq.
Telephone: (714) 760-9600
Telefax: (714) 669-6994
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
(a) Assignment. Neither this Agreement nor any of the rights or duties
hereunder may be assigned by any Party without the prior written consent of each
of the other Parties, and any assignment attempted without such prior consent
shall be null and void.
38
<PAGE>
(b) Further Acts and Documents. Each of the Parties hereby agrees to
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
(c) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one in the same agreement.
39
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation
By /s/ David G. Moore
----------------------------
David G. Moore, President By
-----------------------------
Its: Authorized Signer
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
----------------------------
Loyal W. Wilson
Its President
----------------------------
39
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES INC. LTD.
By: BOCP Holdings Corporation
By
--------------------------- By
David G. Moore, President ---------------------------
Its: Authorized Signer
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
---------------------------
Loyal W. Wilson
Its President
--------------------------
39
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation
By /s/ David G. Moore
-------------------------
David G. Moore, President By
-------------------------------
Its: Authorized Signer
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By
-------------------------------
Loyal W. Wilson
Its
------------------------------
40
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation, Manager
By By /s/
------------------------- ------------------------------------
David G. Moore, President
Its: Authorized Signer
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By
------------------------------------
Loyal W. Wilson
Its
-----------------------------------
40
<PAGE>
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
THIS NOTE IS SUBJECT TO A SUBORDINATION AND STANDSTILL AGREEMENT DATED
OCTOBER 17,1996, BY AND AMONG OTHERS, THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, BOCP II, LIMITED LIABILITY COMPANY, BANCONE CAPITAL
PARTNERS II, LTD., PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP.
Subordinated Note
Due October 17,2004
$________________
Columbus, Ohio
October 17, 1996
This Subordinated Note (the "Note") is executed and delivered under and
pursuant to the terms of that certain Subordinated Note and Warrant Purchase
Agreement dated October 17, 1996, (the "Agreement") by and among Corinthian
Colleges, Inc. ("Company"), a Delaware corporation, as seller and Primus Capital
Fund III Limited Partnership ("Primus"), an Ohio limited partnership and
BancOne Capital Partners II, Ltd. ("BOCP II"), an Ohio limited liability
company, as purchasers.
The Company, together with its successors and assigns is referred to as
the "Maker." _______, together with its successors and assigns, is referred to
as the "Payee."
All defined terms not otherwise defined in this Note will have the
meanings ascribed to them in the Agreement.
FOR VALUE RECEIVED, the Maker promises to pay to the order of the Payee,
at the Payee's office at ________________, the principal amount of ________
Dollars ($____ ) on or before October 17, 2004
A-1
<PAGE>
Interest shall be calculated at a fixed rate of interest per annum equal
to twelve percent (12%) ("Interest Rate"). Interest shall be calculated on the
basis of the actual number of days elapsed over a year consisting of four
quarters each consisting of 90 days.
Interest on the unpaid principal balance hereof shall be due and payable
in arrears on December 31, 1996, and continuing on the last Business Day of each
quarter thereafter until payment in full of this Note; provided, however, that
whenever the last day of any such quarter would otherwise occur on a day other
than a Business Day (as defined in the Agreement), the last day of such quarter
shall be deemed to occur on the following Business Day.
Principal shall be payable in quarterly installments of $_____ beginning
October 17, 2000 with the remaining unpaid balance due October 17, 2004.
This Note may be prepaid in whole or in part in amounts of not less than
$100,000.
This Note will be subordinated to the Senior Indebtedness (as defined in
the Agreement) as provided for in the Subordination Agreement (as defined in the
Agreement).
All payments and prepayments to be made by the Maker in respect of
principal or interest on this Note shall be due at 1:30 p.m. Columbus, Ohio time
on the day when due and shall be made to the Payee in federal funds or other
immediately available lawful money of the United States of America. Whenever any
payment to be made hereunder shall be due other than on a Business Day, such
payment shall be made on the Business Day following the due date.
Any assignee of this Note shall take the same free and clear of all
offsets, counterclaims or defenses which are unrelated to this Note which the
Maker may otherwise have against the assignor of this Note and no such unrelated
counterclaim or defense shall be interposed or asserted by the Maker in any
action or proceeding brought by any such assignee under this Note and any such
right to interpose or assert any such unrelated offset, counterclaim or defense
in any such action or proceeding is hereby expressly waived by the Maker.
Time shall be of the essence in the performance of all obligations of
the Maker under this Note.
This Note is one of the Notes referred to in the Agreement. Reference is
made to the Agreement and Subordination Agreement for provisions for the
subordination of this Note with respect to the to indebtedness of the Maker to
the Senior Lender (as that term is defined in the Agreement) and the
acceleration of the maturity hereof, but neither this reference to the Agreement
and Subordination Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Maker to pay the principal of or
interest on this Note when due. All of the terms, conditions, covenants,
representations and warranties of the Agreement and the Subordination Agreement
are incorporated herein by reference as if the same were more fully set forth
herein.
A-2
<PAGE>
Upon the occurrence of an Event of Default as specified in the Agreement
or Subordination Agreement, the principal hereof and accrued interest hereon may
be declared to be and shall thereupon become forthwith due and payable, all as
provided in the Agreement and the Subordination Agreement.
To the extent permitted by law, the Maker waives presentment; protest
and demand; notice of protest, demand, dishonor and nonpayment; diligence in
collection.
If at any time the indebtedness evidenced by this Note is collected
through legal proceedings or this Note is placed in the hands of attorneys for
collection, the Maker hereby agrees to pay all reasonable costs and expenses
(including reasonable attorneys' fees) incurred by the holder of this Note in
collecting or attempting to collect such indebtedness.
This Note is made under and governed by the laws of the State of Ohio.
The Payee and the Maker, after consulting or having had the opportunity
to consult with counsel, knowingly, voluntarily and intentionally waive any
right either of them may have to a trial by jury in any litigation based upon or
arising out of this Note or any related instrument or agreement, or any of the
transactions contemplated by this Note, or any course of conduct, dealing,
statements (whether oral or written) or actions of either of them. Neither the
Payee nor the Maker shall seek to consolidate, by counterclaim or otherwise, any
action in which a jury trial has been waived with any other action in which a
jury trial cannot be or has not been waived. In the event of a dispute under
this Note, the parties hereby agree that exclusive jurisdiction and venue lies
in a court of competent jurisdiction in Franklin County, Ohio. These provisions
shall not be deemed to have been modified in any respect or relinquished by
either the Payee or the Maker except by a written instrument executed by both of
them.
WITNESS the due execution hereof with intent to be legally bound hereby.
CORINTHIAN COLLEGES, INC.
By:_________________________
David G. Moore, President
A-3
<PAGE>
EXHIBIT 10.29
AMENDMENT TO THE
SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
This is an Amendment dated November __, 1997 ("Amendment") to the
---------
Subordinated Note and Warrant Purchase Agreement dated October 17, 1996
("Agreement"), by and among Corinthian Colleges, Inc. ("Company"), Primus
--------- -------
Capital Fund III Limited Partnership ("Primus") and Banc One Capital Partners
------
II, LLC ("BOCP II"), as successor by merger to Banc One Capital Partners II,
-------
Ltd., pursuant to which (A) the Company issued and sold, and BOCP II purchased,
the Company's Subordinated Notes due October 17, 2004 in the original principal
amount of $4,000,000 ("BOCP Note"), and (B) the Company issued and sold, and
---------
Primus purchased, the Company's Subordinated Notes due October 17, 2004 in the
original principal amount of $1,000,000 ("Primus Note"). The BOCP Note and the
-----------
Primus Note are referred to collectively as the "Notes". BOCP II and Primus are
-----
referred to collectively as the "Purchasers" and individually as a
----------
("Purchaser").
---------
Unless otherwise defined herein, capitalized terms used herein which
are defined in the Agreement shall have the meanings as given in the Agreement.
Certain Defaults or Events of Default exist under the Agreement which
are more particularly described in Attachment A hereto (the Defaults and Events
------------
of Default described in Attachment A hereto being herein called the "Specified
------------ ---------
Defaults"). Subject to the satisfaction of the conditions set forth in Section 3
- -------- ---------
below and to the Company's agreement to the amendments to the Agreement and
Notes set forth below, the Purchasers are willing to waive the Specified
Defaults and agree to the amendments.
Pursuant to paragraph 13(b) of the Agreement, and subject to and
effective only upon the satisfaction of the conditions set forth in Section 3
---------
below, the Purchasers and the Company agree as follows:
Section 1. WAIVER OF DEFAULTS.
The Purchasers hereby waive the Specified Defaults through the
Effective Date (as hereinafter defined). Once effective, such waiver is intended
to be effective as of and retroactive to June 30, 1997, and in the case of the
Specified Default relating to Section 9(j)(v) of the Agreement, March 31, 1997.
1
<PAGE>
Section 2. AMENDMENTS TO THE AGREEMENT AND NOTES.
The Purchasers and the Company agree that the Agreement and the Notes be
amended as follows:
(a) Any reference to "Banc One Capital Partners II, Ltd." is amended
to refer to "Banc One Capital Partners II, LLC", the successor by merger to
Banc One Capital Partners II, Ltd.
(b) Any reference to "Class A Preferred", except as provided for in
this Amendment is amended to refer to "Class A Series 1 Preferred".
(c) The following definitions in the Agreement are deleted in their
entirety and replaced with the following:
1.7 "Agreement" means this Amended Subordinated Note and Warrant
Purchase Agreement originally dated as of October 17, 1996 and
amended November __, 1997.
1.66 "Maturity Date" means with respect to the Notes, October 17,
2005.
1.73 "Notes" means $4,000,000 aggregate principal amount
Subordinated Notes issued and sold by CCI to BOCP II and the
$1,000,000 aggregate principal amount of Subordinated Notes issued
and sold to Primus, pursuant to this Agreement, each due October 17,
2005, and "Note" means any one of such Notes. The Notes are in the
form of Exhibit A.
1.96 "Related Documents" means the Warrant Certificates, Rights
Agreements, the Registration Rights Agreement, and the Purchase
Agreement.
1.105 "Senior Credit Agreement" means the Note Purchase and Revolving
Credit Agreement by and between Prudential and CCI providing for the
issue and sale of $22,500,000 principal amount of Senior Notes and up
to $5,000,000 of Senior Advances, as amended November __, 1997,
including all extensions, renewals and refinancings thereof.
1.108 "Senior Notes" means the $22,500,000 aggregate principal amount
of 11.02% Senior Secured Term Notes due October 17, 2004, issued
pursuant to the Senior Credit Agreement, including all extensions,
renewals and refinancings thereof.
(d) The following definitions are added to Section 1:
"Class A Series 1 Preferred" means the 6% Redeemable Class A
Series 1 preferred stock, $1.00 par value, $100 liquidation
value.
2
<PAGE>
"Class A Series 2 Preferred" means the 6% Convertible Class
A Series 2 preferred stock, $1.00 par value, $100
liquidation value.
"Class A Series I Preferred" means the 6% Redeemable Class
A preferred stock, $1.00 par value, $100 liquidation value.
"Class A Preferred" means collectively the Class A Series 1
Preferred, the Class A Series 2 Preferred, and the Class A
Series 3 Preferred .
(e) Section 2.2(c) of the Agreement is deleted in its entirety and
replaced with:
(c) Interest Payment Dates. The Interest on each Note
----------------------
accrued through March 31, 1998 shall be due and payable on
October 18, 1998, the Interest on each Note accrued from
April 1, 1998 through September 30, 1998 shall be due and
payable on September 30, 1998, and thereafter Interest
shall be payable quarterly in arrears on the last Business
Day of each Quarter.
(f) Section 2.2(d) of the Agreement is deleted in its entirety and
replaced with:
(d) Principal Payments. The unpaid principal amount of the
------------------
Notes shall be due and payable pro-rata between the Notes
in quarterly installments of $281,250 beginning October
17, 2001, with the outstanding balance due on the Maturity
Date.
(g) Section 9(j) of the Agreement is deleted in its entirety and
replaced with the following:
Restricted Payments. CCI covenants that it shall not, and shall
-------------------
not permit any Subsidiary to, make, pay or declare, or commit to
make, pay or declare, any Restricted Payment, other than:
(a) dividends paid in cash by CCI on the Class A
Preferred, provided that the dividend rate on the
Class A Preferred shall not exceed 6% (or to the
extent shares of Class A Preferred have not been
optionally redeemed by CCI on or prior to the fifth
anniversary of the Closing Date, 12%);
(b) optional redemption of the Class A Preferred as
provided in the Second Restated Certificate of
Incorporation of the Company.
(c) mandatory redemption of the Class A Preferred as
provided in the Second Restated Certificate of
Incorporation of the Company;
3
<PAGE>
(d) repurchase Common Stock from employees of the
Company upon termination of employment pursuant to
arrangements approved by the Board of Directors;
and
(e) Restricted Payments made by any Subsidiary to CCI
provided, however, that no Restricted Payment shall be declared, ordered, paid
or made, or committed for, nor shall any sum or property be set aside for any
Restricted Payment, unless at the time thereof and immediately after giving
effect thereto (i) no default or Event of Default is in existence and (ii) the
sum of all Restricted Payments made after October 31, 1997 does not exceed an
amount equal to the sum of (a) 40% (or, in the case of a loss or deficit, minus
100%) of Company Net Income for each Quarter ending after September 30, 1997 and
prior to the date of such proposed Restricted Payment and (b) all interest paid
on the Notes after September 30, 1997 and prior to the date of such proposed
Restricted Payment (including the proposed Restricted Payment if it is an
interest payment on the Notes).
(h) Section 10 of the Agreement is deleted in its entirety and
replaced with the following:
Section 10. Financial Tests.
Until payment in full of the Notes and the performance by CCI of
all its obligations hereunder, CCI shall, unless each Purchaser
waives compliance therewith in writing, meet the following
Financial Tests.
10.1 Quick Ratio. The ratio (expressed as a percentage)
of the Company's Quick Assets to Company current liabilities to
be less than:
i. 55% at any time from October 31, 1997 through March 31,
2000;
ii. 75% at any time from April 1, 2000 through September 30,
2000; and
iii. 90% at all times after September 30, 2000.
10.2 Maximum Ratio of Senior Debt to Cash Flow. The ratio
(expressed as a percentage) of Company Senior Indebtedness as at
the end of any Quarter to Company Cash Flow (a) for the two
Quarter period ending December 31, 1997 to exceed 1,150%, (b) for
the three Quarter period ending March 31, 1998, to exceed 525%,
or (c) for the four Quarter period ended at the end of each
Quarter ending after March 31, 1998 to exceed (i) 400% from
April 1, 1998 through September 30, 1998; (ii) 275% from
October 1, 1998 through March 31, 1999; (iii) 225% from April 1,
1999 through June 30, 1999; (iv) 200% from July 1, 1999 through
September 30, 1999; and (v) 165% after September 30, 1999.
4
<PAGE>
10.3 Maximum Ratio of Senior Debt to Capitalization. The
ratio (expressed as a percentage) of Company Senior Indebtedness
to Company Capitalization to exceed:
i. 95% at any time from October 31, 1997 through June 30,
1998;
ii. 85% at any time from July 1, 1998 through September 30,
1998;
iii. 80% at any time from October 1, 1998 through March 31,
1999;
iv. 75% at any time from April 1, 1999 through September 30,
1999;
v. 65% at any time from October 1, 1999 through March 31,
2000;
vi. 60% at any time from April 1, 2000 through September 30,
2000, and
vii. 50% at all times after September 30, 2000.
10.4 Maximum Ratio of Total Indebtedness to
Capitalization. The ratio (expressed as a percentage) of Company
total Indebtedness to Company Capitalization to exceed:
i. 100% at any time from October 1, 1997 through
December 31, 1997;
ii. 100% at any time from January 1, 1998 through March 31,
1998;
iii 95% at any time from April 1, 1998 through December 31,
1998;
iv. 90% at any time from January 1, 1999 through June 30,
1999;
v. 85% at any time from July 1, 1999 through December 31,
1999;
vi. 70% at any time from January 1, 2000 through
September 30, 2000; and
vii. 65% at all times after September 30, 2000.
10.5 Minimum Ratio of Cash Flow and Operating Lease
Payments to Fixed Charges. The ratio (expressed as a percentage)
of (i) the sum of Company Cash Flow and Company Operating Lease
Payments to (ii) Company Fixed Charges, in each case for (A) the
two Quarter period ending December 31, 1997 to be less than 90%,
(B) the three Quarter period ending March 31, 1998 to be less
than 110% or (C) the four Quarter period ending at the end of any
Quarter ending after March 31, 1998 to be less than (a) 110%
through June 30, 1999 (b) 115% from July 1, 1999 through
September 30, 2000, (c) 135% from October 1, 2000 through
December 31, 2000 and (d) 150% at any time after December 31,
2000.
5
<PAGE>
10.6 Maximum Ratio of EBIT and Operating Lease Payments
to Interest Expense and Operating Lease Payments. The ratio
(expressed as a percentage) of (i) the sum of EBIT and Company
Operating Lease Payments to (ii) Company Interest Expense and
Company Operating Lease Payments, in each case for (A) the two
Quarter period ending December 31, 1997 to be less than 75%, (B)
the three Quarter period ending March 31, 1998 to be less than
95%, or (C) the four Quarter period ending after March 31, 1998
to be less than (a) 95% through June 30, 1998; (b) 110% from
July 1, 1998 through September 30, 1998; (c) 125% from October 1,
1998 through June 30, 1999; (d) 135% from July 1, 1999 through
March 31, 2000 and (e) 155% after March 31, 2000.
10.7 Minimum Company Cash Flow. Company Cash Flow From
Operations for the Fiscal Year set forth below to be less than
the amount set forth in the table opposite such Fiscal Year:
Fiscal Year Minimum Company
Ending June 30 Cash Flow From Operations
-------------- -------------------------
1998 ($1,100,000)
1999 $4,000,000
2000 $7,500,000
2001 $13,000,000
2002 and each
Fiscal Year thereafter $14,500,000
For purposes of determining the Company's compliance with
paragraphs 10.2, 10.4 and 10.5, (i) the Company may include the
financial results of the Phillips Schools as though the Phillips
Schools had been acquired by the Company on July 1, 1996 and (ii)
prior to June 30, 1997, the Company may annualize the financial
results of the Quarters ending prior to such date and after the
Closing Date.
(i) The Notes shall be amended to provide that the Interest on each
Note accrued through March 31, 1998 shall be due and payable on
October 18, 1998, the Interest on each Note accrued from April 1,
1998 through September 30, 1998 shall be due and payable on
September 30, 1998, and thereafter Interest shall be payable
quarterly in arrears on the last Business Day of each Quarter.
(j) The Notes shall be amended to provide that the payments of
principal shall begin on October 17, 2001, rather than
October 17, 2000.
(k) The Notes shall be amended to provide that the Maturity Date
shall be October 17, 2005 rather than October 17, 2004.
6
<PAGE>
Section 3. CONDITIONS TO EFFECTIVENESS.
The (i) amendment of the Note Purchase and Revolving Credit Agreement dated
as of October 17, 1996 ("Prudential Agreement") by and between the Company and
--------------------
The Prudential Insurance Company of America ("Prudential"), (ii) the purchase by
----------
Prudential of a common stock purchase warrant ("New Warrant"), (iii) the
-----------
amendment of the Term Note payable to Prudential ("Prudential Note"), (iv) the
---------------
purchase of preferred stock by the Purchasers pursuant to the Purchase Agreement
dated as of this date ("Purchase Agreement"), (v) the reissuance of the Notes,
------------------
(vi) the amendment of the Rights Agreement dated October 17, 1996 ("Rights
------
Agreement") by and among the Company the Purchasers and certain shareholders of
- ---------
the Company, and (vii) the amendment of the Amended and Restated Registration
Agreement dated October 17, 1996 ("Registration Agreement") by and among the
Company, the Purchasers and certain shareholders of the Company shall be deemed
to have occurred simultaneously. The effectiveness of the waivers and amendments
herein is subject to satisfaction of the following conditions (the date upon
which such conditions are satisfied being called the "Effective Date"):
--------------
(a) The Purchasers shall have received counterparts to this Amendment
executed by the Company.
(b) BOCP II shall have received an amended BOCP Note in the form of Exhibit
-------
A-1 hereto in the aggregate principal amount of $4,000,000, registered in the
- ---
name of BOCP II, dated the date as of which the last interest payment on the
BOCP Note has been made and duly executed and delivered by the Company, in
replacement for a like principal amount of the existing BOCP Note. Promptly
after the Effective Date BOCP II will mark the existing BOCP Note "Replaced" and
return it to the Company.
(c) Primus shall have received an amended Primus Note in the form of
Exhibit A-1 hereto in the aggregate principal amount of $1,000,000, registered
- -----------
in the name of Primus, dated the date as of which the last interest payment on
the Primus Note has been made and duly executed and delivered by the Company, in
replacement for a like principal amount of the existing Primus Note. Promptly
after the Effective Date Primus will mark the existing Primus Note "Replaced"
and return it to the Company.
(d) The Prudential Agreement shall have been executed and delivered.
(e) The Prudential Note shall have been amended and a replacement
Prudential Note issued.
(f) The Rights Agreement shall have been amended.
(g) The Registration Agreement shall have been amended.
(h) The Company's Restated Certificate of Incorporation shall have been
amended and
7
<PAGE>
restated in a manner satisfactory to the Purchasers, shall be in full force and
effect under the laws of Delaware as of the Effective Date as so amended and
shall not have been further amended or modified.
The representations and warranties of the Company contained in Section 3
---------
hereto shall be true on and as of the Effective Date after giving effect to the
waivers, amendments and other transactions contemplated by this Amendment, and,
after giving effect to such waivers, amendments and other transactions, there
shall exist no Default or Event of Default; no material adverse change in the
business, condition (financial or otherwise), operations or prospects of the
Company and its subsidiaries shall have occurred or, to the Company's best
knowledge, be threatened since August 31, 1997, except that in September 1997,
the Company received notice that the access of three of the Company's schools to
Title IV loan funds had been terminated because of noncompliance with cohort
default rate requirements, and the Company shall have delivered to the
Purchasers an Officer's Certificate, dated the Effective Date, to both such
effects.
The transactions contemplated by this Amendment shall not violate any
applicable law or governmental regulation and shall not subject the Purchasers
to any tax, penalty, liability or other onerous condition under or pursuant to
any applicable law or governmental regulation, and the Purchasers shall have
received such certificates or other evidence as may be requested to establish
compliance with this condition.
All corporate and legal proceedings and all instruments and agreements in
connection with the transactions contemplated by this Amendment shall be
reasonably satisfactory in form and substance to the Purchasers and its counsel,
and the Purchasers shall have received all information and copies of all
documents and papers, including records of corporate and governmental
proceedings, which the Purchasers may reasonably have requested in connection
therewith, such documents and papers when appropriate to be certified by proper
corporate or governmental authorities.
Section 4. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants as follows: (a) it has all necessary
power and authority to execute and deliver this Amendment and the instruments
delivered to the Purchasers hereunder; (b) the execution, delivery and
performance of this Amendment and the instruments delivered to the Purchasers
hereunder have been duly authorized by it; (c) this Amendment has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against it in accordance with the
terms, and, on the Effective Date, the Agreement, as amended hereby, and the
instruments delivered to the Purchasers hereunder shall have been duly executed
and delivered by the Company and will constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms; (d) the approval, execution, delivery and performance of the terms of
this letter amendment and the instruments delivered to the Purchasers hereunder
and the consummation of the transactions contemplated hereby do not violate any
contractual provision to which it is a party or by which it is or its properties
are
8
<PAGE>
bound or any law applicable to it; (e) all consents, notices, waivers and other
actions by or of the Company or any other Person that are necessary in
connection with the execution, delivery and performance by the Company of this
Amendment and the instruments delivered to the Purchasers hereunder and the
consummation by the Company of the transactions contemplated hereby have been
obtained or taken; and (f) after given effect to the foregoing waivers and
amendments and the transactions contemplated hereby no Default or Event of
Default will be in existence.
Section 5. MISCELLANEOUS.
(a) Upon the Effective Date, each reference in the Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be a reference to the Agreement as amended hereby and each reference to the
Agreement in the Notes shall mean and be a reference to the Agreement, as
amended hereby.
(b) This letter shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the internal law of the State of
Ohio.
(c) Except as specifically amended above, the Agreement, the Notes and the
other Related Documents shall remain in full force and effect and are hereby
ratified and confirmed. The execution, deliver and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as an
amendment to any provision of the Agreement or any other Related Document nor a
waiver of any right, power or remedy of any holder of a Note, nor constitute a
waiver of, or consent to any departure from, any provision of the Agreement, any
Note or any other Related Document. The willingness of the Purchasers to agree
to the waivers and amendments herein under the circumstances described herein
shall not be taken as a commitment by or an indication of a standard for
willingness of the Purchasers to grant waivers or agree to amendments under the
same or similar circumstances.
(d) This Amendment may be executed by one or more of the parties to this
Amendment on any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
9
<PAGE>
WITNESS the due execution hereof with intent to be legally bound hereby.
PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By
-----------------------------
Loyal W. Wilson
Its
-----------------------------
BANC ONE CAPITAL PARTNERS II, LLC
By: Banc One Capital Partners Holdings, Ltd., Manager
By: BOCP Holdings Corporation, Manager
By
-----------------------------
Its: Authorized Signer
CORINTHIAN COLLEGES, INC.
By: /s/ Frank J. McCord
------------------------------
Name: Frank J. McCord
---------------------------
Title: Vice President & Treasurer
--------------------------
<PAGE>
WITNESS the due execution hereof with intent to be legally bound hereby.
PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By
---------------------------------------
Loyal W. Wilson
Its
---------------------------------------
BANC ONE CAPITAL PARTNERS II, LLC
By: Banc One Capital Partners Holdings, Ltd., Manager
By: BOCP Holdings Corporation, Manager
By /s/ Earle J. Bensing
-----------------------------------------
Its: Authorized Signer
CORINTHIAN COLLEGES, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE>
WITNESS the due execution hereof with intent to be legally bound hereby
PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP
By : Primus Venture Partners, Inc.
By /s/ Loyal W. Wilson
-----------------------------------------
Loyal W. Wilson
Its President
-----------------------------------------
BANC ONE CAPITAL PARTNERS II LLC
By: Banc One Capital Partners Holdings Ltd., Manager
By: BOCP Holdings Corporation, Manager
By:
--------------------------------------------
Its: Authorized Signer
CORINTHIAN COLLEGES, INC.,
By:
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
<PAGE>
Attachment A
SPECIFIED DEFAULTS
- --------------------------------------------------------------------------------
Section Description Date of Default
- --------------------------------------------------------------------------------
7.1(a) Annual Financial Statements September 30, 1997
- --------------------------------------------------------------------------------
9(j)(v) Restricted Payments March 31, 1997
- --------------------------------------------------------------------------------
10.1 Quick Ratio June 30, 1997
- --------------------------------------------------------------------------------
10.2 Maximum Ratio of Senior Debt to June 30, 1997 and
Cash Flow continuing
- --------------------------------------------------------------------------------
10.3 Maximum Ratio of Senior Debt to June 30, 1997 and
Capitalization continuing
- --------------------------------------------------------------------------------
10.4 Maximum Ratio of Total Indebtedness June 30, 1997 and
to Capitalization continuing
- --------------------------------------------------------------------------------
10.5 Minimum Ratio of Cash Flow and June 30, 1997 and
Operating Lease Payments to continuing
Fixed Charges
- --------------------------------------------------------------------------------
10.6 Maximum Ratio of EBIT and Operating June 30, 1997 and
Lease Payments to Interest Expense continuing
and Operating Lease Payments
- --------------------------------------------------------------------------------
11(a) Event of Default - Failure to Pay June 30, 1997 and
continuing
- --------------------------------------------------------------------------------
11
<PAGE>
EXHIBIT 10.30
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE,
AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR
OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND
LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE ISSUER OR A NO-
ACTION LETTER FROM THE COMMISSION STATING THAT SUCH DISTRIBUTION, SALE,
TRANSFER, ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS PRELIMINARY REQUIREMENTS OF SUCH ACT AND LAWS.
-------------------------
CORINTHIAN COLLEGES, INC.
WARRANT CERTIFICATE
CLASS A COMMON STOCK PURCHASE WARRANT
-------------------------
DATED AS OF OCTOBER 17, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<C> <S> <C>
SECTION 1. DEFINITIONS............................................. 1
SECTION 2. DURATION AND EXERCISE OF WARRANT........................ 8
2.1 WARRANT EXERCISE PERIOD............................ 8
2.2 MANNER OF EXERCISE................................. 8
2.3 WHEN EXERCISE EFFECTIVE............................ 8
2.4 DELIVERY OF STOCK CERTIFICATES, ETC................ 8
SECTION 3. ANTIDILUTION ADJUSTMENT................................. 8
3.1 NUMBER OF WARRANT SHARES........................... 8
3.2 ADJUSTMENT EVENT................................... 8
3.3 REORGANIZATION EVENT............................... 9
3.4 OTHER EVENT........................................ 9
3.5 RIGHTS OFFERING.................................... 9
3.6 PREEMPTIVE RIGHTS.................................. 9
SECTION 4. RESTRICTIONS ON TRANSFER................................ 10
4.1 RESTRICTIVE LEGENDS................................ 10
4.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL... 10
SECTION 5. AVAILABILITY OF INFORMATION............................. 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 6. RESERVATION OF STOCK, ETC................................. 11
SECTION 7. DUE ORGANIZATION; NO VIOLATION............................ 11
SECTION 8. ISSUANCE OF COMMON STOCK; COMPANY'S REPRESENTATION........ 12
SECTION 9. OWNERSHIP; REGISTRATION OF TRANSFER; EXCHANGE AND
SUBSTITUTION OF WARRANT.................................. 12
9.1 OWNERSHIP OF WARRANT............................... 12
9.2 REGISTRATION OF TRANSFERS.......................... 12
9.3 REPLACEMENT OF WARRANT CERTIFICATE................. 13
9.4 EXPENSES........................................... 13
SECTION 10. REGISTRATION RIGHTS...................................... 13
SECTION 11. PUT OPTION............................................... 13
SECTION 12. NO RIGHTS OR LIABILITIES AS STOCKHOLDER.................. 13
SECTION 13. NOTICES.................................................. 13
SECTION 14. MISCELLANEOUS............................................ 14
SECTION 15. EXPIRATION............................................... 14
SECTION 16. ASSIGNMENT............................................... 14
</TABLE>
ii
<PAGE>
WARRANT CERTIFICATE
Dated as of October 17, 1996
This certifies that, for value received, PRIMUS CAPITAL FUND III LIMITED
PARTNERSHIP (the "Holder"), an Ohio limited partnership, is entitled, subject to
the terms set forth below, to purchase from CORINTHIAN COLLEGES, INC. (the
"Company"), a Delaware corporation in a single exercise 806.45 shares of the
Class A Voting Corinthian Stock, $.01 par value ("Class A Common"), of the
Company at the principal office of the Company, with the Notice of Exercise
attached hereto duly executed, and simultaneous payment therefor in lawfull
money of the United States or otherwise as hereinafter provided, for the
aggregate purchase price of $100 ("Price").
This Warrant is being issued by the Company pursuant to the Subordinated
Note and Warrant Purchase Agreement dated as of the date hereof, by and between
the Company, as seller, and Banc One Capital Partners II, Ltd. an Ohio limited
liability company ("BOCP II") and the Holder, as purchasers ("Purchase
Agreement").
SECTION 1. DEFINITIONS.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings (the definitions to be applicable to both
the singular and the plural forms of the terms defined where either such form is
used in this Warrant).
1.1 "Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Original Issue Date other than Warrant
Shares and shares issued under the Company's employee stock option plans.
1.2 "Adjusted Permitted Indebtedness" means, as determined as of any
date (i) the aggregate principal amount of all Permitted Indebtedness, excluding
(ii) the aggregate principal amount of the Senior Indebtedness outstanding as of
such date of determination.
1.3 "Adjustment Event" means any of the following events (except if
such event also constitutes a Preemption Offering, under which circumstances
this Section 1.3 and Sections 3.1 through 3.5 shall not apply):
(i) the Company declares a dividend or makes a distribution on
its Outstanding Common Stock in Common Stock or Convertible
Securities, or
(ii) the Company subdivides or reclassifies any of its
outstanding Common Stock into a greater number of shares,
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(iii) the Company combines or reclassifies any of its outstanding
Common Stock into a smaller number of shares.
1.4 "Affiliate" shall have the meaning set forth in the Purchase
Agreement.
1.5 "BOCP II" means Banc One Capital Partners II, Ltd, an Ohio
limited liability company, together with its successors and assigns.
1.6 "Business Day" means, any day other than a Saturday, Sunday or
day upon which banking institutions are authorized or required by law or
executive order to be closed in the City of Columbus, Ohio.
1.7 "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents however designated) of corporate
stock, including each class of common stock and preferred stock of such Person
or partnership interests and any warrants, options or other rights to acquire
such stock or interests.
1.8 "Capitalized Earnings Amount" means, as of any date of
determination, an amount equal to five (5) times EBITDA (i) reduced by (A) an
amount sufficient to pay in full all of the then outstanding Adjusted Permitted
Indebtedness (including all accrued but unpaid interest with respect thereto),
and (B) an amount equal to the total amount expended or incurred (including the
full amount capitalized under capital leases) for the acquisition of fixed or
capital assets as reflected on the most recent Financial Statements for the
twelve-month period ended immediately prior to any such date of determination,
and (ii) increased by the average amount of cash and marketable securities
reflected on the most recent Financial Statements of the Company as of the date
of determination.
1.9 "Change of Control" means (i) an event or series of events by
which any Person or Persons or other entities acting in concert as a partnership
or other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of the Company, (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less than
a majority of the combined Voting Power of the Person surviving the transaction,
or (iii) the direct or indirect, sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any Person or Group of
Persons.
1.10 "Class A Common" means the shares of voting common stock, $.0l
par value, of the Company at any time outstanding.
1.11 "Class A Preferred" means any shares of Capital Stock of the
Company ranking senior to the Common Stock with respect to dividends or
liquidation including, without
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limitation, the shares of 6% Redeemable Class A Preferred Stock, $1.00 par
value, $100 liquidation value, of the Company.
1.12 "Class B Common" means the shares of nonvoting common stock,
$.01 par value of the Company at any time outstanding.
1.13 "Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
1.14 "Company" means Corinthian Colleges, Inc., a Delaware
corporation, and includes any corporation which shall succeed to or assume the
obligations of the Company.
1.15 "Common Stock" means the shares of Class A Common and Class B
Common treated as a single class of stock, at any time outstanding.
1.16 "Convertible Securities" means evidences of indebtedness, shares
of stock or other securities that are convertible into or exchangeable for, with
or without payment of additional consideration in cash or property, or options,
warrants or other rights that are exercisable for, shares of Common Stock that,
when issued, would constitute Additional Shares of Common Stock, either
immediately or upon the occurrence of a specified date or a specified event, but
excluding the shares of Common Stock issuable upon exercise of the Warrants.
1.17 "Disposition" means (i) a merger, consolidation or other
business combination in which the Company is the surviving entity and the
Company's stockholders receive cash or non-cash consideration in exchange for or
in respect of their shares of Capital Stock of the Company or (ii) the sale,
lease, conveyance, transfer or other disposition (other than the grant of a
security interest) in any single transaction or series of related transactions
of all or substantially all of the assets of the Company.
1.18 "EBITDA" means, as determined as of any date, earnings of the
Company (as reflected on the most recent Financial Statements) for the twelve-
month period ended immediately prior to any such date of determination
determined excluding all amounts expensed as reflected on such Financial
Statements during such twelve-month period with respect to (i) interest expense
with respect to Permitted Indebtedness, (ii) federal and state income tax
expense, (iii) depreciation expense, and (iv) amortization expense.
1.19 "Event of Default" shall have the meaning set forth in the
Purchase Agreement.
1.20 "Financial Statements" means the Annual Financial Statements,
Quarterly Financial Statements and Monthly Financial Statements (all as defined
in the Purchase Agreement), as applicable, of the Company.
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1.21 "Group of Persons" is defined in Section 1.10 hereof.
1.22 "Holder" means Primus Capital Fund III Limited Partnership, an
Ohio limited partnership, together with its successors and assigns.
1.23 "Indebtedness" means, with respect to the Company, as of any
date of determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.24 "Initial Public Offering" means the first offer and sale to the
public by the Company or any holders of shares of any class of its Capital
Stock, pursuant to a registration statement that has been declared effective by
the Commission; provided, however, that the gross proceeds of the shares issued
and sold by the Company are at least $20,000,000.
1.25 "LLC" means BOCP II, Limited Liability Company, an Ohio limited
liability company and successor by merger to Banc One Capital Partners II,
Limited Partnership, together with its successors and assigns.
1.26 "Non-Surviving Combination" means any merger, consolidation or
other business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity.
1.27 "Notes" means the Subordinated Note due October 17, 2004, in the
principal amount of $4,000,000 issued and sold to BOCP II, and the Subordinated
Note due October 17, 2004, in the principal amount of $1,000,000 issued and sold
to the Holder by the Company pursuant to the terms of the Purchase Agreement.
1.28 "Number of Warrant Shares" shall have the meaning set forth in
Section 3.1.
1.29 "Original Issue Date" means the date on which this Warrant and
the Notes were first issued pursuant to the Purchase Agreement.
1.30 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable
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under the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date shall be adjusted in accordance with the "treasury stock" method determined
under generally accepted accounting principles pursuant to Accounting Principles
Board Opinion 15.
1.31 "Permitted Indebtedness" means, as of any date of determination
the aggregate principal amount of all Indebtedness of the Company outstanding as
of such date of determination, but only to the extent that the principal amount
of such Indebtedness does not exceed the amounts permitted under the Purchase
Agreement.
1.32 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, estate, unincorporated organization
or government or any agency or political subdivision thereof.
1.33 "Preemption Offering" means any proposed issuance and sale by
the Company after the Original Issue Date and prior to the date of the Initial
Public Offering of any shares of Common Stock or any Convertible Securities
other than the following:
(i) the issuance of the Warrant Shares subject to this Warrant
and shares of Common Stock subject to the other warrants;
(ii) the issuance or sale of Common Stock pursuant to a
rights offering in which the holder hereof elects to
participate under the provisions of Section 3.5; or
(iii) the issuance or sale of Common Stock or Convertible
Securities in connection with the acquisition by the
Company of a business, which issuance or sale has been
approved by a unanimous vote of the Board of Directors
of the Company.
1.34 "Price" means One Hundred Dollars ($100), which is the exercise
price for all of the Warrant Shares subject to this Warrant.
1.35 "Prior Warrant Shares" means the 5,000 shares of Class B Common
purchased by LLC and the 1,250 shares of Class A Common purchased by the Holder
upon exercise of the Prior Warrant Certificates. The Prior Warrant Shares
represent 4.3% of the Outstanding Common Stock.
1.36 "Prior Purchase Agreement" means the Subordinated Secured Note
and Warrant Purchase Agreement dated June 30, 1995 by and among the Company, as
seller and LLC and the Holder, as purchasers.
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1.37 "Prior Warrant Certificates" means the warrant certificates
issued to LLC and Primus pursuant to the Prior Purchase Agreement.
1.38 "Prudential" means The Prudential Insurance Company of America,
together with its successors and assigns.
1.39 "Prudential Warrant" means the warrant issued to Prudential
pursuant to the Senior Credit Agreement.
1.40 "Purchase Agreement" means the Subordinated Note and Warrant
Purchase Agreement, dated as of the date hereof among the Company, as seller and
BOCP II and the Holder, as purchasers.
1.41 "Purchase Shares" means, as of any date of determination, any
shares of Common Stock purchased by the Holder prior to such date of
determination pursuant to the exercise of its rights under Section 3.5 or
Section 3.6 hereof, or directly from the Company in any other transaction after
the Original Issue Date. For purposes of this definition, Purchase Shares shall
include any shares of Common Stock issuable upon the conversion of any
Convertible Securities purchased by the Holder pursuant to the exercise of its
rights under Section 3.5 and Section 3.6 hereof.
1.42 "Redemption Price" means the liquidation value with respect to
the Class A Preferred plus all accrued and unpaid dividends.
1.43 "Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement dated as of the date hereof by and among the
Company, Prudential, BOCP II, LLC, certain Executives (as defined therein) of
the Company and the Holder.
1.44 "Reorganization Event" means any of the following events:
(i) capital reorganization or reclassification or
recapitalization of the Capital Stock of the Company
(other than any Adjustment Event);
(ii) any merger or consolidation of the Company with or into
another corporation; and
(iii) the sale or transfer of the property of the Company as
an entirety or substantially as an entirety.
1.45 "Restricted Securities" means (a) any Warrant bearing the
applicable legend set forth in Section 4.1, (b) any Warrant Shares which are
evidenced by a certificate or certificates bearing the legend set forth in
Section 4.1, and (c) unless the context otherwise requires, any shares of Common
Stock which are at the time issuable upon the exercise of any Warrant and which,
when so issued, will be evidenced by a certificate or certificates bearing the
legend set forth in section 4.1.
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1.46 "Rights Agreement" means the Rights Agreement dated as of the
date hereof by and among the Company, BOCP II, LLC, the Holder and certain
Executives (as defined therein) of the company.
1.47 "Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute replacing said statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.48 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar Federal statute replacing said statute, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
1.49 "Senior Credit Agreement" shall have the meaning set forth in
the Purchase Agreement.
1.50 "Senior Indebtedness" means (i) loans outstanding under the
Credit Agreement dated as of October 17, 1996 between the Company and
Prudential, as modified, amended, restated, renewed or extended from time to
time and (ii) any extension, renegotiation or refinancing of such loans with
Prudential or any other lender; provided, however, that, in any event, for
purposes of this Warrant, the aggregate outstanding principal amount of the
Senior Indebtedness shall be deemed not to exceed $22,500,000.
1.51 "Stock Purchase Agreement" means the Purchase Agreement dated
June 30, 1995 by and among the Company, LLC and the Holder.
1.52 "Transfer" means with respect to any Restricted Securities, any
sale, assignment, pledge or other disposition thereof, or of any interest
therein, which could constitute a "sale" thereof, as that term is defined in
Section 2(3) of the Securities Act.
1.53 "Voting Power" of any Person means the aggregate number of votes
of all classes of Capital Stock of such Person which ordinarily has voting power
for the election of the Board of Directors or their equivalents of such Person.
1.54 "Warrant Exercise Expiration Date" means that date which is the
earliest of (i) the time immediately prior to the completion by the Company of
an Initial Public Offering, (ii) the date on which a Disposition Or Non-
Surviving Combination is consummated, and (iii) October 30, 2005.
1.55 "Warrant" mean this Warrant.
1.56 "Warrant Shares" means the shares of Class A Common issuable
upon exercise of this Warrant.
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SECTION 2. DURATION AND EXERCISE OF WARRANT.
2.1 WARRANT EXERCISE PERIOD. This Warrant shall be exercisable in a
single exercise at any time after the date hereof and on or before the Warrant
Exercise Expiration Date.
2.2 MANNER OF EXERCISE. This Warrant may be exercised by the Holder
in a single exercise upon surrender of this Warrant and Notice of Exercise
attached hereto duly completed and executed on behalf of the Holder, at the
principal office of the Company (or at such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company), upon payment of the Price by
delivery of a certified or cashier's check to the Company. The Holder may, in
lieu of paying the Price by delivery of a certified or cashier's check to the
Company, reduce the unpaid principal amount of the Note by an amount equal to
the funds which would otherwise have been delivered.
2.3 WHEN EXERCISE EFFECTIVE. Subject to the requirements of any state
or federal finance company licensing laws or regulations to which the Company
may be subject, the exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the Business Day on which
this Warrant shall have been surrendered and the Company receives payment of the
Price as provided in Section 2.2, and immediately prior to the close of business
on such Business Day the Holder shall be deemed to have become the holder of
record of the Warrant Shares.
2.4 DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after
the exercise of this Warrant, and in any event within five (5) Business Days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction (calculated to the nearest 1/100th of a share)
of one full share of Common Stock based on the Capitalized Earnings Amount on
the Business Day next preceding the date of such exercise.
SECTION 3. ANTIDILUTION ADJUSTMENT.
3.1 NUMBER OF WARRANT SHARES. The number of Warrant Shares that may
be purchased by the Holder in consideration of the payment of the Price is
initially 806.45 shares of Class B Common; provided, however, that such number
of shares is subject to adjustment as provided for in this Section 3, which
number of Warrant Shares, as so adjusted from time, to time is referred to as
the "Number of Warrant Shares." The Price is not subject to adjustment.
3.2 ADJUSTMENT EVENT. Upon the occurrence of any Adjustment Event,
the Number of Warrant Shares shall be adjusted immediately after the applicable
record date with respect to such Adjustment Event as follows. The adjusted
Number of Warrant Shares shall be a
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number equal to the Number of Warrant Shares immediately prior to such event
multiplied by a fraction (i) the numerator of which is the number of shares of
Outstanding Common Stock immediately after the record date with respect to such
Adjustment Event, and (ii) the denominator of which is the number of shares of
Outstanding Common Stock immediately before such record date. Any such
adjustment shall be calculated to the nearest 0.001 Warrant Share.
3.3 REORGANIZATION EVENT. Upon the occurrence of a Reorganization
Event, there shall thereafter be issuable or deliverable upon the exercise of
this Warrant (in lieu of the Warrant Shares), as appropriate, the number of
shares of stock, other securities or property to which the Holder of the number
of shares of Common Stock equal to the Number of Warrant Shares at the date of
the Reorganization Event would have been entitled to as a result of such
Reorganization Event.
Prior to and as a condition of the consummation of any Reorganization
Event, the Company shall cause effective provisions to be made to effect the
purposes of this Section 3.3, including, if appropriate, an agreement among the
Company, any successor to the Company and the Holder.
3.4 OTHER EVENT. In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof, then the
Holder may request in writing within one hundred twenty (120) days after the
occurrence of such event that the Company examine the propriety of an adjustment
to the Number of Warrant Shares. Unless the Company and the Holder shall have
mutually agreed upon an adjustment, or that no adjustment is required, within
thirty (30) days after the receipt of such request, the Company shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regularly engaged accountants of the Company), to give an
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in this Section 3, necessary to preserve, the
purchase rights represented by this Warrants. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. If such opinion states that no
such adjustment is necessary, the Holder hereof shall reimburse the Company for
one-half of the cost and expense of such opinion.
3.5 RIGHTS OFFERING. In the event the Company shall effect an
offering of Common Stock or Convertible Securities pro rata among its
stockholders, the Holder shall be entitled, at its option, to elect to
participate in each and every such offering as if this Warrant had been
exercised and such holder were, at the time of any such rights offering, then
a Holder of that number of shares of common stock to which such holder is then
entitled on the exercise hereof.
3.6 PREEMPTIVE RIGHTS. The preemptive rights with regard to the
Warrants, Warrant Shares and Purchase Shares, if any, are contained in the
Rights Agreement.
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3.7 SPECIAL ADJUSTMENT. If on or before October 17, 1998, the
aggregate number of shares of Class A Common which the Holder is entitled to
purchase upon exercise under that certain Stock Subscription Warrant dated as of
October 17, 1996, issued by the Company to The Prudential Insurance Company of
America is reduced by as provided for in (SEC)3A(3)(i) thereof, then the Number
of Warrant Shares that may be purchased by the Holder upon the exercise of this
Warrant shall be reduced by one Warrant Share (or fraction thereof) for each
158.35 share reduction under such (SEC)3A(3)(i).
SECTION 4. RESTRICTIONS ON TRANSFER.
4.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Section 4, this Warrant and each Warrant issued in exchange or substitution for
any Warrant, and each Warrant issued upon the registration of transfer of any
Warrant and each certificate representing Warrant Shares and each certificate
issued upon the registration of transfer of any Warrant Shares, shall be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED,
HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION
STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR THE ISSUER
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER FROM THE
COMMISSION INDICATING THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT,
HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS."
4.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to any
transfer of any Restricted Securities, the Holder will give written notice to
the Company of the Holder's intention to effect such transfer and to comply in
all other respects with this Section 4.2. Each such notice of a proposed
transfer (a) shall describe the manner and circumstances of the proposed
transfer in sufficient detail to enable counsel to render the opinion referred
to below, and (b) shall designate counsel for the Holder. The Holder will submit
a copy thereof to the counsel designated in such notice and the Company will
promptly submit a copy thereof to its counsel. The following provisions shall
then apply:
(i) If in the opinion of counsel to the Company the proposed
transfer may be effected without registration of such
Restricted Securities under the Securities Act, the Company
will promptly notify the Holder and the Holder shall
thereupon be entitled to transfer such Restricted
Securities in accordance with the terms of the notice
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delivered by the Holder to the Company. Each Warrant or
certificate, if any, issued upon or in connection with such
transfer shall bear the restrictive legend set forth in
section 4.1, unless in the opinion of such counsel such
legend is no longer required to ensure compliance with the
Securities Act. If for any reason counsel for the Company
(after having been furnished with the information required
to be furnished by clause (a) of this Section 4.2) shall
fail to deliver an opinion to the Company, or the Company
shall fail to notify the Holder as aforesaid, within thirty
(30) days after receipt of notice of the Holder's intention
to effect a transfer, then for all purposes of this Warrant
the opinion of counsel for the Holder shall be sufficient
to authorize the proposed transfer and the opinion of
counsel for the Company shall not be required in connection
with such proposed transfer; and
(ii) If in the opinion of counsel to the Company the proposed
transfer may not be effected without registration of such
Restricted Securities under the Securities Act, the Company
will promptly so notify the Holder and the Holder shall not
be entitled to transfer such Restricted Securities until
receipt of a further notice from the Company under clause
(i) above or until registration of such Restricted
Securities under the Securities Act has become effective.
SECTION 5. AVAILABILITY OF INFORMATION.
Within ninety (90) days after a registration statement under the Securities
Act is declared effective with respect to an Initial Public Offering, the
Company will comply with the reporting requirements of Sections 13 and 15(d) of
the Securities Exchange Act insofar as they are applicable to the Company and
will comply with all other public information reporting requirements of the
Commission (including the requirements of Rule 144 promulgated by the Commission
under the Securities Act) from time to time in effect and relating to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities or the sale of securities by Affiliates. The Company will
also cooperate with the Holder at the Holder's expense to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Restricted Securities or the sale of securities by Affiliates.
SECTION 6. RESERVATION OF STOCK, ETC.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant and free from preemptive
rights, sufficient number of shares of Common Stock to cover the Warrant Shares
issuable upon the exercise of this Warrant. All such shares shall be duly
authorized and, when issued upon such exercise, shall be validly issued, fully
paid and non-assessable with no liability on the part of the holders thereof.
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SECTION 7. DUE ORGANIZATION; NO VIOLATION.
7.1 The Company shall at all times be a corporation duly organized
and existing and in good standing under the laws of its state of incorporation.
7.2 The Certificate of Incorporation or bylaws of the Company shall
not, without the prior written consent of the Holder, be amended to (i)
authorize shares of Capital Stock in addition to the shares described in Section
8, (ii) create a classified board of directors or provide for terms for
directors in excess of one year, or (iii) provide for preemptive rights with
respect to any shares of Capital Stock.
SECTION 8. ISSUANCE OF COMMON STOCK; COMPANY'S REPRESENTATION.
The Company represents and warrants that its authorized, issued and
outstanding Capital Stock as of the date hereof consists solely of 9,000,000
shares of Class A Common of which 111,660 shares are issued and outstanding,
500,000 shares of Class B Corinthian of which 32,090 shares are issued and
outstanding and 500,000 shares of preferred stock of which 18,125 shares of
Class A Preferred are issued and outstanding and that it has no other Capital
Stock, authorized, issued or outstanding. All of the shares of issued and
outstanding Capital Stock of the Company are duly authorized, validly issued,
fully paid and nonassessable and are not subject to any preemptive rights of
stockholders. There are no outstanding options, warrants or other rights to
acquire from the Company any shares of its Capital Stock, other than this
Warrant and the warrant issued to BOCP II pursuant to the Purchase Agreement,
the warrant issued to Prudential pursuant to the Senior Credit Agreement, the
rights contained in the Rights Agreement and the Company's employee stock option
plans.
SECTION 9. OWNERSHIP; REGISTRATION OF TRANSFER; EXCHANGE AND SUBSTITUTION
OF WARRANT.
9.1 OWNERSHIP OF WARRANT. Until due presentment for registration, the
Company may treat the Person in whose name this Warrant is registered on the
register kept at the Company's principal office as the owner and holder thereof
for all purposes, notwithstanding any notice to the contrary, (except that, if
and when this Warrant is properly assigned to another Person), the Company may
(but shall not be obligated to) treat such Person as the owner of this Warrant
for all purposes, notwithstanding any notice to the contrary. Subject to the
foregoing provisions and to Section 4, this Warrant, if properly assigned, may
be exercised by the assignee without first having a new Warrant issued.
9.2 REGISTRATION OF TRANSFERS. Subject to Section 4 hereof, the
Company shall register the transfer of this Warrant permitted under the terms
hereof upon records to be maintained by the Company for that purpose, upon
surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at the Company's principal office. Upon
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any such registration of transfer, a new Warrant, in substantially the form of
this Warrant, shall be issued to the transferee.
9.3 REPLACEMENT OF WARRANT CERTIFICATE. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and upon delivery of indemnity reasonably
satisfactory to the Company in form and amount, or, in the case of any such
mutilation, upon surrender of this Warrant for cancellation at the Company's
principal office, the Company at its expense will promptly execute and deliver,
in lieu thereof, a new Warrant of like tenor.
9.4 EXPENSES. The Company will pay all expenses, taxes (other than
transfer and income taxes) and other charges payable by the Holder in connection
with the preparation, issuance and delivery from time to time of this Warrant or
the Warrant Shares.
SECTION 10. REGISTRATION RIGHTS.
The Holder's Warrants, Warrant Shares and/or Purchase Shares shall have
registration rights as provided in the Registration Rights Agreement dated as of
the date hereof by and among Prudential, BOCP II, LLC, the Holder and the
Company.
SECTION 11. PUT OPTION.
The terms of the Put Option (as defined in the Rights Agreement) with
respect to the Warrants, Warrant Shares and Purchase Shares, if any, are
contained in the Rights Agreement.
SECTION 12. NO RIGHTS OR LIABILITIES AS STOCKHOLDER.
Nothing contained in this Warrant shall be construed as conferring upon the
Holder any rights as a stockholder of the Company or as imposing any liabilities
on the Holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.
SECTION 13. NOTICES.
All notices and other communications provided for herein shall be mailed by
first class mail, postage prepaid, addressed (a) if to the Holder, at the
registered address of the Holder as set forth in the register kept at the
Company's office, or (b) if to the Company, at its principal office, being on
the date of original issuance of this Warrant, 1932 East Deere Avenue, Suite
210, Santa Ana, California 92705-5735, or at such other address of which the
Company shall have given written notice to the Holder, provided that the
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exercise of this Warrant shall be effective if effected in the manner provided
in Section 2.
SECTION 14. MISCELLANEOUS.
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This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an client in writing signed by the party against which
enforcement of such change, Waiver, discharge or termination is sought. This
Warrant shall be governed by the laws of the State of Ohio. The headings in this
Warrant are inserted for convenience only and shall not be deemed to constitute
a part hereof.
SECTION 15. EXPIRATION.
The right to exercise this Warrant and all other rights and obligations
hereunder shall expire on the Warrant Exercise Expiration Date.
SECTION 16. ASSIGNMENT.
The Holder may not assign or otherwise transfer this Warrant or any of its
rights hereunder without the express written consent of the Company, which will
not be unreasonably withheld. Any transferee of Warrant Shares exceeding less
than all of the Warrant Shares shall not be entitled to any rights hereunder and
any transferee of all of the Warrant Shares shall only be entitled to such
rights as provided in the foregoing sentence.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
----------------------------------
David G. Moore, President
14
<PAGE>
NOTICE OF EXERCISE
CORINTHIAN COLLEGES, INC.
The undersigned, hereby elects to exercise the Warrant evidenced by this
Warrant Certificate, and to purchase thereunder, the shares covered by said
Warrant Certificate and herewith makes payment in full therefor [by delivery
herewith of a certified or official bank check payable to the
order of the Company in the amount of $ ][by agreeing hereby to reduce the
--------
outstanding principal balance of the Company's Subordinated Note payable to the
undersigned by the amount of $ ] and requests that certificates for
----------
such shares be issued in the name of and delivered to whose address is
------
_______________________.
-----------------------------------------
Signature guaranteed:
Dated:
-----------------------------------
15
<PAGE>
FORM OF ASSIGNMENT
FOR VALUED RECEIVED, hereby sells, assigns and transfers to
---------------
all of the rights of the undersigned in and to this Warrant, the
- ---------
foregoing Warrant Certificate with respect to said Warrant, and the shares of
Common Stock issuable upon exercise of said Warrant.
Name of Holder
(Print):
------------------------------------
Dated:
---------------------------------------
(By:)
---------------------------------------
(Title:)
------------------------------------
16
<PAGE>
EXHIBIT 10.31
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE,
AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR
OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND
LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE ISSUER OR A NO-
ACTION LETTER FROM THE COMMISSION STATING THAT SUCH DISTRIBUTION, SALE,
TRANSFER, ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.
------------------------
CORINTHIAN COLLEGES, INC.
WARRANT CERTIFICATE
CLASS B COMMON STOCK PURCHASE WARRANT
------------------------
DATED AS OF OCTOBER 17, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<C> <S> <C>
SECTION 1. DEFINITIONS............................................... 1
SECTION 2. DURATION AND EXERCISE OF WARRANT.......................... 8
2.1 WARRANT EXERCISE PERIOD.............................. 8
2.2 MANNER OF EXERCISE................................... 8
2.3 WHEN EXERCISE EFFECTIVE.............................. 8
2.4 DELIVERY OF STOCK CERTIFICATES, ETC.................. 8
SECTION 3. ANTIDILUTION ADJUSTMENT................................... 8
3.1 NUMBER OF WARRANT SHARES............................. 8
3.2 ADJUSTMENT EVENT..................................... 9
3.3 REORGANIZATION EVENT................................. 9
3.4 OTHER EVENT.......................................... 9
3.5 RIGHTS OFFERING...................................... 9
3.6 PREEMPTIVE RIGHTS.................................... 10
SECTION 4. RESTRICTIONS ON TRANSFER.................................. 10
4.1 RESTRICTIVE LEGENDS.................................. 10
4.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL..... 10
SECTION 5. AVAILABILITY OF INFORMATION............................... 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 6. RESERVATION OF STOCK, ETC................................. 11
SECTION 7. DUE ORGANIZATION; NO VIOLATION............................ 11
SECTION 8. ISSUANCE OF COMMON STOCK; COMPANY'S REPRESENTATION........ 12
SECTION 9. OWNERSHIP; REGISTRATION OF TRANSFER; EXCHANGE AND
SUBSTITUTION OF WARRANT................................. 12
9.1 OWNERSHIP OF WARRANT................................. 12
9.2 REGISTRATION OF TRANSFERS............................ 13
9.3 REPLACEMENT OF WARRANT CERTIFICATE................... 13
9.4 EXPENSES............................................. 13
SECTION 10. REGISTRATION RIGHTS....................................... 13
SECTION 11. PUT OPTION................................................ 13
SECTION 12. EXCHANGE FOR CLASS A COMMON............................... 13
SECTION 13. NO RIGHTS OR LIABILITIES AS STOCKHOLDER................... 14
SECTION 14. NOTICES................................................... 14
SECTION 15. MISCELLANEOUS............................................. 15
SECTION 16. EXPIRATION................................................ 15
SECTION 17. ASSIGNMENT................................................ 15
</TABLE>
ii
<PAGE>
WARRANT CERTIFICATE
Dated as of October 17, 1996
This certifies that, for value received, BANC ONE CAPITAL PARTNERS II, LTD.
(the "Holder"), an Ohio limited liability company, is entitled, subject to the
terms set forth below, to purchase from Corinthian Colleges, Inc. (the
"Company"), a Delaware corporation in a single exercise 3225.81 shares of the
Class B Non-Voting Common Stock, $.01 par value ("Class B Common"), of the
Company at the principal office of the Company, with the Notice of Exercise
attached hereto duly executed, and simultaneous payment therefor in lawful money
of the United States or otherwise as hereinafter provided, for the aggregate
purchase price of $100 ("Price").
This Warrant is being issued by the Company pursuant to the Subordinated
Note and Warrant Purchase Agreement dated as of the date hereof, by and between
the Company, as seller, and Primus Capital Fund III Limited Partnership, an Ohio
limited partnership ("Primus") and the Holder, as purchasers ("Purchase
Agreement").
SECTION 1. DEFINITIONS.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings (the definitions to be applicable to both
the singular and the plural forms of the terms defined where either such form is
used in this Warrant).
1.1 "Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Original Issue Date other than Warrant
Shares and shares issued under the Company's employee stock option plans.
1.2 "Adjusted Permitted Indebtedness" means, as determined as of any
date (i) the aggregate principal amount of all Permitted Indebtedness,
excluding (ii) the aggregate principal amount of the Senior Indebtedness
outstanding as of such date of determination.
1.3 "Adjustment Event" means any of the following events (except if
such event also constitutes a Preemption Offering, under which circumstances
this Section 1.3 and Sections 3.1 through 3.5 shall not apply).
(i) the Company declares a dividend or makes a distribution on
its Outstanding Common Stock in Common Stock or Convertible
Securities, or
(ii) the Company subdivides or reclassifies any of its
outstanding Common Stock into a greater number of shares,
or
<PAGE>
(iii) the Company combines or reclassifies any of its outstanding
Common Stock into a smaller number of shares.
1.4 "Affiliate" shall have the meaning set forth in the Purchase
Agreement.
1.5 "Business Day" means, any day other than a Saturday, Sunday or
day upon which banking institutions are authorized or required by law or
executive order to be closed in the City of Columbus, Ohio.
1.6 "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such Person or partnership interests and any warrants, options or other rights
to acquire such stock or interests.
1.7 "Capitalized Earnings Amount" means, as of any date of
determination, an amount equal to five (5) times EBITDA (i) reduced by (A) an
amount sufficient to pay in full all of the then outstanding Adjusted Permitted
Indebtedness (including all accrued but unpaid interest with respect thereto),
and (B) an amount equal to the total amount expended or incurred (including the
full amount capitalized under capital leases) for the acquisition of fixed or
capital assets as reflected on the most recent Financial Statements for the
twelve-month period ended immediately prior to any such date of determination,
and (ii) increased by the average amount of cash and marketable securities
reflected on the most recent Financial Statements of the Company as of the date
of determination.
1.8 "Change of Control" means (i) an event or series of events by
which any Person or Persons or other entities acting in concert as a partnership
or other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of the Company, (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less than
a majority of the combined Voting Power of the Person serving the transaction,
or (iii) the direct or indirect, sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any Person or Group of
Persons.
1.9 "Class A Common" means the shares of voting common stock, $.01
par value, of the Company at any time outstanding.
1.10 "Class A Preferred" means any shares of Capital Stock of the
Company ranking senior to the Common Stock with respect to dividends or
liquidation including, without limitation, the shares of 6% Redeemable Class A
Preferred Stock, $1.00 par value, $100 liquidation value, of the Company.
2
<PAGE>
1.11 "Class B Common" means the shares of non-voting common stock,
$.O1 par value of the Company at any time outstanding.
1.12 "Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
1.13 "Company" means Corinthian Colleges, Inc., a Delaware
corporation, and includes any corporation which shall succeed to or assume the
obligations of the Company.
1.14 "Common Stock" means the shares of Class A Common and Class B
Common treated as a single class of stock, at any time outstanding.
1.15 "Convertible Securities" means evidences of indebtedness, shares
of stock or other securities that are convertible into or exchangeable for, with
or without payment of additional consideration in cash or property, or options,
warrants or other rights that are exercisable for, shares of Common Stock that,
when issued, would constitute Additional Shares of Common Stock, either
immediately or upon the occurrence of a specified date or a specified event,
but excluding the shares of Common Stock issuable upon exercise of the Warrants.
1.16 "Disposition" means (i)a merger, consolidation or other
business combination in which the Company is the surviving entity and the
Company's stockholders receive cash or non-cash consideration in exchange for or
in respect of their shares of Capital Stock of the Company or (ii) the sale,
lease, conveyance, transfer or other disposition (other than the grant of a
security interest) in any single transaction or series of related transactions
of all or substantially all of the assets of the Company.
1.17 "EBITDA" means, as determined as of any date, earnings of the
Company (as reflected on the most recent Financial Statements) for the twelve-
month period ended immediately prior to any such date of determination
determined excluding all amounts expensed as reflected on such Financial
Statements during such twelve-month period with respect to (i) interest expense
with respect to Permitted Indebtedness, (ii) federal and state income tax
expense, (iii) depreciation expense, and (iv) amortization expense.
1.18 "Event of Default" shall have the meaning set forth in the
Purchase Agreement.
1.19 "Financial Statements" means the Annual Financial Statements,
Quarterly Financial Statements and Monthly Financial Statements (all as defined
in the Purchase Agreement), as applicable, of the Company.
1.20 "Group of Persons" is defined in Section 1.10 hereof.
3
<PAGE>
1.21 "Holder" means Banc One Capital Partners II, Ltd., an Ohio
limited liability company, together with its successors and assigns.
1.22 "Indebtedness" means, with respect to the Company, as of any
date of determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.23 "Initial Public Offering" means the first offer and sale to the
public by the Company or any holders of shares of any class of its Capital
Stock, pursuant to a registration statement that has been declared effective by
the Commission; provided, however, that the gross proceeds of the shares issued
and sold by the Company are at least $20,000,000.
1.24 "LLC" means BOCP II, Limited Liability Company, an Ohio limited
liability company and successor by merger to Banc One Capital Partners II,
Limited Partnership, together with its successors and assigns.
1.25 "Non-Surviving Combination" means any merger, consolidation or
other business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity.
1.26 "Notes" means the Subordinated Note due October 17,2004, in the
principal amount of $4,000,000 issued and sold to the Holder, and the
Subordinated Note due October 17, 2004, in the principal amount of $1,000,000
issued and sold to Primus by the Company pursuant to the terms of the Purchase
Agreement.
1.27 "Number of Warrant Shares" shall have the meaning set forth in
Section 3.1.
1.28 "Original Issue Date" means the date on which this Warrant and
the Notes were first issued pursuant to the Purchase Agreement.
1.29 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable under
the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or
4
<PAGE>
Convertible Securities outstanding on such date shall be adjusted in accordance
with the "treasury stock" method determined under generally accepted accounting
principles pursuant to Accounting Principles Board Opinion 15.
1.30 "Permitted Indebtedness" means, as of any date of determination
the aggregate principal amount of all Indebtedness of the Company outstanding as
of such date of determination, but only to the extent that the principal amount
of such Indebtedness does not exceed the amounts permitted under the Purchase
Agreement.
1.31 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, estate, unincorporated organization
or government or any agency or political subdivision thereof.
1.32 "Preemption Offering" means any proposed issuance and sale by
the Company after the Original Issue Date and prior to the date of the Initial
Public Offering of any shares of Common Stock or any Convertible Securities
other than the following:
(i) the issuance of the Warrant Shares subject to this Warrant
and shares of Common Stock subject to the other warrants;
(ii) the issuance or sale of Common Stock pursuant to a rights
offering in which the holder hereof elects to participate
under the provisions of Section 3.5; or
(iii) the issuance or sale of Common Stock or Convertible
Securities in connection with the acquisition by the
Company of a business, which issuance or sale has been
approved by a unanimous vote of the Board of Directors
of the Company.
1.33 "Price" means One Hundred Dollars ($100), which is the exercise
price for all of the Warrant Shares subject to this Warrant.
1.34 "Primus" means Primus Capital Fund III Limited Partnership, an
Ohio limited partnership together with its successors and assigns.
1.35 "Prior Warrant Shares" means the 5,000 shares of Class B Common
purchased by LLC and the 1,250 shares of Class A Common purchased by Primus
upon exercise of the Prior Warrant Certificates. The Prior Warrant Shares
represent 4.3% of the Outstanding Common Stock.
1.36 "Prior Purchase Agreement" means the Subordinated Secured Note
and Warrant Purchase Agreement dated June 30, 1995 by and among the Company, as
seller and Primus and the Holder, as purchasers.
5
<PAGE>
1.37 "Prior Warrant Certificates" means the warrant certificates
issued to LLC and Primus pursuant to the Prior Purchase Agreement.
1.38 "Prudential" means The Prudential Insurance Company of America,
together with its successors and assigns.
1.39 "Prudential Warrant" means the warrant issued to Prudential
pursuant to the Senior Credit Agreement.
1.40 "Purchase Agreement" means the Subordinated Note and Warrant
Purchase Agreement, dated as of the date hereof among the Company, as seller and
Primus and the Holder, as purchasers.
1.41 "Purchase Shares" means, as of any date of determination, any
shares of Common Stock purchased by the Holder prior to such date of
determination pursuant to the exercise of its rights under Section 3.5 or
Section 3.6 hereof, or directly from the Company in any other transaction after
the Original Issue Date. For purposes of this definition, Purchase Shares shall
include any shares of Common Stock issuable upon the conversion of any
Convertible Securities purchased by the Holder pursuant to the exercise of its
rights under Section 3.5 and Section 3.6 hereof.
1.41 "Redemption Price" means the liquidation value with respect to
the Class A Preferred plus all accrued and unpaid dividends.
1.41 "Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement dated as of the date hereof by and among the
Company, Prudential, Primus, LLC, certain Executives (as defined therein) of the
Company and the Holder.
1.42 "Reorganization Event" means any of the following events:
(i) capital reorganization or reclassification or
recapitalization of the Capital Stock of the Company
(other than any Adjustment Event);
(ii) any merger or consolidation of the Company with or into
another corporation; and
(iii) the sale or transfer of the property of the Company as
an entirety or substantially as an entirety.
1.43 "Restricted Securities" means (a) any Warrant bearing the
applicable legend set forth in Section 4.1, (b) any Warrant Shares which are
evidenced by a certificate or certificates bearing the legend set forth in
Section 4.1, and (c) unless the context otherwise requires, any shares
6
<PAGE>
of Common Stock which are at the time issuable upon the exercise of any Warrant
and which, when so issued, will be evidenced by a certificate or certificates
bearing the legend set forth in section 4.1.
1.44 "Rights Agreement" means the Rights Agreement dated as of the
date hereof by and among the Company, Primus, LLC, the Holder and certain
Executives (as defined therein) of the company.
1.45 "Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute replacing said statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.46 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar Federal statute replacing said statute, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
1.47 "Senior Credit Agreement" shall have the meaning set forth in
the Purchase Agreement.
1.48 "Senior Indebtedness" means (i) loans outstanding under the
Credit Agreement dated as of October 17, 1996 between the Company and
Prudential, as modified, amended, restated, renewed or extended from time to
time and (ii) any extension, renegotiation or refinancing of such loans with
Prudential or any other lender; provided, however, that, in any event, for
purposes of this Warrant, the aggregate outstanding principal amount of the
Senior Indebtedness shall be deemed not to exceed $22,500,000.
1.49 "Stock Purchase Agreement" means the Purchase Agreement dated
June 30, 1995 by and among the Company, LLC and Primus.
1.50 "Transfer" means with respect to any Restricted Securities, any
sale, assignment, pledge or other disposition thereof, or of any interest
therein, which could constitute a "sale" thereof, as that term is defined in
Section 2(3) of the Securities Act.
1.51 "Voting Power" of any Person means the aggregate number of votes
of all classes of Capital Stock of such Person which ordinarily has voting power
for the election of the Board of Directors or their equivalents of such Person.
1.52 "Warrant Exercise Expiration Date" means that date which is the
earliest of (i) the time immediately prior to the completion by the Company of
an Initial Public Offering, (ii) the date on which a Disposition or Non-
surviving Combination is consummated, and (iii) October 30, 2005.
1.53 "Warrant" mean this Warrant.
7
<PAGE>
1.54 "Warrant Shares" means the shares of Class B Common issuable
upon exercise of this Warrant.
SECTION 2. DURATION AND EXERCISE OF WARRANT.
2.1 WARRANT EXERCISE PERIOD. This Warrant shall be exercisable in a
single exercise at any time after the date hereof and on or before the Warrant
Exercise Expiration Date.
2.2 MANNER OF EXERCISE. This Warrant may be exercised by the Holder
in a single exercise upon surrender of this Warrant and Notice of Exercise
attached hereto duly completed and executed on behalf of the Holder, at the
principal office of the Company (or at such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company), upon payment of the Price by
delivery of a certified or cashier's check to the Company. The Holder may, in
lieu of paying the Price by delivery of a certified or cashier's check to the
Company, reduce the unpaid principal amount of the Note by an amount equal to
the funds which would otherwise have been delivered.
2.3 WHEN EXERCISE EFFECTIVE. Subject to the requirements of any state
or federal finance company licensing laws or regulations to which the Company
may be subject, the exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the Business Day on which
this Warrant shall have been surrendered and the Company receives payment of the
Price as provided in Section 2.2, and immediately prior to the close of business
on such Business Day the Holder shall be deemed to have become the holder of
record of the Warrant Shares.
2.4 DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after
the exercise of this Warrant, and in any event within five (5) Business Days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder a certificate or certificates for the number of Warrant Shares to
which the Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash in an
amount equal to the same fraction (calculated to the nearest 1/lOOth of a share)
of one full share of Common Stock based on the Capitalized Earnings Amount on
the Business Day next preceding the date of such exercise.
SECTION 3. ANTIDILUTION ADJUSTMENT.
3.1 NUMBER OF WARRANT SHARES. The number of Warrant Shares that may
be purchased by the Holder in consideration of the payment of the Price is
initially 3225.81 shares of Class B Common; provided, however, that such number
of shares is subject to adjustment as provided for in this Section 3, which
number of Warrant Shares, as so adjusted from time, to time is referred to as
the "Number of Warrant Shares." The Price is not subject to adjustment.
8
<PAGE>
3.2 ADJUSTMENT EVENT. Upon the occurrence of any Adjustment Event,
the Number of Warrant Shares shall be adjusted immediately after the
applicable record date with respect to such Adjustment Event as follows. The
adjusted Number of Warrant Shares shall be a number equal to the Number of
Warrant Shares immediately prior to such event multiplied by a fraction (i) the
numerator of which is the number of shares of Outstanding Common Stock
immediately after the record date with respect to such Adjustment Event, and
(ii) the denominator of which is the number of shares of Outstanding Common
Stock immediately before such record date. Any such adjustment shall be
calculated to the nearest 0.001 Warrant Share.
3.3 REORGANIZATION EVENT. Upon the occurrence of a Reorganization
Event, there shall thereafter be issuable or deliverable upon the exercise of
this Warrant (in lieu of the Warrant Shares), as appropriate, the number of
shares of stock, other securities or property to which the Holder of the number
of shares of Common Stock equal to the Number of Warrant Shares at the date of
the Reorganization Event would have been entitled to as a result of such
Reorganization Event.
Prior to and as a condition of the consummation of any Reorganization
Event, the Company shall cause effective provisions to be made to effect the
purposes of this Section 3.3, including, if appropriate, an agreement among the
Company, any successor to the Company and the Holder.
3.4 OTHER EVENT. In case any event shall occur as to which the other
provisions of the Section 3 are not strictly applicable but the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof, then the
Holder may request in writing within one hundred twenty (120) days after the
occurrence of such event that the Company examine the propriety of an adjustment
to the Number of Warrant Shares. Unless the Company and the Holder shall have
mutually agreed upon an adjustment, or that no adjustment is required, within
the (30) days after the receipt of such request, the Company shall appoint a
firm of independent certified public accountants of recognized national standing
(which may be the regularly engaged accountants of the Company), to give an
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in this Section 3, necessary to preserve, the
purchase rights represented by this Warrants. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. If such opinion states that no
such adjustment is necessary, the Holder hereof shall reimburse the Company for
one-half of the cost and expense of such opinion.
3.5 RIGHTS OFFERING. In the event the Company shall effect an
offering of Common Stock or Convertible Securities pro rata among its
stockholders, the Holder shall be entitled, at its option, to elect to
participate in each and every such offering as if this Warrant had been
exercised and such Holder were, at the time of any such rights offering, then a
holder of that number of shares of Common Stock to which such holder is then
entitled on the exercise hereof.
9
<PAGE>
3.6 PREEMPTIVE RIGHTS. The preemptive rights with regard to the
Warrants, Warrant Shares and Purchase Shares, if any, are contained in the
Rights Agreement.
3.7 SPECIAL ADJUSTMENT. If on or before October 17, 1998, the
aggregate number of shares of Class A Common which the Holder is entitled to
purchase upon exercise under that certain Stock Subscription Warrant dated as of
October 17, 1996, issued by the Company to The Prudential Insurance Company of
America is reduced as provided for in (SEC.)3A(3)(i) thereof, then the Number of
Warrant Shares that may be purchased by the Holder upon the exercise of this
Warrant shall be reduced by one Warrant Share (or fraction thereof) for each
39.59 share reduction under such (SEC.)3A(3)(i).
SECTION 4. RESTRICTIONS ON TRANSFER.
4.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Section 4, this Warrant and each Warrant issued in exchange or substitution for
any Warrant, and each Warrant issued upon the registration of transfer of any
Warrant and each certificate representing Warrant Shares and each certificate
issued upon the registration of transfer of any Warrant Shares, shall be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD,
TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS THERE IS
IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS
COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER FROM THE
COMMISSION INDICATING THAT SUCH DISTRIBUTION, SALE, TRANSFER,
ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT
AND LAWS."
4.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to any
transfer of any Restricted Securities, the Holder will give written notice to
the Company of the Holder's intention to effect such transfer and to comply in
all other respects with this Section 4.2. Each such notice of a proposed
transfer (a) shall describe the manner and circumstances of the proposed
transfer in sufficient detail to enable counsel to render the opinion referred
to below, and (b) shall designate counsel for the Holder. The Holder will submit
a copy thereof to the counsel designated in such notice and the Company will
promptly submit a copy thereof to its counsel. The following provisions shall
then apply:
(i) If in the opinion of counsel to the Company the
proposed transfer may be effected without registration
of such Restricted Securities
10
<PAGE>
under the Securities Act, the Company will promptly
notify the Holder and the Holder shall thereupon be
entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by
the Holder to the Company. Each Warrant or certificate,
if any, issued upon or in connection with such transfer
shall bear the restrictive legend set forth in section
4.1, unless in the opinion of such counsel such legend
is no longer required to ensure compliance with the
Securities Act. If for any reason counsel for the
Company (after having been furnished with the
information required to be finished by clause (a) of
this Section 4.2) shall fail to deliver an opinion to
the Company, or the Company shall fail to notify the
Holder as aforesaid, within thirty (30) days after
receipt of notice of the Holder's intention to effect a
transfer, then for all purposes of this Warrant the
opinion of counsel for the Holder shall be sufficient
to authorize the proposed transfer and the opinion of
counsel for the Company shall not be required in
connection with such proposed transfer; and
(ii) If in the opinion of counsel to the Company the
proposed transfer may not be effected without
registration of such Restricted Securities under the
Securities Act, the Company will promptly so notify the
Holder and the Holder shall not be entitled to transfer
such Restricted Securities until receipt of a further
notice from the Company under clause (i) above or until
registration of such Restricted Securities under the
Securities Act has become effective.
SECTION 5. AVAILABILITY OF INFORMATION.
Within ninety (90) days after a registration statement under the Securities
Act is declared effective with respect to an Initial Public Offering, the
Company will comply with the reporting requirements of Sections 13 and 15(d) of
the Securities Exchange Act insofar as they are applicable to the Company and
will comply with all other public information reporting requirements of the
Commission (including the requirements of Rule 144 promulgated by the Commission
under the Securities Act) from time to time in effect and relating to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities or the sale of securities by Affiliates. The Company will
also cooperate with the Holder at the Holder's expense to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Restricted Securities or the sale of securities by Affiliates.
11
<PAGE>
SECTION 6. RESERVATION OF STOCK, ETC.
The company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant and free from preemptive
rights, sufficient number of shares of Common Stock to cover the Warrant Shares
issuable upon the exercise of this Warrant. All such shares shall be duly
authorized and, when issued upon such exercise, shall be validly issued, fully
paid and non-assessable with no liability on the part of the holders thereof.
SECTION 7. DUE ORGANIZATION; NO VIOLATION.
7.1 The Company shall at all times be a corporation duly organized
and existing and in good standing under the laws of its state of incorporation.
7.2 The Certificate of Incorporation or by-laws of the Company shall
not, without the prior written consent of the Holder, be amended to (i)
authorize shares of Capital Stock in addition to the shares described in Section
8, (ii) create a classified board of directors or provide for terms for
directors in excess of one year, or (iii) provide for preemptive rights with
respect to any shares of Capital Stock.
SECTION 8. ISSUANCE OF COMMON STOCK; COMPANY'S REPRESENTATION.
The Company represents and warrants that its authorized, issued and
outstanding Capital Stock as of the date hereof consists solely of 9,000,000
shares of Class A Common of which 111,660 shares are issued and outstanding,
500,000 shares of Class B Common of which 32,090 shares are issued and
outstanding and 500,000 shares of preferred stock of which 18,125 shares of
Class A Preferred are issued and outstanding and that it has no other Capital
Stock, authorized, issued or outstanding. All of the shares of issued and
outstanding Capital Stock of the Company are duly authorized, validly issued,
fully paid and nonassessable and are not subject to any preemptive rights of
stockholders. There are no outstanding options, warrants or other rights to
acquire from the Company any shares of its Capital Stock, other than this
Warrant and the warrant issued to Primus pursuant to the Purchase Agreement, the
warrant issued to Prudential pursuant to the Senior Credit Agreement, the rights
contained in the Rights Agreement and the Company's employee stock option plans.
SECTION 9. OWNERSHIP; REGISTRATION OF TRANSFER; EXCHANGE AND SUBSTITUTION
OF WARRANT.
9.1 OWNERSHIP OF WARRANT. Until due presentment for registration, the
Company may treat the Person in whose name this Warrant is registered on the
register kept at the Company's principal office as the owner and holder thereof
for all purposes, notwithstanding any notice to the court, except that, if and
when this Warrant is properly assigned to another Person, the Company may (but
shall not be obligated to) treat such Person as the owner of this Warrant for
all purposes, notwithstanding any notice to the contrary. Subject to the
foregoing provisions and to
12
<PAGE>
Section 4, this Warrant, if properly assigned, may be exercised by the assignee
without first having a new Warrant issued.
9.2 REGISTRATION OF TRANSFERS. Subject to Section 4 hereof, the
Company shall register the transfer of this Warrant permitted under the terms
hereof upon records to be maintained by the Company for that purpose, upon
surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at the Company's principal office. Upon any
such registration of transfer, a new Warrant, in substantially the form of this
Warrant, shall be issued to the transferee.
9.3 REPLACEMENT OF WARRANT CERTIFICATE. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and upon delivery of indemnity reasonably
satisfactory to the Company in form and amount, or, in the case of any such
mutilation, upon surrender of this Warrant for cancellation at the Company's
principal office, the Company at its expense will promptly execute and deliver,
in lieu thereof, a new Warrant of like tenor.
9.4 EXPENSES. The Company will pay all expenses, taxes (other than
transfer and income taxes) and other charges payable by the Holder in connection
with the preparation, issuance and delivery from time to time of this Warrant or
the Warrant Shares.
SECTION 10. REGISTRATION RIGHTS.
The Holder's Warrants, Warrant Shares and/or Purchase Shares shall have
registration rights as provided in the Registration Rights Agreement dated as of
the date hereof by and among Prudential, Primus, LLC, the Holder and the
Company.
SECTION 11. PUT OPTION.
The terms of the Put Option (as defined in the Rights Agreement) with
respect to the Warrants, Warrant Shares and Purchase Shares, if any, are
contained in the Rights Agreement.
SECTION 12. EXCHANGE FOR CLASS A COMMON.
The Company shall, at any time, upon the written request of Holder, issue
and exchange shares of Class A Common on a share-for-share basis for Warrant
Shares issued upon exercise of or acquired pursuant to this Warrant and/or
Purchase Shares to the extent that the Holder:
(i) sells such Warrant Shares and/or Purchase Shares pursuant
to a public offering under a registration statement under
the Securities Act
13
<PAGE>
provided that such offering is underwritten on a firm
commitment basis or otherwise provides for a widely
dispersed distribution of the shares;
(ii) sells such Warrant Shares and/or Purchase Shares in a
private placement pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act, provided that no
purchaser or related group of purchasers acquires more
than 2% of the outstanding shares of Class A Common;
(iii) sell such Warrant Shares and/or Purchase Shares as part
of a direct sale, together with other shareholders of
the Company, to a third party that is not related to or
affiliated with the Holder, provided that pursuant to
such sale the purchaser acquires at least a majority of
the outstanding Class A Common without regard to any
shares purchased from the Holder;
(iv) the Holder, together with its Affiliates, would not own
or have the right to receive upon exercise of the
Warrants or otherwise, more than 4.9% of the Class A
Common that would be outstanding immediately after such
exchange; or
(v) immediately after such exchange, the Holder, together
with its Affiliates and any Group of Persons of which it
or any of its Affiliates is a member, would not exercise
or control the exercise, directly or indirectly, through
the ownership of Capital Stock of the Company, by
contract or otherwise, more than 4.9% of the aggregate
Voting Power of the Company.
SECTION 13. NO RIGHTS OR LIABILITIES AS STOCKHOLDER.
Nothing contained in this Warrant shall be construed as conferring upon the
Holder any rights as a stockholder of the Company or as imposing any liabilities
on the Holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.
SECTION 14. NOTICES.
All notices and other communications provided for herein shall be mailed
by first class mail, postage prepaid, addressed (a) if to the Holder, at the
registered address of the Holder as set forth in the register kept at the
Company's office, or (b) if to the Company, at its principal office, being on
the date of original issuance of this Warrant, 1932 East Deere Avenue, Suite
210, Santa Ana, California 92705-5735, or at such other address of which the
Company shall have given written
14
<PAGE>
notice to the Holder, provided that the exercise of this Warrant shall be
--------
effective if effected in the manner provided in Section 2.
SECTION 15. MISCELLANEOUS.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be governed by the laws of the State of Ohio. The headings in this
Warrant are inserted for convenience only and shall not be deemed to constitute
a part hereof.
SECTION 16. EXPIRATION.
The right to exercise this Warrant and all other rights and obligations
hereunder shall expire on the Warrant Exercise Expiration Date.
SECTION 17. ASSIGNMENT.
The Holder may not assign or otherwise transfer this Warrant or any of its
rights hereunder without the express written consent of the Company, which will
not be unreasonably withheld. Any transferee of Warrant Shares exceeding less
than all of the Warrant Shares shall not be entitled to any rights hereunder and
any transferee of all of the Warrant Shares shall only be entitled to such
rights as provided in the foregoing sentence.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
----------------------------------
David G. Moore, President
15
<PAGE>
NOTICE OF EXERCISE
CORINTHIAN COLLEGES, INC.
The undersigned, hereby elects to exercise the Warrant evidenced by this
Warrant Certificate, and to purchase thereunder, the shares covered by said
Warrant Certificate and herewith makes payment in full therefor [by delivery
herewith of a certified or official bank check payable to the order of the
Company in the amount of $ [by agreeing hereby to reduce the
outstanding principal balance of the Company's Subordinated Note payable to the
undersigned by the amount of $ ] and requests that certificates for such
shares be issued in the name of and delivered to , whose address is .
---------------------------------------
Signature guaranteed:
Dated:
---------------------------------
16
<PAGE>
FORM OF ASSIGNMENT
FOR VALUED RECEIVED, hereby sells, assigns and transfers to
all of the rights of the undersigned in and to this Warrant, the foregoing
Warrant Certificate with respect to said Warrant, and the shares of Common
Stock issuable upon exercise of said Warrant.
Name of Holder
(Print):
--------------------------------
Dated:
----------------------------------
(By:)
-----------------------------------
(Title:)
--------------------------------
17
<PAGE>
EXHIBIT 10.32
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT COVERING THE WARRANT AND/OR THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION
THEREFROM.
No. W- ________
October 17,1996
CONTINGENT STOCK WARRANT
To Subscribe for and Purchase Common Stock
of Corinthian Colleges, Inc.
Corinthian Colleges, Inc., a Delaware corporation (the "Company"), has
heretofore issued stock warrants to the person named below as the Initial Holder
(the "Initial Holder") and has also issued 18,750 shares of its Class B Common
Stock (the "Executive Stock") to certain executives of the Company pursuant to
Executive Stock Agreements dated as of June 30,1995, as amended (the "Executive
Stock Agreements"). The Executive Stock Agreements provide that the shares of
Executive Stock will vest, in whole or in part, upon the occurrence of certain
specified events. In connection with various financing transactions in which the
Company is engaged, the Company has agreed to permit the Initial Holder, or
registered assigns, to purchase an amount of Common Stock from the Company based
upon the degree to which the Executive Stock vests as provided herein.
For purposes of this Contingent Stock Warrant:
1. The "Initial Holder" of this Contingent Stock Warrant is Primus
Capital Fund III Limited Partnership.
2. The class of Common Stock which may be purchased under this
Contingent Stock Warrant is A.
3. The "Participation Percentage" is 1.74668%.
4. The terms and conditions of (including the definitions contained
in) the Stock Subscription Warrant attached hereto as Exhibit A shall, except to
the extent they are inconsistent with the terms and conditions hereof, apply to
and govern this Contingent Stock Warrant.
<PAGE>
THE COMPANY HEREBY CERTIFIES that the Holder may purchase from the
Company, at the price of $0.01 per share, that number of shares of Common Stock
which equals the product of:
(A) the number of shares of Executive Stock which become vested
under the Executive Stock Agreements, and
(B) the Participation Percentage.
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of October 17,1996.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
-----------------------------------------
(CORPORATE SEAL)
Attest:
/s/ Frank J. McCord
- ---------------------------------------
-2-
<PAGE>
EXHIBIT 10.33
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT COVERING THE WARRANT AND/OR THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION
THEREFROM.
No. W- _______
October 17,1996
CONTINGENT STOCK WARRANT
To Subscribe for and Purchase Common Stock
of Corinthian Colleges, Inc.
Corinthian Colleges, Inc., a Delaware corporation (the "Company"), has
heretofore issued stock warrants to the person named below as the Initial Holder
(the "Initial Holder") and has also issued 18,750 shares of its Class B Common
Stock (the "Executive Stock") to certain executives of the Company pursuant to
Executive Stock Agreements dated as of June 30, 1995, as amended (the "Executive
Stock Agreements"). The Executive Stock Agreements provide that the shares of
Executive Stock will vest, in whole or in part, upon the occurrence of certain
specified events. In connection with various financing transactions in which the
Company is engaged, the Company has agreed to permit the Initial Holder, or
registered assigns, to purchase an amount of Common Stock from the Company based
upon the degree to which the Executive Stock vests as provided herein.
For purposes of this Contingent Stock Warrant:
1 The "Initial Holder" of this Contingent Stock Warrant is Banc
One Capital Partners II, Ltd.
2. The class of Common Stock which may be purchased under this
Contingent Stock Warrant is B.
3. The "Participation Percentage" is 2.77619%.
4. The terms and conditions of (including the definitions contained
in) the Stock Subscription Warrant attached hereto as Exhibit A shall, except to
the extent they are inconsistent with the terms and conditions hereof, apply to
and govern this Contingent Stock Warrant.
<PAGE>
THE COMPANY HEREBY CERTIFIES that the Holder may purchase from the
Company, at the price of $0.01 per share, that number of shares of Common Stock
which equals the product of:
(A) the number of shares of Executive Stock which become vested
under the Executive Stock Agreements, and
(B) the Participation Percentage.
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of October 17, 1996.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
----------------------------------------
(CORPORATE SEAL)
Attest:
/s/ Frank J. McCord
- ----------------------------------
-2-
<PAGE>
EXHIBIT 10.34
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT COVERING THE WARRANT AND/OR THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION
THEREFROM.
No. W- _______
October 17,1996
CONTINGENT STOCK WARRANT
To Subscribe for and Purchase Common Stock
of Corinthian Colleges, Inc.
Corinthian Colleges, Inc., a Delaware corporation (the "Company"), has
heretofore issued stock warrants to the person named below as the Initial Holder
(the "Initial Holder") and has also issued 18,750 shares of its Class B Common
Stock (the "Executive Stock") to certain executives of the Company pursuant to
Executive Stock Agreements dated as of June 30, 1995, as amended (the "Executive
Stock Agreements"). The Executive Stock Agreements provide that the shares of
Executive Stock will vest, in whole or in part, upon the occurrence of certain
specified events. In connection with various financing transactions in which the
Company is engaged, the Company has agreed to permit the Initial Holder, or
registered assigns, to purchase an amount of Common Stock from the Company based
upon the degree to which the Executive Stock vests as provided herein.
For purposes of this Contingent Stock Warrant:
1 The "Initial Holder" of this Contingent Stock Warrant is BOCP II,
Limited Liability Company.
2. The class of Common Stock which may be purchased under this
Contingent Stock Warrant is B.
3. The "Participation Percentage" is 4.21056%.
4. The terms and conditions of (including the definitions contained
in) the Stock Subscription Warrant attached hereto as Exhibit A shall, except to
the extent they are inconsistent with the terms and conditions hereof, apply to
and govern this Contingent Stock Warrant.
<PAGE>
THE COMPANY HEREBY CERTIFIES that the Holder may purchase from the
Company, at the price of $0.01 per share, that number of shares of Common Stock
which equals the product of:
(A) the number of shares of Executive Stock which become vested
under the Executive Stock Agreements, and
(B) the Participation Percentage.
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of October 17, 1996.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
---------------------------------
(CORPORATE SEAL)
Attest:
/s/ Frank J. McCord
- ----------------------------------
-2-
<PAGE>
EXHIBIT 10.35
------------------
CORINTHIAN COLLEGES, INC.
RIGHTS AGREEMENT
------------------
DATED AS OF OCTOBER 17, 1996
<PAGE>
RIGHTS AGREEMENT
This is a RIGHTS AGREEMENT dated October 17, 1996 ("Agreement") by and
among CORINTHIAN COLLEGES, INC., a Delaware corporation ("Company"),
CORINTHIAN SCHOOLS, INC., a Delaware corporation ("CSI") and a wholly-owned
subsidiary of the Company, PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP, an
Ohio limited partnership ("Primus"), BOCP II, LIMITED LIABILITY COMPANY, an
Ohio limited liability company and successor by merger to Banc One Capital
Partners II, Limited Partnership ("LLC"), BANC ONE CAPITAL PARTNERS II, LTD.,
an Ohio limited liability company ("BOCP II"), DAVID G. MOORE ("Moore"), PAUL
ST. PIERRE ("St. Pierre"), FRANK J. MCCORD ("McCord"), DENNIS L. DEVEREUX
("Devereux") and LLOYD W. HOLLAND ("Holland").
BACKGROUND
----------
A. STOCK PURCHASE AGREEMENT. Pursuant to a Purchase Agreement dated June
------------------------
30, 1995, ("Stock Purchase Agreement") Primus purchased from CSI (i) 14,500
shares of CSI's Class A Preferred Stock, par value $1.00 per share, liquidation
value $100 per share ("CSI Class A Preferred") and (ii) 55,000 shares of CSI's
Class A Common Stock, $0.01 par value ("CSI Class A Common") and LLC purchased
from CSI (x) 3,625 shares of CSI Class A Preferred, (y) 5,410 shares of CSI
Class A Common and (z) 8,340 shares of CSI's Class B Common Stock, $0.01 par
value ("CSI Class B Common"). The shares of CSI Class A Common and CSI Class B
Common received by Primus and LLC are referred to collectively as the "Purchased
Capital Stock."
B. EXISTING NOTES. Pursuant to a Subordinated Secured Note and Warrant
--------------
Purchase Agreement dated June 30, 1995 ("Prior Purchase Agreement") CSI issued
and sold to (i) Primus Subordinated Secured Notes due June 30, 2000 in the
aggregate principal amount of $500,000, and (ii) LLC Subordinated Secured
Notes due June 30, 2000 in the aggregate principal amount of $2,000,000
(collectively the "Existing Notes"). The Existing Notes will be paid in full
and canceled on the Closing Date (as defined herein).
C. EXISTING ADVANCES. Pursuant to a Credit Facility Agreement dated as of
-----------------
June 30, 1995 ("Prior Credit Facility") by and between CSI and LLC, LLC agreed
to make advances to CSI in an amount not to exceed $2,000,000 at any one time
outstanding. Any such advances outstanding at the Closing Date ("Existing
Advances") shall be paid in full and canceled as of the Closing Date.
D. PRIOR WARRANT SHARES. Pursuant to the Prior Purchase Agreement, CSI
--------------------
issued and sold to (i) Primus warrants to purchase 1,250 shares of CSI Class A
Common, and (ii) LLC warrants to purchase 5,000 shares of CSI Class B Common
(collectively, the "Prior Warrants"). Prior to the Merger Date (as defined
herein) both Primus and LLC exercised the Prior Warrants. The shares issued upon
exercise thereof are referred to collectively as the "Prior Warrant Shares." The
Prior Warrants were evidenced by the "Prior Warrant Certificates."
1
<PAGE>
E. EXECUTIVE STOCK AGREEMENTS. Each of the Executives is party to an
--------------------------
Executive Stock Agreement dated June 30, 1995 ("Executive Stock Agreement") by
and between the Executive and CSI. Pursuant to such Executive Stock Agreement,
the Executives purchased shares of Class A Common and Class B Common. The
shares purchased by all the Executives are referred to collectively as the
"Executive Stock." Although not a party to the Stock Purchase Agreement, the
Executives were given certain first refusal rights in regards to their
Executive Stock pursuant to Section 3.1J of the Stock Purchase Agreement.
F. MERGER. On September 30, 1996 ("Merger Date"), Corinthian Merger
------
Subsidiary, Inc., a subsidiary of the Company, was merged into CSI, the former
parent corporation of the Company, with CSI being the surviving entity. Pursuant
to the merger, all of the outstanding shares of (i) CSI Class A Preferred were
exchanged for an equal number of the Company's Class A Preferred Stock, $1.00
par value, $100 liquidation value ("Class A Preferred"), (ii) CSI Class A Common
were exchanged for an equal number of the Company's Class A Common Stock, $0.01
par value ("Class A Common"), and (iii) CSI Class B Common were exchanged for an
equal number of the Company's Class B Common Stock, $0.01 par value ("Class B
Common"). In conjunction with the merger, CCI has succeeded to all the rights
and obligations of CSI under the Stock Purchase Agreement, Prior Purchase
Agreement and Executive Stock Agreement pursuant to the Assignment and
Assumption Agreement (as defined herein).
G. Notes. Pursuant to a Subordinated Note and Warrant Purchase Agreement
-----
dated October 17, 1996 ("Purchase Agreement") by and among the Company, Primus
and BOCP II, the Company issued and sold to (i) Primus and Primus purchased
$1,000,000 aggregate principal amount of Subordinated Notes due October 17,
2004, for $1,000,000, and (ii) BOCP II and BOCP II purchased $4,000,000
aggregate principal amount of Subordinated Notes due October 17, 2004, for
$4,000,000, (collectively the "New Note(s)").
H. NEW WARRANTS. Pursuant to the Purchase Agreement, Primus purchased
------------
warrants to acquire 806.45 shares of Class A Common and BOCP II purchased
warrants to acquire 3,225.81 shares of Class B Common. The warrants are referred
to collectively as the "New Warrants." The shares issuable upon exercise thereof
are referred to collectively as the "New Warrant Shares." The Warrants are
evidenced by "New Warrant Certificates."
I. PURPOSE OF AGREEMENT. The Purpose of this Agreement is to provide for
--------------------
certain preemptive rights and put options with regard to the Purchased Capital
Stock, Prior Warrant Shares, New Warrants or New Warrant Shares and Purchase
Shares (if any). It is the intention of the Parties that this Agreement will
supersede and replace in their entirety, Sections 3.1J and 3.1M of the Stock
Purchase Agreement and Sections 3.6 and 11 of the Prior Warrant Certificates.
STATEMENT OF AGREEMENT
----------------------
2
<PAGE>
In consideration of their mutual promises set forth in this Agreement the
Parties hereby agree as follows.
SECTION 1. DEFINED TERMS.
-------------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings (the definitions to be applicable to both
the singular and the plural forms of the terms defined where either such form is
used in this Agreement).
1.1 "Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Original Issue Date other than Warrant
Shares and shares issued under the Company's employee stock option plans.
1.2 "Adjusted Permitted Indebtedness" means, as determined as of any
date (i) the aggregate principal amount of all Permitted Indebtedness, excluding
(ii) the aggregate principal amount of the Senior Loans outstanding as of such
date of determination.
1.3 "Affiliate" shall have the meaning set forth in the Purchase
Agreement.
1.4 "Agreement" means this Rights Agreement dated as of October 17,
1996 as modified, amended or restated from time to time.
1.5 "Appraiser" means, with respect to any determination of the Fair
Market Value Amount, an independent appraiser (which shall be an accounting firm
or investment banking firm that is not an Affiliate of either the Company or the
Holder) selected in the manner provided for in this definition. Within ten (10)
days after the exercise of the Put Option, the Company and the Holder shall
endeavor in good faith to select a mutually acceptable Appraiser. If no such
Appraiser is mutually selected within such time period or such longer time
period as the Company and the Holder shall mutually agree upon, then within ten
(10) days thereafter, the Company and the Holder shall each designate an
investment banking firm that is not an Affiliate of either the Company or the
Holder, and within ten (10) days thereafter, such investment banking firms shall
mutually select the Appraiser. The Company shall pay the reasonable fees and
expenses of the Appraiser, and, if applicable, the Company and the Holder shall
each pay the fees and expenses of the investment banking firm designated by each
of them for the purpose of selecting the Appraiser.
1.6 "Assignment and Assumption Agreement" means the Assignment and
Assumption of Purchase Agreement, Registration Agreement and Executive Stock
Agreements (and Related Executive Stock Pledge Agreements and Promissory Notes)
of Corinthian Schools, Inc. Agreement dated as of the Merger Date, pursuant to
which CCI was assigned and assumed the rights and obligations of CSI under Stock
Purchase Agreement, Prior Purchase Agreement and Executive Stock Agreement, and
all references to shares of CSI Capital Stock under those agreements now refer
to CCI Capital Stock.
3
<PAGE>
1.7 "BOCP II" means Banc One Capital Partners II, Ltd., an Ohio
limited liability company, together with its successors and assigns.
1.8 "Board of Directors" means the board of directors of the Company
and, as applicable and to the extent permitted by law, any committee of such
board of directors authorized to exercise the powers of the board of directors.
1.9 "Business Day" means, any day other than a Saturday, Sunday or
day upon which banking institutions are authorized or required by law or
executive order to be closed in the City of Columbus, Ohio.
1.10 "CSI" means Corinthian Schools, Inc., a Delaware corporation,
together with its successors and assigns.
1.11 "CSI Class A Preferred" is defined in Background Paragraph A.
1.12 "CSI Class A Common" is defined in Background Paragraph A.
1.13 "CSI Class B Common" is defined in Background Paragraph A.
1.14 "Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such Person or partnership interests and any warrants, options or other rights
to acquire such stock or interests.
1.15 "Capitalized Earnings Amount" means, as of any date of
determination, an amount equal to five (5) times EBITDA (four (4) times EBITDA
in the case of Prior Warrant Shares or Purchase Shares issued in respect of such
Prior Warrant Shares) (i) reduced by (A) an amount sufficient to pay in full all
of the then outstanding Adjusted Permitted Indebtedness (including all accrued
but unpaid interest with respect thereto), and (B) an amount equal to the total
amount expended or incurred (including the full amount capitalized under capital
leases) for the acquisition of fixed or capital assets as reflected on the most
recent Financial Statements for the twelve-month period ended immediately prior
to any such date of determination, and (ii) increased by the average amount of
cash and marketable securities reflected on the most recent Financial Statements
of the Company as of the date of determination.
1.16 "Change of Control" means (i) an event or series of events by
which any Person or Persons or other entities acting in concert as a partnership
or other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of the Company, (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such
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transaction hold less than a majority of the combined Voting Power of the Person
surviving the transaction, or (iii) the direct or indirect, sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or Group of Persons.
1.17 "Class A Common" is defined in Background Paragraph F.
1.18 "Class B Common" is defined in Background Paragraph F.
1.19 "Class A Preferred" is defined in Background Paragraph F.
1.20 "Closing Date" means October 17, 1996, or such later date as the
Parties shall mutually agree.
1.21 "Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
1.22 "Common Stock" means the shares of Class A Common and Class B
Common treated as a single class of stock, at any time outstanding.
1.23 "Company" means Corinthian Colleges, Inc., a Delaware
corporation, together with its successors and assigns.
1.24 "Contingent Warrants" means the warrants held by Prudential,
Primus, BOCP II and LLC which are evidenced by Contingent Stock Warrants dated
as of the date hereof.
1.25 "Convertible Securities" means evidences of indebtedness, shares
of stock or other securities that are convertible into or exchangeable for, with
or without payment of additional consideration in cash or property, or options,
warrants or other rights that are exercisable for, shares of Common Stock that,
when issued, would constitute Additional Shares of Common Stock, either
immediately or upon the occurrence of a specified date or a specified event, but
excluding the shares of Common Stock issuable upon exercise of the Warrants.
1.26 "Devereux "means such individual as identified in the Parties
section hereof, together with his heirs, successors and assigns.
1.27 "Disposition" means (i) a merger, consolidation or other
business combination in which the Company is the surviving entity and the
Company's stockholders receive cash or non-cash consideration in exchange for or
in respect of their shares of Capital Stock of the Company or (ii) the sale,
lease, conveyance, transfer or other disposition (other than the grant of a
security interest) in any single transaction or series of related transactions
of all or substantially all of the assets of the Company.
1.28 "EBITDA" means, as determined as of any date, earnings of the
Company (as
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reflected on the most recent Financial Statements) for the twelve-month period
ended immediately prior to any such date of determination determined excluding
all amounts expensed as reflected on such Financial Statements during such
twelve-month period with respect to (i) interest expense with respect to
Permitted Indebtedness, (ii) federal and state income tax expense, (iii)
depreciation expense, and (iv) amortization expense.
1.29 "Event of Default" shall have the meaning set forth in the
Purchase Agreement.
1.30 "Executives" means Moore, St. Pierre, McCord, Devereux and
Holland, as a group, and "Executive" means any one of them.
1.31 "Executive Stock" is defined in Background Paragraph E.
1.32 "Executive Stock Agreement" is defined in Background Paragraph
E.
1.33 "Existing Advances" is defined in Background Paragraph C.
1.34 "Existing Notes" is defined in Background Paragraph B.
1.35 "Fair Market Value Amount" means, as of any Put Date with
respect to which either the Company or the Holder by written notice within ten
(10) days after the Put Date to the other requests a determination of such
amount, the fair market value of the then Outstanding Common Stock as determined
by the Appraiser assuming the sale of such Outstanding Common Stock by a willing
seller to a willing buyer immediately after giving effect to (i) the redemption
in full of all the outstanding Preferred Stock at the applicable Redemption
Price, and (ii) the payment in full of all outstanding Permitted Indebtedness,
and determined without giving consideration to the tax consequences of such sale
to the seller.
1.36 "Financial Statements" means the Annual Financial Statements,
Quarterly Financial Statements and Monthly Financial Statements (all as defined
in the Purchase Agreement), as applicable, of the Company.
1.37 "Group of Persons" is defined in Section 1.15 hereof.
1.38 "Holder" means with respect to the (i) Purchased Capital Stock,
Primus and LLC, (ii) Prior Warrant Shares, Primus and LLC, (iii) New Warrants
and New Warrant Shares, Primus and BOCP II and (iv) Executive Stock, the
Executives.
1.39 "Holland"means such individual as identified in the Parties
section hereof, together with his heirs, successors and assigns.
1.40 "Indebtedness" means, with respect to the Company, as of any
date of
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determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.41 "Initial Public Offering" means the first offer and sale to the
public by the Company or any holders of shares of any class of its Capital
Stock, pursuant to a registration statement that has been declared effective by
the Commission; provided, however, that the gross proceeds of the shares issued
and sold by the Company are at least $20,000,000.
1.42 "LLC" means BOCP II, Limited Liability Company, an Ohio limited
liability company and successor by merger to Banc One Capital Partners II,
Limited Partnership, together with its successors and assigns.
1.43 "Market Determined Value Amount" means, with respect to any Put
Date, the fair market value of the then Outstanding Common Stock determined in
good faith in connection with a Trigger Event the closing of which has occurred
within six (6) months immediately preceding the Put Date or that will occur
pursuant to an agreement or a binding letter of intent in effect as of the Put
Date and assuming (i) the redemption in full of all the outstanding Preferred
Stock at the applicable Redemption Price and, (ii) the payment in full of all
outstanding Permitted Indebtedness, and determined without giving consideration
to the tax consequences of such sale to the seller.
1.44 "McCord" means such individual as identified in the Parties
section hereof, together with his heirs, successors and assigns.
1.45 "Merger Date" is defined in Background Paragraph F.
1.46 "Moore" means such individual as identified in the Parties
section hereof, together with his heirs, successors and assigns.
1.47 "New Notes" is defined in Background Paragraph G.
1.48 "New Warrants" is defined in Background Paragraph H.
1.49 "New Warrant Certificates" is defined in Background Paragraph H.
1.50 "New Warrant Shares" is defined in Background Paragraph H.
1.51 "Non-Surviving Combination" means any merger, consolidation or
other
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business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity.
1.52 "Original Issue Date" means the date on which the New Warrants
and the New Notes were first issued pursuant to the Purchase Agreement.
1.53 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable under
the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date shall be adjusted in accordance with the "treasury stock" method determined
under generally accepted accounting principles pursuant to Accounting Principles
Board Opinion 15.
1.54 "Parties" means the Company, CSI, BOCP II, LLC, Primus and the
Executives, collectively, and "Party" means any one of them.
1.55 "Permitted Indebtedness" means, as of any date of determination
the aggregate principal amount of all Indebtedness of the Company outstanding as
of such date of determination, but only to the extent that the principal amount
of such Indebtedness does not exceed the amounts permitted under the Purchase
Agreement.
1.56 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, estate, unincorporated organization
or government or any agency or political subdivision thereof.
1.57 "Preemption Offering" means any proposed issuance and sale by
the Company after the Original Issue Date and prior to the date of the Initial
Public Offering of any shares of Common Stock or any Convertible Securities
other than the following:
(a) the issuance of the Warrant Shares subject to the Warrants and
shares of Common Stock subject to the Prudential Warrant;
(b) the issuance or sale of Common Stock pursuant to a rights
offering in which the holder hereof elects to participate under
the provisions of Section 3.5 of the New Warrant Certificates;
(c) the issuance or sale of Common Stock or Convertible Securities
in connection with the acquisition by the Company of a business,
which issuance or sale has been approved by a unanimous vote of
the Board of
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Directors of the Company; or
(d) the issuance of shares of Common Stock pursuant to the
Contingent Warrants.
1.58 "Preferred Stock" means any shares of Capital Stock of the
Company ranking senior to the Common Stock with respect to dividends or
liquidation including, without limitation, the shares of Class A Preferred.
1.59 "Primus" means Primus Capital Fund III Limited Partnership, an
Ohio limited partnership, together with its successors and assigns.
1.60 "Prior Credit Facility" is defined in Background Paragraph C.
1.61 "Prior Purchase Agreement" is defined in Background Paragraph B.
1.62 "Prior Warrants" is defined in Background Paragraph D.
1.63 "Prior Warrant Certificates" is defined in Background
Paragraph D.
1.64 "Prior Warrant Shares" is defined in Background Paragraph D.
1.65 "Prudential" means The Prudential Insurance Company of America,
together with its successors and assigns.
1.66 "Prudential Warrants" means the warrants held by Prudential
which are evidenced by a Stock Subscription Warrant dated as of the date hereof.
1.67 "Purchase Agreement" is defined in Background Paragraph G.
1.68 "Purchased Capital Stock" is defined in Background Paragraph A.
1.69 "Purchase Shares" means, as of any date of determination, any
shares of Common Stock purchased by Primus, LLC and BOCP II prior to such date
of determination pursuant to the exercise of its rights under Section 2 hereof,
or directly from the Company in any other transaction after the Original Issue
Date. For purposes of this definition, Purchase Shares shall include any shares
of Common Stock issuable upon the conversion of any Convertible Securities
purchased by Primus, LLC and BOCP II pursuant to the exercise of its rights
under Section 2 hereof.
1.70 "Put Date" shall have the meaning set forth in Section 6.2.
1.71 "Put Event" means the earlier to occur of the following:
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(a) the first to occur of (i) October 31, 2004, or (ii) the later of
(A) the final payment and discharge of all of the Company's
obligations under that certain Note Purchase and Revolving
Credit Agreement entered into in October 17, 1996, with The
Prudential Insurance Company of America and the notes issued
thereunder, as amended, supplemented or otherwise modified from
time to time or (B) June 30, 2001;
(b) a Change of Control; or
(c) a Non-Surviving Combination.
1.72 "Put Option" shall have the meaning set forth in Section 6.1.
1.73 "Redemption Price" means the liquidation value with respect to
the Preferred Stock plus all accrued and unpaid dividends.
1.74 "Registration Rights Agreement" means the Amended and Restated
Registration Agreement dated as of the date hereof by and among the Company,
Prudential and the Holders.
1.75 "Reorganization Event" means any of the following events:
(a) capital reorganization or reclassification or recapitalization
of the Capital Stock of the Company (other than any Adjustment
Event as defined in the New Warrant Certificates);
(b) any merger or consolidation of the Company with or into another
corporation; and
(c) the sale or transfer of the property of the Company as an
entirety on substantially as an entirety.
1.76 "Repurchase Price" shall have the meaning set forth in Section
6.3.
1.77 "Restricted Securities" means (a) any Warrant bearing the
applicable legend (set forth in Section 3.1, (b) any Warrant Shares which are
evidenced by a certificate or certificates bearing the legend set forth in
Section 3.1, and (c) unless the context otherwise requires, any share of
Common Stock which, when issued, will be evidenced by a certificate or
certificates bearing the legend set forth in section 3.1.
1.78 "St. Pierre" means such individual as identified in the Parties
section hereof together with his heirs, successors and assigns.
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1.79 "Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute replacing said statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.80 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar Federal statute replacing said statute, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
1.81 "Senior Loans" means (i) loans outstanding under the Credit
Agreement dated as of October 17, 1996, between the Company and Prudential, as
modified, amended, restated, renewed or extended from time to time and (ii) any
extension, renegotiation or refinancing of such loans with Prudential or any
other lender; provided, however, that, in any event, for purposes of this
Agreement, the aggregate outstanding principal amount of the Senior Loans shall
be deemed not to exceed $27,500,000.
1.82 "Stock Purchase Agreement" is defined in Background Paragraph A.
1.83 "Transfer" means with respect to any Restricted Securities, any
sale, assignment, pledge or other disposition thereof, or of any interest
therein, which could constitute a "sale" thereof, as that term is defined in
Section 2(3) of the Securities Act.
1.84 "Trigger Event" means any of the following events: (i) an
Initial Public Offering; (ii) a Change of Control; (iii) a Disposition; or (iv)
a Non-Surviving Combination.
1.85 "Underlying Common Stock" means the shares of Purchased Capital
Stock, Prior Warrant Shares, and New Warrant Shares as if the New Warrants had
been exercised, all as adjusted pursuant to this Agreement.
1.86 "Valuation Amount" means, as of any date of determination, the
Capitalized Earnings Amount, unless (i) a greater Fair Market Value Amount has
been determined, or (ii) a greater Market Determined Value Amount is
determinable with respect to such date of determination, in which case
"Valuation Amount" means the greater amount (if applicable).
1.87 "Voting Power" of any Person means the aggregate number of votes
of all classes of Capital Stock of such Person which ordinarily has voting power
for the election of the Board of Directors or their equivalents of such Person.
1.88 "Warrants" means the Prior Warrants and the New Warrants.
1.89 "Warrant Certificates" means the Prior Warrant Certificates and
the New Warrant Certificates.
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1.90 "Warrant Shares" means the Prior Warrant Shares and the New
Warrant Shares.
SECTION 2. PREEMPTION RIGHTS. In the event of any Preemption Offering,
-----------------
(i) the Company shall notify the Holders of the Underlying Common Stock and the
Executive Stock in writing of the number of shares of Common Stock or
Convertible Securities subject to such Preemption Offering and the cash or cash
equivalent purchase price (determined by the Board of Directors of the Company
in good faith) thereof, and (ii) each Holder of the Underlying Common Stock or
the Executive Stock shall have the right for a period of thirty (30) days
following the consummation of such Preemption Offering to purchase up to that
percentage of such shares of Common Stock or Convertible Securities determined
by dividing (A) the total number of Underlying Stock or Executive Stock held by
such holder and (B) the total number of shares of Outstanding Common Stock.
In order to exercise its purchase rights hereunder, a holder of Underlying
Common Stock or Executive Stock must, within 15 days after receipt of written
notice from the Company describing in reasonable detail the Preemption Offering,
including the purchase price hereof, the payment terms and such holder's
percentage allotment, deliver a written notice to the Company stating its
election to participate, in whole or in part, in the Preemption Offering. If all
of the Common Stock and/or Convertible Securities offered to the holders of the
Underlying Common Stock and Executive Stock is not fully subscribed by such
holders, the remaining Common Stock and/or Convertible Securities shall be
reoffered by the Company to the holders purchasing their full allotment upon the
terms set forth in this paragraph, except that such holders must exercise their
purchase rights within five (5) days after receipt of such reoffer.
Upon the expiration of the offering periods described above, the Company
shall be entitled to sell such Common Stock and/or Convertible Securities which
the holders of Underlying Common Stock and Executive Stock have not elected to
purchase during the ninety (90) days following such expiration on terms and
conditions no more favorable to the purchasers thereof than those offered to
such holders. Any Common Stock and/or Convertible Securities offered or sold by
the Company after such 90 day period must be reoffered to the holders of
Underlying Common Stock and Executive Stock pursuant to the terms of this
paragraph.
SECTION 3. RESTRICTIONS ON TRANSFER.
-------------------------
3.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this
-------------------
Section 3, the Warrants and each Warrant issued in exchange or substitution for
any Warrant, and each Warrant issued upon the registration of transfer of any
Warrant and each certificate representing Warrant Shares and each certificate
issued upon the registration of transfer of any Warrant Shares, shall be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
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SECURITIES LAWS OF ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD,
TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS THERE IS
IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS
COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE ISSUER OR A NO-ACTION LETTER FROM THE
COMMISSION INDICATING THAT SUCH DISTRIBUTION, SALE, TRANSFER,
ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT
AND LAWS."
3.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to any
transfer of any Restricted Securities, the Holder will give written notice to
the Company of the Holder's intention to effect such transfer and to comply in
all other respects with this Section 3.2. Each such notice of a proposed
transfer (a) shall describe the manner and circumstances of the proposed
transfer in sufficient detail to enable counsel to render the opinion referred
to below, and (b) shall designate counsel for the Holder. The Holder will submit
a copy thereof to the counsel designated in such notice and the Company will
promptly submit a copy thereof to its counsel. The following provisions shall
then apply:
(a) If in the opinion of counsel to the Company the proposed
transfer may be effected without registration of such Restricted
Securities under the Securities Act, the Company will promptly
notify the Holder and the Holder shall thereupon be entitled to
transfer such Restricted Securities in accordance with the terms
of the notice delivered by the Holder to the Company. Each
Warrant or certificate, if any, issued upon or in connection
with such transfer shall bear the restrictive legend set forth
in section 3.1, unless in the opinion of such counsel such
legend is no longer required to ensure compliance with the
Securities Act. If for any reason counsel for the Company (after
having been furnished with the information required to be
furnished by clause (a) of this Section 3.2) shall fail to
deliver an opinion to the Company, or the Company shall fail to
notify the Holder as aforesaid, within thirty (30) days after
receipt of notice of the Holder's intention to effect a
transfer, then for all purposes of the Warrants the opinion of
counsel for the Holder shall be sufficient to authorize the
proposed transfer and the opinion of counsel for the Company
shall not be required in connection with such proposed transfer;
and
(b) If in the opinion of counsel to the Company the proposed
transfer may not be effected without registration of such
Restricted Securities under the Securities Act, the Company will
promptly so notify the Holder and the Holder shall not be
entitled to transfer such Restricted Securities until receipt of
a further notice from the Company under clause (i) above or
until registration of such
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Restricted Securities under the Securities Act has become effective.
SECTION 4. AVAILABILITY OF INFORMATION. Within ninety (90) days after
---------------------------
a registration statement under the Securities Act is declared effective with
respect to an Initial Public Offering, the Company will comply with the
reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act
insofar as they are applicable to the Company and will comply with all other
public information reporting requirements of the Commission (including the
requirements of Rule 144 promulgated by the Commission under the Securities
Act) from time to time in effect and relating to the availability of an
exemption from the Securities Act for the sale of any Restricted Securities or
the sale of securities by Affiliates. The Company will also cooperate with the
Holder at the Holder's expense to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities or the sale of securities by Affiliates.
SECTION 5. REGISTRATION RIGHTS. The Holders of the Purchased Capital
-------------------
Stock, Warrants and Warrant Shares and Purchase Shares, if any, shall have
registration rights as provided in the Registration Rights Agreement dated as of
the date hereof by and between the Holders of the Purchased Capital Stock,
Warrants or Warrant Shares, and Purchase Shares, if any, Prudential and the
Company.
SECTION 6. PUT OPTIONS.
------------
6.1 PUT OPTION EXERCISE PERIODS. Unless and until an Initial Public
---------------------------
Offering has occurred, the holders of the Purchased Capital Stock, and Warrants
and Warrant Shares and Purchase Shares, if any, shall have the option (the "Put
Option") to require the Company to purchase all (and in the case of the Warrants
and Warrant Shares not less than all) of the Purchased Capital Stock, Warrants
and Warrant Shares and Purchase Shares, if any, at anytime after a Put Event has
occurred.
6.2 MANNER OF EXERCISE. The put option may be exercised by the
------------------
Holders of the Purchased Capital Stock, Warrants and Warrant Shares and Purchase
Shares, if any, by such Holder giving written notice to the Company that such
Holder elects to sell the Purchased Capital Stock, Warrants and Warrant Shares
and Purchase Shares, if any, then held by such Holder to the Company ("Put
Date") at the repurchase price set forth in Section 6.3 (the "Repurchase
Price"). Such written notice of election by the Holders shall be irrevocable.
Upon final determination of the Repurchase Price as set forth in Section 6.3,
the Company shall be required to repurchase the Purchased Capital Stock,
Warrants and Warrant Shares and Purchase Shares, if any, then held by such
Holder. The Company shall take all such actions, including selling assets,
borrowing funds and giving liens in connection therewith, determining its
capital surplus based upon appraisals or valuations of its assets and obtaining
assets of its lenders, as may be required to permit it to purchase any shares so
requested to be purchased. In the event that, notwithstanding compliance with
its obligations hereunder the Company is legally prohibited from completing such
purchase, the Company shall unless waived by the selling Holder, purchase the
maximum number of shares then legally permitted,
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thereafter conduct its affairs so as to purchase any remaining shares as quickly
as possible and offer to purchase any shares which cannot be purchased for cash
for promissory notes which bear the highest interest rate, have the shortest
maturity rate and are secured by the most collateral as is then or subsequently
permitted.
6.3 THE REPURCHASE PRICE. The Repurchase Price per shall be equal to:
--------------------
(a) With respect to the Purchased Capital Stock, the Fair Market
Valuation Amount divided by the number of shares of Outstanding
Common Stock determined as of the Put Date; and
(b) With respect to the Warrants and Warrant Shares, the Valuation
Amount divided by the number of Outstanding Common Stock
determined as of the Put Date.
6.4 CLOSING AND PAYMENT. The closing for the repurchase of the
-------------------
Purchased Capital Stock, Warrants and Warrant Shares and Purchase Shares, if
any, by the Company pursuant to this Section 6 shall occur within ten (10)
Business Days following the date of the determination of the Repurchase Price
which shall be payable by the Company by delivery of a certified or cashiers'
check to the selling Holder.
SECTION 7. MISCELLANEOUS.
(1) No Implied Rights or Waivers. No notice to or demand on CCI
----------------------------
in any case shall entitle CCI to any other or further
notice or demand in the same, similar and other
circumstances. Neither any failure nor any delay on the
part of a Holder in exercising any right, power or
privilege hereunder or under the New Notes or Warrant
Certificates shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or
further exercise of the same or the exercise of any other
right, power or privilege.
(2) Modifications. Amendments or Waivers. The Company and the
------------------------------------
Holders may from time to time enter into written agreements
amending or changing any provision of this Agreement or the
rights hereunder or give waivers or consents to a departure
from the due performance of their obligations hereunder
provided that no departure from the Company's due
performance of its obligations hereunder shall be effective
unless agreed to in writing by each Holder.
(3) Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with GAAP.
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(4) Entire Agreement. This Agreement including the Exhibits
----------------
or Schedules hereto, constitutes the entire agreement
relating to the subject matter hereof among the Parties
hereto. Each Party acknowledges that no representation,
inducement, promise or agreement has been made, orally or
otherwise, by any other Party, or anyone acting on behalf
of any other Party, unless such representation,
inducement, promise or agreement is embodied in this
Agreement expressly or by incorporation.
(5) Governing Law. This Agreement shall be governed by and
------------
construed in accordance with the laws of the State of Ohio.
(6) Severability. If any provision of this Agreement is held
------------
to be invalid, void or unenforceable, the remaining
provisions of this Agreement shall nevertheless continue
in full force and effect.
(7) Third Party Beneficiaries. The obligations of each Party
-------------------------
under this Agreement shall inure solely to the benefit of
the other Parties, and no other person or entity shall be
a third party beneficiary of this Agreement.
(8) Rules of Construction. Unless otherwise specified, the
---------------------
following rules shall be applied in construing the
provisions of this Agreement.
(i) Terms that imply gender shall be construed to apply to
all genders.
(ii) References to Sections, Schedules and Exhibits refer to
the numbered Sections of, the Schedules of and the
Exhibits attached to this Agreement.
(iii) Headings to the various Sections of this Agreement are
included solely for purposes of reference and shall be
ignored in construing the provisions of this Agreement.
(iv) The Exhibits and Schedules attached to this Agreement are
incorporated herein by reference.
(v) "Herein", "hereto", "hereof" and words of similar import
refer to this Agreement.
(vi) The word "and" connotes "each and every", and the word
"or" connotes "any one or more".
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(vii) The word "including" connotes "including without limitation".
(viii) Any reference to any law or regulation refers to that law or
regulation as amended from time-to-time after the date of this
Agreement and to the corresponding provision of any successor law
or regulation.
(ix) Any reference to any agreement or other document in this
Agreement refers to that agreement or other document as amended
from time-to-time after the date of this Agreement.
(x) The recitals included in this Agreement are the mutual
representations of the Parties and are a part of this Agreement.
(9) Notices. Any notice or other communication required or permitted
-------
to be made or given under this Agreement, shall be in writing and
shall be deemed to have been received by the Party to whom it is
addressed: (i) on the date indicated on the certified mail return
receipt if sent by certified mail return receipt requested; (ii)
on the date actually received if hand delivered or if transmitted
by telefax (receipt of which is confirmed to sender); (iii) three
business days after such notice was deposited in the United
States Mail postage prepaid; or (iv) one business day after such
notice was delivered to an overnight delivery service, addressed,
delivered or transmitted in each case as follows:
HOLDERS:
Banc One Capital Partners II, Ltd.
300 Crescent Court, Suite 1600
Dallas, Texas 75201
ATTENTION: Earle J. Bensing
Telephone: (214) 979-4343
Telefax: (214) 974-4355
With A Copy to:
Banc One Capital Corporation
150 East Gay Street, 24th Floor
Columbus, Ohio 43215
ATTENTION: General Counsel
Telephone: (614) 217-1100
Telefax: (614) 217-1217
17
<PAGE>
Primus Capital Fund III Limited Partnership
1375 East Ninth Street
Suite 2700
Cleveland, Ohio 44114
ATTENTION: Loyal W. Wilson
Telephone: (216) 621-2185
Telefax: (216) 621-4543
With A Copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
ATTENTION: Carter W. Emerson, Esq.
Telephone: (312) 861-2052
Telefax: (312) 861-2200
To the Executives:
Corinthian Colleges, Inc.
1932 East Deere Avenue, Suite 210
Santa Ana, California 92705-5735
Telephone: (714) 261-7606
Telefax: (714) 222-3529
COMPANY:
Corinthian Colleges, Inc.
1932 East Deere Avenue, Suite 210
Santa Ana, California 92705-5735
ATTENTION: David G. Moore
Telephone: (714)261-7606
Telefax: (714)222-3529
With a Copy to:
O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660
ATTENTION: John D. Hudson, Esq.
Telephone: (714) 760-9600
Telefax: (714) 669-6994
18
<PAGE>
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
(10) Assignment. Neither this Agreement nor any of the rights or
----------
duties hereunder may be assigned by any Party without the
prior written consent of each of the other Parties, and any
assignment attempted without such prior consent shall be
null and void.
(11) Further Acts and Documents. Each of the Parties hereby
--------------------------
agrees to execute and deliver such further instruments and
to do such further acts and things as may be necessary or
desirable to carry out the purposes of this Agreement.
(12) Counterparts. The Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an
original and all of which shall constitute one in the same
agreement.
19
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation
By
-------------------------------
David G. Moore, President By
----------------------------------
Its: Authorized Signer
EXECUTIVES:
- ----------------------------------
David G. Moore PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
- ---------------------------------- By: Primus Venture Partners, Inc.
Paul St. Pierre
By
-----------------------------------
- ---------------------------------- Loyal W. Wilson
Frank J. McCord
Its
----------------------------------
- ----------------------------------
Dennis L. Devereux
BOCP II, LIMITED LIABILITY COMPANY
- ----------------------------------
Lloyd W. Holland By: BOCP Holdings Corporation
By
-----------------------------------
Its: Authorized Signer
20
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation
By /s/ David G. Moore
-------------------------------
David G. Moore, President By
----------------------------------
Its: Authorized Signer
EXECUTIVES:
/s/ David G. Moore
- ----------------------------------
David G. Moore PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
- ---------------------------------- By: Primus Venture Partners, Inc.
Paul St. Pierre
By /s/ Loyal W. Wilson
/s/ Frank St. Pierre -----------------------------------
- ---------------------------------- Loyal W. Wilson
Frank J. McCord
Its President
----------------------------------
- ----------------------------------
Dennis L. Devereux
/s/ Lloyd W. Holland BOCP II, LIMITED LIABILITY COMPANY
- ----------------------------------
Lloyd W. Holland By: BOCP Holdings Corporation
By
-----------------------------------
Its: Authorized Signer
21
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation
By
-------------------------------
David G. Moore, President By
----------------------------------
Its: Authorized Signer
EXECUTIVES:
- ----------------------------------
David G. Moore PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
/s/ Paul St. Pierre
- ---------------------------------- By: Primus Venture Partners, Inc.
Paul St. Pierre
By
-----------------------------------
- ---------------------------------- Loyal W. Wilson
Frank J. McCord
Its
----------------------------------
- ----------------------------------
Dennis L. Devereux
BOCP II, LIMITED LIABILITY COMPANY
- ----------------------------------
Lloyd W. Holland By: BOCP Holdings Corporation
By
-----------------------------------
Its: Authorized Signer
22
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation
By
-------------------------------
David G. Moore, President By
----------------------------------
Its: Authorized Signer
EXECUTIVES:
- ----------------------------------
David G. Moore PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
- ---------------------------------- By: Primus Venture Partners, Inc.
Paul St. Pierre
By
- ---------------------------------- -----------------------------------
Frank J. McCord Loyal W. Wilson
/s/ Dennis L. Devereux Its
- ---------------------------------- ----------------------------------
Dennis L. Devereux
BOCP II, LIMITED LIABILITY COMPANY
- ----------------------------------
Lloyd W. Holland By: BOCP Holdings Corporation
By
-----------------------------------
Its: Authorized Signer
23
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation
By
-------------------------------
David G. Moore, President By
----------------------------------
Its: Authorized Signer
EXECUTIVES:
- ----------------------------------
David G. Moore PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
- ---------------------------------- By: Primus Venture Partners, Inc.
Paul St. Pierre
By /s/ Loyal W. Wilson
- ---------------------------------- -----------------------------------
Frank J. McCord Loyal W. Wilson
Its President
- ---------------------------------- ----------------------------------
Dennis L. Devereux
BOCP II, LIMITED LIABILITY COMPANY
- ----------------------------------
Lloyd W. Holland By: BOCP Holdings Corporation
By
-----------------------------------
Its: Authorized Signer
24
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
BANC ONE CAPITAL PARTNERS II,
CORINTHIAN COLLEGES, INC. LTD.
By: BOCP Holdings Corporation, Manager
By
-------------------------------
David G. Moore, President By /s/ Earle J. Bensing
----------------------------------
Its: Authorized Signer
EXECUTIVES:
- ----------------------------------
David G. Moore PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
- ---------------------------------- By: Primus Venture Partners, Inc.
Paul St. Pierre
By
-----------------------------------
- ---------------------------------- Loyal W. Wilson
Frank J. McCord
- ---------------------------------- Its
Dennis L. Devereux ----------------------------------
- ---------------------------------- BOCP II, LIMITED LIABILITY COMPANY
Lloyd W. Holland
By: BOCP Holdings Corporation, Manager
By /s/ Earle J. Bensing
-----------------------------------
Its: Authorized Signer
25
<PAGE>
EXHIBIT 10.36
AMENDMENT TO THE RIGHTS AGREEMENT
This Amendment ("Amendment"), dated November 24, 1997, to the Rights
Agreement, dated October 17, 1996 (the "Rights Agreement"), is entered into by
and among Corinthian Colleges, Inc., a Delaware corporation ("Company"), Primus
Capital Fund III, Limited Partnership, an Ohio limited partnership, BOCP II,
Limited Liability Company, an Ohio limited liability company and successor by
merger to Banc One Capital Partners II, Limited Partnership, Banc One Capital
Partners II Limited Liability Company, an Ohio limited liability company, and
successor to Banc One Capital Partners II, Ltd., David G. Moore, Paul St.
Pierre, Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland.
The parties hereto agree to amend the Rights Agreement as follows:
1. The definition of Underlying Common Stock set forth in Section
1.85 shall be amended to include the Class B Common issuable upon
conversion of the Company's Class A Series 2 Preferred Stock and the Class
A Common issuable upon conversion of the Company's Class A Series 3
Preferred Stock.
2. Except as provided above, the Rights Agreement shall continue in
full force and effect unamended.
* * * * *
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
CORINTHIAN COLLEGES, INC. BANC ONE CAPITAL PARTNERS II, LIMITED
LIABILITY COMPANY
By /s/ David G. Moore By: BOCP Holdings Corporation,
----------------------------- Manager
David G. Moore, President
By___________________________________
EXECUTIVES:
Its: Authorized Signer
/s/ David G. Moore
_____________________________________
David G. Moore PRIMUS CAPITAL FUND III LIMITED
PARTNERSHIP
/s/ Paul St. Pierre
____________________________________ By: Primus Venture Partners, Inc.
Paul St. Pierre
By___________________________________
/s/ Frank J. McCord Loyal W. Wilson
____________________________________
Frank J. McCord Its__________________________________
/s/ Dennis L. Devereux
____________________________________ BOCP II, LIMITED LIABILITY COMPANY
Dennis L. Devereux
By: BOCP Holdings Corporation,
/s/ Lloyd W. Holland Manager
____________________________________
Lloyd W. Holland By___________________________________
Its: Authorized Signer
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
CORINTHIAN COLLEGES, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED LIABILITY COMPANY
By By: BCOP Holdings Corporation,
-------------------------------- Manager
David G. Moore, President
By
--------------------------------
EXECUTIVES: Its: Authorized Signer
- -------------------------------------
David G. Moore PRIMUS CAPITAL FUND III LIMITED
PARTNERSHIP
/s/ Paul St. Pierre
- ------------------------------------- By: Primus Venture Partners, Inc.
Paul St. Pierre
By
--------------------------------
/s/ Frank J. McCord Loyal W. Wilson
- --------------------------------------
Frank J. McCord Its
--------------------------------
/s/ Dennis L. Devereux
- -------------------------------------- BOCP II, LIMITED LIABILITY COMPANY
Dennis L. Devereux
By: BOCP Holdings Corporation,
/s/ Lloyd W. Holland Manager
- ---------------------------------------
Lloyd W. Holland By
--------------------------------
Its: Authorized Signer
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: HOLDERS:
CORINTHIAN COLLEGES, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED LIABILITY COMPANY
By ___________________________ By: BOCP Holdings Corporation, Manager
David G. Moore, President
By __________________________________
EXECUTIVES: Its: Authorized Signer
________________________________
David G. Moore PRIMUS CAPITAL FUND III LIMITED
PARTNERSHIP
________________________________ By: Primus Venture Partners, Inc.
Paul St. Pierre
By /s/ Loyal W. Wilson
----------------------------------
Loyal W. Wilson
________________________________
Frank J. McCord Its President
---------------------------------
________________________________ BOCP II, LIMITED LIABILITY COMPANY
Dennis L. Davereux
By: BOCP Holdings Corporation, Manager
________________________________ By __________________________________
Lloyd W. Holland
Its: Authorized Signer
<PAGE>
EXHIBIT 10.37
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT, dated as of October 17, 1996, made by
Corinthian Colleges, Inc., a Delaware corporation (the "Company"), and Rhodes
Colleges, Inc., a Delaware corporation ("Rhodes" and, together with the Company,
collectively referred to herein as the "Pledgors" and individually as a
"Pledgor"), in favor of The Prudential Insurance Company of America ("Pledgee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Pledgors are the owners of the shares of stock listed
opposite each Pledgor's name in Schedule A attached hereto and issued by the
companies listed opposite each Pledgor's name (the "Pledged Companies") set
forth on Schedule A (which, together with any additional shares pledged to the
Pledgee, are collectively referred to as the "Pledged Shares");
WHEREAS, the Company and the Pledgee have or are about to enter into
the Note Purchase and Revolving Credit Agreement, dated as of the date hereof
(as amended from time to time, the "Note Agreement"), pursuant to which the
Pledgee has agreed to purchase the Senior Secured Term Notes due 2003 of the
Company in the aggregate principal amount of $22,500,000 (as the same may be
amended from time to time, together with any notes issued in substitution or
exchange therefor, the "Term Notes"), and to make loans from time to time in an
aggregate principal amount not to exceed $5,000,000 outstanding at any time to
be evidenced by the Company's Senior Secured Revolving Notes due 1999 (as the
same may be amended from time to time, together with any note or notes issued in
substitution or exchange therefor, the "Revolving Notes" and, together with the
Term Notes collectively referred to herein as the "Notes" and individually as a
"Note"); and
WHEREAS, the Pledgee is willing to purchase the Notes and make
revolving loans, subject to the terms, covenants and conditions set forth in the
Note Agreement, but only if the Company's obligations under the Notes, the
Company's other obligations with respect to the Note Agreement and related
documents and all other obligations of the Company and each of its Subsidiaries
under any Transaction Document are collateralized by, among other things, all of
the Pledged Collateral through the granting of liens and security interests, as
provided for herein and in certain other documents.
NOW, THEREFORE, for the above reasons, in consideration of the
premises, and of the mutual covenants contained in the Note Agreement, and to
induce the Pledgee to purchase the Notes and make revolving loans pursuant to
the Note Agreement, the parties hereto agree as follows:
<PAGE>
SECTION 1. Defined Terms.
-------------
1.1 Terms Defined in the Note Agreement. All capitalized terms used
-----------------------------------
in this Agreement that are defined in the Note Agreement are used in this
Agreement as defined in the Note Agreement, unless otherwise defined herein.
1.2 Other Defined Terms. As used in this Agreement, the following
-------------------
terms shall have the meanings indicated:
"Note Holder" shall mean, at any point in time, any holder of any of
-----------
the outstanding Notes, collectively which shall be referred to as the "Note
----
Holders".
- -------
"Obligations" shall mean any and all obligations, liabilities and
-----------
indebtedness of each Pledgor to the Pledgee or any other Note Holder, of any and
every kind and nature, whether principal, interest or premium, whether now or
hereafter owing, whether primary or secondary, direct or indirect, fixed,
contingent or otherwise, and whether an obligation for payment, performance or
otherwise, including, without limitation, all amounts due under the Note
Agreement, the Notes or any other Transaction Document (including, without
limitation, the principal of, interest on and any Yield Maintenance Amount with
respect to any Note) and the other instruments and documents (including this
Agreement) executed in connection with any of the foregoing instruments and
documents, other than the Warrants and the Registration Rights Agreement.
"UCC" shall have the meaning set forth in Section 1.3 of this
---
Agreement.
1.3 Terms Defined in Uniform Commercial Code. All other terms used
----------------------------------------
in this Agreement that are not specifically defined herein or the definitions of
which are not incorporated herein by reference shall have the meanings assigned
to such terms in the Uniform Commercial Code in effect in the State of
California as of the date first above written ("UCC") to the extent such other
terms are defined therein.
1.4 Singular/Plural. Unless the context of this Agreement otherwise
---------------
clearly requires, references to the plural include the singular, the singular
include the plural and "or" has the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. The section and other headings in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. References to sections,
subsections and schedules are to this Agreement unless stated otherwise.
2
<PAGE>
SECTION 2. Pledge. Each Pledgor hereby pledges, hypothecates,
------
assigns, transfers, sets over and delivers to the Pledgee, and grants to the
Pledgee a security interest in, all of the following (all being collectively
referred to herein as the "Pledged Collateral"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all cash, securities, dividends, rights and other property at any
time and from time to time declared or distributed in respect of or in exchange
for any or all of the Pledged Shares;
(b) all additional shares of stock of any issuer of any of the
Pledged Shares at any time and from time to time acquired by each Pledgor in any
manner, and the certificates representing such additional shares, and also cash,
securities, dividends, rights and other property at any time and from time to
time declared or distributed in respect of or in exchange for any or all of such
shares; and
(c) all other property hereafter delivered in substitution for or in
addition to any of the foregoing, all certificates and instruments representing
or evidencing such property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time declared or
distributed in respect of or in exchange for any or all thereof.
SECTION 3. Security for Obligations. This Agreement secures the
------------------------
payment of any and all of the Obligations.
SECTION 4. Delivery of Pledged Shares. All certificates or
--------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to the Pledgee and held by the Pledgee pursuant hereto and shall be accompanied
by duly executed instruments of transfer or assignment in blank, with signatures
guaranteed, all in form and substance satisfactory to the Pledgee. Such
certificates or instruments representing or evidencing the Pledged Collateral
shall be delivered concurrently with the execution of this Agreement by each
Pledgor and other Pledged Collateral shall be so delivered immediately upon the
acquisition by each Pledgor or possession thereof. In addition, the Pledgee
shall have the right at any time following the occurrence of an Event of Default
to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties. Each Pledgor represents
------------------------------
and warrants that, as of the date hereof:
(a) the Pledged Shares have been duly authorized and validly issued
and are fully paid and non-assessable;
3
<PAGE>
(b) it has good and lawful right and power to enter into this
Agreement and to pledge, assign and deliver the Pledged Collateral, all as
provided herein;
(c) the Pledged Shares constitute all of the issued and outstanding
shares of the stock of each of the Pledged Companies;
(d) it is the legal and beneficial owner of the Pledged Collateral
free and clear of any lien, security interest, option or other charge,
encumbrance or restriction on the Pledged Collateral except for the security
interest created by this Agreement;
(e) this Agreement constitutes a legal, valid and binding obligation
of such Pledgor and is enforceable against such Pledgor in accordance with the
terms of the Agreement, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and to general principles of equity;
(f) there are no outstanding options, warrants or other agreements
with respect to the Pledged Collateral other than this Agreement;
(g) it is not a party to or otherwise bound by any agreement, other
than this Agreement, which restricts in any manner the rights of any present or
future holder of any of the Pledged Collateral with respect to the Pledged
Collateral;
(h) no portion of the Pledged Shares is subject to any right of first
refusal or restriction which could affect the ability of any purchaser from any
Pledgee to sell the same, except for restrictions prohibiting distributions in
violation of the Securities Act;
(i) no consent of any other party and no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required either for (i) the pledge by such Pledgor of the
Pledged Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by such Pledgor, (ii) the exercise by the Pledgee
of the voting or other rights provided for in this Agreement or the remedies in
respect of the Pledged Collateral pursuant to this Agreement (except as may be
required in connection with such disposition by laws affecting the offering and
sale of securities generally), or (iii) the perfection of the security interests
granted by this Agreement;
(j) upon delivery of the Pledged Collateral as required by Section 2
of this Agreement, the Pledgee shall have a continuing and valid first perfected
priority security interest in the Pledged Collateral securing payment of the
Obligations and each one of them will be a "bona fide purchaser" (as such term
is defined in Article 8 of the UCC) of the Pledged Collateral;
4
<PAGE>
(k) it has not performed any acts which might prevent the Pledgee
from enforcing any of the terms and conditions of this Agreement; and
(l) all of the representations and warranties made in this Section 5
shall survive the execution and delivery of this Agreement and the extension of
credit by the Pledgee to any of the Pledgors and shall be deemed to be repeated
and confirmed on the date of the granting of each extension of credit and, as
related to any additional securities or property which hereafter becomes subject
to the pledge hereunder, each time additional securities or property become
subject to pledge under this Agreement.
SECTION 6. Further Assurances. Each Pledgor agrees that at any time
------------------
and from time to time, at the sole cost and expense of such Pledgor, it will
promptly execute and deliver all further instruments and documents, and take all
further action (including, without limitation, the filing of Uniform Commercial
Code financing statements), which may be necessary or desirable, or that the
Pledgee may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Pledgee to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral.
SECTION 7. Pledgee Appointed Attorney-in-Fact. Each Pledgor appoints
----------------------------------
the Pledgee (and Persons designated by the Pledgee) as its attorney-in-fact,
with full power of substitution and full authority in the place and stead of
each Pledgor and in the name of each Pledgor or otherwise, from time to time in
the Pledgee's discretion to take any action and to execute any instrument which
the Pledgee may deem necessary or advisable to accomplish the purposes of this
Agreement. Without limiting the generality of the foregoing, the Pledgee shall
have the right, whether or not an Event of Default shall have occurred and be
continuing, to (i) notify the parties obligated on any of the Pledged Collateral
to make payment to the Pledgee of any amounts due or to become due thereunder,
and (ii) take control of any the Pledged Collateral not in the Pledgee's
possession.
SECTION 8. Voting Rights; Dividends.
------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) each Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof so long as such exercise is not, and is
not for any purpose, inconsistent with the terms of this Agreement or
the other Transaction Documents; and
5
<PAGE>
(ii) each Pledgor shall be entitled to receive any and all cash
dividends on the Pledged Collateral, the description and payment of
which is not in violation of any provision of any Transaction
Document, but any and all stock dividends, liquidating dividends,
distributions in property, returns of capital or other dividends or
distributions made on or in respect of the Pledged Collateral, whether
resulting from a subdivision, combination or reclassification of the
outstanding capital stock of any issuer thereof or received in
exchange for the Pledged Collateral or any part thereof or as a result
of any merger, consolidation, acquisition or other exchange of assets
to which any issuer may be a party or otherwise, and any and all cash
and other property received in exchange for any Pledged Collateral
hereunder and, if received by such Pledgor, shall forthwith be
delivered to the Pledgee (accompanied, if appropriate, by proper
instruments of assignment or stock powers executed by such Pledgor in
accordance with the Pledgee' instructions or both) to be held subject
to the terms of this Agreement.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) all rights of each Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 8(a)(i) hereof and to receive the dividends and
other payments which it would otherwise be authorized to receive and
retain pursuant to Section 8(a)(ii) hereof shall become vested in the
Pledgee, which shall thereupon have the sole right to exercise such
voting and other consensual rights and to receive and hold as Pledged
Collateral such dividends and other payments; and
(ii) all dividends and other payments which are received by each
Pledgor contrary to the provisions of Section 8(b)(i) hereof shall be
(A) received in trust for the benefit of the Pledgee, (B) segregated
from other funds of such Pledgor, and (C) forthwith paid over to the
Pledgee as Pledged Collateral in the same form as so received (with
any necessary endorsement).
SECTION 9. Covenants.
---------
9.1 Transfers and Other Liens. Each Pledgor covenants that it shall
-------------------------
not:
(a) sell, assign or otherwise dispose of, or grant any option or
other right with respect to, any of the Pledged Collateral without the prior
written consent of the Pledgee;
6
<PAGE>
(b) create or permit to exist any Lien upon or with respect to any of
the Pledged Collateral, except in favor of the Pledgee;
(c) cause or permit any of the Pledged Companies to amend its
Articles of Incorporation or other organizational document in any way that
affects the Pledged Collateral without the prior written consent of the Pledgee;
(d) become a party to or otherwise bound by any agreement, other than
this Agreement, which restricts in any manner the rights of any present or
future holder of any of the Pledged Collateral with respect to the Pledged
Collateral;
(e) permit any portion of the Pledged Shares to be subject to any
right of first refusal or restriction which could affect the ability of any
purchaser from the Pledgee to sell the same, except for restrictions prohibiting
distributions in violation of the Securities Act; nor
(f) perform any acts which might prevent the Pledgee from enforcing
any terms and conditions of this Agreement.
9.2 Defend Pledgee's Interest. Each Pledgor covenants and agrees
-------------------------
that it will defend Pledgee's right, title and security interest in and to the
Pledged Collateral and the proceeds of the Pledged Collateral against claims and
demands of all Persons whatsoever.
9.3 Voting Pledged Collateral. Each Pledgor covenants that it shall
-------------------------
not vote the Pledged Collateral to (i) authorize the issuance of any additional
shares of capital stock of any of the issuers of any of the Pledged Collateral,
or (ii) directly or indirectly reclassify or change any rights with respect to
the Pledged Collateral, unless the Pledgee shall have first consented in
writing.
SECTION 10. Pledgee May Perform. If any Pledgor fails to perform any
-------------------
agreement contained herein, after written notice to Pledgor the Pledgee may
itself perform, or cause performance of, such agreement, and the expenses of the
Pledgee incurred in connection therewith shall be payable by such Pledgor in
accordance with the provisions of Section 14 of this Agreement.
SECTION 11. Reasonable Care. The Pledgee and the Pledgee shall be
---------------
deemed to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in their possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Pledgee, accords its own
property, it being understood that the Pledgee shall not have any responsibility
under any circumstances whatsoever for (i) ascertaining or taking action with
respect to calls, conversions,
7
<PAGE>
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Pledgee has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Pledged Collateral. The Pledgee shall further be
deemed to have exercised reasonable care in the custody and preservation of any
of the Pledged Collateral in its possession if it takes such action for that
purpose as any Pledgor shall request in writing, but failure by the Pledgee to
comply with any such request shall not of itself be deemed a failure to exercise
reasonable care, and no failure by the Pledgee to do any act with respect to the
preservation of such Pledged Collateral not so requested by a Pledgor shall of
itself be deemed a failure to exercise reasonable care in the custody or
preservation of such Pledged Collateral.
SECTION 12. Rights Regarding Pledged Collateral and Obligations. The
---------------------------------------------------
Pledgee may from time to time, after the occurrence and continuance of an Event
of Default, without notice to any Pledgor, take all or any of the following
actions:
(a) transfer all or any part of the Pledged Collateral into the name
of the Pledgee or its nominee or nominees, with or without disclosing that such
Pledged Collateral is subject to the lien and security interest hereunder;
(b) notify the parties obligated on any of the Pledged Collateral to
make payment to the Pledgee of any amounts due or to become due thereunder;
(c) enforce collection of any of the Pledged Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof or
compromise or extend or renew for any period (whether or not longer than the
original period) any obligations of any nature of any party with respect
thereto; and
(d) take control of any proceeds of the Pledged Collateral.
SECTION 13. Remedies Upon Default.
---------------------
(a) Each Pledgor agrees that from time to time, after an Event of
Default shall occur and be continuing, the Pledgee or its agent or agents shall
have the right to sell the Pledged Collateral at a price and using such methods
as may be determined at the sole discretion of the Pledgee without notice to any
Pledgor, or, if such waiver of notice is invalid at law, upon ten (10) days'
written notice (which each Pledgor agrees is reasonable notification within the
meaning of Section 9-504(3) of the UCC). Any purchaser of the Pledged
Collateral at any such sale shall thereafter hold the same, absolutely, free
from any claim or right of any kind, including any equitable right or right of
redemption of any Pledgor. Each Pledgor hereby specifically waives all rights
8
<PAGE>
of redemption, stay or appraisal, which it has or may have under any rule of law
or statute now existing or hereafter adopted. At the request of the Pledgee,
each Pledgor shall execute any and all documents or instruments which the
Pledgee deems desirable to evidence the Pledgee's rights as aforesaid. Such a
sale shall not be a prerequisite to the Pledgee's rights to require the Pledgor
to pay the Pledgee, in full, for any of the Obligations incurred by the Pledgee.
(b) Each Pledgor further agrees that the Pledgee, or any agent or
agents of the Pledgee, may:
(i) reasonably restrict the eligibility of prospective buyers;
(ii) bid on or purchase any of the Pledged Collateral at any
sale;
(iii) conduct, adjourn or cancel any public sale, to the
extent permitted by law or private sale for cash or upon credit as the
Pledgee sees fit, subject to compliance with the terms of any
applicable laws;
(iv) resell the Pledged Collateral on credit;
(v) include in the reimbursement costs of such sale any
expenses or indemnification practical to effectuate the sale or
desirable to comply with the laws, regulations or instruments referred
to in clause (iii) above;
(vi) grant partial or limited waivers or releases without
impairing other future rights of the Pledgee; and
(vii) if such sale is upon credit, (A) defer any delivery of
excess proceeds to such Pledgor until full payment for the Pledged
Collateral so sold is collected, (B) have such Pledgor remain liable
until full payment for the Pledged Collateral so sold is collected,
and (C) retain the Pledged Collateral or a security interest in the
Pledged Collateral.
(c) Each Pledgor further agrees that the Pledgee shall be entitled to
exercise all of the rights and remedies available to a secured party under the
UCC and all rights and remedies available to it under this Agreement, the Note
Agreement and any other document or instrument securing or evidencing the
Obligations, including, without limitation, the rights to exercise and enforce
their rights under Section 8(b) hereof with respect to the Pledged Collateral
and the right to sell, assign, transfer, endorse and deliver the whole or, from
time to time, any part of the Pledged Collateral or any interest therein. All
remedies hereunder are
9
<PAGE>
cumulative and are not exclusive of any other remedies provided by law.
(d) Each Pledgor recognizes that the Pledgee may be unable to effect
a public sale of all or a part of the Pledged Collateral and therefore, may be
compelled to resort to one or more private sales to a restricted group of
offerees and purchasers who fulfill certain suitability standards and who agree,
among other things, to acquire the Pledged Collateral for their own account for
investment and not for distribution or resale. Each Pledgor consents to private
sales so made even though such sales may be at prices and upon other terms less
favorable than if the Pledged Collateral were sold at public sales. Each Pledgor
agrees that the Pledgee shall have no obligation to delay sale of the Pledged
Collateral for the period of time necessary to permit the offering and sale of
the Pledged Collateral to be registered for sale under applicable laws. Each
Pledgor consents that private sales made under the foregoing circumstances will
be deemed to have been made in a commercially reasonable manner, and that the
Pledgee shall not be liable nor accountable to any Pledgor for any discount
allowed because such Pledged Collateral is sold in compliance with any such
limitation or restriction. In case of any sale of the Pledged Collateral on
credit or for future delivery, the Pledgee shall not incur any liability in case
of the failure of such purchaser to take up and pay for the Pledged Collateral
and, in case of any such failure, the Pledged Collateral may again be sold upon
like notice. In lieu of exercising the power of sale herein conferred upon it,
the Pledgee may proceed by a suit or suits at law or in equity to foreclose and
sell the Pledged Collateral. Each Pledgor agrees that the Pledgee shall have the
right to continue to retain the Pledged Collateral until such time as the
Pledgee (in its sole judgment) believe that an advantageous price can be secured
for the Pledged Collateral, and the Pledgee shall not be liable to any Pledgor
for any loss in the value of the Pledged Collateral by reason of any delay in
the sale thereof.
SECTION 14. Expenses. Each Pledgor will upon demand pay to the
--------
Pledgee the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which the
Pledgee may incur in connection with (i) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral hereunder, or (ii) the failure by such Pledgor to perform or observe
any of the provisions of this Agreement.
SECTION 15. Security Interest Absolute.
--------------------------
(a) With respect to Rhodes, the Pledgee is hereby authorized, without
notice to or demand upon Rhodes, which notice or demand is expressly waived
hereby, and without discharging or otherwise affecting the obligations of Rhodes
hereunder (which
10
<PAGE>
shall remain absolute and unconditional notwithstanding any such action or
omission to act), from time to time, to:
(i) supplement, renew, extend, accelerate or otherwise change
the time for payment of, or other terms relating to, the Obligations or any
portion thereof, or otherwise modify, amend or change the terms, or waive
or otherwise consent to noncompliance with any provision, of the Note
Agreement or any other Transaction Document, including, without limitation,
increase the rate of interest thereon;
(ii) receive, take and hold security or collateral for the
payment or performance of the Obligations, or any part thereof, and
exchange, enforce, waive, substitute, liquidate, terminate, abandon, fail
to perfect, subordinate, transfer, otherwise alter and release any such
security or collateral;
(iii) settle, release, compromise, collect or otherwise
liquidate the Obligations, or any part thereof, in any manner;
(iv) add, release or substitute any one or more guarantors,
makers or endorsers of all or any part of the Obligations, and otherwise
deal with the Company or any guarantor, maker or endorser as the Pledgee
may elect in its sole discretion;
(v) apply any and all payments or recoveries from any Pledgor,
from the Company or any guarantor, maker or endorser of all or any part of
the Obligations, or any collateral to the Obligations in such order as the
Pledgee in its sole discretion may determine, whether any or all of the
Obligations are secured or unsecured or guaranteed or not guaranteed by
others.
(b) Rhodes hereby agrees that its obligations under this Agreement
are absolute and unconditional and shall not be discharged or otherwise affected
as a result of:
(i) the invalidity or unenforceability of any security for or
guaranty of all or any part of the Obligations or of the Note Agreement or
any other Transaction Document, or the lack of perfection or failure of
priority of any security for all or any part of the Obligations;
(ii) the absence of any attempt to collect the Obligations, or
any portion thereof, from the Company or any other Person or other action
to enforce the same;
(iii) any failure by the Pledgee to acquire, perfect and
maintain any security interest in,
11
<PAGE>
or to preserve any rights to, any security or collateral for all or any
part of the Obligations;
(iv) the avoidance of any lien or security interest in favor of
the Pledgee for any reason;
(v) any borrowing or grant of a security interest by the
Company or any guarantor, as debtor-in-possession, or extension of credit,
under Title 11 of the United States Code (the "Bankruptcy Code"); the
disallowance, under the Bankruptcy Code, of all or any portion of the
Pledgee's claim(s) for repayment of the Obligations; any use of cash
collateral under the Bankruptcy Code; any agreement or stipulation as to
the provision of adequate protection in any bankruptcy proceeding;
(v) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by or
against the Company, any other Pledgor or any guarantor, maker or endorser,
including without limitation, any discharge of, or bar or stay against
collecting or accelerating, all or any part of the Obligations or the
Liabilities (or any interest thereon) in or as a result of any such
proceeding;
(vi) any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor or surety.
(c) Until such time as the Obligations have been performed and paid
in full and the Note Agreement has been terminated, Rhodes hereby irrevocably
waives and releases the Company and any other Person from all "claims" (as
defined in Section 101 of the Bankruptcy Code) to which Rhodes is or would at
any time be entitled by virtue of its obligations under this Agreement,
including, without limitation, any right of subrogation (whether contractual,
under Section 509 of the Bankruptcy Code or otherwise), reimbursement,
contribution, exoneration or similar right against the Company or any other
Person, or by virtue of any other indebtedness or obligations of the Company or
any other Person to any Pledgor now existing or hereafter incurred. Rhodes
further waives:
(i) any requirements of diligence or promptness on the part of
the Pledgee; and presentment, demand for payment or performance and protest
and notice of protest with respect to the Obligations or any guaranty with
respect thereto;
12
<PAGE>
(iii) notices (A) of nonperformance, (B) of default in respect
of the Obligations, (C) of the existence, creation or incurrence of new or
additional Obligations, (D) that any or all of the Obligations is due, (E)
of any and all proceedings to collect from the Company, any maker, endorser
or any guarantor of all or any part of the Obligations, or from anyone
else, and (F) of exchange, sale, surrender or other handling of any
security or collateral given to the Pledgee to secure payment of the
Obligations or any guaranty therefor;
(iv) any right to require the Pledgee to (A) proceed first
against the Company or any other Person whatsoever, (B) proceed against or
exhaust any security given to or held by the Pledgee in connection with the
Obligations, or (C) pursue any other remedy in the Pledgee's power
whatsoever;
(v) any defense arising by reason of (A) any disability or
other defense of the Company or any guarantor, (B) the cessation from any
cause whatsoever of the liability of the Company or any guarantor (other
than by full payment and performance of the Obligations and the termination
of the Note Agreement) or (C) any act or omission of the Pledgee or others
which directly or indirectly, by operation of law or otherwise, results in
or aids the discharge or release of the Company or any guarantor or any
security given to or held by the Pledgee in connection with the
Obligations; and
(vi) any and all other suretyship defenses under applicable
law.
SECTION 16. Amendments, Waivers and Consents. No amendment or waiver
--------------------------------
of any provision of this Agreement nor consent to any departure by any Pledgor
herefrom, nor release of the Pledged Collateral, shall in any event be effective
unless the same shall be in writing and signed by the Pledgee, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which is given. No failure on the part of the
Pledgee to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy by the Pledgee preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
SECTION 17. Successors and Assigns. This Agreement shall be binding
----------------------
upon each Pledgor and their respective successors and assigns and shall inure to
the benefit of the Pledgee and its successors and assigns.
13
<PAGE>
SECTION 18. Addresses for Notices. All written communications
---------------------
provided for hereunder shall be sent by first class mail or telegraphic notice
or nationwide overnight delivery service (with charges prepaid) or by hand
delivery or telecopy and (i) if to the Pledgee addressed as specified for such
communications in the Purchaser Schedule attached to the Note Agreement, or at
such other address as the Pledgee shall have specified to the Pledgors in
writing, (ii) if to any other Note Holder, addressed to such other Note Holder
at such address as such other Note Holder shall have specified to the Pledgors
in writing or, if any such other Note Holder shall not have so specified an
address to the Pledgors, then addressed to such other Note Holder in care of the
last Note Holder of such Note which shall have so specified an address to the
Pledgors, and (iii) if to any Pledgor, addressed to it at the particular address
shown for the Company in paragraph 11H of the Note Agreement, or at such other
address as such Pledgor shall have specified for it to the holder of each Note
in writing.
SECTION 19. Governing Law; Construction. THIS AGREEMENT SHALL BE
---------------------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE INTERNAL LAW OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
SECTION 20. Termination. This Agreement shall terminate when all the
-----------
Obligations have been fully paid and performed and the Note Agreement and all
commitments thereunder have been terminated, at which time the Pledgee shall
reassign and deliver (or cause to be reassigned and redelivered) to each Pledgor
at Pledgor's expense, or to such person or persons as the Pledgors shall
designate, against receipt, such of the Pledged Collateral (if any) as shall
have not been sold or otherwise applied by the Pledgee pursuant to the terms of
this Agreement and shall still be held by it hereunder, together with
appropriate instruments of reassignment and release. Any such reassignment
shall be without recourse upon or warranty by the Pledgee and at the expense of
each Pledgor.
SECTION 21. Payments Set Aside. Notwithstanding the provisions of
------------------
Section 20 of this Agreement, to the extent that any the Company or any of its
Subsidiaries makes a payment or payments to the Pledgee or the Pledgee enforces
its security interests or exercises its right of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part of such
payment or payments or proceeds are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any
14
<PAGE>
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the obligation or part of such obligation originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
SECTION 22. Counsel's Opinion. Each Pledgor hereby directs the
-----------------
counsel referred to in paragraph 3A(1) of the Note Agreement to deliver the
opinions referred to in such paragraph, and agrees that the issuance and sale of
any Notes will constitute a reconfirmation of such direction.
SECTION 23. Survival of Representations, Warranties and Covenants;
------------------------------------------------------
Joint and Several Obligations. All representations, warranties and covenants
- -----------------------------
made by the Pledgors to the Pledgee in connection with this Agreement and all
statements contained in any certificate or other instrument delivered to the
Pledgee pursuant to this Agreement shall be deemed representations, warranties
and covenants hereunder of the Pledgors and shall survive the execution and
delivery of this Agreement until the termination of this Agreement in accordance
with Section 20. All covenants and agreements of each Pledgor herein are joint
and several obligations of each such Pledgor.
* * * * *
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly
executed and delivered as of the date first above written.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
-------------------------------
Title: President/CEO
----------------------------
RHODES COLLEGES, INC.
By: /s/ David G. Moore
-------------------------------
Title: President/CEO
----------------------------
Accepted by:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:_________________________
Title:______________________
40
<PAGE>
IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly
executed and delivered as of the date first above written.
CORINTHIAN COLLEGES, INC.
By:______________________________
Title:___________________________
RHODES COLLEGES, INC.
By:______________________________
Title:___________________________
Accepted by:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: SIGNATURE ILLEGIBLE
----------------------------
Title: VICE PRESIDENT
-------------------------
<PAGE>
SCHEDULE A
Pledgor Pledged Shares
- ------- --------------
Corinthian Colleges, Inc. 100 shares of Rhodes Colleges, Inc.
represented by certificate no. 1
100 shares of Corinthian Schools, Inc.
represented by certificate no. 1
Rhodes Colleges, Inc. 100 shares of Florida Metropolitian
University, Inc. represented by
certificate no. 1
100 shares of Rhodes Business Group,
Inc. represented by certificate no. 1
<PAGE>
EXHIBIT 10.38
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is entered into as of October
17, 1996, among Phillips Colleges, Inc., a Mississippi corporation ("Phillips"),
for itself and/or as agent for certain subsidiaries of Phillips as identified on
Exhibit A or any other parties as designated by Phillips (in such capacities the
- ---------
"Phillips Payee"), Corinthian Colleges, Inc., a Delaware corporation ("Buyer"),
and Wells Fargo Bank, N.A., as escrow agent ("Escrow Agent").
R E C I T A L S
WHEREAS, pursuant to the Master Asset Purchase Agreement, dated as of
October 15, 1996 (the "Acquisition Agreement"), by and among Buyer, Phillips and
certain of Phillip's wholly-owned subsidiaries (together with Phillips, the
"Selling Parties"), Buyer has agreed to purchase from the Selling Parties, and
the Selling Parties have agreed to sell, convey, assign, transfer and deliver to
Buyer, certain assets of the Selling Parties on the terms described in the
Acquisition Agreement; and
WHEREAS, Phillips has made or given certain agreements, covenants,
representations and warranties and indemnities in the Acquisition Agreement and
has agreed that a portion of the purchase price shall be placed and maintained
in an escrow account to be administered pursuant to this Agreement and the
Acquisition Agreement; and
WHEREAS, the parties desire to arrange for such escrow and appoint
Escrow Agent as escrow agent in accordance with the terms hereof.
A G R E E M E N T
In consideration of the mutual promises contained herein and for other
good and valuable consideration, receipt of which is hereby acknowledged, and
intending to be legally bound, the parties agree as follows:
1. INTERPRETATION AND DEFINITIONS. This Agreement is being executed
------------------------------
and delivered pursuant to Section 3.3 of the Acquisition Agreement and is the
Tier I Escrow Agreement referred to therein. The terms and conditions of the
Acquisition Agreement are hereby incorporated by reference into this Agreement,
but only for such purposes as the context of this Agreement may require. The
provisions of this Agreement shall not in any event be construed so as to
enlarge or diminish the rights of the Selling Parties or Buyer under the
Acquisition Agreement. The basis for any claim for indemnification, and any
limitations thereon, shall
<PAGE>
be governed by the Acquisition Agreement, which shall be controlling between
Buyer and the Phillips Payee for all purposes of this Agreement and shall be
applicable between the Phillips Payee and Buyer to the extent inconsistent with
the provisions hereof. Capitalized terms used and not defined herein have the
meanings given to them in the Acquisition Agreement.
2. APPOINTMENT OF ESCROW AGENT. Escrow Agent is hereby appointed to
---------------------------
act as escrow agent in accordance with the terms hereof, and Escrow Agent hereby
accepts such appointment. Escrow Agent shall have all the rights, powers,
duties and obligations provided herein.
3. DEPOSIT OF THE FUNDS. Buyer shall deliver to the Escrow Agent all
--------------------
payments required to be so delivered under the Escrow Funding Note in accordance
with the terms of the Escrow Funding Note and the Acquisition Agreement (the
"Tier I Funds"). Escrow Agent shall hold the Tier I Funds, and any accrued
interest or earnings thereon, in a form of interest-bearing escrow account (the
"Escrow Account"). The amount in the Escrow Account at any time, including
accrued interest and earnings on such amount, are referred to herein as the
"Escrow Amount."
Escrow Agent shall, pending the disbursement of any Tier I Funds
pursuant to this Agreement, invest and reinvest the Escrow Amount from time to
time in the name of Escrow Agent or its nominee as jointly instructed in writing
by Buyer and the Phillips Payee. If Buyer and the Phillips Payee fail to
instruct Escrow Agent to invest or reinvest the Escrow Amount or any portion
thereof, the Escrow Agent shall invest the Escrow Amount or portion thereof in
(a) direct obligations of, or obligations fully guaranteed by, the United States
of America or any agency thereof, (b) certificates of deposit issued by
commercial banks having a combined capital, surplus and undivided profits of not
less than one hundred million dollars ($100,000,000), (c) repurchase agreements
collateralized by securities issued by the United States of America or any
agency thereof, or by any private corporation the obligations of which are
guaranteed by the full faith and credit of the United States of America, (d)
prime bankers' acceptances, (e) commercial paper issued by the parent
corporation of any commercial bank of recognized standing having capital and
surplus in excess of $500,000,000 and commercial paper issued by any person
rated at least AA or the equivalent thereof by Standard & Poor's Ratings
Services or at least Aa3 or the equivalent thereof by Moody's Investors Service,
Inc. and in each case maturing not more than six months after the date of
acquisition by such person, (f) money market funds investing in any of the
above, or (g) other investments of equal or greater security and liquidity.
4. FEES AND EXPENSES. In consideration of the acceptance of this
------------------
Agreement by Escrow Agent (as evidenced by its
2
<PAGE>
signature below), the Phillips Payee and Buyer agree, for themselves and their
successors and assigns, to pay Escrow Agent its charges, fees, and expenses as
contemplated by this Agreement and set forth on Exhibit B to this Agreement.
The Phillips Payee and Buyer shall each pay one-half of all such charges, fees
and expenses. Such amount is intended as compensation for Escrow Agent's
ordinary services as contemplated by this Agreement and shall be paid as
described above. In the event Escrow Agent renders services not provided for in
this Agreement, Escrow Agent shall be entitled to receive from the Phillips
Payee and Buyer reasonable compensation and reasonable costs, if any, for such
extraordinary services, and such compensation and costs shall be borne equally
by the Phillips Payee and Buyer. If any amounts due to Escrow Agent under this
Agreement shall remain unpaid for more than 30 days after receipt by Phillips
and Buyer of a notice from Escrow Agent requesting payment of such amounts,
Escrow Agent may withhold such unpaid amounts from the Escrow Amount.
5. APPLICATION OF ESCROW ACCOUNT. The purposes of the Escrow Account
-----------------------------
shall be, and the Escrow Amount shall be applied:
(a) to pay any loss, liability, claim, obligation, damage or
deficiency for which the Selling Parties have agreed to indemnify Buyer
pursuant to Section 9.12 of the Acquisition Agreement, subject to the
provisions of Section 2.2.3(b) and the limitations provided in Sections
9.14.4, 9.14.6 and 9.16 of the Acquisition Agreement; and
(b) to pay to Buyer up to a maximum aggregate amount of $1,000,000 in
connection with a reduction of the Purchase Price as provided in Section
2.2.3(b)(iv) of the Acquisition Agreement.
6. ESCROW AMOUNT NOT EXCLUSIVE REMEDY. Subject to the limitations
----------------------------------
contained in the Acquisition Agreement, the availability of the Escrow Amount
in the Escrow Account for the payment of losses under Section 5 of this
Agreement shall not limit in any way or restrict any other remedies available to
Buyer under the Acquisition Agreement for payment in respect of such losses.
7. ASSERTION OF CLAIMS BY BUYER. From time to time during the term
----------------------------
of this Agreement, Buyer may assert any claim (each, a "Claim") for payment to
the extent of the Escrow Amount and may demand satisfaction thereof from the
Escrow Account. To assert a Claim, Buyer shall deliver a written notice to each
of Escrow Agent and Phillips stating the amount of the Claim in dollars if such
amount is ascertainable (a "Liquidated Claim"), the basis of such Claim in
general terms and the date such notice is being sent (such notice, a
"Certificate of Claim"). If Buyer cannot ascertain the dollar amount of any
such Claim (an "Unliquidated Claim"), then to assert such Claim, Buyer shall
3
<PAGE>
deliver to each of Escrow Agent and Phillips a written notice stating Buyer's
estimate of the anticipated maximum amount of such Claim, the basis of such
Claim in general terms and the date such notice is being sent (such notice, a
"Notice of Expected Claim"). The date appearing on a Certificate of Claim or
Notice of Expected Claim as the date such notice was sent is referred to herein
as the "Notice Date".
8. SETTLEMENT OF CLAIMS. Claims asserted by Buyer in the manner set
--------------------
forth in Section 7 hereof shall be settled in whole or in part, and in one or
more installments, in accordance with the provisions of this Section 8.
(a) Liquidated Claims. Escrow Agent, without concerning itself with
-----------------
Buyer's explanation as to the basis for any Liquidated Claim, may disburse
the Escrow Amount or any portion thereof to Buyer to settle any such
Liquidated Claim asserted by Buyer as follows:
(i) Upon receipt by Escrow Agent of a written instruction
executed by Phillips and Buyer; or
(ii) Forty-five (45) days after the Notice Date of a Liquidated
Claim delivered by Buyer pursuant to Section 7, provided that the
following conditions have been satisfied:
(A) Buyer shall have delivered to Escrow Agent a
Certificate of Claim;
(B) Buyer shall have delivered to Escrow Agent an affidavit
of mailing or certification stating that Buyer has delivered to
Phillips a Certificate of Claim with respect to such Liquidated
Claim;
(C) Escrow Agent shall have delivered a written notice to
Phillips of Escrow Agent's intention to disburse the Escrow
Amount or portion thereof pursuant to such Certificate of Claim
at least ten (10) days in advance of the disbursement; and
(D) Escrow Agent shall not have received from Phillips a
written objection to the disbursement (an "Objection").
Any Objection by Phillips shall include a statement in reasonable detail of
Phillips' basis for the Objection, and Phillips shall deliver a copy of any
Objection to Buyer. If Phillips delivers to Escrow Agent an Objection
prior to the
4
<PAGE>
satisfaction of such Liquidated Claim from the Escrow Amount, such
Liquidated Claim (a "Disputed Liquidated Claim") shall remain pending until
resolved as provided herein, and Escrow Agent, without concerning itself as
to the grounds for such Objection, shall not disburse the Escrow Amount or
any portion thereof to satisfy such Disputed Liquidated Claim. If after
receiving an Objection from Phillips, Escrow Agent receives (1) the written
consent of Phillips to the disbursement by Escrow Agent of the amount of
such Disputed Liquidated Claim, (2) a written agreement executed by Buyer
and Phillips revising the amount of such Disputed Liquidated Claim and
instructing Escrow Agent to disburse to Buyer such revised amount, (3) a
judgment, order or award of a court of competent jurisdiction or arbitrator
or administrative judge deciding such Claim has been rendered, as evidenced
by a certified copy of such judgment, order or award ("Original Judgment"),
or (4) a written notice from an arbitrator selected pursuant to the
provisions of Section 9.18.2 of the Acquisition Agreement ("Arbitrator")
stating that the Disputed Liquidated Claim has been resolved and stating
the resolution of such Disputed Liquidated Claim, then Escrow Agent shall
be authorized to and shall promptly disburse the Escrow Amount or portion
thereof in accordance with such documents. Notwithstanding the foregoing,
in connection with clause (3) of the previous sentence, if the Original
Judgment is reversed or modified on appeal, the Buyer shall repay the
Escrow Agent, or, in the event this Agreement is terminated in accordance
with Section 11, the Phillips Payee, any amounts received by the Buyer from
the Escrow Agent as a result of the Original Judgment.
(b) Unliquidated Claims. Upon receipt by Escrow Agent of a written
-------------------
instruction of settlement executed by both Buyer and Phillips which sets
forth an agreement or settlement of an Unliquidated Claim, then Escrow
Agent shall be authorized to and shall promptly disburse the Escrow Amount
in accordance with such written instruction.
Any Unliquidated Claim which is not settled by a joint instruction of
Buyer and Phillips shall remain pending until resolved pursuant to Section
8(c), or, if earlier, at such time as the amount of the Unliquidated Claim
becomes fully liquidated and known. At such time as any Unliquidated Claim
becomes fully liquidated and known, it shall be settled in accordance with
the procedures for the settlement of Liquidated Claims set forth in Section
8(a).
(c) Resolution of Claims. Any Disputed Liquidated Claim or any
--------------------
disputes regarding Unliquidated Claims which cannot be resolved by Buyer
and Phillips shall be finally resolved pursuant to Section 9.18.2 of the
Acquisition Agreement. The Arbitrator shall, upon resolving or settling
any Disputed
5
<PAGE>
Liquidated Claim or Unliquidated Claim pursuant to this Section 8(c),
deliver written notice of such resolution or settlement to Escrow Agent,
Phillips and Buyer. If the Arbitrator's resolution or settlement concludes
that Buyer is entitled to receive any payment from the Escrow Amount, the
Arbitrator shall deliver written instructions to Escrow Agent to disburse
to Buyer the amount of such payment from the Escrow Amount. Promptly after
receiving any such notice from the Arbitrator, Escrow Agent shall disburse
such amount to Buyer.
9. ASSERTION OF EARLY RELEASE. Pursuant to Section 2.2.3(b) of the
--------------------------
Acquisition Agreement, in certain instances the Escrow Agent shall disburse a
portion of the Escrow Amount (each, a "Disbursement") from the Escrow Account to
the Phillips Payee prior to the Stated Termination Date (as defined in Section
11). To demand a Disbursement in accordance with Section 2.2.3(b), Phillips
shall deliver written notice to each of Escrow Agent and Buyer stating the
amount of the Disbursement, the basis of such Disbursement in general terms and
the date such notice is being sent (each, a "Disbursement Notice").
10. SETTLEMENT OF EARLY RELEASE DISPUTES. Disbursements requested by
------------------------------------
Phillips under Section 9 hereof shall be made in accordance with the provisions
of this Section 10 as follows:
(a) Disbursements. Escrow Agent, without concerning itself with
-------------
Phillips' explanation as to the basis for the Disbursement, may disburse
the requested Disbursement to Phillips as follows:
(i) Upon receipt by Escrow Agent of a written instruction
executed by the Phillips Payee and Buyer; or
(ii) Thirty (30) days after the Escrow Agent's receipt of a
Disbursement Notice delivered by Phillips pursuant to Section 9,
provided that the following conditions have been satisfied:
(A) Phillips shall have delivered to Escrow Agent an
affidavit of mailing or certification stating that Phillips has
delivered to Buyer a Disbursement Notice with respect to such
Disbursement;
(B) Escrow Agent shall have delivered written notice to
Buyer of Escrow Agent's intention to disburse the Escrow Amount
or portion thereof pursuant to such Disbursement Notice at least
ten (10) days in advance of the Disbursement; and
6
<PAGE>
(C) Escrow Agent shall not have received from Buyer a
written opposition to the Disbursement (an "Opposition").
Any Opposition by Buyer shall include a statement in reasonable detail of
Buyer's basis for the Opposition, and Buyer shall deliver a copy of any
Opposition to Phillips. If Buyer delivers to Escrow Agent an Opposition
prior to the Disbursement, Escrow Agent, without concerning itself as to
the grounds for such Opposition, shall not make such Disbursement (a
"Disputed Disbursement") until resolved as provided herein. If after
receiving an Opposition from Buyer, Escrow Agent receives (1) the written
consent of Buyer to the Disbursement by Escrow Agent, (2) a written
agreement executed by Phillips and Buyer revising the amount of such
Disbursement and instructing Escrow Agent to disburse to Phillips such
revised amount, (3) a judgment, order or award of a court of competent
jurisdiction or arbitrator or administrative judge deciding such claim has
been rendered, as evidenced by a certified copy of such judgment, order or
award ("Original Judgment"), or (4) a written notice from an arbitrator
selected pursuant to the provisions of Section 9.18.2 of the Acquisition
Agreement (the "Arbitrator") stating that the Disputed Disbursement has
been resolved and stating the resolution of such Disputed Disbursement,
then Escrow Agent shall be authorized to and shall make the Disputed
Disbursement or portion thereof to the Phillips Payee in accordance with
such documents. Notwithstanding the foregoing, in connection with clause
(3) of the previous sentence, if the Original Judgment is reversed or
modified on appeal, Phillips shall repay the Escrow Agent any amounts
received by Phillips from the Escrow Agent as a result of the Original
Judgment.
11. TERMINATION AND RELEASE OF ESCROW AMOUNT. Subject to earlier
----------------------------------------
disbursement of all or a portion of the Escrow Amount as provided herein, Escrow
Agent shall hold the Escrow Amount in escrow until the later of (a) October 15,
1998 ("Stated Termination Date") or (b) the date on which all Liquidated and
Unliquidated Claims asserted on or prior to October 15, 1998 by Buyer have been
settled or resolved in accordance with the provisions of this Agreement, and the
full amount of all payments to Buyer required thereby have been disbursed to
Buyer (the "Final Settlement Time"). Immediately after the Final Settlement
Time, Escrow Agent shall disburse the remaining Escrow Amount in the Escrow
Account to the Phillips Payee and the escrow shall terminate; provided, however,
that if at any time prior to the Final Settlement Time the Escrow Amount shall
equal zero, then the escrow shall terminate at such earlier time.
7
<PAGE>
12. RECOVERY OF ATTORNEYS' FEES AND COURT COSTS. In the event of any
-------------------------------------------
controversy arising out of the subject matter of this Agreement, the prevailing
party in such controversy shall be entitled to recover its reasonable attorneys'
fees, and other reasonable costs and expenses, including all amounts paid to or
on behalf of Escrow Agent, incurred in connection with such controversy. If
Buyer is entitled to reimbursement of such fees, costs and expenses, it may
recover them from the Escrow Amount, but its rights and remedies shall not be
limited to the Escrow Amount. To recover such amount from the Escrow Amount,
Buyer shall deliver to Escrow Agent a copy of the adjudication resulting from
such controversy in which it was the prevailing party and a self-certified
statement of its fees, costs and expenses, and Escrow Agent shall be authorized
to disburse to Buyer the total amount thereof. If the Phillips Payee is
entitled to reimbursement of such fees, costs and expenses, Phillips shall
deliver to Buyer a self-certified statement of its fees, costs and expenses and
Buyer shall promptly reimburse such amount to the Phillips Payee.
13. NO DOUBLE INDEMNIFICATION. The parties hereto hereby acknowledge
-------------------------
that in no event shall Buyer or its Affiliates be entitled to all or any portion
of the Escrow Amount in connection with indemnification pursuant to (a) Section
9.12 of the Acquisition Agreement based upon any matters for which Buyer or its
Affiliates received indemnification under the Secondary Agreement or (b) Section
9.12 of the Secondary Agreement based upon any matter for which Buyer or its
Affiliates received indemnification under the Acquisition Agreement.
14. LIMITATIONS ON LIABILITY OF ESCROW AGENT.
----------------------------------------
(a) Escrow Agent may act upon any written notice, certificate,
instrument, request, waiver, consent, paper, or other document that Escrow Agent
in good faith reasonably believes to be genuine and to have been made, sent,
signed, prescribed, or presented by the proper person or persons. Escrow Agent
shall not be liable for any action taken or omitted by it in connection with the
performance of its duties and obligations hereunder, except for its own gross
negligence or willful misconduct. Escrow Agent shall be under no obligation to
institute or defend any action, suit or legal proceeding in connection with this
escrow or this Agreement unless it is indemnified to its satisfaction by the
party or parties who desire that it undertake such action.
(b) Escrow Agent shall be under no obligation or liability for
failure to inform Buyer or Phillips regarding any transaction or facts within
Escrow Agent's knowledge, even though the same may concern the matters described
herein, provided they do not prevent or interfere with Escrow Agent's compliance
with this Agreement, nor shall Escrow Agent be liable for the sufficiency,
correctness or genuineness as to form, manner of execution or
8
<PAGE>
validity of any instrument deposited, nor as to identity, authority, or rights
of any person executing the same, except as above provided.
(c) Should Escrow Agent during or after the term of the escrow
receive or become aware of any conflicting demands or claims with respect to the
Escrow Amount or the rights of any of the parties hereto, or any money or
property deposited herein or affected hereby, Escrow Agent shall have the right
to discontinue any or all further acts on its part until such conflict is
resolved to its and the parties' satisfaction, and Escrow Agent shall have the
further right to commence or defend any action or proceeding for the
determination of such conflict. In the event Escrow Agent should file suit in
interpleader, it shall be fully released and discharged from all further
obligations under this Agreement.
(d) Escrow Agent may consult with legal counsel satisfactory to it in
connection with any dispute, the construction of any provision of this Agreement
or the duties and obligations of Escrow Agent under this Agreement.
(e) In the event Escrow Agent becomes involved in arbitration or
litigation in connection with this Agreement, Phillips, Payee and Buyer, jointly
and severally, agree to indemnify and hold Escrow Agent harmless from all
losses, costs, damages, expenses, liabilities, judgments and attorneys' fees
suffered or incurred by Escrow Agent as a result thereof, except that this
indemnity obligation shall not apply to any arbitration or litigation in which
relief is obtained for the gross negligence or willful misconduct of Escrow
Agent.
(f) Escrow Agent shall not be responsible for the sufficiency of the
form, execution, validity or genuineness of notices, documents or securities now
or hereafter deposited hereunder, or of any endorsement thereon, or for any lack
of endorsement thereon, or for any description therein nor shall Escrow Agent be
responsible or liable in any respect on account of the identity, authority or
rights of the persons executing or delivering or purporting to execute or
deliver any such document, security or endorsement.
(g) The duties and responsibilities of Escrow Agent shall be limited
to those expressly set forth in this Agreement, provided, however, that with
Escrow Agent's written consent, the duties and responsibilities in this
Agreement may be amended at any time or times by an instrument in writing signed
by the Phillips Payee and Buyer. Escrow Agent is authorized, in its sole
discretion, to disregard any and all notices or instructions given by any other
person, firm or corporation, except such notices or instructions as are
hereinabove provided for.
9
<PAGE>
(h) Except for the provisions of this Agreement, the Escrow Agent is
not required to be familiar with the provisions of any other instrument or
agreement and shall not be charged with any responsibility or liability in
connection with the observance or non-observance by anyone of the provisions of
any such other instrument or agreement.
15. RELEASE OF ESCROW AGENT. The retention and distribution of the
-----------------------
Escrow Amount in accordance with the terms and provisions of this Agreement
shall fully and completely release Escrow Agent from any obligations or
liabilities assumed under this Agreement with respect to the Escrow Amount.
16. RESIGNATION AND REMOVAL OF ESCROW AGENT. Escrow Agent or any
---------------------------------------
successor to it may resign and be discharged of its duties and obligations
hereunder by delivering written notice to Buyer and Phillips specifying the
effective date of such resignation, which date shall not be earlier than 30 days
following the receipt by Buyer and Phillips of the notice of resignation. Such
resignation shall take effect on the date specified in the notice of
resignation, unless a successor escrow agent has been appointed in accordance
with the provisions of Section 17 and has accepted such appointment, in which
case such resignation shall take effect immediately upon receipt by such
successor escrow agent of the Escrow Amount. Escrow Agent may be removed by the
joint action of Buyer and Phillips, with or without cause, at any time upon 60
days' prior written notice to Escrow Agent, which notice may be waived by Escrow
Agent.
Notwithstanding any resignation or removal of Escrow Agent pursuant to
this Section 15, Escrow Agent shall continue to serve in its capacity as escrow
agent until (i) a successor escrow agent is appointed in accordance with the
provisions of Section 17 and has accepted such appointment and (ii) the Escrow
Amount has been transferred to and received by such successor escrow agent.
Buyer and Phillips shall promptly take the necessary action to appoint a
successor escrow agent in accordance with the provisions of Section 17.
17. APPOINTMENT OF SUCCESSOR ESCROW AGENT. If at any time Escrow
-------------------------------------
Agent shall resign, be removed or otherwise become incapable of acting as escrow
agent pursuant to this Agreement, or if at any time a vacancy shall occur in the
office of Escrow Agent for any other cause, a successor escrow agent that meets
the qualifications set forth in Section 18 shall be appointed by Buyer, with the
written consent of Phillips, which consent may not be unreasonably withheld, by
a written instrument delivered to the successor escrow agent. If no successor
escrow agent has been appointed at the effective date of resignation or removal
of Escrow Agent or within 30 days after the time Escrow Agent became incapable
of acting or a vacancy occurred in the office of escrow
10
<PAGE>
agent, any party hereto may petition a court of competent jurisdiction for an
appointment of a successor escrow agent and Escrow Agent shall have the right to
refuse to make any payments from the Escrow Amount until a successor escrow
agent is appointed and has accepted such appointment. Upon the appointment and
acceptance of any successor escrow agent hereunder, Escrow Agent shall transfer
the Escrow Amount to its successor. Upon receipt by the successor escrow agent
of the Escrow Amount, Escrow Agent shall be discharged from any continuing
duties or obligations under this Agreement and the successor escrow agent shall
be vested with all rights, powers, duties and obligations of Escrow Agent under
this Agreement.
18. ESCROW AGENT QUALIFICATIONS. Escrow Agent shall at all times be
---------------------------
a bank, savings and loan association or trust company in good standing,
organized and doing business under the laws of the United States or a state of
the United States, having combined capital and surplus of not less than One
Hundred Million Dollars ($100,000,000) and shall be authorized under the laws
governing its organization to exercise corporate trust powers and shall be
authorized under such laws and the laws of the State of California to enter into
and perform this Agreement. If Escrow Agent shall at any time cease to have the
foregoing qualifications, Escrow Agent shall give notice of resignation to Buyer
and Phillips as provided in Section 16, and Phillips and Buyer agree to
thereupon promptly appoint a qualified successor escrow agent in accordance with
Section 16.
19. PARTIES IN INTEREST. This Agreement shall be binding upon and
-------------------
inure to the benefit of each party, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever by, under or by reason of this Agreement. Nothing in this
Agreement is intended to relieve or discharge the obligation of any third person
to, or to confer any right of subrogation or action over against, any party to
this Agreement.
20. NOTICES. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be given or made by personal
delivery, or by a nationally recognized courier service for overnight delivery.
IF TO PHILLIPS OR THE PHILLIPS PAYEE, ADDRESSED TO:
PHILLIPS COLLEGES, INC.
ONE HANCOCK PLAZA, SUITE 1408
GULFPORT, MISSISSIPPI 39501
ATTENTION: JOSEPH A. BONDI, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
11
<PAGE>
WITH A COPY TO:
ALVAREZ & MARSAL, INC.
885 THIRD AVENUE
SUITE 1700
NEW YORK, NEW YORK 10022-4802
ATTENTION: JOSEPH A. BONDI
WITH A COPY TO:
DOW, LOHNES & ALBERTSON PLLC
1200 NEW HAMPSHIRE AVENUE, N.W., SUITE 800
WASHINGTON, D.C. 20036-6802
ATTENTION: LISA C. BUREAU, ESQ.
IF TO BUYER, ADDRESSED TO:
CORINTHIAN COLLEGES, INC.
1932 EAST DEERE, SUITE 210
SANTA ANA, CALIFORNIA 92705
ATTENTION: DAVID MOORE, PRESIDENT
WITH A COPY TO:
O'MELVENY & MYERS LLP
610 NEWPORT CENTER DRIVE, SUITE 1700
NEWPORT BEACH, CALIFORNIA 92660
ATTENTION: DAVID A. KRINSKY, ESQ.
IF TO ESCROW AGENT, ADDRESSED TO:
WELLS FARGO BANK, N.A.
CORPORATE TRUST ADMINISTRATION
707 WILSHIRE BOULEVARD, MAC 2818-111
LOS ANGELES, CALIFORNIA 90017
ATTENTION: ELADIA BURGOS
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective and received (i) on the actual receipt thereof
in the case of hand delivery, or (ii) on the next business day after deposit in
the case of notices by nationally recognized overnight courier services. As
used herein, notice to a party shall include concurrent notice to that party's
counsel as set forth herein.
21. AMENDMENTS; WAIVERS. This Agreement may be amended only by an
-------------------
agreement in writing of all parties. No waiver of any provision nor consent to
any exception to the terms of this Agreement shall be effective unless in
writing and signed by the
12
<PAGE>
party to be bound, and then only to the specific purpose, extent and instance so
provided.
22. COUNTERPARTS. This Agreement and any other agreement (or
------------
document) delivered pursuant hereto may be executed in one or more counterparts
and by different parties in separate counterparts. All of such counterparts
shall constitute one and the same agreement and shall become effective when one
or more counterparts of this Agreement have been signed by each party and
delivered to the other parties.
23. ASSIGNMENT; SUCCESSORS AND ASSIGNS. The rights and obligations
----------------------------------
of each party under this Agreement may not be assigned without the prior written
consent of all other parties. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by the successors and permitted assigns of the
respective parties.
24. GOVERNING LAW. This Agreement and the legal relations among the
-------------
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State
without regard to conflicts of law doctrines.
25. INTEGRATION. This Agreement, the Acquisition Agreement and the
-----------
Secondary Agreement and the other Ancillary Agreements constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Agreement and supersede all prior agreements and understandings with
respect thereto.
26. SEVERABILITY. If any provision of this Agreement is held invalid
------------
by any court, governmental agency or regulatory body, the other provisions shall
remain in full force and effect.
27. HEADINGS. The descriptive headings of the Sections of this
--------
Agreement are for convenience only and do not constitute a part of this
Agreement.
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on the day and year first above written.
"PHILLIPS PAYEE"
PHILLIPS COLLEGES, INC., A MISSISSIPPI
CORPORATION, FOR ITSELF AND/OR AS
AGENT FOR CERTAIN SUBSIDIARIES OR
ANY OTHER PARTIES AS DESIGNATED BY
PHILLIPS
By [SIGNATURE ILLEGIBLE]
-------------------------------------------
"BUYER"
CORINTHIAN COLLEGES, INC., A DELAWARE
CORPORATION
By /s/ David G. Moore
-------------------------------------------
By___________________________________________
"ESCROW AGENT"
WELLS FARGO BANK, N.A.
By [SIGNATURE ILLEGIBLE]
--------------------------------
Its VICE PRESIDENT
-------------------------------
By [SIGNATURE ILLEGIBLE]
--------------------------------
Its ASST. VICE PRESIDENT
-------------------------------
14
<PAGE>
EXHIBIT A
PHILLIPS PAYEES
1. Blair Business College, Inc. (a Colorado corporation)
2. Phillips College of Denver, Inc. (a Colorado corporation)
3. TO-BA Corporation (a Nevada corporation)
4. Phillips College of Los Angeles, Inc. (a California corporation)
5. Phillips Educational Services of New York City, Inc. (a New York
corporation)
6. Phillips Educational Group of Pennsylvania, Inc. (a Pennsylvania
corporation)
7. Phillips Educational Group of Portland, Inc. (an Oregon Corporation)
8. Rochester Business Institute, Inc. (a New York corporation)
9. Phillips Educational Group of Utah, Inc. (a Utah corporation)
10. Phillips Educational Group of Missouri, Inc. (a Missouri corporation)
11. Phillips Educational Group of Central Florida, Inc. (a Florida corporation)
A-1
<PAGE>
EXHIBIT B
ESCROW AGENT FEES
$3,000.00
B-1
<PAGE>
EXHIBIT 10.39
GUARANTY
--------
This GUARANTY is dated as of October 17, 1996, by Corinthian Colleges,
Inc., a Delaware corporation ("PARENT"), in favor of Phillips Colleges, Inc., a
Mississippi corporation ("PHILLIPS"), and certain subsidiaries of Phillips as
identified on Exhibit A hereto (the "SELLERS" and, collectively with Phillips,
---------
the "SELLING PARTIES").
PRELIMINARY STATEMENT
---------------------
The Selling Parties and Rhodes Colleges, Inc., a Delaware corporation
("RHODES"), Rhodes Business Group, Inc., a Delaware corporation ("RHODES
GROUP"), and Florida Metropolitan University, Inc., a Florida corporation ("FMU"
and together with Rhodes and Rhodes Group, the "SUBSIDIARIES"), have entered
into a Schools Acquisition Agreement, dated as of the date of this Guaranty, and
certain ancillary agreements and other documents related thereto (collectively,
the "ACQUISITION AGREEMENT"). The agreement of Parent to deliver this Guaranty
was a material inducement to the Selling Parties in entering into the
Acquisition Agreement.
AGREEMENTS
----------
In consideration of the foregoing and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Parent, intending to be bound legally, agrees as follows:
1. Guaranty. Parent hereby guarantees the full, complete, and timely
--------
payment and performance by the Subsidiaries of each and every obligation of the
Subsidiaries under the Acquisition Agreement. If any default shall be made by
the Subsidiaries in the payment or performance of any of such obligations, then
Parent will itself pay, perform or cause to be performed such obligation within
ten (10) business days upon written notice from the Selling Parties specifying
in summary form the default. The Selling Parties may proceed to enforce its
rights against Parent from time to time prior to, contemporaneously with, or
after any enforcement against the Subsidiaries, or without any enforcement
against the Subsidiaries. The obligations of Parent under this Guaranty shall be
absolute and unconditional and shall remain in full force and effect without
regard to and shall not be released, discharged, or in any way affected by (a)
any amendment or modification of or supplement to the Acquisition Agreement,
(b)any exercise or non-exercise of or delay in exercising any right, remedy,
power, or privilege under or in respect of the Acquisition Agreement, (c) any
bankruptcy, insolvency, arrangement, composition, assignment for the benefit of
creditors, or similar proceeding commenced by or against the Subsidiaries or
Parent, (d) the dissolution (voluntarily or involuntarily) of the Subsidiaries,
(e) the genuineness, validity, or enforceability of the Acquisition Agreement,
or (f) any other circumstances that might otherwise constitute a legal or
equitable discharge of a guarantor or surety. If payment of any sum by the
Subsidiaries pursuant to the Acquisition Agreement is recovered as a preference
or fraudulent transfer
<PAGE>
under any applicable bankruptcy or insolvency law, the liability of Parent under
this Guaranty shall continue and remain in full force and effect notwithstanding
such recovery.
2. Waivers. Parent unconditionally waives (a) any presentment, protest,
-------
demand, action, or delinquency in respect to any of the obligations of the
Subsidiaries under the Acquisition Agreement; (b) all set-offs and counterclaims
and all notices of nonperformance, notices of protest, notices of dishonor, and
notices of acceptance of this guaranty; (c) any claim or defense based upon,
arising out of, or in any way related to a claim that any election of remedies
impaired, reduced, released or otherwise extinguished any right or defense that
the guarantor may have possessed, including subrogation and reimbursement; and
(d) any rights and defenses the Parent may hold resulting from protection
afforded to a subsidiary by antideficiency or other laws which limit or
discharge a subsidiary's indebtedness.
3. Continuing Guaranty. This Guaranty shall be deemed a continuing
-------------------
guaranty, and the above consents and waivers of Parent shall remain in full
force and effect until the satisfaction in full of all obligations of the
Subsidiaries under the Acquisition Agreement.
4. Subordination. Parent agrees that any and all claims in its favor
-------------
against the Subsidiaries, any endorser or any other guarantor of all or any part
of the obligations of the Subsidiaries under the Acquisition Agreement, or
against any of their respective properties, arising by reason of any payment by
Parent to the Selling Parties pursuant to the provisions hereof or otherwise,
shall be subordinate and subject in right of payment to the prior payment, in
full, of all obligations of the Subsidiaries under the Acquisition Agreement.
5. Representations and Warranties. Parent hereby represents and warrants
------------------------------
to the Selling Parties as follows:
(a) Parent owns all of the issued and outstanding capital stock of
each of Corinthian Schools, Inc., a Delaware corporation, and Rhodes. FMU and
Rhodes Group are wholly-owned subsidiaries of Rhodes.
(b) Parent is a duly organized and validly existing corporation in
good standing under the laws of the State of Delaware.
(c) Parent has the corporate power to execute, deliver and perform
the terms and provisions of this Guaranty and has taken all necessary action to
authorize the execution, delivery and performance by it of this Guaranty. Parent
has duly executed and delivered this Guaranty, and this Guaranty constitutes its
legal, valid and binding obligations enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or equity).
-2-
<PAGE>
(d) Neither the execution, delivery or performance of this Guaranty
by the Parent, (i) will contravene any provision of any law, statute, rule or
regulation or any order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict or be inconsistent with or result in any
breach of any of the material terms, covenants, conditions or provisions of, or
constitute a material default under, or result in the creation or imposition of
(or the obligation to create or impose) any lien or encumbrance upon any of the
property or assets of the Parent pursuant to the terms of any indenture,
mortgage, deed of trust, credit agreement, loan agreement or any other
agreement, contract or instrument to which the Parent is a party or by which it
or any of its property or assets is bound or to which it may be subject or (iii)
will violate any provision of the Certificate of Incorporation, By-Laws or other
organizational document of the Parent.
(e) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, the execution,
delivery, performance, legality, validity, binding effect or enforceability of
this Guaranty.
(f) There are no actions, suits or proceedings pending or, to the
knowledge of the Parent, threatened against or affecting the Parent that might
materially and adversely affect the business, financial condition or results of
operations of the Parent. No judgment or order for the payment of money has been
entered against the Parent which remains outstanding and unpaid.
6. Notices. All notices, demands and requests required or permitted to be
-------
given under the provisions of this Guaranty shall be in writing and shall be
deemed to have been duly delivered and received if given in accordance with the
provisions of the Acquisition Agreement with the address of the Parent being the
address of the Subsidiaries in the Acquisition Agreement.
7. Amendments. No amendment, modification, termination or waiver of any
----------
provision of this Guaranty, or consent to any departure by the Parent therefrom,
shall in any event be effective except in writing signed by the Selling Parties
and the Parent. No waiver of any single breach or default under this Guaranty
shall be deemed a waiver of any other breach or default.
8. Successors and Assigns. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon the Parent and its successors and assigns, except that the
Parent shall not have the right to assign its rights hereunder. This Guaranty
shall inure to the benefit of the successors and assigns of the Selling Parties
and, in the event of any transfer or assignment of rights by any of the Selling
Parties the rights and privileges herein conferred upon the Selling Party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof.
-3-
<PAGE>
9. Severability. If any one or more of the provisions contained in this
------------
Guaranty should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of all remaining provisions shall not in
any way be affected or impaired. Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
10. JURISDICTION, VENUE AND SERVICE OF PROCESS. THE PARENT AGREES TO THE
------------------------------------------
JURISDICTION OF ANY DISTRICT OR FEDERAL COURT WITHIN THE STATE OF CALIFORNIA,
AND WAIVES ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. THE PARENT
FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON HIM, AND CONSENTS
THAT ALL SUCH SERVICE OF PROCESS MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED
TO THE PARENT AT THE ADDRESS OF THE SUBSIDIARIES LISTED IN THE ACQUISITION
AGREEMENT, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE DAYS AFTER
THE SAME SHALL HAVE BEEN POSTED AS AFORESAID.
11. WAIVER OF JURY TRIAL. THE PARENT, TO THE EXTENT PERMITTED BY LAW,
--------------------
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG THE SELLING PARTIES, THE
SUBSIDIARIES AND/OR THE PARENT ARISING OUT OF, IN CONNECTION WITH, RELATED TO,
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PARENT AND SELLING
PARTIES IN CONNECTION WITH THIS GUARANTY, THE ACQUISITION AGREEMENT OR ANY OTHER
AGREEMENT.
12. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED, CONSTRUED, AND
-------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD
TO THE CHOICE OF LAW PROVISIONS THEREOF).
13. Entire Agreement. This Guaranty (including the portions of the
----------------
Acquisition Agreement incorporated by reference herein) embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof.
14. Section Headings. The section headings contained herein are for
----------------
reference purposes only and shall not in any way affect the meaning and
interpretation of this Guaranty.
-4-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been executed as of the date first
written above.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
------------------------
Name:
Title:
-5-
<PAGE>
EXHIBIT A
1. Blair Business College, Inc.
2. Phillips College of Denver, Inc.
3. TO-BA Corporation
4. Phillips College of Los Angeles, Inc.
5. Phillips Educational Services of New York City, Inc.
6. Phillips Educational Group of Pennsylvania, Inc.
7. Phillips Educational Group of Portland, Inc.
8. Rochester Business Institute, Inc.
9. Phillips Educational Group of Utah, Inc.
10. Phillips Educational Group of Missouri, Inc.
11. Phillips Educational Group of Central Florida, Inc.
<PAGE>
EXHIBIT 10.40
ESCROW FUNDING NOTE
-------------------
$2,900,000 October 17, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to PHILLIPS
COLLEGES, INC., a Mississippi corporation ("Phillips"), for itself and/or as
agent for the Sellers or any other parties as designated by Phillips (in such
capacities, the "Phillips Payee") or order, at One Hancock Plaza, Suite 1408,
Gulfport, Mississippi 39501, or at such other place as the Phillips Payee hereof
may from time to time designate by written notice to Maker, the sum of TWO
MILLION NINE HUNDRED THOUSAND DOLLARS ($2,900,000), together with interest on
the balance of unpaid principal at the Interest Rate (as defined herein) or the
Past Due Rate (as defined herein), as the case may be, at the times and upon the
terms set forth in this Note.
A. DEFINITIONS. Certain terms used in this Note shall have the meaning
-----------
set forth below for each such term. Capitalized terms used in this Note and not
defined herein shall have the meanings given them in the Security Documents (as
defined herein).
1. Acquisition Escrow. The escrow provided for in Section 2.2.3 of the
------------------
Master Agreement.
2. Additional Interest. The additional interest due and calculated at the
-------------------
Past Due Rate as provided in Paragraph D.2 below.
3. Business Day. A day other than Saturday, Sunday or any day on which
------------
banking institutions in the cities of Los Angeles or New York are authorized by
law or other governmental action to close.
4. Deeds of Trust. The Deeds of Trust and Assignments of Rents and
--------------
Mortgages and Assignments of Rents which have been or are to be executed and
delivered by Maker under the document entitled Provisions Concerning Purchase
and Sale of Real Estate dated as of the date herewith (the "Real Property
Agreement"), between Phillips and its affiliates, Phillips College of Denver,
Inc., Blair Business College, Inc., and Phillips Educational Group of Central
Florida, Inc., as sellers, and Maker, as buyer, relating to the purchase and
sale of the Property (as defined herein).
5. Interim Note. That certain promissory note of even date herewith in
------------
the original principal amount of $1,100,000.00 executed by Maker and payable to
the order of Phillips.
6. Escrow Funding Note Release Amount. The sum of $706,400.00, which is
----------------------------------
part of the debt evidenced by this Note.
1
<PAGE>
7. Interest Rate. The lesser of (i) the maximum lawful rate of interest
-------------
applicable to this Note, or (ii) a rate per annum equal to two (2) percentage
points over the interest rate per annum announced from time to time by Wells
Fargo Bank, N.A. as its domestic base lending rate. Each change in the Interest
Rate shall become effective, without notice to Maker, on the effective date of
each change in such base lending rate or the maximum lawful rate, as the case
may be.
8. Maker. Corinthian Colleges, Inc., a Delaware corporation, and its
-----
successors and assigns as permitted hereunder.
9. Master Agreement. The Master Asset Purchase Agreement dated as of the
----------------
date herewith by and among the Maker, Phillips and certain of its subsidiaries.
10. Maturity Date. The date that is eighteen (18) months from the date
-------------
hereof or such earlier date to which the maturity of this Note may be
accelerated or otherwise payable in accordance with the provisions hereof or the
Security Documents.
11. Other Notes. Collectively, the following promissory notes which are
-----------
to be executed in accordance with the Real Property Agreement: (i) promissory
note to be executed by Maker and payable to the order of Phillips College of
Denver, Inc. referred to as the Real Property Purchase Money Note for Parks
College - Denver South Tract; (ii) promissory note to be executed by Maker and
payable to the order of Blair Business College, Inc. referred to as the Real
Property Purchase Money Note for Blair Junior College Tract; (iii) promissory
note to be executed by Maker and payable to the order of Phillips Educational
Group of Central Florida, Inc. referred to as the Real Property Purchase Money
Note for Orlando College - Melbourne Tract; (iv) promissory note to be executed
by Maker and payable to the order of Phillips Educational Group of Central
Florida, Inc. referred to as the Real Property Purchase Money Note for Tampa
College - Main Tract; and (v) promissory note to be executed by Maker and
payable to the order of Phillips College of Denver, Inc. referred to as the Real
Property Purchase Money Note for Parks College-Denver North Tract.
12. Past Due Rate. The lesser of (i) the Interest Rate plus two percent
-------------
(2%) per annum, or (ii) the maximum lawful rate of interest applicable to this
Note.
13. Payee. The Phillips Payee, or any future owner or holder of this
-----
Note, including pledgees and transferees of this Note and/or the Security
Documents, or any of them, or any person or entity acquiring or owning a
participation interest herein or therein.
14. Property. All real property and improvements encumbered by the Deeds
--------
of Trust as more particularly described in Exhibit A attached hereto.
---------
15. Schools. The schools listed on Exhibit B attached hereto and
------- ---------
incorporated herein by this reference, which are owned and operated by Maker and
certain of its affiliates.
2
<PAGE>
16. Security Documents. The Deeds of Trust and any other documents or
------------------
instruments now or hereafter securing the Escrow Funding Note Release Amount,
the Other Notes or evidencing or securing the obligations secured by the Deeds
of Trust.
B. PAYMENTS.
--------
1. Payments Made To Escrow. Notwithstanding any provision herein to the
-----------------------
contrary, except as provided in Paragraph C.3 below, all payments provided for
in this Note shall be paid to the Acquisition Escrow.
2. Payments of Principal and Interest. Principal and interest shall be
----------------------------------
payable as follows:
(a) Interest. From and after the Final Payment Date, the unpaid
--------
principal amount shall bear interest at the Interest Rate, due and payable in
monthly installments on the last day of each consecutive calendar month until
the Maturity Date.
(b) Maturity Date. The entire balance of principal then outstanding
-------------
on this Note, together with all interest accrued hereunder, and any other
amounts then outstanding hereunder or under the Security Documents, shall be due
and payable on the Maturity Date.
3. Application of Payments. Any payment hereunder shall be applied when
-----------------------
received first to the payment of any unpaid Additional Interest and then to the
payment of current interest on the principal balance from time to time remaining
unpaid, and then to reduce principal, except that if any amounts due under the
terms of any Security Document have not been repaid, then any monies received,
at the option of the Phillips Payee, may first be applied to repay such amounts
and interest thereon and the balance, if any, be applied as herein specified.
No such application by the Phillips Payee shall constitute a cure or waiver of
any default by Maker under the Security Documents or under this Note.
C. PREPAYMENT; RELEASE OF DEEDS OF TRUST.
-------------------------------------
1. Mandatory Prepayment. Upon the occurrence of any of the following
--------------------
events, Maker shall prepay this Note, without premium or penalty:
(a) a sale or financing of the Property, to the extent of proceeds
received therefrom in excess of payment of the Other Notes;
(b) in full, upon an underwritten initial public offering of Maker;
(c) in full, upon the sale of 30% of the assets of Maker within any
twelve-month period;
(d) in full, upon a sale of all or substantially all of the capital
stock of Maker;
3
<PAGE>
(e) in full, upon a reorganization, merger or consolidation of the
Company with one or more corporations as a result of which the Company goes
out of existence or becomes a subsidiary of another corporation (other than
any reorganization, merger or consolidation in which the shareholders of
the Company immediately prior to such transaction own at least fifty
percent (50%) of the shares of the surviving or resulting corporation), or
upon a sale of more than fifty percent (50%) of the then outstanding stock
of the Company to another entity or person.
(f) in full, if the Close of Escrow as defined in the Real Property
Agreement fails to occur on or before the thirtieth day after the Tier I
Closing, except if such failure shall occur solely by reason of the failure
of any condition within the control of the Selling Parties.
2. Voluntary Prepayment. So long as the Other Notes have been paid in
--------------------
full, during the term of this Note, Maker shall have the right to prepay this
Note in whole or in part, without premium or penalty, at any time and from time
to time.
3. Released Amounts. If at any time any amount is required to be
----------------
released to the Phillips Payee pursuant to Section 2.2.3(b) of the Master
Agreement ("Released Amount"), and the Released Amount exceeds (the amount of
such excess being hereinafter referred to as the "Shortfall Amount") the then
current funded balance of the Acquisition Escrow (the "Escrow Balance"), the
principal of this Note in an amount equal to the Shortfall Amount, plus accrued
interest thereon, if any, shall be due and payable directly to the Phillips
Payee on the date the Released Amount is to be released pursuant to such Section
2.2.3(b) and the Escrow Balance shall be released to the Phillips Payee;
provided, however, on September 15, 1997 the principal of this Note in an amount
equal to the lesser of (i) the aggregate amounts released from the escrow
("Aggregate Amount") or (ii) the difference between $2.9 million and the
Aggregate Amount shall be due and payable directly to the Acquisition Escrow to
the extent, if any, that such amount has not otherwise been funded by Maker.
4. Cross-Collateralization and Release of Deed of Trust. The Security
----------------------------------------------------
Documents collectively secure the Other Notes and the Escrow Funding Note
Release Amount (herein sometimes collectively called the "Total Debt"). Except
as provided in Section I of the Deeds of Trust, the Deeds of Trust will not be
released or satisfied unless and until the Total Debt and all indebtedness and
obligations secured by the Security Documents have been fully paid and
performed; provided, however, once $706,400 has been deposited in cash in the
Acquisition Escrow by Buyer, the Deeds of Trust and any other Security Documents
shall no longer secure any portion of this Note.
D. SECURITY AND DEFAULT.
--------------------
1. Default; Acceleration. This Note is secured by the Deeds of Trust and
---------------------
the other Security Documents, to the extent of the Escrow Funding Note Release
Amount. If any of the following events (each, an "Event of Default") shall
occur, then, or at any time thereafter, the whole of the unpaid principal
hereof, together with accrued and outstanding
4
<PAGE>
interest shall, at the election of Phillips Payee and without notice of such
election (except as may be required by applicable law), become immediately due
and payable:
(a) Maker's failure to make any payment when due in accordance with
the terms of this Note or any Security Document and the continuance of such
failure for a period of ten (10) days after Phillips Payee gives written
notice thereof to Maker.
(b) Default by Maker in the performance of any other obligations on
Maker's part to be performed under this Note or any Security Document and
the continuance of such default after lapse of any grace or curative period
applicable to such default under the terms thereof.
(c) The occurrence of a default under any of the Other Notes, the
Interim Note or any of the Security Documents and the continuance of such
default after lapse of any grace or curative period applicable to such
default under the terms thereof.
(d) The failure of Maker to pay when due any sum owing to Phillips
Colleges, Inc. or to any of the other Selling Parties under Section 2.2.3
of that certain Master Agreement (the term "Selling Parties" being defined
in the Master Agreement).
(e) If Maker shall: (A) seek, consent to or not contest the
appointment of a receiver or trustee for itself or for all or any part of
its property; (B) file a voluntary petition for relief as a debtor in a
proceeding under Title 11 of the United States Code (S)(S) 101 et seq. (the
"Bankruptcy Code") or shall file a petition seeking relief under any other
bankruptcy, arrangement, reorganization or other debtor relief laws of the
United States or any state or any other competent jurisdiction; (C) make a
general assignment for the benefit of its or his creditors; or (D)
generally not pay its debts as they become due.
(f) If: (A) a petition is filed against Maker seeking relief under
the Bankruptcy Code or any other bankruptcy, arrangement, reorganization or
other debtor relief laws of the United States or any state or other
competent jurisdiction; (B) an order for relief shall be entered with
respect to Maker as a debtor in a proceeding under the Bankruptcy Code; or
(C) a court of competent jurisdiction enters an order, judgment or decree
appointing a receiver or trustee for any part of Maker's property, and, in
the case of any petition, order, judgment or decree referred to in the
preceding clauses (A), (B) or (C), such petition, order, judgment or decree
is not dismissed, stayed or vacated within sixty (60) days after the filing
or entry thereof.
Phillips Payee's election may be exercised at any time after any such Event of
Default, and the acceptance of one or more payments hereon from any person
thereafter shall not constitute a waiver of Phillips Payee's election, or of its
option to make such election.
5
<PAGE>
2. Additional Interest. Subject to the limitations contained in
-------------------
Paragraph F.3 below, all past-due principal of this Note shall bear Additional
Interest at the Past Due Rate beginning upon the expiration of the applicable
curative period hereunder or under the Security Documents and continuing until
paid.
3. Collection and Enforcement Costs. Maker agrees to pay all reasonable
--------------------------------
costs of collection, including reasonable attorneys' fees and all costs of any
action or proceeding (including, but without limitation, commencement of
nonjudicial foreclosure or private sale), in case any payment of interest or
principal and interest thereon is not paid when due, or in case it becomes
necessary to enforce any other obligation of Maker hereunder or to protect the
security for the indebtedness evidenced hereby, or for the foreclosure by
Phillips Payee of the Deeds of Trust or any other Security Document, or in the
event Phillips Payee is made a party to any litigation because of the existence
of the indebtedness evidenced by this Note, or because of the existence of the
Security Documents, or any of them, whether suit be brought or not. Maker
acknowledges that all such costs are secured by the Deeds of Trust and the other
Security Documents.
4. Waivers. Except and to the extent expressly provided in Paragraph D.1
-------
above or in the Security Documents, Maker waives diligence, presentment, protest
and demand, notice of protest, of demand, of nonpayment, of dishonor, of
acceleration, of intent to accelerate maturity and of maturity and agrees that
time is of the essence of every provision hereof; and consents to any and all
renewals, extensions or modifications of the terms hereof or of the Security
Documents, or any of them, including time for payment, and further agrees that
any such renewal, extension or modification, or the release or substitution of
any person or security for the indebtedness evidenced hereby, shall not affect
the liability of any of such parties for the indebtedness evidenced by this Note
or the obligations under the Security Documents. Any such renewals, extensions,
modifications, releases or substitutions may be made without notice to any of
such parties.
5. Remedies Cumulative. The rights and remedies of Phillips Payee as
-------------------
provided in this Note and in the Security Documents shall be cumulative and
concurrent and may be pursued singly, successively or together against Maker,
the Property, or any other persons or entities who are, or may become, liable
for all or any part of this indebtedness, and any other funds, property or
security held by Phillips Payee for the payment hereof, or otherwise, at the
sole discretion of Phillips Payee. Failure to exercise any such right or remedy
shall in no event be construed as a waiver or release of such rights or
remedies, or the right to exercise them at any later time. The right, if any,
of Maker, and all other persons or entities, who are, or may become, liable for
all or any part of this indebtedness, to plead any and all statutes of
limitation as a defense to any demand on this Note, the Security Documents or
any other documents executed in connection with the loan evidenced by this Note,
is expressly waived by each and all of such parties to the full extent
permissible by law.
E. DEEDS OF TRUST PROVISIONS REGARDING TRANSFERS, SUCCESSORS. The Deeds
---------------------------------------------------------
of Trust securing the Escrow Funding Note Release Amount contain provisions for
the acceleration of the indebtedness evidenced hereby upon a
6
<PAGE>
Transfer (as therein defined) by Maker. Subject to the limitations on a Transfer
specified in the Deeds of Trust, the provisions hereof shall be binding on the
heirs, legal representatives, successors and assigns of Maker and shall inure to
the benefit of the successors and assigns of Phillips Payee.
F. MISCELLANEOUS.
-------------
1. Payment in Lawful Money; No Offsets. All payments due hereunder shall
-----------------------------------
be made in lawful money of the United States of America. All sums due hereunder
shall be payable without offset, demand, abatement or counterclaim of any kind
or nature whatsoever, all of which are hereby waived by Maker.
2. No Amendment or Waiver Except in Writing. This Note may be amended or
----------------------------------------
modified only by a writing duly executed by Maker and Phillips Payee, made on or
duly appended or affixed to this Note in accordance with the requirements of
applicable law, which amendment expressly refers to this Note and the intent of
the parties so to amend this Note. No provision of this Note may be waived by
Phillips Payee, except in writing executed by Phillips Payee, and which
expressly refers to this Note, and no such waiver shall be implied from any act
or conduct of Phillips Payee, or any omission by Phillips Payee to take action
with respect to any provision of this Note or any Security Document. No such
express written waiver shall affect any other provision of this Note, or cover
any default or time period or event, other than the matter as to which an
express written waiver has been given.
3. Limitation on Interest. It is expressly stipulated and agreed that it
----------------------
is the intention of Phillips Payee and Maker to conform strictly to applicable
federal and state usury laws governing this Note ("Usury Laws"), and,
notwithstanding anything to the contrary contained in this Note, or any Security
Documents, or in other documents or instruments related hereto, or in any other
agreement entered into in connection herewith, whether now existing or hereafter
arising and whether written or oral, it is agreed that the aggregate of all
interest and any other charges constituting interest, or adjudicated as
constituting interest, under such Usury Laws and contracted for, chargeable or
receivable under this Note or otherwise in connection with the loan transaction
represented hereby shall, under no circumstances, exceed the maximum rate of
interest permitted by such Usury Laws. In the event the maturity of this Note
is accelerated by reason of an election by Phillips Payee resulting from a
default hereunder or under any Security Documents or otherwise in connection
herewith, or by voluntary prepayment by Maker, or otherwise, then earned
interest may never include more than the maximum rate of interest permitted by
such Usury Laws, computed from the date of each disbursement of the loan
proceeds outstanding until payment. If, from any circumstances, Phillips Payee
shall ever receive interest or any other charges constituting interest, or
adjudicated as constituting interest, under such Usury Laws, the amount, if any,
which would exceed the maximum rate of interest permitted by such Usury Laws
shall, at the option of Phillips Payee, either be credited to the payment of
principal or returned to Maker. It is further agreed, without limitation of the
foregoing, that calculations of the rate of interest contracted for, charged or
received under this Note or under any Security Documents or in any other
documents
7
<PAGE>
or instruments related hereto, that are made for the purpose of determining
whether such rate exceeds the maximum lawful rate, shall be made, to the extent
permitted by law, by amortizing, prorating, allocating, and spreading over the
full term of this Note, all interest at any time contracted for, charged or
received from Maker or otherwise by Phillips Payee in connection with the loan
evidenced hereby. The provisions of this Paragraph F.3 shall control over all
other provisions hereof and of any other instrument executed in connection
herewith or executed to secure the indebtedness evidenced hereby, which may be
in apparent conflict with this Paragraph.
4. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSISSIPPI WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. TO THE EXTENT THE LAWS OF THE STATE OF
MISSISSIPPI ARE PREEMPTED BY FEDERAL LAW, THE LAWS OF THE UNITED STATES OF
AMERICA SHALL APPLY.
5. Certain Rules of Construction. The headings of each Paragraph of this
-----------------------------
Note are for information and convenience only and do not define or limit any
provision of this Note. The provisions of this Note shall be construed as a
whole according to their common meaning, not strictly for or against any party,
or any person or entity, who is or may become liable for the payment of this
Note, and to achieve the objectives of the parties unconditionally to impose on
Maker the indebtedness evidenced by this Note.
6. Severability. If any term of this Note, or the application thereof to
------------
any person or circumstances, shall be invalid or unenforceable, the remainder of
this Note, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Note shall be valid and enforceable to the
fullest extent permitted by law.
7. Obligations of Maker Joint and Several. If more than one person or
--------------------------------------
entity has executed this Note as "Maker," the obligations of all such persons
hereunder shall be joint and several.
8. Full Recourse Obligations of Maker. Notwithstanding the provisions of
----------------------------------
the Other Notes that limit Maker's liability and Phillips Payee's remedies
thereunder (the "Nonrecourse Provisions"), Maker's liability under this Note is
absolute and shall not be limited, diminished or affected in any way by the
Nonrecourse Provisions or the exercise of any remedies by Phillips Payee under
the Other Notes or the Security Documents or under applicable law. Maker agrees
that Phillips Payee may exercise its rights and remedies under this Note and
under the Other Notes and the Security Documents separately or concurrently and
in any order that it may deem appropriate. Without limiting the generality of
the foregoing, Maker agrees that if an Event of Default is continuing (i)
Phillips Payee shall have the right to pursue all of its rights and remedies in
one proceeding, or separately and independently in separate proceedings from
time to time in such order and manner as Phillips Payee, in its sole and
absolute discretion, shall determine form time to time, (ii) Phillips Payee is
not required to either marshall assets, sell the Property or any parcel
8
<PAGE>
thereof in any inverse order of alienation, or be subject to any "one action" or
"election of remedies" law or rule, and (iii) the exercise by Phillips Payee of
any remedies against any part of the Property will not impede Phillips Payee
from subsequently or simultaneously exercising remedies against any other part
or parts of the Property or enforcing this Note against Maker.
Phillips Payee shall have the right to recover its damages hereunder in a
separate proceeding brought for that purpose, or in any foreclosure action under
any of the Security Documents, or by invocation of any of Phillips Payee's other
rights and remedies thereunder or at law or equity; and Maker's liability under
this Paragraph shall survive foreclosure under any Security Document.
EXECUTED as of the date first above written.
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
By: /s/ David G. Moore
---------------------------------------
Name: David G. Moore
-------------------------------------
Title: President/CEO
------------------------------------
9
<PAGE>
EXHIBIT A
Exhibit A-1
<PAGE>
EXHIBIT B
School; Location
----------------
Western Business College; Portland, OR
Blair Junior College; Colorado Springs, CO
Parks College (North); Denver, CO
Parks College (South); Aurora, CO
Phillips College; Las Vegas, NV
Phillips Junior College of Salt Lake City; Salt Lake City, UT
Phillips Junior College; Springfield, MO
Duff's Business Institute; Pittsburgh, PA
Rochester Business Institute; Rochester, NY
FMUS-Fort Lauderdale College; Ft. Lauderdale, FL
FMUS-Orlando College (North); Orlando, FL
FMUS-Orlando College (South); Orlando, FL
FMUS-Orlando College (Melbourne); Melbourne, FL
FMUS-Tampa College (Main); Tampa, FL
FMUS-Tampa College (Brandon); Tampa, FL
FMUS-Tampa College (Pinellas); Chearwater, FL
FMUS-Tampa College (Lakeland); Lakeland, FL
Exhibit B-1
<PAGE>
SCHEDULE A
Legal Descriptions of Tracts
----------------------------
1. TRACT:
Blair Junior College Tract
SELLER:
Blair Business College, Inc.
LEGAL DESCRIPTION:
Lot 1 in Block 2 in RUSTIC HILLS SUBDIVISION NO. 6 FILING NO. 3,
County of El Paso,
State of Colorado.
(for informational purposes only) 828 Wooten Road
2. TRACT:
Parks College-Denver North Tract
SELLER:
Phillips College of Denver, Inc.
LEGAL DESCRIPTION:
Parcel I:
Lots 1 and 2
Block 1,
Horizon Place Subdivision Filing No. 1,
County of Adams,
State of Colorado
Parcel II:
Together with a non-exclusive easement for ingress and egress over, across
and upon a private drive situated on Lots 1, 2 and 5 of Block 1, Horizon
Place Subdivision Filing No. 1, and Lots 1 and 2, Horizon Place Subdivision
Filing No. 2, being more particularly described as follows:
Commencing at the Northeast corner of said Horizon Place Subdivision Filing
No. 1; thence S 00 degrees 26 minutes 40 seconds W along the Easterly line
of Lot 2, Block l, Horizon Place Subdivision Filing No. 1 a distance of
316.72 feet to the Point of Beginning; thence continuing S 00 degrees 26
minutes 40 seconds W along the Easterly line of Lot 1 of said Filing No. 2
a distance of 60.00 feet; thence N 44 degrees 33 minutes 20 seconds W a
distance of 42.17 feet;
Schedule 1 - Page 1
<PAGE>
thence N 89 degrees 54 minutes 10 seconds W parallel with the Northerly
line of said Lot 1 Filing No. 2 a distance of 92.00 feet; thence N 87
degrees 02 minutes 25 seconds W a distance of 100.12 feet; thence N 89
degrees 54 minutes 10 seconds W parallel with the Northerly line of said
Lots 1 & 2 Filing No. 2 a distance of 439.54 feet; thence S 00 degrees 05
minutes 50 seconds W a distance of 20.00 feet; thence N 89 degrees 54
minutes 10 seconds W parallel with the Northerly line of said Lots 1 & 2
Filing No. 2 a distance of 90.00 feet; thence N 00 degrees 05 minutes 50
seconds E a distance of 90.00 feet; thence S 89 degrees 54 minutes 10
seconds E parallel with the Southerly line of said Lot 1 Filing No. 1 a
distance of 90.00 feet; thence S 00 degrees 05 minutes 50 seconds W a
distance of 20.00 feet; thence S 89 degrees 54 minutes 10 seconds E
parallel with the Southerly line of said Lot 1 Filing No. 1 a distance of
439.54 feet; thence N 87 degrees 14 minutes 05 seconds E a distance of
100.12 feet; thence S 89 degrees 54 minutes 10 seconds E parallel with the
Southerly line of said Lot 2 Filing No. 1 a distance of 80.00 feet; thence
N 45 degrees 26 minutes 40 seconds E a distance of 42.68 feet; thence S 00
degrees 26 minutes 40 seconds W along a line parallel with and 12.00 feet
Westerly of the Easterly line of said Lot 2 Filing No. 1 a distance of 60
feet; thence S 89 degrees 54 minutes 10 seconds E along the Northerly line
of Lot 1 Filing No. 2 12.00 feet to the Point of Beginning, County of
Adams,
State of Colorado.
(for informational purposes only) 9065 Grant Street
3. TRACT:
Parks College-Denver South Tract
SELLER:
Phillips College of Denver, Inc.
LEGAL DESCRIPTION:
Lots 1 and 2, Block 1,
Allen Center Subdivision, Filing No. 1,
County of Arapahoe,
State of Colorado.
(for informational purposes only) 6 Abilene Street
Schedule 1 - Page 2
<PAGE>
4. TRACT:
Orlando College-Melbourne Tract
SELLER:
Phillips Educational Group of Central Florida, Inc.
LEGAL DESCRIPTION:
A portion of Government Lot 3, Section 9, Township 27 South, Range 37 East,
Melbourne, Brevard County, Florida, being more particularly described as
follows:
Commence at the Northwest corner of said Government Lot 3 and go N.
8842'24" E., along the North line of said Gov't Lot 3 a distance of 492.98
ft. to the intersection of the East Right-of-Way line of U. S. Highway No.
1 (State Road No. 5), thence go S. 3316'15" E., along the said East R/W
line of U. S. Highway No. 1 a distance of 393.92 ft. to the South Right-of-
Way line of Cliff Creek Drive, also being the Point of Beginning of the
herein described parcel, said P.O.B. also being the P.C. of a curve concave
to the South having a radius of 268.45 ft., a Central Angle of 3205'00" and
a Chord Bearing of N. 7246'15" E., thence go Easterly along said curve and
along the South R/W line of Cliff Creek Dr. an Arc distance of 150.32 ft.,
thence go N. 8848'45" E., along said South right-of-way line of Cliff Creek
Dr., a distance of 428.29 ft., to the Westerly R/W line of Pineapple Ave.,
thence go S. 2829'45" E., along the said Westerly R/W line of Pineapple
Ave. a distance of 259.02 ft., to the Physical centerline of Cliff Creek,
thence the following courses along said physical centerline of Cliff Creek;
S. 7722'42" W., 40.18 ft.; S. 6127'16" W., 33.13 ft.; S. 4131'17" W., 93.00
ft.; S. 5047'07" W., 54.51 ft.; S. 6027'36" W., 53.77 ft.; S. 2446'40" W.,
73.85 ft.; S. 2257'08" W., 31.44 ft.; S. 1903'10" W., 56.30 ft.; S.
0608'49" E., 53.05 ft.; S. 2011'35" E., 124.92 ft.; S. 4837'18" E., 64.70
ft.; S. 023'00" E., 26.91 ft.; S. 4602'48" W., 32.96 ft. to the
intersection of the aforesaid Easterly R/W line of U. S. Highway No. 1,
thence go N. 3316'15" W., along said Easterly R/W line of U. S. No. 1 a
distance of 887.22 ft., to the Point of Beginning.
5. TRACT:
Tampa College-Main Tract
SELLER:
Phillips Educational Group of Central Florida, Inc.
LEGAL DESCRIPTION:
Begin at a point 50 feet North of the Southeast corner of the Southwest 1/4
of the Southwest 1/4 of Section 34, Township 28 South, Range 18 East,
Hillsborough County,
Schedule 1 - Page 3
<PAGE>
Florida, and running North 210 feet to the Point of Beginning; thence North
315 feet to a corner; thence West 340 feet to a corner; thence South 265
feet to a corner; thence West 52 feet to a corner; thence South 260 feet;
thence East 182 feet; thence North 210 feet; thence East 210 feet to Point
of Beginning; LESS the most Easterly 30 feet thereof for right-of-way of
Lincoln Avenue.
ALSO DESCRIBED AS FOLLOWS:
A parcel of land lying in Section 34, Township 28 South, Range 18 East,
Hillsborough County, Florida and being more particularly described as
follows:
Commence at the Southeast corner of the Southwest 1/4 of the Southwest 1/4
of said Section 34 and run N.0002'50"E., along the centerline of Lincoln
Avenue, a distance of 260.00 feet to the Point of Beginning; thence
continue along the previous course, a distance of 315.00 feet to a point;
leaving said centerline, run S.8959'00"W., a distance of 339.70 feet to a
point; thence run S.0002'50"W., a distance of 265.00 feet to a point;
thence run S.8959'00"W., a distance of 52.00 feet to a point; thence run
S.0002'50"W., a distance of 260.00 feet to a point; thence run
N.8959'00"E., a distance of 182.00 feet to a point; thence run
N.0002'50"E., a distance of 210.00 feet to a point; thence N.8959'00"E., a
distance of 210.00 feet to the Point of Beginning. Containing 3.394 acres
more or less.
LESS the Easterly 30.00 feet thereof for the right-of-way of Lincoln
Avenue.
Schedule 1 - Page 4
<PAGE>
EXHIBIT 10.41
INTERIM PROMISSORY NOTE
-----------------------
$1,100,000 October 17, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to PHILLIPS
COLLEGES, INC., a Mississippi corporation, for itself and/or as agent for the
Sellers or any other parties as designated by Phillips (in such capacities, the
"Phillips Payee") or order, at One Hancock Plaza, Suite 1408, Gulfport,
Mississippi 39501, or at such other place as the Phillips Payee hereof may from
time to time designate by written notice to Maker, the sum of ONE MILLION ONE
HUNDRED THOUSAND DOLLARS ($1,100,000), together with interest on the balance of
unpaid principal at the Past Due Rate (as defined herein), if applicable, at the
times and upon the terms set forth in this Note.
A. DEFINITIONS. Certain terms used in this Note shall have the meaning
-----------
set forth below for each such term. Capitalized terms used in this Note and not
defined herein shall have the meanings given them in the Master Asset Purchase
Agreement (as defined herein).
1. Business Day. A day other than Saturday, Sunday or any day on which
------------
banking institutions in the cities of Los Angeles or New York are authorized by
law or other governmental action to close.
2. Deeds of Trust. The Deeds of Trust and Assignments of Rents and
--------------
Mortgages and Assignments of Rents which are to secure the Other Notes.
3. Escrow Funding Note. That certain promissory note of even date
-------------------
herewith, in the original principal amount of $2,900,000.00 executed by Maker
and payable to the order of Phillips Colleges, Inc.
4. Maker. Corinthian Colleges, Inc., a Delaware corporation, and its
-----
successors and assigns as permitted hereunder.
5. Master Asset Purchase Agreement. That certain Master Asset Purchase
-------------------------------
Agreement of even date herewith by and between Maker, Phillips Colleges, Inc.
and certain of its subsidiaries.
6. Maturity Date. The date that is the earlier of (a) sixty (60) days
-------------
after the date hereof or (b) the last date on which: (i) the U.S. Department of
Education has certified all the Schools (as defined herein) as eligible for
Title IV funding, and (ii) some or all of the guaranty agencies which guarantee
Federal Family Education Loan ("FFEL") program loans for the Schools resume such
activities such that any combination of Schools with an aggregate value of
$17,600,000.00 (based on the values shown on Exhibit A hereto) are able to begin
---------
certifying FFEL program loan applications and receiving FFEL loan program
1
<PAGE>
funds; or such earlier date to which the maturity of this Note may be
accelerated or otherwise payable in accordance with the provisions hereof.
7. Other Notes. Collectively, the following promissory notes which are to
-----------
be executed and delivered by Maker in accordance with the terms of that certain
agreement entitled "Provisions Concerning Purchase and Sale of Real Estate"
dated October 17, 1996, between Phillips Payee and its affiliates, Phillips
College of Denver, Inc., Blair Business College, Inc. and Phillips Educational
Group of Central Florida, Inc., as seller, and Maker, as buyer, relating to the
purchase and sale of certain real estate described therein: (i) promissory note
payable to the order of Phillips College of Denver, Inc. referred to as the Real
Property Purchase Money Note for Parks College - Denver South Tract; (ii)
promissory note payable to the order of Blair Business College, Inc. referred to
as the Real Property Purchase Money Note for Blair Junior College Tract; (iii)
promissory note payable to the order of Phillips Educational Group of Central
Florida, Inc. referred to as the Real Property Purchase Money Note for Orlando
College - Melbourne Tract; (iv) promissory note payable to the order of Phillips
Educational Group of Central Florida, Inc. referred to as the Real Property
Purchase Money Note for Tampa College - Main Tract; (v) promissory note payable
to the order of Phillips College of Denver, Inc. referred to as the Real
Property Purchase Money Note for Parks College-Denver North Tract.
8. Past Due Interest. The additional interest due and calculated at the
-----------------
Past Due Rate as provided in Paragraph D.2 below.
9. Past Due Rate. The lesser of (i) the rate of twenty-four percent (24%)
-------------
per annum, or (ii) the maximum lawful rate of interest applicable to this Note.
10. Phillips Payee. Phillips Colleges, Inc., a Mississippi corporation,
--------------
or any future owner or holder of this Note, including pledgees and transferees
of this Note or any person or entity acquiring or owning a participation
interest herein.
11. Schools. The schools listed on Exhibit A attached hereto and
------- ---------
incorporated herein by this reference, which are owned and operated by Maker and
certain of its affiliates.
12. Security Documents. The Deeds of Trust and any other documents or
------------------
instruments now or hereafter securing the Other Notes, a portion of the Escrow
Funding Note or evidencing the obligations secured by the Deeds of Trust.
B. PAYMENTS.
--------
1. Payment of Principal. The principal amount of $1,100,000 shall be due
--------------------
and payable on the Maturity Date.
2. Application of Installment Payments. Any installment payment hereunder
-----------------------------------
shall be applied when received first to the payment of any unpaid Past Due
Interest, if any, and then to reduce principal.
2
<PAGE>
C. PREPAYMENT.
----------
1. Prepayment. During the term of this Note, Maker shall have the right
----------
to prepay this Note in part, without premium or penalty, at any time and from
time to time.
D. DEFAULT.
-------
1. Default; Acceleration. If any of the following events (each, an "Event
---------------------
of Default") shall occur, then, or at any time thereafter unless such event is
excused, the whole of the unpaid principal hereof, together with accrued and
outstanding interest shall, at the election of Phillips Payee and without notice
of such election (except as may be required by applicable law), become
immediately due and payable:
(a) Maker's failure to make any payment when due in accordance with
the terms of this Note and the continuance of such failure for a period of
ten (10) days after Phillips Payee gives written notice thereof to Maker.
(b) Default by Maker in the performance of any other obligations on
Maker's part to be performed under this Note and the continuance of such
default after lapse of any grace or curative period applicable to such
default under the terms thereof.
(c) The occurrence of a default under any of the Other Notes, the
Escrow Funding Note or any Security Document and the continuance of such
default after lapse of any grace or curative period applicable to such
default under the terms thereof.
(d) The failure of Maker to pay when due any sum owing to Phillips
Colleges, Inc., any of the other Selling Parties or the Phillips Payee
under Section 2.2.3 of the Master Asset Purchase Agreement.
Phillips Payee's election may be exercised at any time after any such Event of
Default, and the acceptance of one or more payments hereon from any person
thereafter shall not constitute a waiver of Phillips Payee's election, or of its
option to make such election.
2. Past Due Interest Rate. Subject to the limitations contained in
----------------------
Paragraph E.3 below, all past-due principal of this Note shall bear Past Due
Interest at the Past Due Rate beginning upon the expiration of the applicable
curative period hereunder and continuing until paid in full.
3. Collection and Enforcement Costs. Maker agrees to pay all reasonable
--------------------------------
costs of collection, including reasonable attorneys' fees and all costs of any
action or proceeding, in case any payment of interest or principal and interest
thereon is not paid when due, or in case it becomes necessary to enforce any
other obligation of Maker hereunder, or in the event Phillips Payee is made a
party to any litigation because of the existence of the indebtedness evidenced
by this Note, whether suit be brought or not.
3
<PAGE>
4. Waivers. Except and to the extent expressly provided in Paragraph D.1
-------
above, Maker waives diligence, presentment, protest and demand, notice of
protest, of demand, of nonpayment, of dishonor, of acceleration, of intent to
accelerate maturity and of maturity and agrees that time is of the essence of
every provision hereof; and consents to any and all renewals, extensions or
modifications of the terms hereof, including time for payment, and further
agrees that any such renewal, extension or modification, or the release or
substitution of any person liable on the indebtedness evidenced hereby shall not
affect the liability of any of such parties for the indebtedness evidenced by
this Note. Any such renewals, extensions, modifications, releases or
substitutions may be made without notice to any of such parties.
5. Remedies Cumulative. The rights and remedies of Phillips Payee as
-------------------
provided in this Note shall be cumulative and concurrent and may be pursued
singly, successively or together against Maker or any other persons or entities
who are, or may become, liable for all or any part of this indebtedness, and any
other funds, property or security held by Phillips Payee for the payment hereof,
or otherwise, at the sole discretion of Phillips Payee. Failure to exercise any
such right or remedy shall in no event be construed as a waiver or release of
such rights or remedies, or the right to exercise them at any later time. The
right, if any, of Maker, and all other persons or entities, who are, or may
become, liable for all or any part of this indebtedness, to plead any and all
statutes of limitation as a defense to any demand on this Note or any other
documents executed in connection with the loan evidenced by this Note, is
expressly waived by each and all of such parties to the full extent permissible
by law.
E. MISCELLANEOUS.
-------------
1. Payment in Lawful Money; No Offsets. All payments due hereunder shall
-----------------------------------
be made in lawful money of the United States of America. All sums due hereunder
shall be payable without offset, demand, abatement or counterclaim of any kind
or nature whatsoever, all of which are hereby waived by Maker.
2. No Amendment or Waiver Except in Writing. This Note may be amended or
----------------------------------------
modified only by a writing duly executed by Maker and Phillips Payee, made on or
duly appended or affixed to this Note in accordance with the requirements of
applicable law, which amendment expressly refers to this Note and the intent of
the parties so to amend this Note. No provision of this Note may be waived by
Phillips Payee, except in writing executed by Phillips Payee, and which
expressly refers to this Note, and no such waiver shall be implied from any act
or conduct of Phillips Payee, or any omission by Phillips Payee to take action
with respect to any provision of this Note. No such express written waiver
shall affect any other provision of this Note, or cover any default or time
period or event, other than the matter as to which an express written waiver has
been given.
3. Limitation on Interest. It is expressly stipulated and agreed that it
----------------------
is the intention of Phillips Payee and Maker to conform strictly to applicable
federal and state usury laws governing this Note ("Usury Laws"), and,
notwithstanding anything to the contrary contained in this Note, or in other
documents or instruments related hereto, or in
4
<PAGE>
any other agreement entered into in connection herewith, whether now existing or
hereafter arising and whether written or oral, it is agreed that the aggregate
of all interest and any other charges constituting interest, or adjudicated as
constituting interest, under such Usury Laws and contracted for, chargeable or
receivable under this Note or otherwise in connection with the transactions
represented hereby shall, under no circumstances, exceed the maximum rate of
interest permitted by such Usury Laws. In the event the maturity of this Note
is accelerated by reason of an election by Phillips Payee resulting from a
default hereunder or otherwise in connection herewith, or by voluntary
prepayment by Maker, or otherwise, then earned interest may never include more
than the maximum rate of interest permitted by such Usury Laws, computed from
the date of each disbursement of the loan proceeds outstanding until payment.
If, from any circumstances, Phillips Payee shall ever receive interest or any
other charges constituting interest, or adjudicated as constituting interest,
under such Usury Laws, the amount, if any, which would exceed the maximum rate
of interest permitted by such Usury Laws shall, at the option of Phillips Payee,
either be credited to the payment of principal or returned to Maker. It is
further agreed, without limitation of the foregoing, that calculations of the
rate of interest contracted for, charged or received under this Note or in any
other documents or instruments related hereto, that are made for the purpose of
determining whether such rate exceeds the maximum lawful rate, shall be made, to
the extent permitted by law, by amortizing, prorating, allocating, and spreading
over the full term of this Note, all interest at any time contracted for,
charged or received from Maker or otherwise by Phillips Payee in connection with
the loan evidenced hereby. The provisions of this Paragraph E.3 shall control
over all other provisions hereof and of any other instrument executed in
connection herewith, which may be in apparent conflict with this Paragraph.
4. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. TO THE EXTENT THE LAWS OF THE STATE OF
CALIFORNIA ARE PREEMPTED BY FEDERAL LAW, THE LAWS OF THE UNITED STATES OF
AMERICA SHALL APPLY.
5. Certain Rules of Construction. The headings of each Paragraph of this
-----------------------------
Note are for information and convenience only and do not define or limit any
provision of this Note. The provisions of this Note shall be construed as a
whole according to their common meaning, not strictly for or against any party,
or any person or entity, who is or may become liable for the payment of this
Note, and to achieve the objectives of the parties unconditionally to impose on
Maker the indebtedness evidenced by this Note.
6. Severability. If any term of this Note, or the application thereof to
------------
any person or circumstances, shall be invalid or unenforceable, the remainder of
this Note, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Note shall be valid and enforceable to the
fullest extent permitted by law.
5
<PAGE>
7. Full Recourse Obligations of Maker. Notwithstanding the provisions of
----------------------------------
the Other Notes that limit Maker's liability and Phillips Payee's remedies
thereunder (the "Nonrecourse Provisions"), Maker's liability under this Note is
absolute and shall not be limited, diminished or affected in any way by the
Nonrecourse Provisions or the exercise of any remedies by Phillips Payee under
the Other Notes or the Security Documents or under applicable law. Maker agrees
that Phillips Payee may exercise its rights and remedies under this Note and
under the Other Notes and the Security Documents separately or concurrently and
in any order that it may deem appropriate. Without limiting the generality of
the foregoing, Maker agrees that if an Event of Default is continuing (i)
Phillips Payee shall have the right to pursue all of its rights and remedies in
one proceeding, or separately and independently in separate proceedings from
time to time in such order and manner as Phillips Payee, in its sole and
absolute discretion, shall determine from time to time, (ii) Phillips Payee is
not required to either marshall assets, sell the Property or any parcel thereof
in any inverse order of alienation, or be subject to any "one action" or
"election of remedies" law or rule, and (iii) the exercise by Phillips Payee of
any remedies against any part of the Property will not impede Phillips Payee
from subsequently or simultaneously exercising remedies against any other part
or parts of the Property or enforcing this Note against Maker.
EXECUTED as of the date first above written.
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
By: /s/ David Moore
---------------------------------------
Name: David Moore
--------------------------------------
Title: President
------------------------------------
6
<PAGE>
EXHIBIT A
School Value
------ -----
Western Business College; Portland, OR
Blair Junior College; Colorado Springs, CO
Parks College (North); Denver, CO
Parks College (South); Aurora, CO
Phillips College; Las Vegas, NV
Phillips Junior College of Salt Lake City;
Salt Lake City, UT
Phillips Junior College; Springfield, MO
Duff's Business Institute; Pittsburgh, PA
Rochester Business Institute; Rochester, NY
FMUS-Fort Lauderdale College, Ft. Lauderdale, FL
FMUS-Orlando College (North); Orlando, FL
FMUS-Orlando College (South); Orlando, FL
FMUS-Orlando College (Melbourne); Melbourne, FL
FMUS-Tampa College (Main); Tampa, FL
FMUS-Tampa College (Brandon); Tampa, FL
FMUS-Tampa College (Pinellas); Clearwater, FL
FMUS-Tampa College (Lakeland)
7
<PAGE>
EXHIBIT 10.42
================================================================================
CORINTHIAN COLLEGES, INC.
NOTE PURCHASE AND REVOLVING CREDIT AGREEMENT
$22,500,000
10.27% SENIOR SECURED TERM NOTES DUE OCTOBER 17, 2003
$5,000,000
SENIOR SECURED REVOLVING CREDIT FACILITY
Dated as of October 17, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1A. AUTHORIZATION OF ISSUE OF SENIOR SECURED TERM NOTES............................ 1
1B. AUTHORIZATION OF SENIOR SECURED REVOLVING NOTE................................. 1
2. PURCHASE AND SALE OF TERM NOTES; REVOLVING CREDIT FACILITY..................... 2
2A. PURCHASE AND SALE OF TERM NOTES; ORIGINAL ISSUE DISCOUNT.................. 2
2B. REVOLVING CREDIT FACILITY................................................. 2
2B(1). REVOLVING LOANS................................................. 2
2B(2). PREPAYMENT AT THE COMPANY'S OPTION.............................. 3
2B(3). PURCHASE UNDER PARAGRAPH 5E..................................... 3
2B(4). MANNER OF BORROWINGS............................................ 3
2B(5). NON-USAGE FEES.................................................. 4
2B(6). INTEREST AND NON-USAGE FEE PAYMENTS............................. 4
2B(7). ILLEGALITY...................................................... 4
2B(8). BREAKAGE COST INDEMNITY......................................... 5
2B(9). INTEREST RATE LIMITATION........................................ 6
2B(10). RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES................... 6
2B(11). INABILITY TO DETERMINE INTEREST RATE............................ 8
3A. CONDITIONS OF CLOSING..................................................... 8
3A(1). OPINION OF COMPANY'S COUNSEL.................................... 8
3A(2). OPINION OF PRUDENTIAL'S SPECIAL COUNSEL......................... 8
3A(3). REPRESENTATIONS AND WARRANTIES; NO DEFAULT...................... 8
3A(4). STRUCTURING FEE................................................. 8
3A(5). PURCHASE PERMITTED BY APPLICABLE LAWS; APPROVALS................ 9
3A(6). PROCEEDINGS..................................................... 9
3A(7). ACQUISITION OF ASSETS........................................... 9
3A(8). SALE OF SUBORDINATED DEBT; SUBORDINATION OF EXISTING
SECURITIES, RELEASE AND SUBORDINATION OF LIENS; AMENDMENT TO
PURCHASE AGREEMENT.............................................. 10
3A(9). DOCUMENTS....................................................... 10
3A(10). COMMON STOCK PURCHASE WARRANTS.................................. 12
3A(11). CERTIFICATES OF INSURANCE....................................... 12
</TABLE>
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<TABLE>
<S> <C>
3A(12). NO MATERIAL ADVERSE CHANGE; OPENING BALANCE SHEET............... 12
3A(13). SCHEDULE OF RATES............................................... 13
3A(14). FEES AND EXPENSES............................................... 13
3B. CONDITIONS PRECEDENT TO EACH REVOLVING LOAN............................... 13
3B(1). REVOLVING LOAN REQUEST.......................................... 13
3B(2). REPRESENTATIONS AND WARRANTIES; NO DEFAULT...................... 13
3B(3). REVOLVING LOAN PERMITTED BY APPLICABLE LAWS..................... 13
3B(4). LEGAL MATTERS................................................... 14
3B(5). PROCEEDINGS..................................................... 14
3B(6). CHANGE IN THE COMPANY'S CONDITION............................... 14
3B(7). SUBSEQUENT OPINIONS, ETC........................................ 14
4. PREPAYMENTS OF TERM NOTES...................................................... 14
4A. REQUIRED PREPAYMENTS OF TERM NOTES........................................ 14
4B(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT............... 14
4B(2). PREPAYMENT WITH KEY MAN INSURANCE PROCEEDS...................... 15
4C. NOTICE OF OPTIONAL PREPAYMENT............................................. 15
4D. PARTIAL PAYMENTS PRO RATA................................................. 15
4E. RETIREMENT OF NOTES....................................................... 16
5. AFFIRMATIVE COVENANTS.......................................................... 16
5A. FINANCIAL STATEMENTS...................................................... 16
5B. INFORMATION REQUIRED BY RULE 144A......................................... 20
5C. INSPECTION OF PROPERTY.................................................... 20
5D. COVENANT TO SECURE NOTE EQUALLY........................................... 20
5E CHANGE IN CONTROL PUT OPTION.............................................. 21
5F. KEY MAN LIFE INSURANCE.................................................... 21
5G. MAINTENANCE OF PROPERTY................................................... 21
5H. MAINTENANCE OF INSURANCE.................................................. 21
5I. PAYMENT OF TAXES; COMPLIANCE WITH LAWS.................................... 22
5J. COMPLIANCE WITH ENVIRONMENTAL LAWS........................................ 22
5K. MAINTENANCE OF WORKING CAPITAL FACILITY................................... 22
5L. NATURE OF BUSINESS........................................................ 22
5M. CORPORATE EXISTENCE; LICENSES; ACCREDITATION.............................. 22
5N. POST CLOSING ITEMS........................................................ 23
6. NEGATIVE COVENANTS............................................................. 23
6A. FINANCIAL COVENANTS....................................................... 23
6A(1). QUICK RATIO..................................................... 23
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
6A(2). MAXIMUM RATIO OF SENIOR DEBT TO CASH FLOW....................... 23
6A(3). MAXIMUM RATIO OF SENIOR DEBT TO CAPITALIZATION.................. 23
6A(4). MINIMUM RATIO OF CASH FLOW AND OPERATING LEASE PAYMENTS TO
FIXED CHARGES................................................... 23
6A(5). MINIMUM RATIO OF EBIT AND OPERATING LEASE PAYMENTS TO INTEREST
EXPENSE AND OPERATING LEASE PAYMENTS............................ 23
6A(6). MINIMUM CONSOLIDATED CASH FLOW.................................. 24
6A(7). MAXIMUM RATIO OF DEBT TO CAPITALIZATION......................... 24
6B. RESTRICTED PAYMENTS....................................................... 24
6C. LIEN, DEBT AND OTHER RESTRICTIONS......................................... 25
6C(1). LIENS........................................................... 25
6C(2). DEBT............................................................ 26
6C(3). LOANS, ADVANCES AND INVESTMENTS................................. 27
6C(4). CAPITAL EXPENDITURES............................................ 28
6C(5). MERGER AND CONSOLIDATION........................................ 28
6C(6). TRANSFERS OF ASSETS............................................. 28
6C(7). RESTRICTIONS ON SUBSIDIARIES.................................... 29
6C(8). COMPENSATION OF SENIOR MANAGEMENT............................... 29
6C(9). RELATED PARTY TRANSACTIONS...................................... 29
6C(10). SALE OR DISCOUNT OF RECEIVABLES................................. 29
6C(11). SALE AND LEASE-BACK............................................. 29
6C(12). SALE OF STOCK AND DEBT OF SUBSIDIARIES.......................... 29
6C(13). LEASES.......................................................... 30
6D. HOSTILE TENDER OFFER...................................................... 30
6E. FISCAL YEAR............................................................... 30
6F. ISSUANCE OF STOCK BY SUBSIDIARIES......................................... 30
7. EVENTS OF DEFAULT.............................................................. 30
7A. ACCELERATION.............................................................. 30
7B. RESCISSION OF ACCELERATION................................................ 34
7C. NOTICE OF ACCELERATION OR RESCISSION...................................... 35
7D. OTHER REMEDIES............................................................ 35
8. REPRESENTATIONS, COVENANTS AND WARRANTIES...................................... 35
8A(1). ORGANIZATION; CAPITAL STOCK.......................................... 35
8A(2). POWER AND AUTHORITY.................................................. 36
8B. FINANCIAL STATEMENTS; RESTRICTED PAYMENTS................................. 37
8C. ACTIONS PENDING........................................................... 37
8D. OUTSTANDING DEBT.......................................................... 38
8E. TITLE TO PROPERTIES....................................................... 38
8F. COMPLIANCE WITH LAWS...................................................... 38
8G. TAXES..................................................................... 38
</TABLE>
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<TABLE>
<S> <C>
8H. CONFLICTING AGREEMENTS AND OTHER MATTERS.................................. 38
8I. OFFERING OF NOTES......................................................... 39
8J. USE OF PROCEEDS........................................................... 39
8K. ERISA..................................................................... 40
8L. GOVERNMENTAL CONSENT...................................................... 40
8M. REGULATORY STATUS......................................................... 40
8N. SECTION 144A.............................................................. 41
8O. ABSENCE OF FINANCING STATEMENTS, ETC...................................... 41
8P. ESTABLISHMENT OF SECURITY INTEREST........................................ 41
8Q. POSSESSION OF INTELLECTUAL PROPERTY....................................... 41
8R. PERMITS AND OTHER OPERATING RIGHTS........................................ 41
8S. DISCLOSURE................................................................ 42
9. REPRESENTATIONS OF PRUDENTIAL.................................................. 42
9A. NATURE OF PURCHASE........................................................ 42
9B. SOURCE OF FUNDS........................................................... 42
10. DEFINITIONS; ACCOUNTING MATTERS................................................ 43
10A. YIELD-MAINTENANCE TERMS................................................... 43
10B. OTHER TERMS............................................................... 44
10C. ACCOUNTING AND LEGAL PRINCIPLES, TERMS AND DETERMINATIONS................. 56
11. MISCELLANEOUS.................................................................. 56
11A. NOTE PAYMENTS............................................................. 56
11B. EXPENSES.................................................................. 56
11C. CONSENT TO AMENDMENTS..................................................... 57
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES; LIMITATION ON TRANSFER OF NOTES.................................... 58
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS..................................... 58
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.............. 59
11G. SUCCESSORS AND ASSIGNS.................................................... 59
11H. NOTICES................................................................... 59
11I. DESCRIPTIVE HEADINGS...................................................... 59
11J. SATISFACTION REQUIREMENT.................................................. 59
11K. PAYMENTS DUE ON NON-BUSINESS DAYS......................................... 60
11L. GOVERNING LAW............................................................. 60
11M. COUNTERPARTS.............................................................. 60
11N. INDEPENDENCE OF COVENANTS................................................. 60
11O. BINDING AGREEMENT......................................................... 60
</TABLE>
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INFORMATION SCHEDULE
EXHIBIT A-1 -- FORM OF TERM NOTE
EXHIBIT A-2 -- FORM OF REVOLVING NOTE
EXHIBIT B -- FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT C-1 -- FORM OF SUBORDINATION AGREEMENT
EXHIBIT C-2 -- FORM OF NEC SUBORDINATION AGREEMENT
EXHIBIT D-1 -- FORM OF SECURITY AGREEMENT
EXHIBIT D-2 -- FORM OF PLEDGE AGREEMENT
EXHIBIT E -- FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT F-1 -- FORM OF STOCK SUBSCRIPTION WARRANT
EXHIBIT F-2 -- FORM OF STOCK SUBSCRIPTION WARRANT (CONTINGENT)
EXHIBIT G -- FORM OF REVOLVING LOAN REQUEST
SCHEDULE 3A(5) -- REQUIRED APPROVALS
SCHEDULE 3A(13) -- SCHEDULE OF COHORT DEFAULT RATES AND "85/15" RATES
SCHEDULE 4A -- TERM NOTES PRINCIPAL PREPAYMENTS
SCHEDULE 5N -- POST CLOSING ITEMS
SCHEDULE 6B -- SUBORDINATED DEBT PAYMENTS
SCHEDULE 6C(1)(vi) -- MORTGAGE LIENS
SCHEDULE 6C(2) -- EXISTING SUBSIDIARY DEBT
SCHEDULE 8A(1)(a) -- SUBSIDIARIES
SCHEDULE 8A(1)(b) -- STOCKHOLDERS
SCHEDULE 8E -- LEASES
SCHEDULE 8H -- LIST OF AGREEMENTS RESTRICTING DEBT
SCHEDULE 8Q -- MATERIAL INTELLECTUAL PROPERTY
SCHEDULE 8R(1) -- ACCREDITATIONS
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SCHEDULE 8R(2) -- EXCEPTION FOR TEXAS STATE LICENSES
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<PAGE>
CORINTHIAN COLLEGES, INC.
1932 East Deere Avenue, Suite 210
Santa Ana, California
October 17, 1996
The Prudential Insurance Company
of America ("Prudential")
c/o Prudential Capital Group
Four Embarcadero Center, Suite 2700
San Francisco, CA 94111-4180
Gentlemen:
The undersigned, Corinthian Colleges, Inc., a Delaware corporation
(herein called the "Company"), hereby agrees with you as set forth below.
Reference is made to paragraph 10 hereof for definitions of capitalized terms
used herein and not otherwise defined herein.
1A. AUTHORIZATION OF ISSUE OF SENIOR SECURED TERM NOTES.
The Company has authorized the issue of its senior secured promissory term notes
(herein called the "TERM NOTES") in the aggregate principal amount of
$22,500,000, to be dated the date of issue thereof, to mature October 17, 2003,
to bear interest on the unpaid balance thereof from the date thereof until the
principal thereof shall have become due and payable at the rate of 10.27% per
annum and on overdue principal, Yield-Maintenance Amount and interest at the
rate specified therein, and to be substantially in the form of Exhibit A-1
hereto. The terms "TERM NOTE" and "TERM NOTES" as used herein shall include
each Term Note delivered pursuant to any provision of this Agreement and each
Term Note delivered in substitution or exchange for any such Term Note pursuant
to any such provision.
1B. AUTHORIZATION OF SENIOR SECURED REVOLVING NOTE. The Company has
authorized the issue of its senior secured revolving promissory note in the
principal face amount of $5,000,000 to be dated the date hereof, to mature on or
before the Revolving Loans Termination Date, to bear interest on the principal
amount from time to time outstanding (x) from the date thereof until the
principal thereof shall have become due and payable (whether by acceleration or
otherwise) at the LIBOR Rate calculated as specified in paragraph 2B(6) and (y)
after such date until paid at a rate per annum which shall be 2% per annum in
excess of the LIBOR Rate, calculated as provided in paragraph 2B(6), and to be
substantially in the form of Exhibit A-2 hereto. The terms "REVOLVING NOTE" and
"REVOLVING NOTES" as used herein shall refer to each revolving note delivered
pursuant to any provision of this
<PAGE>
Agreement and each revolving note delivered in substitution or exchange
therefor. The terms "NOTE" or "NOTES" as used herein shall include each Term
Note and each Revolving Note delivered pursuant to any provision of this
Agreement and each Note delivered in substitution or exchange for any such Note
pursuant to any such provision.
2. PURCHASE AND SALE OF TERM NOTES; REVOLVING CREDIT FACILITY.
2A. PURCHASE AND SALE OF TERM NOTES; ORIGINAL ISSUE DISCOUNT. The
Company hereby agrees to sell to Prudential and, subject to the terms and
conditions herein set forth, Prudential agrees to purchase from the Company,
$22,500,000 in aggregate principal amount of Term Notes at 100% of such
aggregate principal amount. The Company will deliver to Prudential at the
offices of O'Melveny & Meyers, 610 Newport Center Drive, Suite 1700, Newport
Beach, California, one or more Term Notes (as specified in the Information
Schedule) registered in its name, evidencing the aggregate principal amount of
Term Notes to be purchased and in the denomination or denominations specified in
the Information Schedule attached hereto, against payment of the purchase price
thereof by transfer of immediately available funds to such banks and accounts as
the Company may direct in a writing delivered to Prudential on or before the
date of closing, which shall be October 17, 1996 or any other date prior to
October 18, 1996 upon which the Company and Prudential may mutually agree
(herein called the "CLOSING DAY"). Prudential and the Company agree that any
original issue discount attributable, as a result of the delivery of the
Warrants, to any Note issued by the Company in accordance with the terms and
conditions of this Agreement is less than the product of:
(i) one-quarter of one percent (0.25%) of the stated redemption price
at maturity (as such term is defined in Section 1273(a) of the Code) of
such Note;
(ii) the number of complete years to maturity of such Note.
Prudential and the Company agree to use the foregoing for all United States
federal, state and local income tax purposes with respect to the transactions
contemplated by this Agreement, the Warrants and the other Transaction
Documents. Prudential and the Company acknowledge that such original issue
discount represents the fair market value of such Warrants as of the Closing
Day.
2B. REVOLVING CREDIT FACILITY.
2B(1). REVOLVING LOANS. Subject to and upon the terms and conditions
herein set forth, during the period from the date hereof to the earliest to
occur (the "REVOLVING LOANS TERMINATION DATE")
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<PAGE>
of (i) the date on which the Required Holders thereof require the repurchase of
the Revolving Notes pursuant to paragraph 5E or the Required Holders thereof
exercise the option pursuant to paragraph 5E to require the repurchase in their
entirety of the Term Notes, (ii) the date on which the Term Notes are otherwise
paid or prepaid in their entirety or required to be so paid or prepaid,
including, without limitation, by automatic acceleration or demand for payment
and (iii) the third anniversary of the date of this Agreement, Prudential shall
lend to the Company from time to time on any Business Day sums (each a
"REVOLVING LOAN" and collectively the "REVOLVING LOANS") which in the aggregate
principal amount outstanding shall not exceed at any one time $5,000,000 until
the first anniversary of the date of this Agreement, and $3,000,000 at all times
thereafter (such maximum aggregate amount being herein referred to as the
"REVOLVING COMMITMENT"). If the outstanding principal amount of the Revolving
Loans at any time exceeds the Revolving Commitment amount in effect from time to
time, the Company shall immediately prepay the Revolving Loans in the amount of
such excess. Within the limits of the Revolving Commitment and subject to the
terms and conditions herein set forth, the Company may borrow, prepay pursuant
to paragraph 2B(2) and reborrow under paragraph 2B(4). The principal amount of
each Revolving Loan shall be $100,000 or an integral multiple thereof. Revolving
Loans shall be evidenced by the Revolving Note. If necessary to evidence any
change in the provisions of this Agreement relating to the Revolving Note and
agreed to in writing by Prudential and the Company, the Company shall furnish a
replacement Revolving Note to Prudential in substitution for, but not in
discharge of the liability evidenced by, the prior Revolving Note. Upon issuance
of such replacement Revolving Note by the Company, Prudential shall return the
previously outstanding Revolving Note to the Company or certify in writing that
the replacement note supersedes such previous note.
2B(2). PREPAYMENT AT THE COMPANY'S OPTION. The Company shall have the
right, upon at least two Business Day's prior irrevocable written notice, to
prepay in whole or in part, in amounts of $100,000 or integral multiples
thereof, without premium or Yield- Maintenance Amount, prior to the express
maturity date thereof, any Revolving Note on the last day of any Rate Period.
Each notice of a prepayment under this paragraph 2B(2) shall specify the date
and the principal amount of the prepayment.
2B(3). PURCHASE UNDER PARAGRAPH 5E. The Revolving Note shall be subject
to purchase by the Company in whole as provided in paragraph 5E hereof.
2B(4). MANNER OF BORROWINGS. Unless otherwise specifically provided in
this Agreement, Prudential shall receive from the Company, by U.S. Mail,
telecopier or telegraphic notice, a Revolving Loan Request at least two Business
Days prior to the date on which the Company proposes to borrow (which shall be a
LIBOR
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<PAGE>
Business Day). No later than 12:00 PM. (New York City local time) on the
Business Day prior to the date of the proposed Revolving Loan, the Company will
deliver to Prudential a Revolving Note (unless an appropriate Revolving Note has
been previously delivered), together with such other documents and papers as are
required under this Agreement, which materials shall be delivered to the address
set forth on the Information Schedule (or to such other place or in such other
manner as Prudential may by written notice to the Company designate from time to
time). Upon receipt of such Revolving Note (if required), the notice provided
for above, an Officer's Certificate as provided for in paragraph 3B(2) and such
other documentation as may be required, in form and substance satisfactory to
Prudential, Prudential shall make the proceeds of such Revolving Loan available
to the Company on the date of the proposed Revolving Loan designated in said
notice by wire transfer for credit to the Company's account no. 4601-652472 at
Wells Fargo Bank, Irvine, California, ABA no. 121000248, or to such other
account or place as the Company may hereafter designate by written notice to
Prudential.
2B(5). NON-USAGE FEES. The Company shall pay to Prudential a non-usage
fee on the amount, if any, by which the average daily outstanding balance of
Revolving Loans during any full or partial calendar quarter from the date of
this Agreement to and including the Revolving Loans Termination Date is less
than the Revolving Commitment amount during such calendar quarter (which, during
the calendar quarter that includes the first anniversary of the date of this
Agreement, shall be calculated on an average daily commitment basis), at the
rate of (a) 1% per annum on the amount, if any, by which such average daily
outstanding balance is less than $3,000,000, plus (b) if the Revolving
Commitment amount is greater than $3,000,000, 2% per annum on the amount, if
any, by which the greater of (i) $3,000,000, or (ii) such average daily
outstanding balance is less than such Revolving Commitment amount.
2B(6). INTEREST AND NON-USAGE FEE PAYMENTS. Interest and non-usage fees
in connection with the Revolving Loans for any Rate Period shall be payable in
arrears on the last day of such Rate Period and shall be calculated on the basis
of actual days outstanding during the Rate Period and on the basis of a year of
360 days. If any interest or non-usage fee on any Revolving Loan is not paid
when due, interest thereon at the default rate applicable to such Revolving Loan
specified in paragraph 1B shall be payable from and including the due date until
paid.
2B(7). ILLEGALITY.
(i) Notwithstanding any other provision of this Agreement, if, after
the date hereof, any change in any law or regulation or in the interpretation
thereof by any governmental authority charged with the administration or
interpretation thereof shall make it unlawful for Prudential to make or maintain
any Revolving Loan or to
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<PAGE>
give effect to its obligations as contemplated hereby with respect to any
Revolving Loan, then, by written notice to the Company:
(a) Prudential shall promptly give written notice of such
circumstances to the Company (which notice shall be withdrawn whenever such
circumstances no longer exist);
(b) the commitment of Prudential to make Revolving Loans and to
continue Revolving Loans as such shall forthwith be cancelled and, until such
time as it shall no longer be unlawful for Prudential to make or maintain
Revolving Loans based on the LIBOR Rate, Prudential shall then have a commitment
only to make a Revolving Loan that bears interest at the Adjusted Commercial
Paper Rate and
(c) Prudential may require that all outstanding Revolving Loans made
by it be converted to Revolving Loans that bear interest at the Adjusted
Commercial Paper Rate, in which event all such Revolving Loans shall be
automatically converted to Revolving Loans bearing interest at the Adjusted
Commercial Paper Rate as of the effective date of such notice as provided in
clause (a) above.
(ii) For purposes of this paragraph 2B(7), a notice to the Company by
Prudential shall be effective as to each Revolving Loan made by Prudential, if
lawful, on the last day of the Rate Period currently applicable to such
Revolving Loan; in all other cases such notice shall be effective on the date of
receipt by the Company. If any such conversion of a Revolving Loan occurs on a
day which is not the last day of the then current Rate Period with respect
thereto, the Company shall pay to Prudential such amounts, if any, as may be
required pursuant to paragraph 2B(8).
2B(8). BREAKAGE COST INDEMNITY. The Company agrees to indemnify
Prudential for, and to promptly pay to Prudential upon written request, any
amounts required to compensate Prudential for any losses, costs or expenses
sustained or incurred by Prudential as a consequence of:
(i) any event (including any acceleration of Revolving Loans and
Revolving Notes in accordance with paragraph 7A), which results in:
(a) Prudential receiving any amount on account of the principal of any
Revolving Loan
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<PAGE>
prior to the end of the Rate Period in effect therefor, or
(b) any Revolving Loan not being made after the Revolving Loan Request
of which such Revolving Loan is a part shall have been given by the Company
hereunder, or
(ii) any default in the making of any payment or prepayment
required to be made hereunder,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by Prudential to fund or maintain such
Revolving Loan.
A certificate of Prudential setting forth any amount or amounts which
Prudential is entitled to receive pursuant to this paragraph 2B(8) shall be
delivered to the Company and shall be conclusive absent manifest error. The
provisions of this paragraph 2B(8) shall remain operative and in full force and
effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Revolving Loans, the invalidity or unenforceability of any term or provision
of this Agreement or any other Transaction Document, or any investigation made
by or on behalf of Prudential.
2B(9). INTEREST RATE LIMITATION. Notwithstanding anything herein to the
contrary, if at any time the applicable interest rate, together with all fees
and charges which are treated as interest under applicable law (collectively,
the "CHARGES"), as provided for herein or in any other document executed in
connection herewith, or otherwise contracted for, charged, received, taken or
reserved by Prudential, shall exceed the maximum lawful rate (the "MAXIMUM
RATE") which may be contracted for, charged, taken received or reserved by
Prudential in accordance with applicable law, the rate of interest payable on
such Revolving Loan, together with all Charges payable to Prudential shall be
limited to the Maximum Rate.
2B(10). RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(i) Notwithstanding any other provision of this Agreement, if after
the date of this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to Prudential of
the principal of or interest on any Revolving Loan made by Prudential or any
fees, expenses or indemnities payable hereunder (other than changes in respect
of taxes imposed on the overall net income of Prudential by the
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<PAGE>
jurisdiction in which Prudential has its principal office or by any political
subdivision or taxing authority therein), or shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by Prudential or
shall impose on Prudential or the London interbank market any other condition
affecting this Agreement or Revolving Loans made by Prudential, and the result
of any of the foregoing shall be to increase the cost to Prudential of making or
maintaining any Revolving Loan or to reduce the amount of any sum received or
receivable by Prudential hereunder or under the Revolving Notes (whether of
principal, interest or otherwise) by an amount deemed by Prudential to be
material, then the Company will pay to Prudential upon demand such additional
amount or amounts as will compensate Prudential for such additional costs
incurred or reduction suffered.
(ii) If Prudential shall have determined that the adoption after the
date hereof of any law, rule, regulation, agreement or guideline regarding
capital adequacy, or any change after the date hereof in any such law, rule,
regulation, agreement or guideline (whether such law, rule, regulation,
agreement or guideline has been adopted before or after the date hereof) or in
the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by
Prudential with any request or directive regarding capital adequacy (whether or
not having the force of law) of any governmental authority has or would have the
effect of reducing the rate of return on Prudential's capital as a consequence
of Prudential's Revolving Loan Commitment made pursuant hereto to a level below
that which Prudential could have achieved but for such applicability, adoption,
change or compliance (taking into consideration Prudential's policies with
respect to capital adequacy) by an amount deemed by Prudential to be material,
then from time to time the Company agrees to pay to Prudential such additional
amount or amounts as will compensate Prudential for any such reduction suffered.
(iii) A certificate of Prudential setting forth the amount or amounts
necessary to compensate Prudential as specified in paragraph (i) or (ii) above
shall be delivered to the Company and shall be conclusive absent manifest error.
The Company agrees to pay Prudential the amount shown as due on any such
certificate delivered by it within 10 days after its receipt of the same.
(iv) Failure or delay on the part of Prudential to demand compensation
for any increased costs or reduction
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<PAGE>
in amounts received or receivable or reduction in return on capital shall not
constitute a waiver of Prudential's right to demand such compensation with
respect to such period or any other period. The protection of this paragraph
shall be available to Prudential regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, agreement, guideline
or other change or condition that shall have incurred or been imposed.
2B(11). INABILITY TO DETERMINE INTEREST RATE. If prior to the first day
of any Rate Period, Prudential shall have determined in good faith (which
determination shall be conclusive and binding upon the Company) that, by reason
of circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the LIBOR Rate for such Rate Period, Prudential shall
give telecopy or telephonic notice thereof to the Company as soon as practicable
thereafter. If such notice is given (x) any Revolving Loans requested to be
made on the first day of such Rate Period shall be made at the Adjusted
Commercial Paper Rate, (y) any Revolving Loans that were to have been continued
as Revolving Loans shall bear interest at the Adjusted Commercial Paper Rate and
(z) any outstanding Revolving Loans shall be converted, at the end of the then
applicable Rate Period, to Revolving Loans that bear interest at the Adjusted
Commercial Paper Rate. Until such notice has been withdrawn by Prudential, no
further Revolving Loans shall be made or continued that bear interest at the
LIBOR Rate.
3A. CONDITIONS OF CLOSING. Prudential's obligation to purchase the Term
Notes and make Revolving Loans available to the Company pursuant to paragraph 2B
is subject in each case to the satisfaction, on or before the Closing Day, of
the following conditions:
3A(1). OPINION OF COMPANY'S COUNSEL. On the Closing Day, Prudential
shall have received from O'Melveny & Myers, special counsel to the Company, an
opinion satisfactory to it and substantially in the form of Exhibit B attached
hereto. The Company hereby directs such counsel to deliver such opinion, and
agrees that the issuance and sale of any Notes will constitute a reconfirmation
of such direction.
3A(2). OPINION OF PRUDENTIAL'S SPECIAL COUNSEL. Prudential shall have
received from Schiff Hardin & Waite, who are acting as special counsel for
Prudential in connection with this transaction, an opinion satisfactory to
Prudential as to such matters incident to the matters herein contemplated as it
may reasonably request.
3A(3). REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in paragraph 8 and in the other Transaction Documents
shall be true on, and as of the Closing Day, both before and after giving effect
to the consummation of the transaction contemplated by the Transaction
Documents; there shall
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<PAGE>
exist on such day no Default or Event of Default, both before and after giving
effect to the consummation of the transaction contemplated by the Transaction
Documents; and the Company shall have delivered to Prudential an Officer's
Certificate, dated the Closing Day, to both such effects.
3A(4). STRUCTURING FEE. The Company shall have paid to Prudential the
$337,500 remaining balance of a $412,500 nonrefundable structuring fee.
3A(5). PURCHASE PERMITTED BY APPLICABLE LAWS; APPROVALS. The purchase
of and payment for the Notes to be purchased on the Closing Day on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, Section 5 of the Securities Act or Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and shall not
subject Prudential to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, and
Prudential shall have received such certificates or other evidence it may
request to establish compliance with this condition. All necessary
authorizations, consents, approvals, exceptions or other action by or notices to
of filings with any court or administrative or governmental body or other Person
required in connection with the execution, delivery and performance of the
Agreement, the Notes and the other Transaction Documents, the issuance of the
Notes or the consummation of the transactions contemplated by the Transaction
Documents (other than approvals by the United States Department of Education and
applicable regulatory authorities set forth on Schedule 3A(5) of the acquisition
by the Company of certain of the assets of seventeen colleges from Phillips)
shall have been issued or made, shall be final and in full force and effect and
shall be in form and substance satisfactory to Prudential.
3A(6). PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to Prudential, and
Prudential shall have received all such counterpart originals or certified or
other copies of such documents as it may reasonably request.
3A(7). ACQUISITION OF ASSETS. The Master Asset Purchase Agreement by
and among the Company and Phillips and certain of its subsidiaries (the "MASTER
AGREEMENT"), the Schools Acquisition Agreement by and among Rhodes Colleges,
Inc., Rhodes Business Group, Inc., Florida Metropolitan University, Inc. and
Phillips and certain of its subsidiaries (the "SCHOOLS AGREEMENT") and the
Provisions Concerning Purchase and Sale of Real Estate, among the Company,
Phillips and certain of its subsidiaries (the "REAL ESTATE ACQUISITION
AGREEMENT" and, together with the Master Agreement and the Schools Agreement,
the "ACQUISITION AGREEMENTS") shall be in
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<PAGE>
form and substance satisfactory to Prudential, shall have been duly executed and
delivered by the parties thereto and shall be in full force and effect, and,
concurrently with the purchase of the Term Notes and the making of the initial
Revolving Loan, all conditions precedent to the Company's obligations to acquire
the assets thereunder shall have been satisfied (except to the extent waived
with the consent of Prudential), the Company shall have delivered to Prudential
copies of all documents related to the acquisition of the assets to be acquired
thereunder, including, without limitation, all regulatory agreements and
inducements for such acquisition (including but not limited to documents from
the United States Department of Education relating to any default rate of
Phillips or any Phillips' College) and the Company shall have consummated the
acquisition of the assets to be acquired thereunder in accordance with the terms
thereof.
3A(8). SALE OF SUBORDINATED DEBT; SUBORDINATION OF EXISTING SECURITIES,
RELEASE AND SUBORDINATION OF LIENS; AMENDMENT TO PURCHASE AGREEMENT. On the
Closing Day, the Company shall have received not less than $5,000,000 from the
sale for cash of unsecured subordinated debt of the Company to BOCP II and
Primus pursuant to a Subordinated Note and Warrant Purchase Agreement in form
and substance satisfactory to Prudential (the "SUBORDINATED NOTE AND WARRANT
PURCHASE AGREEMENT"), $2,500,000 of the proceeds of which shall have been used
to repay in full the Company's Subordinated Secured Notes due June 30, 2000 and
a portion of the proceeds of which will be used to repay in full all of the
indebtedness outstanding under the Credit Facility Agreement, dated as of June
30, 1995, between Corinthian Schools, Inc. and LLC, which agreement shall have
been terminated, the Equity Sponsors and all other holders of Capital Stock of
the Company shall have entered into a subordination and standstill agreement
(the "SUBORDINATION AGREEMENT") for the benefit of the holders of the Notes in
the form of Exhibit C-1 hereto, and the Company shall have delivered to
Prudential copies of such Subordinated Note and Warrant Purchase Agreement and
all documents related thereto. All Liens securing any existing Debt of the
Company or its Subsidiaries (other than the NEC Obligations) shall have been
terminated and released pursuant to documentation satisfactory to Prudential,
termination statements with respect to all financing statements relating to any
such Liens shall have been executed and delivered, and all assets of the Company
or any Subsidiary held by any holder of any such existing Debt shall have been
delivered to Prudential. NEC shall have executed and delivered a Subordination
Agreement (the "NEC SUBORDINATION AGREEMENT") with respect to the Liens in the
NEC Collateral Securing the NEC Obligations in the form of Exhibit C-2 hereto.
The Purchase Agreement, dated as of June 30, 1995, between Corinthian Schools,
Inc., LLC and Primus shall have been amended to the satisfaction of Prudential
to change the covenants therein to be the same as the covenants in the
Subordinated Note and Warrant Purchase Agreement. The Board of Directors and
the stockholders of the Company each shall have
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<PAGE>
adopted by written consent an amendment (in form and substance acceptable to
Prudential) to the Restated Certificate of Incorporation of the Company to
change certain provisions thereof in a manner satisfactory to Prudential, and
such amendment shall have been signed by the Company and no other action
required for its effectiveness shall be required or necessary other than the
filing thereof with the Secretary of State of Delaware.
3A(9). DOCUMENTS. Prudential shall have received the following
documents, each duly executed and delivered by the party or parties thereto, in
form and substance satisfactory to Prudential, and on the Closing Day in full
force and effect with no event having occurred and being then continuing that
would constitute a default thereunder or constitute or provide the basis for the
termination thereof:
(i) the Term Note(s) and the Revolving Note(s);
(ii) the Security Agreement made by the Company and all of its
Subsidiaries in favor of Prudential in the form of Exhibit D-1 hereto (together
with any other security agreements entered into as contemplated by this
Agreement, as the same may be amended, modified, or supplemented from time to
time in accordance with the provisions thereof, collectively called the
"SECURITY AGREEMENTS" and individually called a "SECURITY AGREEMENT"), the
Pledge Agreement made by the Company and Rhodes Colleges, Inc. in favor of
Prudential in the form of Exhibit D-2 hereto (together with any other pledge
agreements entered into as contemplated by this Agreement, as the same may be
amended, modified, or supplemented from time to time in accordance with the
provisions thereof, collectively called the "PLEDGE AGREEMENTS" and individually
called a "PLEDGE AGREEMENT", the Security Agreements and the Pledge Agreements
called the "COLLATERAL DOCUMENTS"), together with all certificates, chattel
paper, instruments and documents of title in which Prudential has been granted a
security interest under the Collateral Documents, together with the related
transfer documents executed in blank, all Uniform Commercial Code financing
statements perfecting the security interests and liens granted to Prudential,
duly filed in all offices that Prudential deems necessary or advisable, and all
such other certificates, documents, agreements, recordings and filings as
Prudential may deem necessary or appropriate to establish a valid and perfected
lien and security interest securing the Notes in favor of Prudential in all of
the Collateral;
(iii) the Registration Rights Agreement between the Company,
Prudential, the Equity Sponsors, David G. Moore, Paul St. Pierre, Frank J.
McCord, Dennis L.
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Devereux and Lloyd W. Holland in the form of Exhibit E hereto (as amended,
modified or supplemented from time to time, the "REGISTRATION RIGHTS
AGREEMENT");
(iv) certified copies of the resolutions of the Board of Directors of
the Company and each of its Subsidiaries authorizing the execution and delivery
of this Agreement and any other Transaction Documents to which the Company or
any Subsidiary is a party and the issuance of the Notes, and of all documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to this Agreement, the Notes and the other Transaction Documents;
(v) a certificate of the Secretary or an Assistant Secretary and one
other officer of the Company and each of its Subsidiaries certifying the names
and true signatures of the officers of the Company authorized to sign this
Agreement, the Notes, the Collateral Documents and the other documents to be
delivered hereunder;
(vi) certified copies of the Certificate of Incorporation and By-
laws of the Company and each of its Subsidiaries;
(vii) a good standing certificate for the Company from the Secretary
of State of Delaware and California dated as of a recent date and such other
evidence of the status of the Company and each of its Subsidiaries as Prudential
may reasonably request;
(viii) certified copies of Requests for Information or Copies
(Form UCC-11) or equivalent reports listing all effective financing statements
which name the Company or any Subsidiary (under its present name and previous
names) as debtor and which are filed in the offices of the Secretaries of State
of each state in which the Company or any Subsidiary has its executive office or
property located therein together with copies of such financing statements; and
(ix) such other certificates, documents and agreements as you may
request.
3A(10). COMMON STOCK PURCHASE WARRANTS. The Company shall have sold to
Prudential, common stock purchase warrants for a purchase price of $10.00,
initially representing 4% of the common stock of the Company on a fully diluted
basis, which warrants shall be in the form of Exhibits F-1 and F-2 hereto
(collectively, the "WARRANTS") duly executed by the Company and delivered to
Prudential.
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3A(11). CERTIFICATES OF INSURANCE. Prudential shall have received (i) a
certificate of insurance from an independent insurance broker dated as of the
Closing Day, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise confirming that insurance, including, without
limitation, insurance required to be maintained by the Company in accordance
with paragraph 5F, has been obtained in accordance with the provisions of this
Agreement and the other Transaction Documents and (ii) certified copies of all
policies evidencing such insurance, or certificates therefor signed by the
insurer or an agent authorized to bind the insurer.
3A(12). NO MATERIAL ADVERSE CHANGE; OPENING BALANCE SHEET. No material
adverse change in the business, condition (financial or otherwise), operations
or prospects of the Company and its Subsidiaries shall have occurred or, to the
Company's best knowledge, be threatened since June 30, 1996, as determined by
Prudential.
3A(13). SCHEDULE OF RATES. The Company shall have delivered to
Prudential a schedule acceptable to Prudential (which shall be attached hereto
as Schedule 3A(13)) of all preliminary cohort default rates and "85/15" rates as
of September 30, 1996 (or, if such preliminary cohort default rates or "85/15"
rates are not yet available, a good faith estimate thereto) for all of the
Company's schools and the Phillips Schools.
3A(14). FEES AND EXPENSES. The Company shall have paid (i) such
reasonable fees and expenses of Prudential's special counsel and other
consultants as Prudential shall have required to have been paid on or before the
Closing Day, and (ii) all other fees, including, without limitation, all filing
fees related to Prudential's security interest in the Collateral, related to the
transactions consummated on the Closing Day.
3B. CONDITIONS PRECEDENT TO EACH REVOLVING LOAN. Prudential's obligation
to make each Revolving Loan to the Company is also subject to the satisfaction
of the following conditions:
3B(1). REVOLVING LOAN REQUEST. The Company shall have delivered to
Prudential a Revolving Loan Request in accordance with paragraph 2B(4).
3B(2). REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in paragraph 8 shall be true on and as of the date of
such Revolving Loan, there shall exist on such day no Default or Event of
Default, and the Company shall have delivered to Prudential an Officer's
Certificate, dated the date of such Revolving Loan, to both such effects. Each
of the giving of the applicable notice of borrowings pursuant to paragraph 2B(4)
and the acceptance by the Company of the proceeds of such Revolving Loan shall
constitute a representation and warranty by
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the Company to the effect that the conditions set forth in the first sentence of
this paragraph have been satisfied on the date of such Revolving Loan.
3B(3). REVOLVING LOAN PERMITTED BY APPLICABLE LAWS. The Revolving Loan
(including the use of the proceeds of such Revolving Loan by the Company) shall
not violate any applicable law or governmental regulation (including, without
limitation, section 5 of the Securities Act or Regulation G, T or X of the Board
of Governors of the Federal Reserve System) and shall not subject Prudential to
any tax, penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and Prudential shall have received
such certificates or other evidence as it may reasonably request to establish
compliance with this condition.
3B(4). LEGAL MATTERS. Prior to each Revolving Loan hereunder,
Prudential's counsel shall be satisfied as to all legal matters relating
thereto.
3B(5). PROCEEDINGS. Prior to the initial Revolving Loan hereunder, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incident thereto, shall be
satisfactory in substance and form to Prudential, and Prudential shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
3B(6). CHANGE IN THE COMPANY'S CONDITION. There shall not have occurred
or, to the Company's best knowledge, be threatened (i) any material adverse
change in the business, condition (financial or otherwise), operations or
prospects of the Company or its Subsidiaries, or (ii) any condition, event or
act which would materially and adversely affect the Company's business or its
ability to repay any Note.
3B(7). SUBSEQUENT OPINIONS, ETC. If Prudential so requires as a
condition precedent to the making of any Revolving Loan, Prudential shall have
received (i) from O'Melveny & Myers, special counsel to the Company (or such
other counsel as shall be acceptable to Prudential), an opinion in form and
substance satisfactory to Prudential covering such matters incident to such
Revolving Loan as Prudential shall require, and (ii) such other approvals or
documents as Prudential may reasonably request.
4. PREPAYMENTS OF TERM NOTES. The Term Notes shall be subject to
prepayment with respect to the required prepayments specified in paragraph 4A
and also under the circumstances set forth in paragraph 4B. Any prepayment made
by the Company pursuant to any other provision of this paragraph 4 shall not
reduce or otherwise affect its obligation to make any prepayment as specified in
paragraph 4A.
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4A. REQUIRED PREPAYMENTS OF TERM NOTES. Until the Term Notes shall be
paid in full, the Company shall apply to the prepayment of the Term Notes,
without Yield-Maintenance Amount, on each date specified in Schedule 4A hereto
the aggregate principal amount set forth opposite such date on Schedule 4A
hereto. The remaining unpaid principal amount of the Term Notes, together with
interest accrued thereon, shall become due on the maturity date of the Term
Notes.
4B(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Term Notes
shall be subject to prepayment, in whole or in part, at the option of the
Company, in multiples of $500,000 (or, if less, the then remaining principal
amount of all Term Notes), at 100% of the principal amount so prepaid plus
interest thereon to the prepayment date and the Yield-Maintenance Amount, if
any, with respect to each Note; provided, that upon any Qualified Equity
Offering prior to the second anniversary of this Agreement, the Company may
prepay (without Yield-Maintenance Amount) the Term Notes within 45 days of such
Qualified Equity Offering in an amount not in excess of $7,500,000 (less any
required prepayment made under paragraph 4A). Any partial prepayment of the
Term Notes pursuant to this paragraph 4B(1) shall be applied in satisfaction of
required payments of principal in inverse order of their scheduled due dates;
provided, that any prepayment of the Term Notes pursuant to the proviso in the
preceding sentence shall be applied in satisfaction of the required payments of
principal in the order of their scheduled due dates.
4B(2). PREPAYMENT WITH KEY MAN INSURANCE PROCEEDS. The Term Notes shall
be subject to prepayment with Yield-Maintenance Amount, at the option of the
Required Holders thereof, with the proceeds of key man life insurance carried as
required by paragraph 5F hereof. Within fifteen Business Days following receipt
thereof, such proceeds shall be delivered to the Company by the Required Holders
in the form received if such option is not exercised. Any partial prepayment of
the Term Notes pursuant to this paragraph 4B(2) shall be applied in satisfaction
of the required payments of principal in the inverse order of their scheduled
due dates.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of
each Term Note irrevocable written notice of any optional prepayment pursuant to
paragraph 4B(1) not less than 20 days prior to the prepayment date, specifying
(i) such prepayment date, (ii) the aggregate principal amount of the Term Notes
to be prepaid on such date, (iii) the principal amount of the Term Notes of such
holder to be prepaid on that date, and (iv) such optional prepayment is to be
made pursuant to paragraph 4B(1). Notice of optional prepayment having been
given as aforesaid, the principal amount of the Term Notes specified in such
notice, together with interest thereon to the prepayment date and together with
the Yield-Maintenance Amount, if any, herein provided, shall become due and
payable on such prepayment date. The Company shall, on or before the day on
which it gives written notice of any prepayment
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pursuant to paragraph 4B(1), give telephonic notice of the principal amount of
the Term Notes to be prepaid and the prepayment date to each Significant Holder
which shall have designated a recipient of such notices in the Information
Schedule attached hereto or by notice in writing to the Company.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the Term
Notes pursuant to paragraph 4A or 4B, the principal amount so prepaid shall be
allocated to all Term Notes at the time outstanding (including, for the purpose
of this paragraph 4D only with respect to prepayments pursuant to paragraph 4A,
all Notes prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates other than by prepayment
pursuant to paragraph 4A or 4B (but including all Notes prepaid pursuant to
paragraph 5E)) in proportion to the respective outstanding principal amounts
thereof.
4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit any
of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in
part prior to their stated final maturity (other than by prepayment pursuant to
paragraphs 4A or 4B, upon exercise of the put option pursuant to paragraph 5E,
or upon acceleration of such final maturity pursuant to paragraph 7A), or
purchase or otherwise acquire, directly or indirectly, Term Notes held by any
holder unless the Company or such Subsidiary or Affiliate shall have offered to
prepay or otherwise retire or purchase or otherwise acquire, as the case may be,
the same proportion of the aggregate principal amount of Term Notes held by each
other holder of Term Notes at the time outstanding upon the same terms and
conditions. Any Term Notes prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall
not be deemed to be outstanding for any purpose under this Agreement, except as
provided in paragraph 4D.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 20 days after the
end of each calendar month in each fiscal year (but in no event later than upon
their dissemination to management of the Company), unaudited consolidated and
consolidating statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such calendar month and for the period from the
beginning of the current fiscal year to the end of such calendar month, and a
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such calendar month, all in reasonable detail and satisfactory in form to the
Required Holders;
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(ii) as soon as practicable and in any event within 45 days after the
end of each fiscal quarter (other than the fourth fiscal quarter) in each fiscal
year, unaudited consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the current fiscal year
to the end of such fiscal quarter, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such fiscal quarter, setting forth
in each case in comparative form figures for the corresponding periods in the
preceding fiscal year, all in reasonable detail and satisfactory in form to the
Required Holder(s) and certified by an authorized financial officer of the
Company to the effect that (a) such financial statements (including any related
schedules and/or notes) are true and correct in all material respects (subject
to changes resulting from audits and normal year-end adjustments) and have been
prepared in accordance with GAAP consistently followed throughout the periods
involved, (b) the balance sheets fairly present the condition of the Company and
its Subsidiaries as at the dates thereof, and (c) the statements of income,
retained earnings and cash flows fairly present the results of the operations of
the Company and its Subsidiaries for the periods indicated; provided, however,
that delivery within such time period of the Company's Quarterly Report on Form
10-Q containing such financial statements and financial information prepared in
compliance with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirement of this clause
(ii) as to delivery of consolidated financial statements;
(iii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, consolidated and consolidating statements of income
and cash flows and a consolidated and consolidating statement of stockholders'
equity of the Company and its Subsidiaries for such year, and a consolidated
balance sheet of the Company and its Subsidiaries as at the end of such year,
setting forth in each case in comparative form corresponding consolidated
figures from the preceding annual audit, all in reasonable detail and
satisfactory in form to the Required Holder(s) and, as to consolidated
statements, reported on by independent public accountants of recognized national
standing selected by the Company or other independent public accountants
reasonably acceptable to the Required Holders whose report shall be without
limitation as to the scope of the audit and satisfactory in substance to the
Required Holder(s), and as to consolidating statements certified by an
authorized financial officer of the Company to the effect that (a) such
financial statements
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(including any related schedules and/or notes) are true and correct in all
material respects and have been prepared in accordance with GAAP consistently
followed throughout the periods involved, (b) the balance sheets fairly present
the condition of the Company and its Subsidiaries as at the dates thereof, and
(c) the statements of income, retained earnings and cash flows fairly present
the results of the operations of the Company and its Subsidiaries for the
periods indicated; provided, however, that delivery within such time period of
the Company's Annual Report on Form 10-K containing such financial statements
and financial information prepared in compliance with the requirements therefor
and filed with the Securities and Exchange Commission shall be deemed to satisfy
the requirements of this clause (iii) as to delivery of consolidated financial
statements;
(iv) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its public
stockholders and copies of all registration statements (without exhibits) and
all reports (including reports on Form 8-K) which it files with the Securities
and Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);
(v) promptly upon receipt thereof, a copy of each management letter
and other report submitted to the management or board of directors of the
Company or any Subsidiary by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company or any
Subsidiary;
(vi) as soon as practicable and in any event within 60 days after the
first day of each fiscal year, Company management's projected consolidated
statements of income and cash flows for each fiscal quarter of such fiscal year
and, to the extent prepared by the Company, subsequent projected fiscal years,
along with projected consolidated balance sheets as of the last day of each such
fiscal quarter, setting forth in each case in comparative form consolidated
figures from the corresponding period in the preceding fiscal year;
(vii) promptly after the preparation thereof, school-by-school
information with the content and in the form prepared by management for internal
review and use (which information can be in the form contained in the Private
Placement Memorandum), provided that the Company need not provide the
information under this clause (vii) more frequently than once each fiscal
quarter;
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(viii) promptly after the Company's receipt thereof, copies of any
notice from the United States Department of Education or any other Federal,
state or local governmental body, agency or department alleging non-compliance
by the Company or any of its Subsidiaries with any material statute, law decree,
court or administrative order or regulation, including maximum cohort default
rates, the "85/15 Rule", denial of a requested change of control in connection
with acquisition of schools or threatened loss of school accreditation;
(ix) promptly after the Company or any Subsidiary becomes aware
thereof, notice of the occurrence of any other event which is material to the
Company or any of its Subsidiaries, including the initiation of any material
dispute, administrative proceeding, investigation or litigation or any material
development in any such dispute or litigation, condition that could result in a
material adverse change in the business, condition (financial or otherwise),
operations or prospects of the Company or any of its Subsidiaries, and changes
in GAAP or Company accounting practices (which notice shall describe such event
and the effect, if any, of such event or change on the Company's results of
operations, financial condition or compliance with this Agreement in reasonable
detail);
(x) promptly after the same have become final, copies of minutes
of meetings of the Board of Directors and shareholders of the Company and its
Subsidiaries and copies of any action taken by the Board of Directors or
shareholders of the Company or any Subsidiary by written consent;
(xi) promptly upon transmission thereof, copies of any reports,
statements or other information regularly provided to any other holder of any
Debt of the Company; and
(xii) with reasonable promptness, such other financial data or other
information as such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (ii) and
(iii) above, the Company will deliver to each Significant Holder an Officer's
Certificate (a) demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraphs
6A(1), 6A(2), 6A(3), 6A(4), 6A(5), 6A(6), 6B, 6C(3), 6C(4), 6C(6) and 6C(8) and
(b) stating that there exists no Event of Default or Default, or, if any Event
of Default or Default exists, specifying the nature and period of existence
thereof and what action the Company proposes to take with respect thereto.
Together with each delivery
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of financial statements required by clause (iii) above (provided, that the
opinion specified in clause (a)(1) in the succeeding sentence shall be delivered
only with the financial statements required by clause (iii) above for the fiscal
year preceding the fiscal year in which any financing statement or other similar
filing filed with Prudential as secured party is scheduled to expire), the
Company will deliver to each Significant Holder (a) an opinion of O'Melveny &
Myers, or other counsel satisfactory to the Required Holders, to the effect that
(1) all filings, recordings and other actions necessary since the Closing Day or
since the date of the last opinion delivered under this clause, as the case may
be, to preserve the creation and perfection of the Liens granted under the
Collateral Documents in the personal property included in the Collateral to
secure the Notes have been duly taken and (2) such Liens in such Collateral to
secure the Notes are duly created and perfected (subject to such qualifications
and limitations as are substantially the same as the qualifications and
limitations contained in the opinion of O'Melveny & Myers delivered on the
Closing Day pursuant to paragraph 3A(1) hereof), and specifying the filings,
recordings and other actions, if any, that will be necessary during the period
until the next delivery of financial statements required by clause (iii) above
is to be made in order to preserve the creation and perfection of such Liens in
such Collateral, and (b) a certificate of such accountants stating that, in
making the audit necessary for their report on such financial statements, they
have obtained no knowledge of any Event of Default or Default, or, if they have
obtained knowledge of any Event of Default or Default, specifying the nature and
period of existence thereof. Such accountants, however, shall not be liable to
anyone by reason of their failure to obtain knowledge of any Event of Default or
Default which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards. The Company also
covenants that immediately after any Authorized Officer obtains knowledge of an
Event of Default or Default, it will deliver to each Significant Holder an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Company proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and any
Institutional Investor designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit the holder's compliance with the information requirements of Rule 144A
under the Securities Act in connection with the resale of Notes, except at such
times as the Company is subject to the reporting requirements of section 13 or
15(d) of the Exchange Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit any
Person designated by any Significant Holder in writing, at such Significant
Holder's expense (or, upon the occurrence and during the continuance of an Event
of Default, at the Company's expense), to visit and inspect any of the
properties
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of the Company and its Subsidiaries (including its headquarters, schools and
other facilities), to examine the corporate books and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the principal officers of the Company and its independent public accountants,
all at such reasonable times and as often as such Significant Holder may
reasonably request. Each such visit and inspection shall be conducted during
normal business hours and in such manner as to minimize any disruption or
interference with the business of the Company and its Subsidiaries.
5D. COVENANT TO SECURE NOTE EQUALLY. The Company covenants that, if it or
any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired (unless prior written consent to
the creation or assumption thereof shall have been obtained pursuant to
paragraph 11C), other than Liens permitted by the provisions of paragraph 6C(1),
it will make or cause to be made effective provision whereby the Notes will be
secured by such Lien equally and ratably with any and all other Debt thereby
secured so long as any such other Debt shall be so secured.
5E CHANGE IN CONTROL PUT OPTION. The Company covenants that within three
Business Days after any Authorized Officer shall obtain knowledge of the
occurrence of a Change in Control Event, the Company shall provide each holder
of Notes written notice thereof, describing in reasonable detail the facts and
circumstances constituting such Change in Control Event and offering to prepay
all Notes held by each holder on the 2nd Business Day after the date of such
holder's written notice of its acceptance of such offer (or, if applicable, the
date upon which such holder is deemed to have accepted such offer as provided
below) (the "PREPAYMENT DATE"). If a holder accepts such offer, the Company
shall on the Prepayment Date purchase (and each such holder thereof shall sell)
all Notes of such holder at a purchase price equal to the aggregate outstanding
principal amount thereof, together with interest thereon to the date of purchase
and the Yield-Maintenance Amount, if any, with respect thereto; provided,
however, if a holder notifies the Company prior to the proposed Prepayment Date
that such holder is rejecting the Company's offer to prepay such holder's Notes,
the Company shall not be obligated to purchase, and such holder shall not be
obligated to sell, such Notes under this paragraph 5E. For purposes of this
paragraph 5E, a holder's failure to reject in writing any offer made by the
Company under this paragraph to purchase such holder's Notes prior to the 10th
day after such holder receives such offer shall be deemed an acceptance of such
offer. No holder of any such Note shall be required to make any representation
or warranty in connection with such sale, other than with respect to its
ownership of its Note.
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5F. KEY MAN LIFE INSURANCE. The Company covenants that it shall carry, in
the aggregate, not less than $3,500,000 of "KEY MAN" life insurance on the lives
of David Moore and Paul St. Pierre. Prudential (and, upon transfer of any Term
Notes, the then holder of the largest outstanding principal amount of the Term
Notes for the pro rata benefit of all of the holders of the Term Notes) shall be
named as an additional insured and as loss payee under such policy or policies.
5G. MAINTENANCE OF PROPERTY. The Company covenants that it will maintain
and cause its Subsidiaries to maintain their schools, labs and other equipment
and properties in good repair and order, subject to ordinary wear and tear.
5H. MAINTENANCE OF INSURANCE. The Company covenants that it and each
Subsidiary will maintain, with financially sound and reputable insurers,
insurance in such amounts and against such liabilities and hazards as
customarily is maintained by other companies operating similar businesses and,
in any event, such insurance as is required to be maintained by the other
Transaction Documents. Together with each delivery of financial statements
under clause (iii) of paragraph 5A, the Company will, upon the request of any
Significant Holder, deliver an Officer's Certificate specifying the details of
such insurance then in effect.
5I. PAYMENT OF TAXES; COMPLIANCE WITH LAWS. The Company covenants that it
will and will cause its Subsidiaries to pay or provide for the payment of all
taxes and other similar charges incurred prior to the time such payment is due
and comply with all material laws, statutes, decrees, orders and regulations
applicable to the Company, any of its Subsidiaries or any of their respective
properties, except for alleged non-payment or non-compliance that is subject to
a Good Faith Contest.
5J. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company covenants that it
will, and will cause each of its Subsidiaries to, comply in a timely fashion
with, or operate pursuant to valid waivers of the provisions of, all
Environmental Laws, except where noncompliance would not materially and
adversely affect the business, condition (financial or otherwise) or operations
of the Company and its Subsidiaries taken as a whole.
5K. MAINTENANCE OF WORKING CAPITAL FACILITY. The Company covenants that
it will maintain at all times after the expiration or termination of the
Revolving Credit Facility hereunder a credit or other facility similar to the
Revolving Credit Facility hereunder with a minimum aggregate commitment of
$2,500,000 on borrowing terms and conditions substantially similar to or more
favorable to the Company than those set forth in paragraph 2B and 3B hereof, and
with covenants and defaults generally no more restrictive than as set forth in
paragraphs 5 and 7 hereof. The Company shall notify the holders of the Notes if
it is unable to
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renew such facility at least 90 days prior to the scheduled termination of such
facility.
5L. NATURE OF BUSINESS. The Company covenants that it will and will cause
its Subsidiaries to engage in the business of operating proprietary post-
secondary schools.
5M. CORPORATE EXISTENCE; LICENSES; ACCREDITATION. The Company will at all
times preserve and keep in full force and effect its corporate existence. The
Company will at all times preserve and keep in full force and effect the
corporate existence of each of its Subsidiaries (unless merged into the Company
or a Subsidiary). The Company will at all times preserve and keep, and will
cause its Subsidiaries at all times to preserve and keep, all material rights,
franchises, licenses, permits and other authorizations of any court or
administration or governmental body necessary to enable the Company and its
Subsidiaries to engage in their business and operate their assets. The Company
will maintain at all times, and will cause its Subsidiaries at all times to
maintain, the accreditation in effect on the Closing Day, or a comparable
accreditation, for each school owned or operated by the Company or any
Subsidiary.
5N. POST CLOSING ITEMS. The Company covenants that it shall take the
actions specified in Schedule 5N within the time periods specified therein.
6. NEGATIVE COVENANTS. So long as any Note or amount owing under this
Agreement shall remain unpaid or Prudential shall have any commitment hereunder:
6A. FINANCIAL COVENANTS. The Company covenants that it shall not permit:
6A(1). QUICK RATIO. The ratio (expressed as a percentage) of
Consolidated Quick Assets to Consolidated current liabilities to be less than
(i) 70% at any time from the Closing Day through June 30, 1997; (ii) 80% at any
time during the fiscal year ending June 30, 1998; (iii) 135% at any time during
the fiscal year ending June 30, 1999; and (iv) 150% at any time after June 30,
1999;
6A(2). MAXIMUM RATIO OF SENIOR DEBT TO CASH FLOW. The ratio (expressed
as a percentage) of Consolidated Senior Debt as at the end of any fiscal quarter
to Consolidated Cash Flow for the four fiscal quarter period ended at the end of
such fiscal quarter to exceed (i) 300% from the Closing Day through September
30, 1997; (ii) 200% from October 1, 1997 through September 30, 1998; (iii) 150%
from October 1, 1998 through September 30, 1999; and (iv) 125% after September
30, 1999;
6A(3). MAXIMUM RATIO OF SENIOR DEBT TO CAPITALIZATION. The ratio
(expressed as a percentage) of Consolidated Senior Debt
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to Consolidated Capitalization to exceed (i) 80% at any time from the Closing
Day through March 31, 1997; (ii) 77% at any time from April 1, 1997 through
September 30, 1997; (iii) 76% at any time from October 1, 1997 through March 31,
1998; (iv) 71% at any time from April 1, 1998 through September 30, 1998; (v)
65% at any time from October 1, 1998 through March 31, 1999; (vi) 55% at any
time from April 1, 1999 through September 30, 1999; (vii) 45% at any time from
October 1, 1999 through September 30, 2000; and (viii) 40% at all times after
September 30, 2000;
6A(4). MINIMUM RATIO OF CASH FLOW AND OPERATING LEASE PAYMENTS TO FIXED
CHARGES. The ratio (expressed as a percentage) of (i) the sum of Consolidated
Cash Flow and Consolidated Operating Lease Payments to (ii) Consolidated Fixed
Charges, in each case for the four fiscal quarter period ending at the end of
any fiscal quarter, to be less than (a) 100% from the Closing Day through
September 30, 1998, (b) 150% from October 1, 1998 through September 30, 1999,
and (v) 175% at any time after September 30, 1999;
6A(5). MINIMUM RATIO OF EBIT AND OPERATING LEASE PAYMENTS TO INTEREST
EXPENSE AND OPERATING LEASE PAYMENTS. The ratio (expressed as a percentage) of
(i) the sum of Consolidated EBIT and Consolidated Operating Lease Payments to
(ii) Consolidated Interest Expense and Consolidated Operating Lease Payments, in
each case for the four fiscal quarter period ending at the end of any fiscal
quarter, to be less than (a) 120% from the Closing Day through September 30,
1997; (b) 140% from October 1, 1997 through September 30, 1998; (c) 160% from
October 1, 1998 through September 30, 1999; (d) 175% from October 1, 1999
through September 30, 2000; and (e) 200% after September 30, 2000;
6A(6). MINIMUM CONSOLIDATED CASH FLOW. Consolidated Cash Flow From
Operations for the fiscal year set forth below to be less than the amount set
forth in the table opposite such fiscal year:
<TABLE>
<CAPTION>
Minimum Consolidated
Fiscal year Cash Flow From Operations
------------ ---------------------------
<S> <C>
1997 $750,000
1998 $6,350,000
1999 $9,100,000
2000 $11,500,000
2001 and $12,500,000
each fiscal
year thereafter
</TABLE>
For purposes of determining the Company's compliance with paragraphs 6A(2),
6A(4) and 6A(5), (i) the Company may include the financial results of the
Phillips Schools as though the Phillips Schools had been acquired by the Company
on July 1, 1996 and (ii) prior to June 30, 1997, the Company may annualize the
financial results of the fiscal quarters ending prior to such date and after the
Closing Day;
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6A(7). MAXIMUM RATIO OF DEBT TO CAPITALIZATION. The ratio (expressed as
a percentage) of Consolidated Debt to Consolidated Capitalization to exceed (i)
92% at any time from the Closing Day through March 31, 1997; (ii) 90% at any
time from April 1, 1997 through September 30, 1997; (iii) 85% at any time from
October 1, 1997 through March 31, 1998; (iv) 83% at any time from April 1, 1998
through September 30, 1998; (v) 65% at any time from October 1, 1998 through
September 30, 1999; (vi) 55% at any time from October 1, 1999 through September
30, 2000; (vii) 40% at any time from October 1, 2000 through September 30, 2001;
(viii) 30% at any time from October 1, 2001 through September 30, 2002; and (ix)
20% at any time thereafter.
6B. RESTRICTED PAYMENTS. The Company covenants that it shall not, and
shall not permit any Subsidiary to, make, pay or declare, or commit to make, pay
or declare, any Restricted Payment, other than:
(i) dividends paid in cash by the Company on the Class A Preferred,
provided that no proceeds of any Revolving Loan are used to make any such
payment and the dividend rate on the Class A Preferred shall not exceed 6%
(or, to the extent shares of Class A Preferred have not been optionally
redeemed by the Company on or prior to June 30, 2001, 12%);
(ii) interest paid in cash by the Company on the Subordinated Debt,
provided that no proceeds of any Revolving Loan are used to make any such
payment and the interest rate on the Subordinated Debt shall not exceed
12%;
(iii) principal payments made by the Company on the Subordinated Debt
in accordance with Schedule 6B;
(iv) optional redemption of the Class A Preferred on or after June 30,
2001;
(v) mandatory redemption of the Class A Preferred if the Company
completes an equity offering after the Closing Day that (a) yields net
proceeds to the Company in excess of $20,000,000 from investors other than
the Equity Sponsors (or their Affiliates), employees or directors of the
Company or its Subsidiaries, or Prudential and (b) values the equity on a
fully diluted basis (based on the offering price) held by BOCP, Primus,
Senior Management and Prudential, as a group, at an amount no less than
$35,000,000;
(vi) Restricted Payments made by any Subsidiary to the Company; and
(vii) purchases or other acquisitions of shares of Common Stock from
a former employee of the Company or a Subsidiary in connection with the
termination of the employment of such employee with the Company or any
Subsidiary;
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provided, however, that the Restricted Payments described in (i) through (vii)
above shall not be declared, ordered, paid or made, or committed for, nor shall
any sum or Property be set aside for any Restricted Payment, unless at the time
thereof and immediately after giving effect thereto (i) no Default or Event of
Default is in existence and (ii) the sum of all Restricted Payments made after
June 30, 1996 does not exceed an amount equal to the sum of (a) 30% (or, in the
case of a loss or deficit, minus 100%) of Consolidated Net Income for each
fiscal quarter ending after June 30, 1996 and prior to the date of such proposed
Restricted Payment and (b) all interest paid on the Subordinated Debt after June
30, 1996 and prior to the date of such proposed Restricted Payment (including
the proposed Restricted Payment if it is an interest payment on the Subordinated
Debt).
6C. LIEN, DEBT AND OTHER RESTRICTIONS. The Company will not and will not
permit any Subsidiary to:
6C(1). LIENS. Create, assume or suffer to exist at any time any Lien
upon any of its properties or assets, whether now owned or hereafter acquired
(whether or not provision is made for the equal and ratable securing of the
Notes in accordance with the provisions of paragraph 5D), except:
(i) Liens arising under the Security Documents;
(ii) Liens for taxes, assessments or other governmental charges or
levies not yet due or payable or which are the subject of a Good Faith
Contest;
(iii) Liens imposed by law, such as materialmen's mechanics',
carriers', landlords', workmen's, and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing obligations
(other than Debt) which are not due or which are the subject of a Good
Faith Contest;
(iv) Liens in favor of the Company on Property of a Subsidiary to
secure obligations of such Subsidiary to the Company;
(v) Liens (other than Liens imposed under ERISA), pledges or deposits
in connection with workmen's compensation, unemployment insurance or social
security obligations, provided in each case the obligation secured is not
overdue and the obligation is not Debt;
(vi) Liens consisting of mortgages on the real property on which the
Phillips Schools are located and which are described on Schedule 6C(1)(vi),
provided, that the obligations secured by such mortgages are non-recourse
(on terms satisfactory to the holders of the Notes) to the Company or any
other obligor;
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<PAGE>
(vii) Liens on the NEC Collateral in favor of NEC to secure the NEC
Obligations so long as the NEC Subordination Agreement remains in effect;
(viii) Liens securing the working capital facility required to be
maintained pursuant to paragraph 5K, provided, however that an
intercreditor and collateral agency agreement in form and substance
satisfactory to Prudential and the holders of the Term Notes shall have
been entered into among Prudential, the holders of the Term Notes and the
persons providing such working capital facility, and such agreement shall
be in full force and effect; and
(ix) easements, rights of way, minor survey exceptions and other
encumbrances on title to real property that are necessary for the conduct
of the operations of the Company and its Subsidiaries and do not render
title to the property encumbered thereby unmarketable or materially
adversely affect the use of such property for its intended purposes;
6C(2). DEBT. Permit any Subsidiary to incur, assume or suffer to exist
at any time any Debt, except Debt owed to the Company or another Subsidiary and
the Debt listed on Schedule 6C(2);
6C(3). LOANS, ADVANCES AND INVESTMENTS. Make or permit to remain
outstanding any loan or advance to, or Guarantee, or own, purchase or acquire
any stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any Person (collectively, "INVESTMENTS"), except:
(i) acquisitions of schools or Persons engaged principally in the
same business as the Company as of the date hereof, provided, that the
Purchase Price (as defined herein) with respect to any single acquisition
shall not exceed $250,000 and the aggregate amount of all Purchase Prices
for all such acquisitions consummated or committed to be consummated, or
with respect to which the Company or a Subsidiary has entered into an
agreement to make such acquisition, in any twelve consecutive month period
shall not exceed $1,000,000 (for purposes of this paragraph 6C(3)(i),
"PURCHASE PRICE" shall mean the total purchase price of any single
acquisition of assets or stock permitted by this clause (i) calculated as
the sum of (a) the amount of cash paid or payable by the Company in
connection with such acquisition, including, without limitation, amounts
paid or payable as the "earn out", deferred or other delayed or contingent
purchase price or under noncompete agreements, plus (b) the aggregate
amount of all liabilities and obligations assumed by the Company or any
Subsidiary in connection with such acquisition of assets);
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(ii) Investments in direct obligations of the United States of
America, or Investments which are guaranteed by the full faith and credit
of the United States of America, in either case maturing within one year or
less from the date of acquisition thereof by the Company or any Subsidiary;
(iii) Investments in certificates of deposit maturing within one
year from the date of acquisition by the Company or a Subsidiary and issued
by a bank or trust company organized under the laws of the United States or
any state thereof, having capital, surplus and undivided profits
aggregating at least $750,000,000 and whose long-term certificates of
deposit are, at the time of acquisition thereof by the Company or a
Subsidiary, rated AA, or better, by Standard & Poor's Rating Services, a
division of McGraw-Hill Companies, Inc., or Aa2, or better, by Moody's
Investors Service, Inc.;
(iv) Investments in commercial paper maturing within 270 days or
less from the date of acquisition by the Company or a Subsidiary which, at
the time of acquisition by the Company or any Subsidiary, is rated A-1, or
better, by Standard & Poor's Rating Services, a division of McGraw-Hill
Companies, Inc., or P-1, or better, by Moody's Investors Service, Inc.;
(v) loans and advances by the Company to any Subsidiary
incorporated under the laws of any state of the United States (a "DOMESTIC
SUBSIDIARY") or loans and advances by a Domestic Subsidiary to any other
Domestic Subsidiary or the Company;
(vi) travel and other like advances made to officers and employees
of the Company or a Subsidiary in the ordinary course of business; and
(vii) other Investments, provided that the aggregate amount thereof,
at original cost, at no time exceeds $250,000;
6C(4). CAPITAL EXPENDITURES. Make capital expenditures in any fiscal
year in an aggregate amount in excess of (i) $2,200,000 for the fiscal years
ending June 30, 1997 and 1998 and (ii) for each fiscal year thereafter, 2% of
Consolidated gross revenues for the fiscal year immediately preceding the fiscal
year in which such capital expenditure is made;
6C(5). MERGER AND CONSOLIDATION. Merge or consolidate with or into any
other Person, except that (i) any Subsidiary may merge with the Company or
another Subsidiary so long as the Company or such other Subsidiary is the
surviving corporation and (ii) the Company may merge or consolidate with or into
any other Person so long as (a) the Company is the corporation surviving such
merger or consolidation, (b) at the time of such merger or consolidation and
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immediately after giving effect thereto no Default or Event of Default is in
existence, (c) the Company is in compliance with paragraphs 6A(2) and 6A(4) as
of the end of the fiscal quarter immediately preceding the fiscal quarter in
which such merger or consolidation occurs, and is in compliance with paragraph
6C(3) as of the date of such merger or consolidation, on a pro forma basis as
though such Person had been merged or consolidated with the Company for the
periods, or as of the date, for which compliance is being tested and (d) there
shall have been delivered to the holders of the Notes such legal opinions,
certificates and other evidence as may be requested by the Required Holders to
evidence compliance with the foregoing conditions, each in form and substance
satisfactory to the Required Holders;
6C(6). TRANSFERS OF ASSETS. Transfer any Property (other than Transfers
by a Subsidiary to the Company or a Domestic Subsidiary) if at the time of such
Transfer and immediately after giving effect thereto:
(i) the greater of the aggregate net book value or fair market value
of all Property Transferred during the twelve month period prior to such
Transfer exceeds $250,000; or
(ii) the Twelve Month Percentage of Net Income Capacity Transferred
exceeds 5%;
6C(7). RESTRICTIONS ON SUBSIDIARIES. Enter into any contract (other
than this Agreement), agreement or business arrangement that restricts or limits
in any manner, or incur or permit to exist any restriction on, any Subsidiary's
ability to make Restricted Payments to the Company or its Subsidiaries, repay
obligations to the Company or any other Subsidiary or transfer Property to the
Company or any Subsidiary;
6C(8). COMPENSATION OF SENIOR MANAGEMENT. Make any payment (whether in
cash or other Property) to Senior Management (other than in Capital Stock of the
Company paid solely in connection with an incentive compensation plan approved
by the Board of Directors of the Company and advances and reimbursement for
travel, entertainment and other customary out-of-pocket expenses in reasonable
amounts) in an aggregate amount in excess of (i) $1,250,000 for the fiscal year
ending June 30, 1997 and (ii) for each fiscal year thereafter, an amount equal
to the product of (a) the amount permitted to be paid to Senior Management under
this paragraph 6C(8) for the immediately preceding fiscal year and (b) the
greater of 1.05 and the Inflation Factor for the immediately preceding calendar
year;
6C(9). RELATED PARTY TRANSACTIONS. Enter into directly or indirectly
any transaction (including, without limitation, the purchase, lease, sale or
exchange of Properties of any kind or the rendering of any service) with any
Related Party, except pursuant
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to the reasonable requirements of the Company's or such Subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a Person not a Related Party of the Company;
6C(10). SALE OR DISCOUNT OF RECEIVABLES. Sell (with or without
recourse), or discount or otherwise sell for less than the face value thereof,
or subject to a Lien, any of its notes or accounts receivable other than the
sale or discount of receivables acquired from Phillips pursuant to the
Acquisition Agreements, provided that the aggregate face amount of such
receivables sold or discounted (determined as of the date such receivables are
sold or discounted) shall not exceed $500,000;
6C(11). SALE AND LEASE-BACK. Enter into any arrangement with any lender
or investor or to which such lender or investor is a party providing for the
leasing by the Company or any Subsidiary of real or personal property which has
been or is to be sold or transferred by the Company or any Subsidiary to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or rental
obligations of the Company or any Subsidiary;
6C(12). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise
dispose of, or part with control of, any shares of stock or Debt of any
Subsidiary, except to the Company or a Domestic Subsidiary, and except that all
shares of stock and Debt of any Subsidiary at the time owned by or owed to the
Company and all Subsidiaries may be sold as an entirety for a cash consideration
which represents the fair value (as determined in good faith by the Board of
Directors of the Company) at the time of sale of the shares of stock and Debt so
sold; provided, that (i) such sale or other disposition, if treated as a
Transfer of Property of such Subsidiary, would be permitted by paragraph 6C(6)
and (ii) at the time of such sale, such Subsidiary shall not own, directly or
indirectly, any shares of stock or Debt of any other Subsidiary (unless all of
the shares of stock and Debt of such other Subsidiary owned, directly or
indirectly, by the Company and all Subsidiaries are simultaneously being sold as
permitted by this paragraph 6C(12)).
6C(13). LEASES. Except with respect to any lease of any real property,
enter into or permit to remain in effect any operating lease as lessee other
than operating leases the aggregate amount payable under which (i) for the
fiscal quarter ending December 31, 1996, shall not exceed $300,000; (ii) for the
two consecutive fiscal quarters ending March 31, 1997, shall not exceed
$600,000; (iii) for the three consecutive fiscal quarters ending June 30, 1997,
shall not exceed $900,000; (iv) for the four consecutive fiscal quarters ending
September 30, 1997, shall not exceed $1,200,000 and (v) for any four consecutive
fiscal quarters
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ending after September 30, 1997, shall not exceed $1,200,000 multiplied by the
Inflation Factor for such four fiscal quarters.
6D. HOSTILE TENDER OFFER. The Company covenants that none of the proceeds
of any Revolving Loan will be used to finance directly or indirectly any Hostile
Tender Offer.
6E. FISCAL YEAR. The Company covenants that it will not change its fiscal
year or fiscal quarter.
6F. ISSUANCE OF STOCK BY SUBSIDIARIES. The Company covenants that it will
not permit any Subsidiary of the Company (either directly, or indirectly by the
issuance of rights or options for, or securities convertible into, such shares)
to issue, sell or otherwise dispose of any shares of any class of its stock
except to the Company or a Subsidiary of the Company.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of, interest
on, or non-usage fee or Yield-Maintenance Amount payable with respect to any
Note, or any other amount due under the Notes or this Agreement, when the same
shall become due, either by the terms thereof or otherwise as herein provided;
or
(ii) the Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any Debt beyond any period of grace provided with respect thereto,
or the Company or any Subsidiary fails to perform or observe any other
agreement, term or condition contained in any agreement under which any Debt is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is to
cause, or to permit the holder or holders of such Debt (or a trustee on behalf
of such holder or holders) to cause, such Debt to become due (or to be
repurchased by the Company or any Subsidiary) prior to any stated maturity
provided that, if such Debt is other than Subordinated Debt, the aggregate
amount of all Debt as to which such a payment default shall occur and be
continuing or such a failure or other event causing or permitting acceleration
(or resale to the Company or any Subsidiary) shall occur and be continuing
exceeds $250,000; or
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<PAGE>
(iii) any representation or warranty made by the Company in any of
the Transaction Documents or by the Company or any of its officers in any
writing furnished in connection with or pursuant to any of the Transaction
Documents shall be false in any material respect on the date as of which made;
or
(iv) the Company fails to perform or observe any agreement contained
in paragraph 5D, 5E, 5N or 6; or
(v) the Company fails to perform or observe any other agreement, term
or condition contained herein or in any other Transaction Document and such
failure shall not be remedied within 30 days after any Authorized Officer
obtains actual knowledge thereof; or
(vi) the Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts become
due; or
(vii) any decree or order for relief in respect of the Company or any
Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect (herein called the "BANKRUPTCY
LAW"), of any jurisdiction; or
(viii) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the Company or
any Subsidiary, or of any substantial part of the assets of the Company or any
Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings (other than proceedings for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Company or any Subsidiary under
the Bankruptcy Law of any other jurisdiction; or
(ix) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and the Company
or such Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee, receiver, custodian, liquidator or similar official, or approving
the petition in any such proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 60 days; or
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(x) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company or
such Subsidiary which requires the divestiture of assets representing a
substantial part, or the divestiture of the stock of a Subsidiary whose assets
represent a substantial part, of the consolidated assets of the Company and its
Subsidiaries or which requires the divestiture of assets, or stock of a
Subsidiary, which shall have contributed a substantial part of the consolidated
net income of the Company and its Subsidiaries for any of the three fiscal years
then most recently ended, and such order, judgment or decree remains unstayed
and in effect for more than 60 days (the term "substantial" for purposes of this
clause (xi) shall mean that amount of assets that would be prohibited from being
Transferred pursuant to paragraph 6C(6)); or
(xii) a final judgment in an amount in excess of $250,000 is rendered
against the Company or any Subsidiary and, within 60 days after entry thereof,
such judgment is not discharged or execution thereof stayed pending appeal, or
within 60 days after the expiration of any such stay, such judgment is not
discharged; or
(xiii) (A) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under Section 412 of the Code, (B) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA Section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of such
proceedings, (C) the aggregate "amount of unfunded benefit liabilities" (within
the meaning of Section 4001(a)(18) of ERISA) under all Plans, determined in
accordance with Title IV of ERISA, shall exceed $250,000, (D) the Company or any
ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (E) the Company or
any ERISA Affiliate withdraws from any Multiemployer Plan, or (F) the Company or
any Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would materially
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increase the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (A) through (F) above, either individually
or together with any other such event or events, could reasonably be expected to
have a material adverse effect on the business, condition (financial or
otherwise), operations or prospects of the Company and its Subsidiaries taken as
a whole; or
(xiv) any of the Transaction Documents shall fail to be in full force
and effect or otherwise shall not be enforceable in accordance with its terms;
or the Company or any Subsidiary shall contest or deny the validity or
enforceability of, or deny that it has any liability or obligations under, any
agreement, term or condition contained in any Transaction Document; or
(xv) the holders of the Notes do not have or cease to have a duly
created and perfected first priority security interest in all of the Collateral,
subject only to the Liens permitted by clauses (ii), (iii) or (v) of paragraph
6C(1) hereof that by operation of law have a priority prior to the Lien arising
under the Collateral Documents, or such security interest for whatever reason
shall be unenforceable; or
(xvi) any court or administrative or governmental body shall take any
action which will have a material adverse effect on, or there is otherwise any
material adverse change in, the business, condition (financial or otherwise) or
operations of the Company or its Subsidiaries taken as a whole or on the ability
of the Company to perform its obligations under this Agreement, the Notes or any
other Transaction Document; or
(xvii) the Company fails to obtain, within 60 days after the Closing
Day, the United States Department of Education re-certification of the Phillips
Schools as eligible for funding under Title IV of the Higher Education Act of
1965; or
(xviii) (A) the Company fails to obtain, within 90 days after the
Closing Day, any of the permits or approvals listed on Schedule 3A(5) hereto, or
(B) within 90 days after the Closing Day, all of the guaranty agencies which
have guaranteed Federal Family Education Loan loan programs for the Phillips
Schools have not resumed such guaranty activities;
then (a) if such event is an Event of Default specified in clause (i) of this
paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due
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and payable at par together with interest accrued thereon, without presentment,
demand, protest or additional notice of any kind, all of which are hereby waived
by the Company, (b) if such event is an Event of Default specified in clause
(vii), (viii) or (ix) of this paragraph 7A with respect to the Company, all of
the Notes at the time outstanding shall automatically become immediately due and
payable together with interest accrued thereon and together with the Yield-
Maintenance Amount, if any, with respect to each Note, without presentment,
demand, protest or notice of any kind, all of which are hereby waived by the
Company, and (c) with respect to any event constituting an Event of Default
hereunder other than as described in clause (b) (including an Event of Default
described in clause (i) of this paragraph 7A), the Required Holder(s) of the
Revolving Notes or of the Term Notes may at its or their option, by notice in
writing to the Company, declare all of the Revolving Notes or of the Term Notes
(as the case may be) to be, and all of such Notes shall thereupon be and become,
immediately due and payable together with interest accrued thereon and together
with the Yield-Maintenance Amount, if any, and any non-usage fees through the
date of such acceleration with respect to each such Note, without presentment,
demand, protest or additional notice of any kind, all of which are hereby waived
by the Company.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Revolving Notes or the Term Notes shall have been declared immediately due and
payable pursuant to paragraph 7A, the Required Holder(s) of the Revolving Notes
or of the Term Notes (as the case may be) may, by notice in writing to the
Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest and non-usage fees (if any) on such
Notes, the principal of and Yield-Maintenance Amount, if any, payable with
respect to such Notes which have become due otherwise than by reason of such
declaration, and interest on such overdue interest, non-usage fees and overdue
principal and Yield-Maintenance Amount at the rate specified herein or in such
Notes, (ii) the Company shall not have paid any amounts which have become due
solely by reason of such declaration, (iii) all Events of Default and Defaults,
other than non-payment of amounts which have become due solely by reason of such
declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv)
no judgment or decree shall have been entered for the payment of any amounts due
pursuant to the Notes or this Agreement. No such rescission or annulment shall
extend to or affect any subsequent Event of Default or Default or impair any
right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to
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protect and enforce its rights under this Agreement, such Note and the other
Transaction Documents by exercising such remedies as are available to such
holder in respect thereof (i) under the Transaction Documents and (ii) under
applicable law, either by suit in equity or by action at law, or both, whether
for specific performance of any covenant or other agreement contained in this
Agreement or any other Transaction Document or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement or any
other Transaction Document upon the holder of any Note is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein, in
any other Transaction Document or now or hereafter existing at law or in equity
or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows:
8A(1). ORGANIZATION; CAPITAL STOCK.
(a) The Company is a corporation duly organized and existing in good
standing under the laws of the State of Delaware and is licensed or qualified to
do business and in good standing in every jurisdiction where the ownership of
its properties or the nature of the business conducted by it makes such
licensing or qualification necessary, except where the failure to be licensed or
qualified would not have a material adverse affect on the Company. Each
Subsidiary is duly organized and existing in good standing in every jurisdiction
in which it is incorporated or organized and is licensed or qualified to do
business and in good standing in every jurisdiction where the ownership of its
properties or the nature of the business conducted by it makes such licensing or
qualification necessary, except where the failure to be licensed or qualified
would not have a material adverse affect on such Subsidiary. The names of the
Subsidiaries, the jurisdiction in which each such Subsidiary is organized, the
shareholder(s) of such Subsidiaries and the ownership interests of such owners
therein are as set forth in Schedule 8A(1)(a).
(b) On the Closing Day, and after giving effect to the transactions
contemplated by the Transaction Documents (i) the authorized and issued Capital
Stock of the Company will consist of (1) 9,000,000 shares of authorized Class A
Common Stock, 111,660 shares of which are issued and outstanding and 6243.89
shares of which will be reserved for the issuance of shares upon exercise of the
Warrants and 1133.95 shares of which will be reserved for the issuance of shares
upon the exercise of the Equity Sponsor Warrants, (2) 500,000 shares of
authorized Class B Common Stock, 32,090 shares (which
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includes 18,750 shares held by Senior Management and subject to vesting) of
which are issued and outstanding and 4535.83 shares of which will be reserved
for issuance of shares upon exercise of the Equity Sponsor Warrant and (3)
500,000 shares of authorized preferred stock of which 18,125 shares of Class A
Preferred Stock (the "CLASS A PREFERRED"), are authorized, issued and
outstanding and (ii) other than the Warrants and the Equity Sponsor Warrants,
there are no other options for, rights to acquire, agreements to issue, or
securities exercisable for or convertible into shares of the Company's Capital
Stock. The names of the owners of the capital stock of the Company and the
number of shares held by each, after giving effect to the transactions
contemplated by the Transaction Documents, are as set forth in Schedule
8A(1)(b).
8A(2). POWER AND AUTHORITY. The Company and each of its Subsidiaries has
all requisite corporate power to conduct its business as currently conducted and
as currently proposed to be conducted. The Company has all requisite corporate
power to execute, deliver and perform its obligations under this Agreement, the
Notes and the other Transaction Documents to which the Company is a party. The
execution, delivery and performance of this Agreement, the Notes, and each
Transaction Document to which the Company is a party have been duly authorized
by all requisite action and this Agreement, the Notes and the Transaction
Documents have been duly executed and delivered by authorized officers of the
Company, and are valid obligations of the Company, legally binding upon and
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The Company has duly
authorized the issuance of 6243.89 shares of its Class A Common Stock upon the
exercise of the Warrants, such number of shares of the Class A Common Stock has
been reserved for issuance upon the exercise of the Warrants and, upon such
exercise and payment of the purchase price therefor pursuant to the Warrants,
such shares shall be duly authorized and issued, fully paid and non-assessable.
8B. FINANCIAL STATEMENTS; RESTRICTED PAYMENTS. The Company has furnished
Prudential with the following financial statements, identified by a principal
financial officer of the Company: (i) a consolidated balance sheet of the
Company and its Subsidiaries as of June 30, 1996 and all fiscal years completed
subsequent to such date (other than fiscal years completed within 90 days prior
to the date as of which this representation is made or repeated to Prudential
and for which audited financial statements have not been released) and
consolidated statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for each such
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fiscal year, all certified by Arthur Andersen; and (ii) a consolidated balance
sheet of the Company and its Subsidiaries as of the end of the quarterly period
(if any) most recently completed prior to such date and after the end of such
fiscal year (other than quarterly periods completed within 45 days prior to such
date for which financial statements have not been released) and the comparable
quarterly period in the preceding fiscal year and consolidated statements of
income, retained earnings and cash flows for the Company and its Subsidiaries
for the periods from the beginning of the fiscal years in which such quarterly
periods are included to the end of such quarterly periods, prepared by the
Company. Such financial statements (including any related schedules and/or
notes) are true and correct in all material respects (subject, as to interim
statements to changes resulting from audits and normal year-end adjustments) and
have been prepared in accordance with GAAP consistently followed throughout the
periods involved. The balance sheets fairly present the condition of the Company
and its Subsidiaries as at the dates thereof, and the statements of income,
retained earnings and cash flows fairly present the results of the operations of
the Company and its Subsidiaries for the periods indicated. There has been no
material adverse change in the business, condition or operations (financial or
otherwise) of the Company and its Subsidiaries taken as a whole since the end of
the most recent fiscal year for which such audited financial statements have
been furnished. No Restricted Payment has been made by the Company from July 1,
1996 through the Closing Day.
8C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any Properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or administrative
or governmental body which might result in (i) the closure, loss of eligibility
for state or federal financial assistance or loss of accreditation of any
schools owned or operated by the Company or any Subsidiary or (ii) any other any
material adverse change in the business, condition (financial or otherwise) or
operations of the Company and its Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. The Company does not have outstanding any Debt
except as permitted by paragraph 6A(3). There exists no default under the
provisions of any instrument evidencing such Debt or of any agreement relating
thereto. No Subsidiary of the Company has any outstanding Debt except as
permitted by paragraph 6C(2).
8E. TITLE TO PROPERTIES. The Company and each Subsidiary has good and
indefeasible title to its respective real properties (other than properties
which it leases) and good title to all of its other properties and assets,
including, without limitation, all Properties and assets reflected in the most
recent audited balance sheet delivered pursuant to paragraph 5A (or, if no
audited balance sheet has been delivered, the most recent audited balance sheet
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referred to in paragraph 8B), subject to no Lien of any kind except Liens
permitted by paragraph 6C(1). All material leases necessary in any material
respect for the conduct of the business of the Company are valid and subsisting
and are in full force and effect. Schedule 8E sets forth as of the Closing Day
each school facility lease and the base rent currently payable, the scheduled
lease expiration date and the amount of any buyout option with respect thereto.
8F. COMPLIANCE WITH LAWS. The Company and its Subsidiaries and all of
their respective Properties and facilities have complied at all times and in all
material respects with all laws, statutes, regulations, including, without
limitation, the Higher Education Act of 1965, as amended, and all Environmental
Laws, except where failure to comply would not result in a material adverse
effect on the business, condition (financial or otherwise) or operations of the
Company and its Subsidiaries taken as a whole.
8G. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns which, to the best knowledge of the
officers of the Company, are required to be filed, and each has paid all taxes
as shown on such returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes which are subject to a Good
Faith Contest.
8H. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
its business, property or assets, or financial condition. Neither the execution
nor delivery of this Agreement, the Notes or any other Transaction Document, nor
the offering, issuance and sale of the Notes, nor the making of any Revolving
Loan, nor the fulfillment of nor compliance with the terms and provisions
hereof, of the Notes and of any other Transaction Document will conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien (other than Liens created for the benefit of the holders of the Notes
pursuant to the Transaction Documents) upon any of the Properties or assets of
the Company or any of its Subsidiaries pursuant to, the charter or by-laws of
the Company or any of its Subsidiaries, any award of any arbitrator or any
agreement (including any agreement with stockholders of the Company or Persons
with direct or indirect ownership interests in stockholders of the Company),
instrument, order, judgment, decree, statute, law, rule or regulation to which
the Company or any of its Subsidiaries is subject. Neither the Company nor any
of its Subsidiaries is a party to, or otherwise subject to any provision
contained in, any instrument evidencing Debt of the Company or such Subsidiary,
any agreement relating thereto or any other contract or agreement (including its
charter) which limits the amount of, or otherwise imposes restrictions on, the
incurring of Debt of the Company of
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the type to be evidenced by the Notes except as set forth in the agreements
listed on Schedule 8H attached hereto.
8I. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than Institutional Investors, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction.
8J. USE OF PROCEEDS. The proceeds of sale of the Term Notes and the
Revolving Loan made on the Closing Day will be used to finance the acquisition
of the assets purchased pursuant to the Master Agreement and the Schools
Agreement and for working capital. None of the proceeds of any Term Note or
Revolving Loan will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate (i) of purchasing or carrying any margin stock
or for the purpose of maintaining, reducing or retiring any indebtedness which
was originally incurred to purchase or carry any stock that is currently a
margin stock or for any other purpose which might constitute this transaction a
"PURPOSE CREDIT" within the meaning of such Regulation G or (ii) except for
$500,000 of the proceeds of the Revolving Loans, to repay any Debt incurred to
Phillips or any Affiliate to acquire any real estate under the Real Estate
Acquisition Agreement or to fund any escrow under the Acquisition Agreements
after the Closing Day. Neither the Company nor any agent acting on its behalf
has taken or will take any action which might cause this Agreement, the Notes or
any Revolving Loan to violate Regulation G, Regulation T or any other regulation
of the Board of Governors of the Federal Reserve System or to violate the
Exchange Act, in each case as in effect now or as the same may hereafter be in
effect.
8K. ERISA. No accumulated funding deficiency (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC
has been or is expected by the Company or any ERISA Affiliate to be incurred
with respect to any Plan (other than a Multiemployer Plan) by the Company, any
Subsidiary or any ERISA Affiliate which is or would be materially adverse to the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any
ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan which
is or would be materially adverse to the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole.
The execution and delivery of this
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Agreement, the issuance and sale of the Notes and the making of each Revolving
Loan will be exempt from, or will not involve any transaction which is subject
to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of Prudential's representation in
paragraph 9B as to the source of funds to be used by it to purchase any Term
Notes and make any Revolving Loans.
8L. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary nor any of their respective businesses or Properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes, the making of any Revolving Loan or the use of the proceeds of either is
such as to require any authorization, consent, approval, exemption or other
action by or notice to or filing with any court or administrative or
governmental body (excluding routine filings with respect to the Notes to be
made after the date of closing with the Securities and Exchange Commission
and/or state Blue Sky authorities and the filing of appropriate notices for
perfection of security interests) in connection with the execution and delivery
of this Agreement, the offering, issuance, sale or delivery of the Notes, the
making of any Revolving Loan or the fulfillment of or compliance with the terms
and provisions hereof, of the Notes or of any other Transaction Document.
8M. REGULATORY STATUS. Neither the Company nor any Subsidiary is (i) an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding
company" or a "subsidiary company" or an "affiliate" of a "holding company" or a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Act of 1935, as amended, or (iii) a "public utility" within the meaning
of the Federal Power Act, as amended.
8N. SECTION 144A. The Term Notes are not of the same class as securities,
if any, of the Company listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer
quotation system.
8O. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to Liens
permitted by paragraph 6C(1) hereof, there is no financing statement, security
agreement, chattel mortgage, real estate mortgage or other document filed or
recorded with any filing records, registry or other public office, that purports
to cover, affect or give notice of any present or possible future Lien on, or
security interest in, any assets or property of the Company or any of its
Subsidiaries or any rights relating thereto.
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8P. ESTABLISHMENT OF SECURITY INTEREST. All filings, assignments, pledges
and deposits of documents or instruments have been made and all other actions
have been taken, that are necessary or advisable under applicable law and are
required to be made or taken on or prior to the Closing Day to establish and
perfect Prudential's security interest in the Collateral. The Collateral and
Prudential's rights with respect to the Collateral are not subject to any
setoff, claims, withholdings or other defenses. The Company is the owner of the
Collateral described in each Security Document free from any Lien, security
interest, encumbrance and any other claim or demand, except for Liens permitted
by paragraph 6C(1) hereof.
8Q. POSSESSION OF INTELLECTUAL PROPERTY. Except as set forth in Schedule
8Q, as of the Closing Day, the Company has no patents, trademarks, service
marks, tradenames, copyrights, curricula, know-how or similar intellectual
property (collectively, "INTELLECTUAL PROPERTY") which are material to the
conduct of the Company's business. The Company and its Subsidiaries possess all
Intellectual Property free from burdensome restriction and that are necessary in
any material respect for the ownership, maintenance and operation of their
business, properties and assets, and neither the Company nor any Subsidiary has
infringed upon or violated the Intellectual Property of any third party. From
and after the date hereof, all Intellectual Property of the Company and
Subsidiaries will be validly issued and will be in full force and effect and
will not contain any provision or restriction which could materially affect or
impair their value or use.
8R. PERMITS AND OTHER OPERATING RIGHTS. The Company and each of its
Subsidiaries has all such valid franchises, licenses, permits, accreditation,
operating rights, certificates of convenience and necessity, other
authorizations from Federal, state, regional, municipal and other local
regulatory bodies or administrative agencies or other governmental bodies having
jurisdiction over the Company or any of its Subsidiaries (collectively,
"AUTHORIZATIONS") as are necessary in all material respects for the ownership,
operation and maintenance of its business and Properties, and such
Authorizations are free from burdensome restrictions or conditions of an unusual
character or restrictions or conditions materially adverse to the business or
operations of the Company or any of its Subsidiaries, and the Company and each
of its Subsidiaries is not in violation thereof in any material respect.
Schedule 8R sets forth as of the Closing Day (i) the accreditation for each of
the Company's schools, (ii) the last date each such accreditation was issued or
renewed, (iii) the expiration date of each such accreditation and (iv) any
alternative or additional accreditation, if any, which the Company intends to
seek for each such school.
8S. DISCLOSURE. Neither this Agreement, any Transaction Document nor any
other document, certificate or statement
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(including, without limitation, the Private Placement Memorandum) furnished by
or on behalf of the Company in connection with this Agreement, the other
Transaction Documents, the issuance of the Notes or the making of any Revolving
Loan contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. There is no fact peculiar to the Company or any of its
Subsidiaries which materially adversely affects or in the future may (so far as
the Company can now reasonably foresee) materially adversely affect the
business, property or assets, or financial condition of the Company and its
Subsidiaries taken as a whole and which has not been set forth in this Agreement
or in the other documents, certificates and statements furnished in connection
herewith by or on behalf of the Company prior to the date hereof or any date on
which this representation is repeated or confirmed in connection with the
transactions contemplated hereby. The projections contained in the Private
Placement Memorandum are reasonable in light of the facts and circumstances at
the time of their preparation and no event, condition or development has since
occurred that would make such projections misleading in any material respect.
9. REPRESENTATIONS OF PRUDENTIAL. Prudential represents as follows:
9A. NATURE OF PURCHASE. Prudential is not acquiring the Notes or the
Warrant to be purchased by it hereunder with a view to or for sale in connection
with any distribution thereof within the meaning of the Securities Act, provided
that the disposition of Prudential's property shall at all times be and remain
within its control.
9B. SOURCE OF FUNDS. The source of funds being used by Prudential to pay
the purchase price of the Notes and the Warrant being purchased by it hereunder
or to make any Revolving Loan hereunder constitutes assets allocated to: (i)
Prudential's "INSURANCE COMPANY GENERAL ACCOUNT" (as such term is defined under
Section V of the United States Department of Labor's Prohibited Transaction
Class Exemption ("PTCE") 95-60), and as of the date of the purchase of the Notes
Prudential satisfies all of the applicable requirements for relief under
Sections I and IV of PTCE 95-60 or (ii) a separate account maintained by
Prudential in which no employee benefit plan, other than employee benefit plans
identified on a list which has been furnished by it to the Company, participates
to the extent of 10% or more. For the purpose of this paragraph 9B, the terms
"SEPARATE ACCOUNT" and "EMPLOYEE BENEFIT PLAN" shall have the respective
meanings specified in section 3 of ERISA.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement,
the terms defined in paragraphs 10A and 10B (or within the text of any other
paragraph) shall have the respective meanings
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specified therein and all accounting matters shall be subject to determination
as provided in paragraph 10C.
10A. YIELD-MAINTENANCE TERMS.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day
on which commercial banks in New York City or California are required or
authorized to be closed.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 4B(1) or 4B(2) or
purchased by the Company pursuant to paragraph 5E or becomes immediately due and
payable pursuant to paragraph 7A, as the context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (as converted to reflect
the periodic basis on which interest on such Note is payable, if interest is
payable other than on a semi-annual basis) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, 1.00% over the yield to maturity implied by (i) the yields reported,
as of 10:00 a.m. (New York city time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "PAGE 678" on the Telerate Service (or such other display as may replace Page
678 on the Telerate Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such Called Principal as of
such Settlement Date, or if such yields shall not be reported as of such time or
the yields reported as of such time shall not be ascertainable, (ii) the
Treasury Constant Maturity Series yields reported, for the latest day for which
such yields shall have been so reported as of the Business Day next preceding
the Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield shall be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between yields reported for
various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to
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the nearest one-twelfth year) obtained by dividing (i) such Called Principal
into (ii) the sum of the products obtained by multiplying (a) each Remaining
Scheduled Payment of such Called Principal (but not of interest thereon) by (b)
the number of years (calculated to the nearest one-twelfth year) which will
elapse between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B(1) or 4B(2) or purchased pursuant to paragraph 5E or becomes
immediately due and payable pursuant to paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. The Yield-Maintenance Amount shall in no event be less
than zero.
10B. OTHER TERMS.
"ACQUISITION AGREEMENTS" shall have the meaning specified in paragraph
3A(7).
"ADJUSTED COMMERCIAL PAPER RATE" shall mean a rate per annum equal to the
sum of 3.00% plus the yield-adjusted rate (i.e., the nominal rate increased by
the cost of any discount) charged or quoted to Prudential Funding Corporation
for dealer-placed, 30- day promissory notes issued by Prudential Funding
Corporation on the Rate Day.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company or
another specified Person, except a Subsidiary. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"AUTHORIZED OFFICER" shall mean the Company's chief executive officer,
chief operating officer, chief financial officer or chief accounting officer of
the Company or any other officer of the
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Company involved principally in its financial administration or its
controllership function, any other officer of the Company designated as an
"AUTHORIZED OFFICER" in the Information Schedule attached hereto and any other
officer of the Company designated as an "AUTHORIZED OFFICER" for the purpose of
this Agreement in an Officer's Certificate executed by the Company's chief
executive officer or chief financial officer and delivered to Prudential. Any
action taken under this Agreement on behalf of the Company by any individual who
on or after the date of this Agreement shall have been an Authorized Officer of
the Company and whom Prudential in good faith believes to be an Authorized
Officer of the Company at the time of such action shall be binding on the
Company even though such individual shall have ceased to be an Authorized
Officer of the Company.
"AUTHORIZATION" shall have the meaning specified in paragraph 8R.
"BANKRUPTCY LAW" shall have the meaning specified in clause (vii) of
paragraph 7A.
"BOCP II" shall mean Banc One Capital Partners II, Ltd., an Ohio limited
liability company.
"CAPITAL STOCK" of any Person, shall mean any and all shares, interests,
participations or other equivalents (however designated) of corporate stock,
including each class of common stock and preferred stock of such Person or
partnership interests and any warrants, options or other rights to acquire such
stock or interests. The term "CAPITAL STOCK" as used herein with respect to the
Company shall include the Class A Preferred.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under GAAP, is or will be required to be capitalized on the books of the Company
or any Subsidiary, taken at the amount thereof accounted for as indebtedness
(net of interest expense) in accordance with such principles.
"CHANGE OF CONTROL EVENT" shall mean (i) David Moore and Paul St. Pierre
cease at any time to be employed for any reason by the Company on a full-time
basis; (ii) either David Moore or Paul St. Pierre and any two of the remaining
three members of Senior Management cease at any time to be employed for any
reason by the Company on a full-time basis; (iii) Senior Management (or trusts,
the beneficiaries of which are immediate family members of a member of Senior
Management), and the Equity Sponsors cease to own at any time in the aggregate
at least 50% of the outstanding common stock of the Company; (iv) BOCP II and
LLC shall cease to own at any time in the aggregate at least 50% of the common
stock of the Company that they own in the aggregate as of the Closing Day (after
giving effect to the transactions contemplated by the transaction documents);
(v) Primus shall cease to own at any time at least 50%
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of the common stock of the Company that it owns as of the Closing Day; or (vi) a
Person other than the shareholders at the Closing Day acquires the right or
ability to elect, or direct the election, of a majority of the Company's Board
of Directors; provided, however, that after a Qualifying Equity Offering a
"CHANGE OF CONTROL EVENT" shall mean (a) an event of the type described in
clauses (i) or (ii) above; (b) an event or series of events by which any Person
or Persons or other entities acting in concert as a partnership or other group
(a "GROUP OF PERSONS") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, merger, consolidation or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act), of 50% or more of the Voting Power of the Company; (c)
the Company is merged with or into another corporation with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction hold less than a majority of the combined Voting Power
of the Person surviving the transaction; (d) the direct or indirect, sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company to any Person or Group of Persons; or (e) Senior Management (or
trusts, the beneficiaries of which are immediate family members of a member of
Senior Management) ceases to own at any time in the aggregate at least 30% of
the common stock of the Company that they own in the aggregate as of the Closing
Day (after giving effect to the transactions contemplated by the Transaction
Documents). An event of the type described in clause (iii),(iv) or (v) in the
foregoing sentence that results from the consummation of an initial public
offering of the Company's Qualified Stock shall not be deemed a Change of
Control Event.
"CLASS A PREFERRED" shall have the meaning provided in paragraph 8A(1).
"CLOSING DAY" shall have the meaning provided in paragraph 2A.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLATERAL" shall mean all the Company's property and assets, including
accounts receivable, fixed assets (other than the real estate permitted to be
subject to Liens pursuant to paragraph 6C(1)(vi) hereof) and other Intellectual
Property.
"COLLATERAL DOCUMENTS" shall have the meaning specified in paragraph 3A(9).
"COMPANY" shall have the meaning specified in the introductory paragraph of
this Agreement.
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"CONSOLIDATED" shall mean, with respect to any financial or accounting
term, such term on a consolidated basis for the Company and its Subsidiaries in
accordance with GAAP.
"CONSOLIDATED CAPITALIZATION" shall mean, as at any time of determination,
Consolidated Senior Debt plus (i) Consolidated subordinated debt designated in
writing by the Required Holders in their sole discretion as eligible for
inclusion in computing Consolidated Capitalization and (ii) Consolidated
shareholders equity.
"CONSOLIDATED CASH FLOW" shall mean, as to any period, Consolidated Net
Income plus (i) depreciation and amortization expense, (ii) Consolidated
Interest Expense and (iii) income tax expense.
"CONSOLIDATED CASH FLOW FROM OPERATIONS" shall mean, as to any period,
Consolidated cash flow from operations calculated in accordance with GAAP and as
set forth on the Company's statement of cash flows delivered to the holders of
the Notes pursuant to paragraph 5A.
"CONSOLIDATED EBIT" shall mean, as to any period, Consolidated Net Income
plus all amounts deducted in arriving at such Consolidated Net Income amount in
respect of (i) Consolidated Interest Expense and (ii) income tax expense.
"CONSOLIDATED FIXED CHARGES" shall mean, as to any period, the sum of (i)
Consolidated Interest Expense, (ii) scheduled principal payments in respect of
Debt of the Company and its Subsidiaries, including, without limitation, the
Subordinated Debt, and (iii) Consolidated Operating Lease Payments.
"CONSOLIDATED INTEREST EXPENSE" shall mean, as to any period, all interest
expense, including, without limitation, all commissions, discounts or related
amortization and other fees and charges with respect to letters of credit and
bankers' acceptance financing and the net costs associated with interest swap
obligations, amortization of debt expense and original issue discount and the
interest portion of any deferred payment obligation (including leases of all
types), calculated in accordance with the effective interest method.
"CONSOLIDATED NET INCOME" shall mean, as to any period, gross revenues of
the Company and its Subsidiaries less all expenses and other proper charges
(including taxes on income), but excluding (i) extraordinary gains, (ii) any
gains or losses resulting from the sale or other disposition of capital assets,
(iii) undistributed earnings of any Person which is not a Subsidiary, (iv) gains
arising from changes in accounting principles, (v) gains arising from the write-
up of assets, (vi) any earnings of a Person acquired through purchase, merger or
consolidation or otherwise by the
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Company or any Subsidiary for any period prior to the date of acquisition, and
(vii) any gains or losses resulting from the retirement or extinguishment of
Debt.
"CONSOLIDATED OPERATING LEASE PAYMENTS" shall mean, as to any period, all
payments under operating leases.
"CONSOLIDATED QUICK ASSETS" shall mean, as at any time of determination,
all cash, cash equivalents, marketable securities and accounts receivable (net
of bad debt reserve).
"CONSOLIDATED SENIOR DEBT" shall mean, as at any time of determination, the
aggregate amount of all Senior Debt.
"CUMULATIVE PERCENTAGE OF NET INCOME CAPACITY TRANSFERRED" shall mean, with
respect to the period from the Closing Day until the date of determination
hereof, the sum of the Percentages of Net Income Capacity Transferred for each
asset of the Company and its Subsidiaries that is Transferred during such
period.
"DEBT" shall mean for any Person (without duplication) (i) all indebtedness
created, assumed or incurred in any manner by such Person representing money
borrowed (including, without limitation, commercial paper and revolving credit
advances and indebtedness which is evidenced by bonds, debentures or notes),
(ii) all indebtedness for the deferred purchase price of property or services or
extensions of credit (other than current trade accounts payable, payroll
obligations and taxes), (iii) all indebtedness secured by any Lien upon Property
of such Person, whether or not such Person has assumed or become liable for the
payment of such indebtedness, (iv) all Capitalized Lease Obligations of such
Person, (v) all obligations of such Person on or with respect to letters of
credit, bankers' acceptances and other extensions of credit whether or not
representing obligations for borrowed money, (vi) all obligations with respect
to which such Person has become liable by way of a Guarantee, (vii) Capital
Stock of such Person which is not Qualified Stock, (viii) all obligations with
respect to interest rate swaps, exchanges or cap agreements, letters of credit
and similar obligations and (ix) all modifications, renewals and extensions of
any of the above.
"DOMESTIC SUBSIDIARY" shall have the meaning provided in paragraph
6C(3)(vi).
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage,
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disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes, and any and all
regulations, codes, plans, orders, decrees, judgments, injunctions, notices or
demand letters issued, entered, promulgated or approved thereunder.
"EQUITY SPONSOR WARRANTS" shall mean the warrants to purchase 806.45 shares
of the Company's Class A Common Stock, the contingent warrants to purchase
327.50 shares of the Company's Class A Common Stock, the warrants to purchase
3225.81 shares of the Company's Class B Common Stock and the contingent warrants
to purchase 1310.02 shares of the Company's Class B Common Stock issued to the
Equity Sponsors pursuant to the Subordinated Note and Warrant Purchase
Agreement.
"EQUITY SPONSORS" shall mean BOCP II, LLC and Primus and their respective
successors and assigns.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control with
the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A,
provided that there has been satisfied any requirement in connection with such
event for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act, and "DEFAULT" shall mean any of such events,
whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean generally accepted accounting principles as in existence
from time to time, applied on a basis consistent with the financial statements
delivered pursuant to paragraph 5A(ii) or, if no such financial statements have
been delivered, the most recent financial statements referenced in clause (i) of
paragraph 8B.
"GOOD FAITH CONTEST" shall mean an active challenge or contest initiated in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP.
"GUARANTEE" shall mean, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any Debt,
lease, dividend or other obligation of another, including, without limitation,
any such obligation
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directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business) or discounted or sold with recourse
by such Person, or in respect of which such Person is otherwise directly or
indirectly liable, including, without limitation, any such obligation in effect
guaranteed by such Person through any agreement (contingent or otherwise) to (i)
maintain the solvency or any balance sheet or other financial condition of
another Person or (ii) make payment for any products, materials or supplies or
for any transportation or services regardless of the non-delivery or non-
furnishing thereof, in any such case if the purpose or effect of such agreement
is to provide assurance that such obligation will be paid or discharged, or that
any agreements relating thereto will be complied with, or that the holders of
such obligation will be protected against loss in respect thereof. Guarantees
shall include obligations of partnerships and joint ventures of which the
Company or any Subsidiary is a general partner or co-venturer that is not
expressly non-recourse to the Company or such Subsidiary.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds of
any Revolving Loan, any offer to purchase, or any purchase of, shares of Capital
Stock of any corporation or equity interests in any other entity, or securities
convertible into or representing the beneficial ownership of, or rights to
acquire, any such shares or equity interests, if such shares, equity interests,
securities or rights are of a class which is publicly traded on any securities
exchange or in any over-the-counter market, other than purchases of such shares,
equity interests, securities or rights representing less than 5% of the equity
interests or beneficial ownership of such corporation or other entity for
portfolio investment purposes, and such offer or purchase has not been duly
approved by the board of directors of such corporation or the equivalent
governing body of such other entity prior to the date on which the Company
requests such Revolving Loan.
"INCLUDING" shall mean, unless the context clearly requires otherwise,
"INCLUDING WITHOUT LIMITATION".
"INFLATION FACTOR" for a year means the quotient (expressed as a decimal
fraction) of (i) the Consumer Price Index for Southern California published by
the U.S. Department of Labor, Bureau of Labor Statistics (if the issuance of
this index is discontinued, the official index published by a federal
governmental agency, which is most nearly equivalent to such index, as
determined by the Required Holders and the Company), as at the end of such year,
divided by (ii) the same index as at the end of the previous year.
"INSTITUTIONAL INVESTOR" shall mean an insurance company, bank, savings and
loan association, finance company, mutual fund, registered money manager,
pension fund, investment company, "qualified institutional buyer" (as such term
is defined under Rule 144A promulgated under the Securities Act, or any
successor law, rule or regulation) or "accredited investor" (as such term is
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defined under Regulation D promulgated under the Securities Act, or any
successor law, rule or regulation).
"INTELLECTUAL PROPERTY" shall have the meaning provided in paragraph 8Q.
"INVESTMENTS" shall have the meaning provided in paragraph 6C(3).
"LIBOR BUSINESS DAY" shall mean a Business Day on which dealings are also
being carried on in the London interbank market and banks are open for business
in London.
"LIBOR RATE" shall mean, for any Rate Period, for any Revolving Loan
outstanding during such Rate Period, the sum of 3.00% plus (i) the interest rate
per annum for deposits in Dollars with a six month maturity which appears on
Telerate Page 3750 as of 11:00 A.M. (London time), two LIBOR Business Days prior
to the Rate Day, or (ii) if such rate ceases to be reported in accordance with
the above definition on Telerate Page 3750, the arithmetic mean of the rates per
annum at which deposits in U.S. dollars are offered by the principal London
office of the LIBOR Reference Banks at approximately 11:00 A.M. (London time),
on the day that is two LIBOR Business Days before the first day of such Rate
Period to prime banks in the London interbank market for a six month period,
commencing on the first day of such Rate Period, and in a Representative Amount.
This arithmetic mean shall be determined by Prudential on the basis of
quotations of the applicable rate requested of each of the LIBOR Reference Banks
by, and furnished to, Prudential, provided, that if fewer than two quotations
are provided as requested, the rate per annum shall equal the arithmetic mean of
the rates quoted by major banks in New York City, selected by Prudential, at
approximately 11:00 A.M. (New York City time) on the first day of the Rate
Period for loans in U.S. Dollars to leading European banks for a six month
period, commencing on the first day of such Rate Period, and in a Representative
Amount.
"LIBOR REFERENCE BANKS" shall mean four major banks in the London interbank
market selected by Prudential.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
deposit agreement, set-off, bankers' lien, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting a
creditor against loss or securing the payment or performance of an obligation.
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"LLC" shall mean BOCP II, Limited Liability Company, an Ohio limited
liability company and successor by merger to Banc One Capital Partners, II L.P.
"MASTER AGREEMENT" shall have the meaning specified in paragraph 3A(7).
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "MULTIEMPLOYER PLAN"
(as such term is defined in section 4001(a)(3) of ERISA).
"NEC" shall mean National Education Centers, Inc.
"NEC COLLATERAL" shall mean the "NEC Collateral", as defined in the NEC
Subordination Agreement.
"NEC OBLIGATIONS" shall mean the "NEC Obligations", as defined in the NEC
Subordination Agreement.
"NEC SUBORDINATION AGREEMENT" shall have the meaning specified in Paragraph
3A(8).
"NOTE" and "NOTES" shall have the meaning specified in paragraph 1B.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
Company by an Authorized Officer of the Company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PERCENTAGE OF NET INCOME CAPACITY TRANSFERRED" shall mean, with respect to
each asset Transferred by the Company or a Subsidiary, the percentage of
Consolidated Net Income produced by, or attributable to, such asset during the
twelve fiscal quarter period most recently ended prior to the effective date of
such Transfer.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"PHILLIPS" shall mean Phillips Colleges, Inc.
"PHILLIPS SCHOOLS" shall mean the colleges acquired by the Company from
Phillips on the Closing Day.
"PLAN" shall mean any "employee pension benefit plan" (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or by any trade
or business, whether or
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not incorporated which, together with the Company, is under common control, as
described in section 414(b) or (c) of the Code.
"PLEDGE AGREEMENTS" shall have the meaning specified in paragraph 3A(9).
"PRIMUS" shall mean Primus Capital Fund III Limited Partnership.
"PRIVATE PLACEMENT MEMORANDUM" shall mean the Private Placement Memorandum
previously delivered to Prudential with respect to the financing provided
hereunder.
"PROPERTY" shall mean, unless otherwise specifically limited, real or
personal property of any kind, tangible or intangible, choate or inchoate.
"PRUDENTIAL" shall mean The Prudential Insurance Company of America.
"PURCHASE PRICE" shall have the meaning provided in paragraph 6C(3)(i).
"QUALIFIED STOCK" shall mean common stock or other classes of Capital Stock
without (i) mandatory repurchase or redemption obligation during the term of the
Notes; (ii) fixed or accruing dividends or similar obligations; or (iii)
convertibility or exchangeability into securities with the features described in
clause (i) or (ii) above. Qualified Stock shall not include stock issued
pursuant to exercises of employee stock options or similar securities.
"QUALIFYING EQUITY OFFERING" shall mean an equity offering after the
Closing Day that (i) yields net proceeds to the Company in excess of $10,000,000
from investors other than the Equity Sponsors (or their Affiliates), employees
or directors of the Company or its Subsidiaries, or Prudential and (ii) values
the equity on a fully diluted basis (based on the offering price) held by BOCP,
Primus, Senior Management and Prudential, as a group, at an amount no less than
$35,000,000.
"RATE DAY" shall mean for each Rate Period the first day of such Rate
Period; provided, however, that if such day is not a LIBOR Business Day, then
the next LIBOR Business Day succeeding the first day of such Rate Period.
"RATE PERIOD" shall mean the period during which the LIBOR Rate remains in
effect and unchanged. For purposes of this Agreement, the Rate Period shall
begin on the first day of each calendar quarter and shall end on the last day of
such calendar quarter; provided, however, that if the first day of any calendar
quarter is not a Business Day then the Rate Period otherwise
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beginning on the first day of such calendar quarter (the "SPECIFIED RATE
PERIOD") shall begin on the first Business Day of such calendar quarter and the
Rate Period immediately preceding the Specified Rate Period shall end on the day
immediately preceding such first Business Day.
"REAL ESTATE ACQUISITION AGREEMENT" shall have the meaning specified in
paragraph 3A(7).
"REFERENCE BANKS" shall mean Morgan Guaranty Trust Company of New York,
Citibank, N.A. and Chase Manhattan Bank, N.A.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set forth in
paragraph 3A(9).
"RELATED PARTY" shall mean (i) any Person owning any Capital Stock of the
Company (excluding Persons who own or exercise any Warrants), (ii) all Persons
to whom any Person described in clause (i) above is related by blood, adoption
or marriage and (iii) all Affiliates of the Company and the foregoing Persons.
"REPRESENTATIVE AMOUNT" means, for purposes of determining the LIBOR Rate
for any Rate Period, an amount that is equal to the aggregate principal amount
of Revolving Loan for which the LIBOR Rate is being determined for such Rate
Period.
"REQUIRED HOLDER(S)" shall mean the holder(s) of at least 66-2/3% of the
aggregate principal amount of Notes from time to time outstanding.
"RESTRICTED PAYMENTS" shall mean any: (i) dividend payments or other
distributions of assets, Properties, obligations or securities on account of any
shares of any class of Capital Stock (other than dividends paid solely in
stock), (ii) repurchases or redemptions of Capital Stock, and (iii) payments of
any kind in respect of the Subordinated Debt.
"REVOLVING COMMITMENT" shall have the meaning set forth in paragraph 2B(l).
"REVOLVING LOAN" AND "REVOLVING LOANS" shall have the meanings set forth in
paragraph 2B(1).
"REVOLVING LOAN REQUEST" shall mean a completed and executed revolving loan
request in the form of Exhibit G hereto.
"REVOLVING LOANS TERMINATION DATE" shall have the meaning set forth in
paragraph 2B(1).
"REVOLVING NOTE" AND "REVOLVING NOTES" shall have the meanings set forth in
paragraph 1B.
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"SCHOOLS AGREEMENT" shall have the meaning specified in paragraph 3A(7).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" shall have the meaning set forth in paragraph 3A(9).
"SENIOR DEBT" shall mean Debt which is not subordinated to the Notes
pursuant to an agreement accepted and executed by the Required Holders.
"SENIOR MANAGEMENT" shall mean the following individuals: David Moore, Paul
St. Pierre, Frank McCord, Lloyd Holland and Dennis Devereux.
"SIGNIFICANT HOLDER" shall mean (i) Prudential through the Revolving Loans
Termination Date or (ii) any other holder of at least 10% of the aggregate
principal amount of the Notes from time to time outstanding.
"SUBORDINATED DEBT" shall mean $5,000,000 aggregate principal amount of the
Company's Subordinated Notes due September 30, 2004 issued to BOCP II and Primus
under the Subordinated Note and Warrant Purchase Agreement.
"SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT" shall have the meaning
specified in paragraph 3A(8).
"SUBSIDIARY" or "SUBSIDIARIES" shall mean (i) any corporation(s) of which
the Company or another Subsidiary beneficially owns or controls, either directly
or indirectly, 100% of the outstanding Capital Stock having by its terms the
ordinary voting power to elect a majority of the Board of Directors, and (ii)
any other entities in which the Company or any Subsidiary holds a 100% equity
interest and controls the management of such entity.
"TELERATE PAGE 3750" means Page 3750 of the Dow Jones Telerate Service (or
such other page as may replace that page on that service) or such other service
as may be nominated as the information vendor for the purpose of displaying
rates or prices comparable thereto.
"TRANSACTION DOCUMENT" shall mean this Agreement, the Notes, the Collateral
Documents, the Warrants, the Registration Rights Agreement, the Acquisition
Agreements, the Subordinated Note and Warrant Purchase Agreement, the Equity
Sponsor Warrants, each Revolving Loan Request and other agreements, documents,
certificates and instruments now or hereafter executed or delivered
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by the Company in connection with this Agreement, as each may be amended,
modified or supplemented from time to time.
"TRANSFER" shall mean, with respect to any property, the sale, exchange,
conveyance, lease, transfer or other disposition of such property.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note purchased under this Agreement.
"TWELVE MONTH PERCENTAGE OF NET INCOME CAPACITY TRANSFERRED" shall mean,
with respect to any twelve month period ending on any date after June 30, 1998,
the sum of the Percentages of Net Income Capacity Transferred for each asset of
the Company and its Subsidiaries that is Transferred during such period.
"VOTING POWER" of any Person shall mean the aggregate number of votes of
all classes of Capital Stock of such Person which ordinarily has voting power
for the election of the Board of Directors or their equivalents of such Person.
"WARRANTS" shall have the meaning set forth in paragraph 3A(10).
10C. ACCOUNTING AND LEGAL PRINCIPLES, TERMS AND DETERMINATIONS. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all unaudited financial statements and certificates and
reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with GAAP (without provision of footnotes in the case of
unaudited financial statements), applied on a basis consistent with the most
recent audited consolidated financial statements of the Company and its
Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such
statements have been so delivered, the most recent audited financial statements
referred to in clause (i) of paragraph 8B.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as Prudential shall
hold any Note, it will make payments of principal thereof, Yield-Maintenance
Amount and non-usage fees, if any, and interest thereon, which comply with the
terms of this Agreement, by wire transfer of immediately available funds for
credit to (i) the account or accounts as specified in the Information Schedule
attached hereto or (ii) such other account or accounts in the United States as
Prudential may designate in writing, notwithstanding any contrary provision
herein or in any Note with respect to the place of payment. Prudential agrees
that, before disposing of any Note, it will make a notation thereon (or on a
schedule attached thereto) of all principal payments previously
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made thereon and of the date to which interest thereon has been paid. The
Company agrees to afford the benefits of this paragraph 11A to any Transferee
which shall have made the same agreement as Prudential has made in this
paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential and any
Transferee harmless against liability for the payment of, all reasonable out-of-
pocket expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the reasonable fees and expenses
of any special counsel engaged by Prudential or any Transferee in connection
with this Agreement, the Transaction Documents, the transactions contemplated
hereby and thereby and any subsequent proposed modification requested by the
Company of, or proposed consent under, this Agreement or any Transaction
Document, whether or not such proposed modification shall be effected or
proposed consent granted, (ii) the reasonable costs and expenses, including
without limitation reasonable attorneys' fees, incurred by Prudential or such
Transferee in enforcing (or determining whether or how to enforce) any rights
under this Agreement or the Notes or any of the Transaction Documents
(including without limitation to protect, collect, lease, sell, take possession
of, release or liquidate any of the Collateral), in responding to any subpoena
or other legal process or informal investigative demand issued in connection
with this Agreement, any of the Transaction Documents, or the transactions
contemplated hereby and thereby or by reason of Prudential's or such
Transferee's having acquired any Note, including without limitation reasonable
costs and expenses incurred in any bankruptcy case, and (iii) all costs and
expenses, including without limitation reasonable attorneys' fees, of obtaining
a Private Placement Number from the CUSIP Service Bureau of McGraw-Hill, Inc.
with respect to the Notes and of preparing, recording and filing all financing
statements, instruments and other documents to create, perfect and fully
preserve and protect the Liens granted in the Transaction Documents and the
rights of the holders of the Notes for the benefit of the holders of the Notes.
The obligations of the Company under this paragraph 11B shall survive the
transfer of any Note or portion thereof or interest therein by Prudential or any
Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) of the
Notes except that, (i) with the written consent of the holders of all Revolving
Notes (and not without such written consents), the Revolving Notes may be
amended or the provisions thereof waived to change the maturity thereof, to
change or affect the principal thereof, or to change or affect the rate or time
of payment of interest or non-usage fees payable with respect to the Revolving
Notes, (ii) with
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the written consent of the holders of all Term Notes (and not without such
written consents), the Term Notes may be amended or the provisions thereof
waived to change the maturity thereof, to change or affect the principal
thereof, or to change or affect the rate or time of payment of interest or
Yield-Maintenance Amounts payable with respect to the Term Notes, (iii) without
the written consent of the holder or holders of all Notes at the time
outstanding, no amendment to or waiver of the provisions of this Agreement shall
change or affect the provisions of paragraph 7A or this paragraph 11C insofar as
such provisions relate to proportions of the principal amount of the Revolving
Notes or the Term Notes, or the rights of any individual holder of Notes,
required with respect to any declaration of Notes to be due and payable or with
respect to any consent and (iv) with the written consent of Prudential (and not
without the written consent of Prudential) the provisions of paragraphs 2B and
3B may be amended or waived. Each holder of any Note at the time or thereafter
outstanding shall be bound by any consent authorized by this paragraph 11C,
whether or not such Note shall have been marked to indicate such consent, but
any Notes issued thereafter may bear a notation referring to any such consent.
No course of dealing between the Company and the holder of any Note nor any
delay in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein and in the
Notes, the term "THIS AGREEMENT" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES;
LIMITATION ON TRANSFER OF NOTES. The Notes are issuable as registered notes
without coupons in denominations of at least $500,000, except as may be
necessary to reflect any principal amount not evenly divisible by $500,000. The
Company shall keep at its principal office a register in which the Company shall
provide for the registration of Notes and of transfers of Notes. Upon surrender
for registration of transfer of any Note at the principal office of the Company,
the Company shall, at its expense, execute and deliver one or more new Notes of
like tenor and of a like aggregate principal amount, registered in the name of
such transferee or transferees. At the option of the holder of any Note, such
Note may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal office of the Company. Whenever any Notes are
so surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to receive.
Every Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried by
the Note so exchanged or transferred, so that neither gain nor loss of interest
shall result from any such
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transfer or exchange. Upon receipt of written notice from the holder of any Note
of the loss, theft, destruction or mutilation of such Note and, in the case of
any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and any Yield-Maintenance Amount, non-usage
fee and interest on such Note and for all other purposes whatsoever, whether or
not such Note shall be overdue, and the Company shall not be affected by notice
to the contrary. Subject to the preceding sentence, the holder of any Note may
from time to time grant participations in all or any part of such Note to any
Person on such terms and conditions as may be determined by such holder in its
sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or in any other Transaction
Document or made in writing by or on behalf of the Company in connection
herewith or in conjunction with any other Transaction Document shall survive the
execution and delivery of this Agreement and the Notes, the transfer by
Prudential of any Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any Transferee, regardless of any
investigation made at any time by or on behalf of Prudential or any Transferee.
Subject to the first sentence of this paragraph, this Agreement and the other
Transaction Documents embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement and the Transaction Documents contained by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto (including, without limitation, any
Transferee) whether so expressed or not; provided, however, that the Company may
not assign its rights or obligations hereunder to any Person.
11H. NOTICES. All written communications provided for hereunder shall be
sent by first class mail or nationwide overnight delivery service (with charges
prepaid) and (i) if to Prudential, addressed as specified for such
communications in the Information Schedule attached hereto, or at such other
address as Prudential shall have specified to the Company in writing, (ii) if to
any other holder of any Note, addressed to such other holder at such
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<PAGE>
address as such other holder shall have specified to the Company in writing or,
if any such other holder shall not have so specified an address to the Company,
then addressed to such other holder in care of the last holder of such Note
which shall have so specified an address to the Company, and (iii) if to the
Company, addressed to it at Corinthian Colleges, Inc., 1932 East Deere Avenue,
Suite 210 Santa Ana, California 92705-5735, Attention: Chief Financial Officer,
or at such other address as the Company shall have specified to the holder of
each Note in writing.
11I. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11J. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to Prudential or to the Required Holder(s), the
determination of such satisfaction shall be made by Prudential or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
11K. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
on any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day. If the date for any payment is extended to the
next succeeding Business Day by reason of the preceding sentence, the period of
such extension shall be included in the computation of the interest payable on
such Business Day.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAW OF THE STATE OF CALIFORNIA.
11M. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
11N. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is prohibited by
any one of such covenants, the fact that it would be permitted by an exception
to, or otherwise be in compliance within the limitations of, another covenant
shall not (i) avoid the occurrence of an Event of Default or Default if such
action is taken or such condition exists or (ii) in any way prejudice an attempt
by a holder or the holders of the Notes to prohibit (through equitable action or
otherwise) the taking of any action by the Company or a Subsidiary which would
result in an Event of Default or Default.
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<PAGE>
11O. BINDING AGREEMENT. When this Agreement is executed and delivered by
the Company and Prudential, it shall become a binding agreement between the
Company and Prudential.
[SIGNATURE PAGE(S) TO FOLLOW]
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<PAGE>
Very truly yours,
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
---------------------------------------------------
Its: President
--------------------------------------------------
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
-------------------------------
Title: Vice President
<PAGE>
Very truly yours,
CORINTHIAN COLLEGES, INC.
By:__________________________________
Its:_________________________________
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Jeffrey L. Dickson
----------------------------------
Title: Vice President
<PAGE>
EXHIBIT 10.43
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (this "Agreement") is dated as of October 17, 1996
and made among Corinthian Colleges, Inc., a Delaware corporation (the
"Company"), Corinthian Schools, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company ("Schools"), Rhodes Colleges, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company ("Rhodes"), Rhodes
Business Group, Inc., a Delaware corporation and wholly owned subsidiary of
Rhodes ("RBG"), Florida Metropolitan University, Inc., a Florida corporation and
wholly-owned subsidiary of Rhodes ("FMU" and, together with Schools, Rhodes and
RBG and any other Person becoming a party to this Agreement pursuant to Section
4.7, collectively referred to herein as the "Subsidiaries" and individually as a
"Subsidiary"), and The Prudential Insurance Company of America ("Prudential").
RECITALS:
WHEREAS, pursuant to that certain Note Purchase and Revolving Credit
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Note Agreement") dated as of the date hereof, between the Company and
Prudential, Prudential has agreed, on the terms and subject to the conditions of
the Note Agreement, to purchase the 10.27% Senior Secured Notes due October 17,
2003 of the Company in the aggregate principal amount of $22,500,000 (as
amended, supplemented or otherwise modified from time to time, together with any
notes issued in substitution therefor, the "Term Notes") and to make loans from
time to time in an aggregate principal amount not to exceed $5,000,000
outstanding at any time to be evidenced by the Company's Secured Revolving Note
due October 17, 1999 (as amended, supplemented or otherwise modified from time
to time, together with any notes issued in substitution therefor, the "Revolving
Notes"; the Term Notes and the Revolving Notes collectively called the "Notes");
WHEREAS, Prudential is willing to purchase the Notes and make loans
pursuant to the Note Agreement, but only if, among other things, the Company and
each Subsidiary execute and deliver this Agreement.
NOW, THEREFORE, to induce Prudential to purchase the Notes and make loans
pursuant to the Note Agreement and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
1. Defined Terms.
-------------
1.1 Terms Defined in the Note Agreement. All terms used in this Agreement
-----------------------------------
that are defined in the Note Agreement are used in this Agreement as defined in
the Note Agreement, unless otherwise defined herein.
1.2 Other Defined Terms. As used in this Agreement, the following terms
-------------------
shall have the meanings indicated:
"Account" shall mean all accounts of the Company and each Subsidiary and
-------
all rights of the Company and each Subsidiary to payment for goods sold or
leased or for services rendered, which are not evidenced by an Instrument or
Chattel Paper, whether or not such rights have been earned by performance, all
guaranties and security therefor, and all of the Company's and each Subsidiary's
interests in goods the sale or lease of which gave rise thereto, and all of the
Company's and each Subsidiary's rights pertaining to such goods, including the
right of stoppage in transit.
"Account Debtor" shall mean the party (other than the Company or any
--------------
Subsidiary, that is obligated on or under any Account, Chattel Paper, Instrument
or General Intangible.
"Chattel Paper" shall mean any writing or writings that evidence both a
-------------
monetary obligation and a security interest in, or a lease or consignment of,
specific goods; when a transaction is evidenced both by a security agreement or
a lease and by an Instrument or a series of Instruments, the group of writings
taken together constitutes Chattel Paper.
"Collateral" shall have the meaning set forth in Section 2 of this
----------
Agreement.
"Document" shall mean any bill of lading, dock warrant, dock receipt,
--------
warehouse receipt or order for the delivery of Inventory, together with any
other document or receipt that in the regular course of business or financing is
treated as adequately evidencing that the person in possession of it is entitled
to receive, hold and dispose of the document and the goods it covers.
"Equipment" shall mean all tangible personal property and fixtures of the
---------
Company and the Subsidiaries (other than Inventory, Chattel Paper, Documents,
Instruments or money) including, without limitation, communications systems,
computer systems, hardware and software and all machinery and equipment,
together with any and all accessories, accessions, parts and appurtenances
thereto.
"Event of Default" shall have the meaning set forth in Section 5 of this
----------------
Agreement.
"Executive Office" shall mean the location of the Company's and each
----------------
Subsidiary's chief executive office and
2
<PAGE>
principal place of business as set forth in Section 3.1(b) hereof or in any
notice delivered to Prudential as contemplated thereby.
"General Intangibles" shall mean all general intangibles of the Company and
-------------------
the Subsidiaries and all personal property (other than Inventory, Equipment,
Accounts, Chattel Paper, Documents, Instruments and money), including, without
limitation, things in action, contract rights, business records, computer
programs, printouts and other computer materials and records, curricula,
inventions, designs, patents, patent applications, service marks, trademarks,
trademark applications, trade names, trade secrets, registrations, copyrights,
licenses, permits, franchises, warranties, rights and claims against third
parties (including carriers and shippers), rights to indemnification, leasehold
and subleasehold interests in personal property, plans, specifications,
drawings, appraisals, reports, security interests and security held by or
granted to the Company or any Subsidiary, tax refunds, tax refund claims,
royalty and product rights, rights to the retrieval from third parties of
electronically processed and recorded data pertaining to any Collateral and
goodwill, whether or not associated with any of the foregoing.
"Instrument" shall mean all drafts, checks, certificates of deposit, notes,
----------
bills of exchange, certificated securities, uncertificated securities and all
other writings that evidence a right to the payment of money by delivery with
any necessary endorsement or assignment.
"Inventory" shall mean all inventory of the Company and each Subsidiary and
---------
all goods owned or held by or for the account of the Company or any Subsidiary
for sale or lease or for furnishing under a contract of service, including,
without limitation, all work in process or materials incorporated in or consumed
in the production of any of the foregoing and supplies, in each case wherever
the same shall be located, whether in transit, on consignment, or otherwise, and
all property the sale or lease of which has given rise to Accounts, Chattel
Paper or Instruments where such property has been returned to the Company or any
Subsidiary or repossessed by the Company or any Subsidiary or stopped in transit
or is to be used or consumed in the Company's or any Subsidiary's business.
"Note Holder" shall mean, at any point in time, any holder of any of the
-----------
Notes, collectively which shall be referred to as the "Note Holders".
"Obligations" shall mean any and all obligations, liabilities and
-----------
indebtedness of the Company or any Subsidiary to Prudential or any other Note
Holder, of any and every kind and nature, whether principal, interest or
premium, whether now or hereafter owing, whether primary or secondary, direct or
indirect, fixed, contingent or otherwise, and whether an obligation for payment,
performance or otherwise, including, without limitation, all amounts due under
the Note Agreement, the Notes or any other
3
<PAGE>
Transaction Document (including, without limitation, the principal of, interest
on and any Yield Maintenance Amount with respect to any Note and any non-usage
fee) and the other instruments and documents (including this Agreement) executed
in connection with any of the foregoing instruments and documents, but excluding
the Warrants and the Registration Rights Agreement.
"Payment Items" shall mean all monies, checks, notes, drafts and other
-------------
payments relating to, or proceeds of, Accounts or other Collateral.
"UCC" shall have the meaning set forth in Section 1.3 of this Agreement.
---
1.3 Terms Defined in Uniform Commercial Code. All other terms used in
----------------------------------------
this Agreement that are not specifically defined herein or the definitions of
which are not incorporated herein by reference shall have the meanings assigned
to such terms in Article 9 of the Uniform Commercial Code in effect in the State
of California as of the date first above written ("UCC") to the extent such
other terms are defined therein.
1.4 Singular/Plural. Unless the context of this Agreement otherwise
---------------
clearly requires, references to the plural include the singular, the singular
include the plural and "or" has the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. The section and other headings in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. References to sections,
subsections and schedules are to this Agreement unless stated otherwise.
2. Collateral.
----------
As security for the payment and performance of all the Obligations,
the Company and each Subsidiary hereby pledge and assign to Prudential, and
hereby create in and grants to Prudential a continuing security interest in and
to, and a right of setoff against, all of the Company's and each Subsidiary's
right, title and interest in and to all of the personal property (tangible and
intangible) of the Company and each Subsidiary of whatever kind and wherever
located, whether now owned or hereafter created or acquired, including, without
limitation, the following (all being collectively referred to herein as the
"Collateral"): (a) all Accounts; (b) all General Intangibles; (c) all Chattel
Paper; (d) all Instruments; (e) all Documents; (f) all Inventory; (g) all
Equipment; (h) any and all credits, deposits and accounts of the Company or any
Subsidiary in its name or in the name of Prudential or any nominee of Prudential
wherever located and whether or not in the possession or control of (or in
transit to) Prudential or any nominee of Prudential; (i) all monies, cash and
cash equivalents,
4
<PAGE>
and any and all rights to the payment of money, including, without limitation,
amounts due from any Person, tax refunds and insurance proceeds; and (j) all
accessions to, substitutions for, and replacements, proceeds and products of any
of the foregoing, including, without limitation, all rights in, to and under all
policies of insurance, including, without limitation, claims or rights to
payments thereunder and proceeds therefrom, and any credit insurance.
3. Representations and Warranties.
------------------------------
The Company and each Subsidiary hereby represent, warrant and agree as
follows:
3.1 Company Name, Chief Executive Office, Etc. Except to the extent
------------------------------------------
Prudential is notified to the contrary in accordance with Section 4.1: (a) the
Company's name as it appears in its certificate of incorporation is the same as
that which is set forth for the Company in the preamble to this Agreement, and
each Subsidiary's name as it appears in its certificate of incorporation is the
same as that which is set forth for such Subsidiary in the preamble to this
Agreement; (b) the Company's chief executive office and principal place of
business is located at 1932 East Deere Avenue, Suite 210, Santa Ana, California,
and each Subsidiary's chief executive office and principal place of business is
listed on Schedule 3.1(b) attached hereto; (c) all of the tangible Collateral
(if any) is located at the locations listed on Schedule 3.1(c) attached hereto;
and (d) except as set forth in Schedule 3.1(d) attached hereto, neither the
Company nor any Subsidiary has used, or uses, any name other than the name set
forth for it in the preamble to this Agreement.
3.2 Ownership of Collateral. At the time the Company and each
-----------------------
Subsidiary pledge and assign to Prudential and grant to Prudential a security
interest in any item of Collateral under this Agreement, the Company or any
Subsidiary, as the case may be, shall be the lawful owner thereof free and clear
of any Lien, other than any Lien permitted under paragraph 6C(1) of the Note
Agreement, and shall have good right to pledge, assign and grant a security
interest in the same. The Company and each Subsidiary shall defend the same
against the claims and demands of all Persons. No Collateral is, or will be,
stored with a bailee, warehouseman, consignee or similar third party.
3.3 Accounts. Except as provided in Schedule 3.3 attached hereto,
--------
neither the Company nor any Subsidiary is a party to any federal, state or local
government contract which gives rise to any Accounts. All Accounts (i) are, and
will be, genuine and in all respects what they purport to be, (ii) represent,
and will represent, undisputed and bona fide transactions, and (iii) are, and
will be, together with appropriate reserves therefor determined in accordance
with GAAP, properly shown on either the Company's or a Subsidiary's, as the case
may be, books and records and are, and
5
<PAGE>
will be, actually and absolutely owing to the Company or such Subsidiary, as the
case may be.
3.4 Patents, Trademarks and Licenses. The Company and each
--------------------------------
Subsidiary possess adequate assets, licenses, permits, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
trade styles and trade names, governmental approvals or other authorizations and
other rights that are necessary for the Company and each Subsidiary to continue
to conduct its business as heretofore conducted by it or contemplated to be
conducted by it and all such licenses, permits, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, trade styles and
trade names, governmental approvals or other authorizations and other rights are
listed on Schedule 3.4 attached hereto.
------------
4. Further Agreements. The Company and each Subsidiary further
------------------
agree that:
4.1 Changes.
-------
(a) Name Change. Neither the Company nor any Subsidiary shall change
-----------
its name from the one set forth for it in the preamble to this Agreement without
thirty (30) days prior written notice to Prudential.
(b) Change of Location. The Company and each Subsidiary shall give at
------------------
least thirty (30) days prior written notification to Prudential of (i) the
opening of a new place of business where any of the Collateral or books or
records relating thereto are to be located, (ii) any change in the location of
any tangible Collateral (other than goods in transit) from any Executive Office,
and (iii) any change in the location of any Executive Office from that set forth
in Section 3.1(b) hereof.
(c) Use of Trade Names or Styles. Except as provided in Schedule
----------------------------
3.1(d) attached hereto, neither the Company nor any Subsidiary shall, except
after giving not less than thirty (30) days prior written notice to Prudential,
use any corporate, trade or fictitious names or styles in its business in any
state.
4.2 Marking Collateral and Records. Promptly upon the reasonable
------------------------------
request of Prudential, the Company and each Subsidiary will mark, or will permit
Prudential or any Person designated by it to mark, the Company's and each
Subsidiary's books, records and accounts showing or dealing with the Collateral
with a notation clearly setting forth that the Collateral is subject to this
Agreement and the Lien of Prudential, which notation shall be in form and
substance satisfactory to Prudential.
4.3 Appointment of Prudential as Attorney-in-Fact. The Company and
---------------------------------------------
each Subsidiary hereby irrevocably designates, makes, constitutes and appoints
Prudential (and all persons designated by Prudential) as the Company's and each
Subsidiary's true and lawful
6
<PAGE>
attorney-in-fact, and authorizes Prudential and all Persons designated by it, in
its own name, in the Company's name or in any Subsidiary's name or otherwise (a)
at any time to do all such acts and things as Prudential may reasonably deem to
be necessary to establish, perfect, maintain and continue the perfection and
first priority of the Lien of Prudential in all of the Collateral, and (b) upon
and during the occurrence of an Event of Default to: (i) do all further acts and
things which Prudential reasonably deems necessary to fulfill the Company's and
each Subsidiary's obligations under this Agreement, (ii) endorse the Company's
or any Subsidiary's name upon any Payment Item or proceeds thereof and apply the
same to the Obligations in accordance with the provisions of this Agreement,
(iii) take control of any Payment Item or proceeds thereof in any manner, (iv)
demand payment of any or all the Accounts and direct the Account Debtors to make
payment thereunder directly to Prudential, (v) in its name, in the name of the
Company or in the name of any Subsidiary or otherwise, enforce payment of any or
all the Accounts by legal proceedings or otherwise, (vi) exercise all of the
Company's and each Subsidiary's rights and remedies with respect to collecting
any Account, (vii) sell or assign any Account upon such terms, for such amount
and at such time or times as Prudential deems advisable, (viii) settle, adjust,
compromise, extend or renew any Account, (ix) discharge and release any Account,
(x) prepare, file and sign the Company's or any Subsidiary's name on any proof
of claim in bankruptcy or other similar document against any Account Debtor,
(xi) endorse the Company's or any Subsidiary's name upon any Chattel Paper,
Document, Instrument, invoice or similar document or agreement relating to any
Account or any goods pertaining thereto, (xii) sign the Company's or any
Subsidiary's name on any verification of Accounts and notices thereof to Account
Debtors, (xiii) notify the post office authorities to change the address for
delivery of the Company's or any Subsidiary's mail to an address designated by
Prudential, (xiv) have access to any lockbox or postal box into which any of the
Company's or any Subsidiary's mail is deposited, (xv) open and dispose of all
mail addressed to the Company or any Subsidiary, and (xvi) make, settle and
adjust claims under all the policies of insurance, make all determinations and
decisions with respect to the policies of insurance and endorse the name of the
Company or any Subsidiary on any check, draft, instrument or other item of
payment received by the Company or any Subsidiary or Prudential pursuant to any
of the policies of insurance.
4.4 Safekeeping of Collateral. Prudential shall not be responsible
-------------------------
for (i) the safekeeping of the Collateral, (ii) any loss or damage to the
Collateral, (iii) any diminution in the value of the Collateral, or (iv) any act
or default of any repairman, bailee or any other Person with respect to the
Collateral. All risks of loss, damage, destruction or diminution in value of
the Collateral shall be borne by the Company and the Subsidiaries.
4.5 Maintenance of Security Interests. The Company and the
---------------------------------
Subsidiaries shall, at their sole expense, upon the reasonable
7
<PAGE>
request of any Note Holder, promptly execute and deliver, or cause to be
executed and delivered, to the Note Holders, in due form for filing or recording
(the Company hereby agrees to pay the cost of filing or recording the same
(including without limitation any and all filing fees and recording taxes)) in
all public offices deemed necessary by such Note Holder, such collateral
assignments, security agreements, pledge agreements, warehouse receipts, bailee
letters, consents, waivers, financing statements, continuation statements and
other instruments and documents, and do such other acts and things, all as such
Note Holder may from time to time reasonably request, to establish and maintain
to the reasonable satisfaction of such Note Holder a valid and perfected first
priority security interest in favor of Prudential in all of the Collateral free
of all other Liens whatsoever to secure all of the Obligations. A carbon,
photographic or other reproduction of this Agreement or of a financing statement
shall be sufficient as a financing statement and may be filed in lieu of the
original in any or all jurisdictions which accept such reproductions.
4.6 Protection of Collateral. The Company or any Subsidiary will
------------------------
promptly pay (or cause to be paid) when due, all license fees, registration
fees, taxes, assessments and other charges which may be levied upon or assessed
against, the ownership, operation, possession, maintenance or use of the
Collateral.
4.7 Additional Subsidiaries. The Company and each Subsidiary
-----------------------
covenant not to acquire or permit any Subsidiary to acquire, or to permit to
exist, any Subsidiary (as defined in the Note Agreement) unless such Subsidiary
becomes a party to this Agreement by executing and delivering an amendment to
this Agreement in substantially the form of Annex I hereto. Each of the parties
hereto authorizes the Note Holders to attach each such amendment to this
Agreement and agrees that such Subsidiary becoming a party hereto shall not
affect in any manner the Company's or any other Subsidiary's obligations
hereunder. Upon the execution and delivery of such amendment by such
Subsidiary, such Subsidiary shall become a "Subsidiary" hereunder and all
references to "Subsidiaries" hereunder shall mean and include such Subsidiary.
5. Events of Default. The Company and the Subsidiaries shall be in
-----------------
default under this Agreement upon the happening of any of the following events
or conditions (each, an "Event of Default"): (a) any Event of Default (as
defined in the Note Agreement); (b) the failure by the Company or any
Subsidiary to perform any of its obligations under this Agreement; or (c) an
uninsured material loss, theft, damage, or destruction to any of the tangible
Collateral, or the entry or imposition of any Lien against, or the making of any
levy, seizure or attachment of or on, any of the Collateral, other than with
respect to a Lien against an immaterial portion of the Collateral.
8
<PAGE>
6. Remedies.
--------
6.1 Rights and Remedies Generally. Upon the occurrence of an Event
-----------------------------
of Default and during the continuance thereof, Prudential shall be entitled to
exercise all of the rights and remedies available to a secured party under the
UCC and all rights and remedies available to Prudential under all applicable
laws and all Transaction Documents. Without limiting the foregoing, such rights
and remedies shall include:
(a) without notice, demand or legal process, the right to enter upon
any premises of the Company or any Subsidiary and take possession of any of
the Collateral and the books and records of the Company or any Subsidiary
constituting Collateral or relating to the Collateral;
(b) the right to require the Company or any Subsidiary to assemble,
at the Company's expense, any and all of the Collateral designated by
Prudential at reasonably convenient places designated by Prudential,
including the premises of the Company or any Subsidiary, and to make the
same available to Prudential;
(c) the right to make such verifications concerning the Collateral and
the Company's and each Subsidiary's business as may be considered by
Prudential to be reasonable under the circumstances, including, without
limitation, direct verification from Account Debtors under any or all of
the Collateral of the existence, amount and circumstances thereof; and
(d) the right to sell, lease, transfer, endorse, assign and deliver
the whole or, from time to time, any part of the Collateral at public or
private sale or at any broker's board, for cash, upon credit or for other
property, for immediate or future delivery, for such price or prices and on
such terms as (to the greatest extent permitted by law) Prudential in its
sole discretion shall deem appropriate.
Upon consummation of any such sale, Prudential shall have the right to
assign, transfer, endorse and deliver to the purchaser or purchasers thereof the
Collateral or any portion thereof so sold. Each purchaser at any such sale
shall hold the property sold absolutely free from any claim or right on the part
of the Company or any Subsidiary and the Company and each subsidiary hereby
waive, to the greatest extent permitted by law, all rights of redemption (after
any such sale), stay and appraisal, which the Company or any Subsidiary now has
or may have at anytime in the future under any rule of law or statute now
existing or hereafter enacted.
Except as to Collateral that is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Prudential shall give the Company or any Subsidiary, as the case may be, at
least ten (10) days prior
9
<PAGE>
written notice (which the Company and each Subsidiary agree is reasonable
notification within the meaning of Section 9-504(3) of the UCC) of the intention
of Prudential to attempt to make any public or private sale of the Collateral or
any sale of the Collateral at any broker's board. The notices, in the case of
public sale, shall state the time and place for any sale of Collateral, which
may be on the premises of the Company or any Subsidiary and, in the case of sale
at a broker's board, shall state the board at which the sale is to be made and
the day on which the Collateral or any portion thereof will first be offered for
sale at the broker's board. Any public sale of any of the Collateral shall be
held at such time or times within ordinary business hours and at such place or
places as Prudential may fix and so state in the notice or publication, if any,
of such sale. At any such sale, the Collateral or any portion thereof may be
sold as an entirety or in separate parcels, as determined by Prudential in its
sole discretion.
Prudential shall not be obligated to make any sale of the Collateral
if it shall determine not to do so, regardless of the fact that notice of sale
of the Collateral may have been given. Prudential may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and the sale may, without further notice, be made at the time and place to
which the same was so adjourned.
In case sale of all or any portion of the Collateral is made on credit
or for future delivery, the Collateral or the portion so sold may be retained by
Prudential until the sale price is paid by the purchaser or purchasers thereof,
but Prudential shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral or such portion so
sold and, in case of any such failure, the Collateral or portion thereof may be
sold again upon like notice.
To the extent permitted by law, at any sale made pursuant to this
Section 6.1, Prudential may bid for or purchase, free from any right of
redemption (after any sale), stay and appraisal on the part of the Company or
any Subsidiary (all said rights being also hereby waived and released to the
greatest extent permitted by law), any portion of or all the Collateral offered
for sale and may make payment on account thereof by using any of the
Obligations, or any portion thereof, then due and payable to Prudential as a
credit against the purchase price if and to the extent the proceeds from the
sale of the Collateral would be applied to the Obligations, and Prudential may,
upon compliance with the terms of the sale, hold, retain and dispose of such
property without further accountability to the Company or any Subsidiary
therefor.
For purposes hereof, a written agreement to purchase all or any
portion of the Collateral shall be treated as a sale thereof and Prudential
shall be free to carry out such sale pursuant to such agreement and neither the
Company nor any Subsidiary shall be
10
<PAGE>
entitled to the return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after Prudential shall have entered into such
agreement all the Obligations may have been paid in full. As an alternative to
exercising the power of sale herein conferred upon it, Prudential may proceed by
suit or suits at law or in equity to foreclose the security interest created
under this Agreement and sell the Collateral or any portion thereof pursuant to
judgment or decree of a court or courts having competent jurisdiction.
Prudential and any representative of Prudential shall incur no
liability as a result of the sale of the Collateral, or any part thereof, at any
private sale pursuant to this Section conducted in a commercially reasonable
manner. The Company and each Subsidiary hereby waive any claims against
Prudential arising by reason of the fact that the price at which the Collateral
may have been sold at such a private sale was less than the price which might
have been obtained at a public sale or was less than the aggregate amount of the
Obligations, even if Prudential accepts the first offer received and does not
offer the Collateral to more than one offeree.
6.2 Access to Information. Upon the occurrence of an Event of
---------------------
Default and during the continuance thereof, Prudential and any representative of
Prudential shall have the right to obtain access to the Company's and each
Subsidiary's data processing equipment, computer hardware and, to the fullest
extent permitted by license or other agreements with any third party owners
thereof, software relating to the Collateral, and to use all of the foregoing
and the information contained therein in any manner Prudential deems reasonably
appropriate in connection with the exercise by Prudential of its rights
hereunder and under the Transaction Documents.
6.3 Disposition of Collateral. Any proceeds of any disposition of
-------------------------
any of the Collateral, including, without limitation, the appropriation or
application of any and all balances, credits, deposits, accounts or moneys or
the proceeds of any damage or loss covered by insurance received by Prudential
shall be applied by Prudential to the Obligations in the following manner:
First, to the payment of the costs and expenses of such collection,
-----
sale or other realization, including reasonable out-of-pocket costs and
expenses of the Person or Persons who retakes, prepares for sale and sells
the Collateral, and the fees and expenses of their agents and counsel, and
all expenses and advances made or incurred by such Person in connection
therewith;
Next, to the payment in full of the Obligations in such order as
----
Prudential may select; and
11
<PAGE>
Finally, to the payment to the Company or its successors or assigns,
-------
or as a court of competent jurisdiction may direct, of any surplus then
remaining.
The Company and each Subsidiary further agree that Prudential has no obligation
to preserve rights to the Collateral against any other parties. Prudential is
hereby granted a license or other right to use, without charge, any and all
property of the Company and each Subsidiary in connection with advertising for
sale and selling any Collateral and the Company's and each Subsidiary's rights
under all licenses and all franchise agreements shall inure to Prudential's
benefit until the Obligations are paid in full.
6.4 Deficiency. If the proceeds of sale, collection or other
----------
realization of or upon the Collateral pursuant to Section 6.1 of this Agreement
are insufficient to cover the costs and expenses of such realization and the
payment in full of the Obligations, the Company shall remain liable for any
deficiency subject to the requirements of UCC Section 9-504(2)(b). In the event
that a deficiency exists after any disposition, the commencement of any action,
legal or equitable, or the rendering of any judgment or decree for any such
deficiency shall not affect Prudential's security interest in the Collateral
until the Obligations are fully paid.
6.5 Title to Collateral. Upon the occurrence of an Event of Default
-------------------
and during the continuance thereof, Prudential may at any time in its discretion
transfer any property constituting Collateral into its own name or that of its
nominee and receive the income thereon and hold the same as security for
Obligations or apply it to the payment of the Obligations in such order as
Prudential may select.
6.6 Notice to Account Debtors. Upon and during the occurrence of an
-------------------------
Event of Default, Prudential may in its sole discretion at any time (i) notify
any or all Account Debtors that the Accounts have been assigned to Prudential
and that Prudential has a security interest therein, and (ii) direct any or all
Account Debtors to make all payments upon the Accounts directly to Prudential.
6.7 WAIVER OF NOTICE. THE COMPANY AND THE SUBSIDIARIES WAIVE ALL
----------------
RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY PRUDENTIAL'S
RIGHT TO TAKE POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL.
6.8 WAIVER OF DEMAND, RIGHTS AND CLAIMS. DEMAND, PRESENTMENT,
-----------------------------------
PROTEST AND NOTICE OF NONPAYMENT ARE HEREBY WAIVED BY THE COMPANY AND THE
SUBSIDIARIES. TO THE EXTENT PERMITTED BY LAW, THE COMPANY AND THE SUBSIDIARIES
ALSO WAIVE (I) ALL CLAIMS OCCASIONED BY PRUDENTIAL'S TAKING POSSESSION OF THE
COLLATERAL, EXCEPT ANY DAMAGES WHICH ARE THE DIRECT RESULT OF PRUDENTIAL'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT; (II) TO THE EXTENT
12
<PAGE>
PERMITTED BY LAW, ALL REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR
OTHER REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF PRUDENTIAL'S RIGHTS
HEREUNDER; AND (III) THE BENEFIT OF ALL VALUATION, APPRAISAL, REDEMPTION, STAY,
EXTENSION OR MORATORIUM LAWS NOW OR HEREAFTER IN FORCE UNDER ANY APPLICABLE LAW
IN ORDER TO PREVENT OR DELAY THE ENFORCEMENT OF THIS AGREEMENT OR THE ABSOLUTE
SALE OF THE COLLATERAL.
6.9 WAIVER OF JURY TRIAL. THE COMPANY AND THE SUBSIDIARIES HEREBY
--------------------
WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF AND BROUGHT BY THE OTHER
PARTY.
7. Security Interest Absolute.
--------------------------
(a) With respect to each Subsidiary, Prudential is hereby authorized,
without notice to or demand upon any Subsidiary, which notice or demand is
expressly waived hereby, and without discharging or otherwise affecting the
obligations of any Subsidiary hereunder (which shall remain absolute and
unconditional notwithstanding any such action or omission to act), from time to
time, to:
(i) supplement, renew, extend, accelerate or otherwise change the
time for payment of, or other terms relating to, the Obligations or any
portion thereof, or otherwise modify, amend or change the terms, or waive
or otherwise consent to noncompliance with any provision, of the Note
Agreement or any other Transaction Document, including, without limitation,
increase the rate of interest thereon;
(ii) receive, take and hold security or collateral for the
payment or performance of the Obligations, or any part thereof, and
exchange, enforce, waive, substitute, liquidate, terminate, abandon, fail
to perfect, subordinate, transfer, otherwise alter and release any such
security or collateral;
(iii) settle, release, compromise, collect or otherwise
liquidate the Obligations, or any part thereof, in any manner;
(iv) add, release or substitute any one or more guarantors,
makers or endorsers of all or any part of the Obligations, and otherwise
deal with the Company or any guarantor, maker or endorser as Prudential may
elect in its sole discretion;
(v) apply any and all payments or recoveries from the Company or
any Subsidiary, from the Company or any guarantor, maker or endorser of all
or any part of the Obligations, or any collateral to the Obligations in
such order as Prudential in its sole discretion may determine, whether any
or all of the Obligations are secured or unsecured or guaranteed or not
guaranteed by others.
13
<PAGE>
(b) Each Subsidiary hereby agrees that its obligations under this
Agreement are absolute and unconditional and shall not be discharged or
otherwise affected as a result of:
(i) the invalidity or unenforceability of any security for or
guaranty of all or any part of the Obligations or of the Note Agreement or any
other Transaction Document, or the lack of perfection or failure of priority of
any security for all or any part of the Obligations;
(ii) the absence of any attempt to collect the Obligations, or any
portion thereof, from the Company or any other Person or other action to enforce
the same;
(iii) any failure by Prudential to acquire, perfect and maintain any
security interest in, or to preserve any rights to, any security or collateral
for all or any part of the Obligations;
(iv) the avoidance of any lien or security interest in favor of
Prudential for any reason;
(v) any borrowing or grant of a security interest by the Company or
any guarantor, as debtor-in-possession, or extension of credit, under Title 11
of the United States Code (the "Bankruptcy Code"); the disallowance, under the
Bankruptcy Code, of all or any portion of Prudential's claim(s) for repayment of
the Obligations; any use of cash collateral under the Bankruptcy Code; any
agreement or stipulation as to the provision of adequate protection in any
bankruptcy proceeding;
(v) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by or
against the Company, any Subsidiary or any guarantor, maker or endorser,
including without limitation, any discharge of, or bar or stay against
collecting or accelerating, all or any part of the Obligations or the
Liabilities (or any interest thereon) in or as a result of any such proceeding;
(vi) any other circumstance which might otherwise constitute a legal
or equitable discharge or defense of a guarantor or surety.
(c) Until such time as the Obligations have been performed and paid
in full and the Note Agreement has been terminated, each Subsidiary hereby
irrevocably waives and releases the Company and any other Person from all
"claims" (as defined in Section 101 of the Bankruptcy Code) to which any
Subsidiary is or would at any time be entitled by virtue of its obligations
under
14
<PAGE>
this Agreement, including, without limitation, any right of subrogation (whether
contractual, under Section 509 of the Bankruptcy Code or otherwise),
reimbursement, contribution, exoneration or similar right against the Company or
any other Person, or by virtue of any other indebtedness or obligations of the
Company or any other Person to the Company or any Subsidiary now existing or
hereafter incurred. Each Subsidiary further waives:
(i) any requirements of diligence or promptness on the part of
Prudential; and presentment, demand for payment or performance and protest and
notice of protest with respect to the Obligations or any guaranty with respect
thereto;
(iii) notices (A) of nonperformance, (B) of default in respect of the
Obligations, (C) of the existence, creation or incurrence of new or additional
Obligations, (D) that any or all of the Obligations is due, (E) of any and all
proceedings to collect from the Company, any maker, endorser or any guarantor of
all or any part of the Obligations, or from anyone else, and (F) of exchange,
sale, surrender or other handling of any security or collateral given to
Prudential to secure payment of the Obligations or any guaranty therefor;
(iv) any right to require Prudential to (A) proceed first against the
Company or any other Person whatsoever, (B) proceed against or exhaust any
security given to or held by Prudential in connection with the Obligations, or
(C) pursue any other remedy in Prudential's power whatsoever;
(v) any defense arising by reason of (A) any disability or other
defense of the Company or any guarantor, (B) the cessation from any cause
whatsoever of the liability of the Company or any guarantor (other than by full
payment and performance of the Obligations and the termination of the Note
Agreement) or (C) any act or omission of Prudential or others which directly or
indirectly, by operation of law or otherwise, results in or aids the discharge
or release of the Company or any guarantor or any security given to or held by
Prudential in connection with the Obligations; and
(vi) any and all other suretyship defenses under applicable law.
8. Miscellaneous.
-------------
8.1 Addresses for Notices. All written communications provided for
---------------------
hereunder shall be sent by first class mail or telegraphic notice or nationwide
overnight delivery service (with charges prepaid) or by hand delivery or
telecopy and (i) if to
15
<PAGE>
Prudential addressed as specified for such communications in the Purchaser
Schedule attached to the Note Agreement, or at such other address as Prudential
shall have specified to the Company in writing, (ii) if to any other Note
Holder, addressed to such other Note Holder at such address as such other Note
Holder shall have specified to the Company in writing or, if any such other Note
Holder shall not have so specified an address to the Company, then addressed to
such other Note Holder in care of the last Note Holder of such Note which shall
have so specified an address to the Company, and (iii) if to the Company or any
Subsidiary, addressed to it at the address shown for the Company in paragraph
11H to the Note Agreement, or at such other address as the Company or such
Subsidiary shall have specified for it to the holder of each Note in writing.
8.2 Benefit of Agreement. This Agreement shall be binding upon and
--------------------
inure to the benefit of the Company, each Subsidiary, Prudential and its
respective successors and assigns, except that neither the Company nor any
Subsidiary may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of Prudential.
8.3 Waivers. No failure on the part of Prudential to exercise, and
-------
no delay in exercising, any remedy, right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
With respect to both the Obligations and the Collateral, the Company and each
Subsidiary assent to any extension or postponement of the time of payment or
other indulgence, to any substitution, exchange or release of the Collateral, or
any part thereof, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payments thereon and to the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as Prudential may deem advisable. Prudential may exercise
its rights with respect to any Collateral without resorting or regard to other
Collateral or sources of reimbursement for Obligations.
8.4 Expenditures by Prudential. In the event the Company or any
--------------------------
Subsidiary shall fail to pay taxes, insurance, assessments, costs or expenses
which the Company or such Subsidiary is, under any of the terms hereof, required
to pay, or fails to keep the Collateral free from Liens, except as permitted by
the Note Agreement, Prudential may, but shall not be obligated to, in its sole
discretion, after written notice to the Company, make expenditures for any or
all of such purposes, and the amount so expended shall (i) become part of the
Obligations, (ii) be payable on demand, (iii) secured by the Collateral, and
(iv) bear interest at the Default Rate.
8.5 Reliance by Prudential. All covenants, agreements,
----------------------
representations and warranties made herein by the Company and each
16
<PAGE>
Subsidiary shall, notwithstanding any investigation by Prudential, be deemed to
be material to and to have been relied upon by Prudential.
8.6 Further Assurances. The Company and each Subsidiary agree that,
------------------
from time to time upon the written request of Prudential, the Company or any
Subsidiary will promptly execute and deliver such further documents and do such
other acts and things as Prudential may reasonably request in order fully to
effect the purposes of this Agreement.
8.7 Application of Payments. Notwithstanding any contrary provision
-----------------------
contained in any Transaction Document, the Company and each Subsidiary
irrevocably waive the right to direct the application of any and all payments at
any time or times hereafter received by Prudential from the Company or any
Subsidiary or with respect to any of the Collateral, and the Company and each
Subsidiary hereby irrevocably agree that Prudential shall have the continuing
exclusive right to apply and reapply any and all payments received at any time
or times hereafter, whether with respect to the Collateral or otherwise, against
the Obligations in such manner as Prudential may deem advisable, notwithstanding
any entry by Prudential upon its books and records.
8.8 Marshalling; Revival of Obligations. Prudential shall not be
-----------------------------------
under any obligation to marshall any assets in favor of the Company or any
Subsidiary or any other Person or against or in payment of any or all of the
Obligations. To the extent that the Company or any Subsidiary makes a payment
or payments to Prudential, or Prudential enforces its security interests or
exercises its rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
8.9 Equitable Relief. The Company and each Subsidiary recognize
----------------
that, in the event the Company or any Subsidiary fails to perform, observe or
discharge any of the Obligations, any remedy at law may prove to be inadequate
relief to Prudential; therefore, the Company and each Subsidiary agree that
Prudential, if Prudential so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
irreparable damages.
8.10 Remedies. All remedies, rights, powers and privileges, either
--------
under this Agreement, the Note Agreement or in any other Transaction Document or
by law or otherwise afforded Prudential shall be cumulative and not exclusive of
any other such
17
<PAGE>
remedies, rights, powers and privileges and shall be available until the
termination of this Agreement in accordance with Section 8.12. Prudential may
exercise all such remedies in any order of priority.
8.11 Care of Collateral. Prudential and its representatives shall be
------------------
deemed to have exercised reasonable care in the custody and preservation of any
of the Collateral in their possession if they take such action for that purpose
as the Company requests in writing, but failure of Prudential or its
representatives to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure of Prudential or its
representatives to preserve or protect any rights with respect to the Collateral
against prior parties, or to do any act with respect to the preservation of the
Collateral not so requested by the Company, shall be deemed a failure to
exercise reasonable care in the custody or preservation of the Collateral.
8.12 Termination. Subject to the effect of the second sentence of
-----------
Section 8.8 hereof, this Agreement shall terminate when all Obligations shall
have been indefeasibly paid and performed in full and Prudential has no
commitment under the Note Agreement, at which time Prudential shall reassign,
release and/or deliver to the Company or any Subsidiary, as the case may be, the
Collateral and proceeds thereof in which Prudential shall have an interest
hereunder and, upon request of the Company or any Subsidiary, shall execute and
deliver termination statements to the Company and each Subsidiary for filing in
each office in which a financing statement has been filed by Prudential, all
without recourse upon or warranty by Prudential and at the cost and expense of
the Company.
8.13 Survival of Representations, Warranties and Covenants; Joint and
----------------------------------------------------------------
Several Obligations. All representations, warranties and covenants made by the
- -------------------
Company and each Subsidiary to Prudential in connection with this Agreement and
all statements contained in any certificate or other instrument delivered to
Prudential pursuant to this Agreement shall be deemed representations,
warranties and covenants hereunder of the Company and the Subsidiaries and shall
survive the execution and delivery of this Agreement until the termination of
this Agreement in accordance with Section 8.12. All covenants and agreements of
the Company and each Subsidiary herein are joint and several obligations of each
such person.
8.14 Governing Law and Construction. This Agreement shall be
------------------------------
construed in accordance with and governed by the internal law, and not the law
of conflicts, of the State of California. Whenever possible, each provision of
this Agreement and any other statement, instrument or transaction contemplated
hereby or relating hereto shall be interpreted in such manner as to be effective
and valid under such applicable law, but, if any provision of this Agreement or
any other statement, instrument or transaction contemplated hereby or relating
hereto shall be held to be prohibited or invalid under such applicable law, such
provision
18
<PAGE>
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of the provision or the remaining provisions
of this Agreement or any other statement, instrument or transaction contemplated
hereby or relating hereto.
8.15 Counsel's Opinion. The Company and each Subsidiary hereby direct
-----------------
the counsel referred to in paragraph 3A(1) of the Note Agreement to deliver the
opinions referred to in such paragraph, and agree that the issuance and sale of
any Notes will constitute a reconfirmation of such direction.
8.16 Agents. Prudential may employ agents and attorneys-in-fact in
------
connection herewith.
8.17 Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be an original and constitute one
and the same agreement. It shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
8.18 Amendments and Waivers. No amendment or waiver of any provision
----------------------
of this Agreement shall in any event be effective unless the same shall be in
writing and signed by each party hereto, and then such amendment or consent
shall be effective only in the specific instance and for the specific purpose
for which it is given.
[SIGNATURE PAGE TO FOLLOW]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
CORINTHIAN COLLEGES, INC.
By:
-----------------------------------------------
Name: David G. Moore
---------------------------------------------
Title: President/CEO
--------------------------------------------
CORINTHIAN SCHOOLS, INC.
By:
-----------------------------------------------
Name: David G. Moore
---------------------------------------------
Title: President/CEO
--------------------------------------------
RHODES COLLEGES, INC.
By:
-----------------------------------------------
Name: David G. Moore
---------------------------------------------
Title: President/CEO
--------------------------------------------
RHODES BUSINESS GROUP, INC.
By:
-----------------------------------------------
Name: David G. Moore
---------------------------------------------
Title: President/CEO
--------------------------------------------
FLORIDA METROPOLITAN UNIVERSITY, INC.
By:
-----------------------------------------------
Name: David G. Moore
---------------------------------------------
Title: President/CEO
--------------------------------------------
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By:
-----------------------------------------------
Name: Jeffrey L. Dickson
---------------------------------------------
Title: Vice President
--------------------------------------------
20
<PAGE>
ANNEX I
SECURITY AMENDMENT
This Security Amendment dated as of __________, 199_ is delivered
pursuant to Section 4.7 of the Security Agreement dated as of October 17, 1996
(as amended, restated, modified or supplemented from time to time, the "Security
Agreement"), made by Corinthian Colleges, Inc. and certain other Persons from
time to time party thereto in favor of the holders of the Notes on behalf and
for the benefit of the holders of the Notes. Capitalized terms that are used in
this Security Amendment and not defined in this Security Amendment shall have
the respective meanings ascribed to them in the Security Agreement.
The undersigned hereby agrees that this Security Amendment may be
attached to the Security Agreement and that, upon the execution and delivery of
this Security Amendment as contemplated in said Section 4.7, the undersigned (a)
shall become a "Subsidiary" as such term is used in the Security Agreement, and
references to "Subsidiary" or "Subsidiaries" as used in the Security Agreement
shall mean and include the undersigned; (b) shall have all of the obligations
and duties of a "Subsidiary" under the Security Agreement and agrees to be bound
by the Security Agreement as if it was an original party thereto, and without
limiting the foregoing pledges and assigns to Prudential and creates in and
grants to Prudential a continuing security interest in and to, and a right of
setoff against, all of undersigned's right, title and interest in and to all of
the personal property (tangible and intangible) of the undersigned of whatever
kind and wherever located, whether now owned or hereafter created or acquired,
including, without limitation, all Collateral; and (c) represents and warrants
for the benefit of the holders of the Notes, that each of the representations
and warranties in Section 3 of the Security Agreement is true, correct and
accurate with respect to itself. For purposes of clause (c) above, Schedules
3.1(b), (c) and (d) and Schedule 3.4 shall be deemed to be amended to include
the information set forth on Schedule A hereto with respect to the undersigned
and the undersigned agrees to deliver Schedule A with such information upon
execution of this Security Amendment.
The undersigned is a corporation organized under the law of the State
of ________________.
IN WITNESS WHEREOF, the undersigned has caused this Security Amendment
to be duly executed as of the day and year first above written.
[NAME OF NEW SUBSIDIARY]
By
------------------------------------------
Title:
--------------------------------------
21
<PAGE>
SCHEDULE A
TO SECURITY AMENDMENT
Chief Executive Office (Section 3.1(b))
- ---------------------------------------
Locations of Collateral (Section 3.1(c))
- ----------------------------------------
Tradenames and other names used by [name of subsidiary] (Section 3.1(d))
- ------------------------------------------------------------------------
Patents, Trademarks, Copyrights, etc. (Section 3.4)
- ---------------------------------------------------
22
<PAGE>
EXHIBIT 10.44
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT COVERING THE WARRANT AND/OR THE SECURITIES UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION THEREFROM.
No. W-1 Warrant to Subscribe
October 17, 1996 for 5,376.34 Shares
STOCK SUBSCRIPTION WARRANT
To Subscribe for and Purchase Class A Common Stock
of Corinthian Colleges, Inc.
THIS CERTIFIES that The Prudential Insurance Company of America
("PRUDENTIAL"), or registered assigns, is entitled to subscribe for and purchase
from Corinthian Colleges, Inc., a Delaware corporation (the "Company"), at the
price of $0.01 per share at any time after the date hereof to and including the
Expiration Date (as hereinafter defined), 5,376.34 duly authorized, validly
issued, fully paid and non-assessable shares of the Company's Class A Common
Stock (as hereinafter defined in paragraph 8), as adjusted from time to time
pursuant to the terms hereof. This Warrant is issued for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged.
This Warrant was issued in connection with the Note Purchase and Revolving
Credit Agreement, dated as of October 17, 1996, between the Company and
Prudential (the "NOTE AGREEMENT"), under which the Company sold to Prudential
$22,500,000 principal amount of the Company's 10.27% Senior Secured Term Notes
due October 17, 2003 (the "TERM NOTES"). The "EXPIRATION DATE" shall be the
earlier of (a) October 17, 2003, or (b) the date which is six months after the
date upon which the entire outstanding principal amount of, accrued interest on,
and any Yield-Maintenance Amount (as defined in the Note Agreement) or any other
amount due with respect to the Term Notes has been indefeasibly paid in cash.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. The rights
------------------------------------------------------
represented by this Warrant may be exercised from time to time by the holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company at 1932 East Deere Avenue, Suite 210, Santa Ana,
California 92705-5735 Attention: Chief Financial Officer (or such other office
or agency of the Company as it may designate by notice in writing to the holder
hereof at the address of such
<PAGE>
holder appearing on the books of the Company at any time within the period above
named) and upon payment to the Company by certified check, bank draft or wire
transfer of the Warrant Purchase Price (as hereinafter defined in paragraph
3A(1)) for the shares being purchased upon such exercise. The Company agrees
that the shares so purchased shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. Subject to the provisions of paragraph 2 below,
certificates for the shares of Common Stock so purchased shall be delivered to
the holder hereof within a reasonable time, not exceeding ten business days,
after the rights represented by this Warrant shall have been so exercised
(unless such exercise shall be in connection with an underwritten public
offering of shares of Common Stock, in which event concurrently with such
exercise), and, unless this Warrant has expired, a new Warrant representing the
number of shares of Common Stock, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all shares of Common Stock which may be issued directly or
indirectly 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; and without limiting the
generality of the foregoing, the Company covenants and agrees that it will from
time to time take all such action as may be requisite to assure that the par
value (if any) per share of the Common Stock is at all times equal to or less
than the then effective Warrant Purchase Price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which any class of Common Stock of the Company may be listed. The Company will
not take any action which would result in any adjustment of the Warrant Purchase
Price if the total number of shares of Common Stock issuable after such action
upon exercise of this Warrant, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
Options (as hereinafter defined) (other than this Warrant) and upon conversion
of all Convertible Securities (as hereinafter defined) then outstanding, would
exceed the total number of shares of Common Stock then authorized by the
Company's Certificate of Incorporation.
2
<PAGE>
3. Warrant Purchase Price. The above provisions are, however, subject to
----------------------
the following:
3A. Warrant Purchase Price; Adjustment of Number of Shares.
------------------------------------------------------
3A(1). Warrant Purchase Price. The initial Warrant Purchase Price of
----------------------
$0.01 per share shall be subject to adjustment from time to time as hereinafter
provided (such price or price as last adjusted, as the case may be, being herein
called the "WARRANT PURCHASE PRICE").
3A(2). Adjustment of Number of Shares When Adjustment of Warrant Purchase
------------------------------------------------------------------
Price. Upon each adjustment of the Warrant Purchase Price, the holder of this
- -----
Warrant shall thereafter be entitled to purchase, at the Warrant Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying the
Warrant Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Warrant Purchase Price
resulting from such adjustment.
3A(3). Special Adjustment of Number of Shares.
--------------------------------------
(i) If on or before October 17, 1998, a Trigger Event (as hereinafter
defined) shall occur, then, if the aggregate number of shares of Common Stock
which the holder of this Warrant would then be entitled to purchase upon the
exercise of this Warrant is not less than 3.25% of the aggregate number of the
Fully Diluted Shares on the date of such Trigger Event, the aggregate number of
shares of Common Stock which the holder of this Warrant shall be entitled to
purchase upon the exercise of this Warrant shall be adjusted on the date of the
occurrence of such Trigger Event to be equal to 3.25% of the aggregate number of
the Fully Diluted Shares on the date of such Trigger Event. For the purposes
of this Warrant: (a) "TRIGGER EVENT" shall mean either (1) the consummation by
the Company of a Qualified Equity Offering and the use of the proceeds therefrom
to prepay, pursuant to paragraph 4B(1) of the Note Agreement, the entire
required principal prepayment of the Term Notes due on October 17, 1998 under
paragraph 4A of the Note Agreement (and, if not already paid pursuant to such
paragraph 4A, the entire required principal prepayment of the Term Notes due on
October 17, 1997 under such paragraph 4A), together with interest accrued
thereon, or (2) Consolidated EBITDA for the Company and its Subsidiaries for any
period of four consecutive fiscal quarters ending with any fiscal quarter ended
on or after June 30, 1997 is greater than or equal to $15,000,000, (b)
"CONSOLIDATED EBITDA" shall mean as to any period, Consolidated Net Income for
such period, plus Consolidated Interest Expense for such period, plus all
amounts deducted for income taxes, depreciation, and amortization in calculating
Consolidated Net Income for such period, (c) "FULLY DILUTED SHARES" shall mean
on any date all
3
<PAGE>
shares of Common Stock outstanding on such date, plus all shares of Common Stock
which would be outstanding on such date if all Options and Convertible
Securities (including this Warrant) outstanding on such date, and all Options
and Convertible Securities issuable upon the full exercise of all then
outstanding Options and Convertible Securities, in either case whether or not
then exercisable under the terms thereof, were fully exercised on such date, (d)
"QUALIFIED EQUITY OFFERING", "SUBSIDIARIES", "CONSOLIDATED NET INCOME", and
"CONSOLIDATED INTEREST EXPENSE" shall have the meanings given in the Note
Agreement, and (e) "OPTIONS" and "CONVERTIBLE SECURITIES" shall mean the
meanings given in Section 3D(1) hereof.
(ii) If on or after the date of the original issuance of this Warrant and
on or prior to the date of the consummation by the Company of an Initial Public
Offering the Company shall issue any Options, whether or not such Options are
immediately exercisable, then the aggregate number of shares of Common Stock
which the holder of this Warrant shall be entitled to purchase upon the exercise
of this Warrant shall be adjusted on the date of such issuance to equal the
number which is the same percentage of the number of Fully Diluted Shares
immediately after such issuance and adjustment (calculated after giving effect
to the provisions in any other outstanding Options) as the percentage which the
aggregate number of shares of Common Stock which the holder of this Warrant is
entitled to purchase immediately before such issuance is of the Fully Diluted
Shares immediately before such issuance. If an adjustment is made pursuant to
this paragraph 3A(3)(ii) as the result of the issuance of any Option, then no
adjustment to the Warrant Purchase Price or the number of shares issuable upon
the exercise of this Warrant shall be made under any other provision of this
Warrant as a result of (a) the issuance of such Option, (b) any increase to the
number of shares of Common Stock issuable under any other outstanding Options
under the adjustment provisions thereof as a result of the issuance of such
Option, (c) the issuance of shares of Common Stock upon the exercise of such
Option, or (d) the issuance of such additional shares of Common Stock upon the
exercise of such other outstanding Options. For the purposes hereof an "Initial
Public Offering" shall mean the first offer and sale to the public by the
Company or any holder of shares of Common Stock, pursuant to a registration
statement that has been declared effective by the Securities and Exchange
Commission; provided, however, that the gross proceeds of the shares issued and
sold by the Company are at least $20,000,000.
3B. Adjustment of Warrant Purchase Price Upon Purchase of Common Stock by
---------------------------------------------------------------------
Company. If the Company directly or indirectly through a subsidiary or
- -------
otherwise, purchases, redeems or otherwise acquires any of its Common Stock
(other than a purchase or other acquisition of shares of Common Stock from a
former employee of the Company or a subsidiary in connection with the
termination of the employment of such employee with the Company or any
Subsidiary) at a price per share greater than the Market Price then in effect,
4
<PAGE>
then the Warrant Purchase Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Purchase Price existing at that time by a fraction (i) the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such purchase, redemption or acquisition minus the number of shares of
Common Stock which the aggregate consideration for the total number of such
shares of Common Stock so purchased, redeemed or acquired would purchase at the
Market Price; and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such purchase, redemption or
acquisition. For the purposes of this paragraph, the date as of which the Market
Price shall be computed shall be the earlier of (x) the date on which the
Company shall enter into a firm contract for the purchase, redemption or
acquisition of such Common Stock, or (y) the date of actual purchase, redemption
or acquisition of such Common Stock. For the purposes of this paragraph, a
purchase, redemption or acquisition of any Options or Convertible Securities
shall be deemed to be a purchase of the underlying Common Stock, and the
computation herein required shall be made on the basis of the full exercise,
conversion or exchange of any such Option or Convertible Security on the date as
of which such computation is required hereby to be made even if such Option or
right to convert or exchange any such Convertible Securities is not exercisable
on such date.
3C. Adjustment of Warrant Purchase Price upon Issuance of Common Stock.
------------------------------------------------------------------
Except as provided in paragraph 3G and except that no adjustment will be made
pursuant to this paragraph 3C when an adjustment is made pursuant to paragraph
3F or paragraph 3A(3)(ii), if and whenever after the date hereof the Company
shall issue or sell any shares of its Common Stock for a consideration per share
less than the 95% of the Market Price (as defined in Section 3D(8) hereof) of at
the time of such issue or sale, then, forthwith upon such issue or sale, the
Warrant Purchase Price shall be reduced to the lower of the prices (calculated
to the nearest one-thousandth cent) determined as follows:
(1) by dividing (i) an amount equal to the sum of (a) the number of shares
of Common Stock outstanding immediately prior to such issue or sale multiplied
by the Market Price at the time of such sale, and (b) the aggregate
consideration, if any, received by the Company upon such issue or sale, by (ii)
the total number of shares of Common Stock outstanding immediately after such
issue or sale; and
(2) by multiplying the Warrant Purchase Price in effect immediately prior
to the time of such issue or sale by a fraction, the numerator of which shall be
the sum of (i) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Market Price of such Common Stock
immediately prior to such issue or sale plus (ii) the
5
<PAGE>
consideration received by the Company upon such issue or sale, and the
denominator of which shall be the product of (iii) the total number of shares of
Common Stock outstanding immediately after such issue or sale, multiplied by
(iv) the Market Price of such Common Stock immediately prior to such issue or
sale.
Adjustments of the Warrant Purchase Price shall be made in fractions of a cent
per share to the nearest one-thousandth ($.00001) per share.
3D. Factors Affecting Adjustments. For all purposes of this paragraph 3,
-----------------------------
the following provisions shall also be applicable:
3D(1). Issuance of Rights or Options. In case at any time after the date
-----------------------------
hereof the Company shall in any manner grant (whether directly or by assumption
in a merger or otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or securities convertible
into or exchangeable for Common Stock (such rights or options being herein
called "OPTIONS" and such convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES") whether or not such Options or the right
to convert or exchange any such Convertible Securities are immediately
exercisable (where no adjustment as a result of such issuance is made pursuant
to paragraph 3A(3)(ii)), and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for the granting of
such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus, in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than 95% of
the Market Price of such Common Stock in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall (as of the date of granting of such Options) be
deemed to be outstanding (and included as Common Stock outstanding for purposes
of paragraphs 3B and 3C) and to have been issued for such price per share.
Except as otherwise provided in paragraph 3D(3) below, no adjustment or further
adjustment (as the case may be) of the Warrant Purchase Price shall be made upon
the actual issue of Common Stock or of Convertible Securities upon exercise of
Options or upon the actual issue of Common Stock upon
6
<PAGE>
conversion or exchange of Convertible Securities (whether or not the granting or
issuance of such Options or Convertible Securities resulted in an adjustment of
the Warrant Purchase Price).
3D(2). Issuance of Convertible Securities. In case the Company shall in
----------------------------------
any manner issue (whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than 95% of the Market Price of such
Common Stock on the date of such issue or sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding (and
included as Common Stock for purposes of paragraphs 3B and 3C) and to have been
issued for such price per share, provided that (a) except as otherwise provided
in paragraph 3D(3) below, no adjustment or further adjustment (as the case may
be) of the Warrant Purchase Price shall be made upon the actual issue of Common
Stock upon conversion or exchange of Convertible Securities whether or not the
granting or issuance of such Convertible Securities resulted in an adjustment in
the Warrant Purchase Price, and (b) if any issue or sale of Convertible
Securities is made upon exercise of any Options, no further adjustment of the
Warrant Purchase Price shall be made by reason of such issue or sale (whether or
not the granting or issuance of such Options or Convertible Securities resulted
in an adjustment of the Warrant Purchase Price).
3D(3). Change in Option Price or Conversion Rate. Upon the happening of
-----------------------------------------
any of the following events, namely, if the purchase price provided for in any
Option referred to in paragraph 3D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in paragraph 3D(1) or 3D(2), or the rate at which any Convertible Securities
referred to in paragraph 3D(1) or 3D(2) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Warrant Purchase Price in
effect at the time of such event shall forthwith be readjusted to the Warrant
Purchase Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; and on the expiration of any such Option
or the termination of any such right to convert or exchange such Convertible
7
<PAGE>
Securities, the Warrant Purchase Price then in effect hereunder shall forthwith
be increased to the Warrant Purchase Price which would have been in effect at
the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been issued, and the Common Stock issuable thereunder shall
no longer be deemed to be outstanding. If the purchase price provided for in
any such Option referred to in paragraph 3D(1) or the rate at which any
Convertible Securities referred to in paragraph 3D(1) or 3D(2) are convertible
into or exchangeable for Common Stock, shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against dilution
other than as a result of a stock dividend or stock split which results in an
adjustment of the Warrant Purchase Price, then in case of the delivery of Common
Stock upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Warrant Purchase Price then in effect hereunder
shall forthwith be adjusted to such amount as would have obtained had such
Option or Convertible Security never been issued as to such Common Stock and had
adjustments been made upon the issuance of the shares of Common Stock delivered
as aforesaid, but only if as a result of such adjustment the Warrant Purchase
Price then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Company shall declare a dividend or
---------------
make any other distribution upon any stock of the Company payable in Common
Stock, Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
3D(5). Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, or offered
by the Company for subscription, the consideration received therefor shall be
deemed to be the amount received by the Company therefor plus any additional
consideration payable to the Company upon the exercise, conversion or exchange
of such Common Stock, Options or Convertible Securities, excluding any amounts
paid or receivable for accrued interest or accrued dividends and after deducting
therefrom any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of the Company, after
deducting any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. The amount of
consideration deemed to be received by the Company pursuant to the foregoing
provisions of this paragraph 3D(5) upon any issuance and/or sale, pursuant to an
established compensation plan of the Company, to directors, officers or
employees of the Company in
8
<PAGE>
connection with their employment, of shares of Common Stock, Options or
Convertible Securities, shall be increased by the amount of any tax benefit
realized by the Company as a result of such issuance and/or sale, the amount of
such tax benefit being the amount by which the Federal and/or State income or
other tax liability of the Company shall be reduced by reason of any deduction
or credit in respect of such issuance and/or sale. In case any shares of Common
Stock, Options or Convertible Securities shall be issued in connection with any
merger in which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and business of
the non-surviving corporation as such Board shall determine to be attributable
to such Common Stock, Options or Convertible Securities as the case may be. In
case any Options shall be issued in connection with the issue and sale of other
securities of the Company, together comprising one integral transaction in which
no specific consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued without consideration. In the
event of any consolidation or merger of the Company in which the Company is not
the surviving corporation or in the event of any sale of all or substantially
all of the assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number of shares of
its Common Stock for stock or securities of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated
and for a consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and if any
such calculation results in adjustment of the Warrant Purchase Price, the
determination of the number of shares of Common Stock receivable upon exercise
of the Warrants immediately prior to such merger, consolidation or sale, for
purposes of paragraph 3D, shall be made after giving effect to such adjustment
of the Warrant Purchase Price. In all cases where the amount of consideration
received by the Company upon the issuance or sale of any Common Stock, Options,
or Convertible Securities is to be determined by the Board of Directors of the
Company, the Board shall notify the holder of this Warrant of its determination
of the consideration prior to payment or accepting receipt thereof. If, within
ten days after receipt of said notice, the holder of this Warrant shall notify
the Board of any objection to such determination of consideration, a
determination of the fair market value of the consideration will then be made by
arbitration in accordance with the Rules of the American Arbitration
Association, by an arbitrator in the City of San Francisco, California.
3D(6). Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed
9
<PAGE>
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
3D(7). Treasury Shares. The number of shares of Common Stock outstanding
---------------
at any given time shall not include shares owned or held by or for the account
of the Company, and the subsequent issuance of any such shares shall be
considered an issue or sale of Common Stock for the purposes of paragraph 3D.
3D(8). Definition of Market Price. "Market Price" for any particular
--------------------------
class of Common Stock shall mean the average of the closing prices of the Common
Stock sales on all domestic exchanges on which such class of Common Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any such day, the average of the bid prices at the end of such day, or, if
such class of Common Stock is not listed, the average of the high and low bid
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 20 consecutive business days prior
to the date as of which "Market Price" is being determined; provided that if
such class of Common Stock is listed on any domestic exchange the term "business
days" as used in this sentence shall mean business days on which such exchange
is open for trading. If at any time such Common Stock is not listed on any
domestic exchange or quoted in the domestic over-the-counter market, the "Market
Price" shall be deemed to be an amount mutually agreed upon in writing between
the Company and the holder of this Warrant within 15 days immediately following
the date on which the Market Price is to be determined and shall be the Market
Price for purposes of such date. If no agreement as to Market Price is
determined as stated herein, (i) the holder of this Warrant and the Company
shall mutually agree upon the selection of an independent appraiser who shall
then determine Market Price (and whose determination shall be binding upon the
parties), but if no agreement on the selection of the appraiser is obtained
within 20 days after the expiration of said 15 day period, (ii) the holder of
this Warrant and the Company shall each select an independent appraiser who
shall, independently of the other appraiser, determine the fair market value of
the Common Stock of the Company. If the value determined by the appraiser whose
determination is the higher of the two appraisals does not exceed by more than
twenty percent (20%) the average of the values determined by each appraiser,
then the Market Price shall be the average of the values determined by the two
appraisers and said average shall be binding on the parties. If the value
determined by the appraiser whose determination is the higher of the two
appraisals does exceed by more than twenty percent (20%) the average of the
values determined by each appraiser, then the two appraisers shall select a
third independent appraiser who shall, independently of the other appraisals,
determine the fair market value of the Common Stock of the Company. The value
determined by the appraiser whose determination is the most
10
<PAGE>
discrepant from the average of the three appraisals shall be discarded, and the
Market Price shall equal the average of the remaining two appraisals; except
that in the event that the highest and lowest appraisals are equally discrepant
from the average of the three appraisals, the Market Price shall be such average
and said average shall be binding on the parties. The Company shall bear the
expenses of all appraisals except the holder of this Warrant shall pay the
expenses of the appraiser selected by the holder of this Warrant under clause
(ii).
3D(9). Determination of Market Price under Certain Circumstances.
---------------------------------------------------------
Anything herein to the contrary notwithstanding, in case the Company shall issue
any shares of Common Stock, Options or Convertible Securities in connection with
the acquisition by the Company of the stock or assets of any other corporation
or the merger of any other corporation into the Company under circumstances
where on the date of the issuance of such shares of Common Stock, Options or
Convertible Securities the consideration received for such Common Stock or
deemed to have been received for the Common Stock issuable upon exercise of such
Options or into which such Convertible Securities are convertible is less than
95% of the Market Price of such Common Stock, but on the date when the number of
shares of Common Stock, Options or Convertible Securities (or in the case of
Convertible Securities other than stock, the aggregate principal amount of
Convertible Securities) was determined (as set forth in a binding agreement
between the Company and the other party to the transaction) the consideration
received for such Common Stock or deemed to have been received for the Common
Stock issuable upon exercise of such Options or into which such Convertible
Securities are convertible was not less than 95% of the Market Price of such
Common Stock, such shares of Common Stock shall not be deemed to have been
issued for less than 95% of the Market Price of such Common Stock.
3E. Liquidating Dividends. The Company will not declare a dividend upon
---------------------
the Common Stock payable otherwise than out of consolidated earnings or
consolidated earned surplus, determined in accordance with generally accepted
accounting principles, including the making of appropriate deductions for
minority interests, if any, in subsidiaries, and otherwise than in Common Stock,
unless the Company shall pay over to the holder of this Warrant, on the dividend
payment date, the cash, stock or other securities and other property which the
holder of this Warrant would have received if such holder had exercised this
Warrant in full to purchase Common Stock and had been the record holder of such
Common Stock on the date on which a record is taken for the purpose of such
dividend, or, if a record is not taken, the date as of which the holders of
Common Stock of record entitled to such dividend are to be determined. For the
purposes of the foregoing a dividend other than in cash shall be considered
payable out of earnings or surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or surplus are charged an amount equal to
the fair value of such dividend as determined in good faith by the Board of
Directors of the Company.
11
<PAGE>
3F. Subdivision or Combination of Stock. In case the Company shall at any
-----------------------------------
time subdivide its outstanding shares of Common Stock into a greater number of
shares, the Warrant Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Warrant Purchase Price in effect immediately prior
to such combination shall be proportionately increased. For purposes hereof,
such subdivision or combination shall be deemed to have occurred on the earlier
of the date of such event or the record date for determining holders whose
shares of Common Stock are subject to such subdivision or combination.
3G. Certain Issues of Common Stock Excepted. Anything herein to the
---------------------------------------
contrary notwithstanding, the Company shall not be required to make any
adjustment of the Warrant Purchase Price in the case of (i) the issuance of
Common Stock upon the exercise of the Equity Sponsor Warrants (as defined in the
Note Agreement), so long as the terms of such Equity Sponsor Warrants, as in
effect on the date hereof, are not amended or modified, or (ii) the grant of
Options after the date of the consummation by the Company of an Initial Public
Offering to employees, officers, or directors of the Company or any Subsidiary
pursuant to any option plan approved by the Board of Directors of the Company to
purchase up to an aggregate of 14,375 shares of Common Stock and the issuance of
Common Stock upon the exercise of such Options.
3H. Merger or Sale. If any capital reorganization or reclassification of
--------------
the capital stock of the Company or any consolidation or merger of the Company
with another Person (regardless of which entity is the surviving entity), or the
sale of all or substantially all of its assets to Person corporation shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets (including cash) with respect to or in exchange for
Common Stock, then, as a condition to such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions (in form
reasonably satisfactory to the holder of this Warrant) shall be made whereby the
holder hereof shall thereafter have the right to purchase and receive, upon the
basis and upon the terms and conditions specified in this Warrant and in lieu of
the shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock, securities or assets (including cash) as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of such stock which immediately
theretofore were purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provision shall
be made with respect to the rights and interests of the holder of this Warrant
to the end that the provisions hereof (including without limitation provisions
for adjustments of the Warrant Purchase Price and of the number of shares
purchasable and receivable upon the
12
<PAGE>
exercise of this Warrant) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets (including cash)
thereafter deliverable upon the exercise hereof. In the event of a merger or
consolidation of the Company or any subsidiary with or into another Person as a
result of which a number of shares of common stock or other equity interests of
the surviving Person greater or less than the number of shares of Common Stock
of the Company outstanding immediately prior to such merger or consolidation are
issuable to holders of Common Stock of the Company, then the Warrant Purchase
Price in effect immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock of the Company. The Company will not
effect any consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument (in form reasonably satisfactory to the holder of
this Warrant) executed and mailed or delivered to the registered holder hereof
at the last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
(including cash) as, in accordance with the foregoing provisions, such holder
may be entitled to purchase. If a purchase, tender or exchange offer is made to
and accepted by the holders of more than 50% of the outstanding shares of Common
Stock of the Company, the Company shall not effect any consolidation, merger or
sale with the Person having made such offer or with any Affiliate of such
Person, unless prior to the consummation or such consolidation, merger or sale
the holder of this Warrant shall have been given a reasonable opportunity to
then elect to receive upon the exercise of this Warrant either the stock,
securities or assets then issuable with respect to the Common Stock of the
Company or the stock, securities or assets (including cash), or the equivalent,
issued to previous holders of the Common Stock in accordance with such offer as
if the shares of Common Stock issued upon the exercise of this Warrant had been
issued. The term "PERSON" as used in this hereof shall mean and include an
individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization and a government or any department or agency
thereof. For the purposes of this paragraph 3H, an "AFFILIATE" of any Person
shall mean any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with, such other Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this Warrant, a
corporation is a "SUBSIDIARY" of another corporation (the "PARENT") if a
majority of the subsidiary's outstanding shares of capital stock ordinarily
entitled to vote for the election of directors (excluding stock which is
entitled to vote in the election of directors only upon the happening of some
contingency such as failure to pay dividends)
13
<PAGE>
is owned by the parent and/or one or more of the parent's subsidiaries. A
corporation is also the subsidiary of another corporation if its parent is a
subsidiary of such other corporation.
3I. Accountants' Report as to Adjustments. In each case of any adjustment
-------------------------------------
in the shares of Common Stock issuable upon the exercise of this Warrant, the
Company at its expense will promptly compute such adjustment or readjustment in
accordance with the terms of this Warrant and cause independent public
accountants of recognized national standing selected by the Company (which may
be the regular auditors of the Company) to verify such computation and prepare a
report setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any shares of Common
Stock issued or sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the Warrant
Purchase Price in effect immediately prior to such issue or sale and as adjusted
and readjusted (if required by paragraph 3) on account thereof. The Company
will forthwith mail a copy of each such report to the holder of this Warrant and
will, upon the written request at any time of any holder of this Warrant,
furnish to each such holder a like report setting forth the Warrant Purchase
Price at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by the holder or holders of this Warrant or
any prospective purchaser of this Warrant designated by the holder or holders
thereof.
3J. Other Notices. In case at any time:
-------------
(1) the Company shall declare any cash dividend upon its Common Stock
payable at a rate in excess of the rate of the last cash dividend theretofore
paid;
(2) the Company shall declare any dividend upon its Common Stock payable
in stock or make any special dividend or other distribution (other than regular
cash dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other rights;
(4) there shall be any capital reorganization, or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation; or
14
<PAGE>
(5) there shall be a voluntary or involuntary dissolution, liquidation of
winding up of the Company;
then, in each such case, the Company shall give, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the address of such holder
as shown on the books of the Company, (a) at least 35 days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 35 days' prior written
notice of the earliest date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (b) shall also specify the date (if then known, and if
not then known, then the holder of this Warrant shall be advised thereof when
known) on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
3K. Certain Events. If any event occurs as to which, in the opinion of
--------------
the Board of Directors of the Company, the other provisions of this paragraph 3
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the Warrants in accordance with the essential intent and
principles of such provisions, then the Board of Directors of the Company shall
make an adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
increasing the Warrant Purchase Price or decreasing the number of underlying
shares of Common Stock as otherwise determined pursuant to this paragraph 3,
except in the event of a combination of shares of the type contemplated in
paragraph 3F and then in no event to an amount larger than the Warrant Purchase
Price as adjusted pursuant to paragraph 3F.
4. Financial and Other Information. The Company covenants that it will
-------------------------------
deliver to each Holder (as defined in Section 11 hereof) by first-class mail,
postage prepaid, addressed to the address of such Holder as shown on the books
of the Company:
(i) as soon as practicable and in any event within 20 days after the end of
each calendar month in each fiscal year, unaudited consolidated and
consolidating statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such calendar
15
<PAGE>
month and for the period from the beginning of the current fiscal year to the
end of such calendar month, and a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such calendar month, all in reasonable detail
and satisfactory in form to the Holders;
(ii) as soon as practicable and in any event within 45 days after the end
of each fiscal quarter (other than the fourth fiscal quarter) in each fiscal
year, unaudited consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the current fiscal year
to the end of such fiscal quarter, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such fiscal quarter, setting forth
in each case in comparative form figures for the corresponding periods in the
preceding fiscal year, all in reasonable detail and satisfactory in form to the
Holders and certified by an authorized financial officer of the Company,
provided, however, that delivery within such time period of the Company's
Quarterly Report on Form 10-Q containing such financial statements and financial
information prepared in compliance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirement of this clause (ii) as to delivery of consolidated financial
statements;
(iii) as soon as practicable and in any event within 90 days after the end
of each fiscal year, consolidated and consolidating statements of income and
cash flows and a consolidated and consolidating statement of stockholders'
equity of the Company and its Subsidiaries for such year, and a consolidated
balance sheet of the Company and its Subsidiaries as at the end of such year,
setting forth in each case in comparative form corresponding consolidated
figures from the preceding annual audit, all in reasonable detail and
satisfactory in form to the Holders and, as to consolidated statements, reported
on by independent public accountants of recognized national standing selected by
the Company or other independent public accountants reasonably acceptable to the
Holders whose report shall be without limitation as to the scope of the audit
and satisfactory in substance to the Holders, and as to consolidating statements
certified by an authorized financial officer of the Company; provided, however,
that delivery within such time period of the Company's Annual Report on Form 10-
K containing such financial statements and financial information prepared in
compliance with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the
16
<PAGE>
requirements of this clause (iii) as to delivery of consolidated financial
statements;
(iv) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its public
stockholders and copies of all registration statements (without exhibits) and
all reports (including reports on Form 8-K) which it files with the Securities
and Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);
(v) promptly upon receipt thereof, a copy of each management letter and
other report submitted to the management or board of directors of the Company or
any Subsidiary by independent accountants in connection with any annual, interim
or special audit made by them of the books of the Company or any Subsidiary;
(vi) promptly after the preparation thereof, school-by-school information
with the content and in the form prepared by management for internal review and
use (which information can be in the form contained in the Private Placement
Memorandum (as defined in the Note Agreement)), provided that the Company need
not provide the information under this clause (vi) more frequently than once
each fiscal quarter;
(vii) promptly after the Company's receipt thereof, copies of any notice
from the United States Department of Education or any other Federal, state or
local governmental body, agency or department alleging non-compliance by the
Company or any of its Subsidiaries with any material statute, law decree, court
or administrative order or regulation, including maximum cohort default rates,
the "85/15 RULE", denial of a requested change of control in connection with
acquisition of schools or threatened loss of school accreditation; and
(viii) promptly after the Company or any Subsidiary becomes aware thereof,
notice of the occurrence of any other event which is material to the Company or
any of its Subsidiaries, including the initiation of any material disputes,
administrative proceeding, investigation or litigation or any material
developments in any such disputes or litigation, conditions that could result in
a material adverse change in the business, condition (financial or otherwise),
operations or prospects of the Company or any of its Subsidiaries, and generally
accepted accounting principles or Company accounting practices (which notice
shall describe such event and the effect, if any, of such event or change on
17
<PAGE>
the Company's results of operations, financial condition or compliance with this
Agreement in reasonable detail).
5. Registration. If either this Warrant or any shares of Common Stock
------------
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any Federal or
State law, or listing on any domestic securities exchange, before such shares
may be issued upon exercise, the Company will, at its expense, as expeditiously
as possible, use its best efforts to cause such Warrant and such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
6. Issue Tax. The issuance of certificates for shares of Common Stock
---------
upon the exercise of Warrants shall be made without charge to the holders of
such Warrants for any issuance tax in respect thereof, provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Warrant exercised.
7. Closing of Books. The Company will at no time close its transfer books
----------------
against the transfer of any Warrant or of any shares of Common Stock issued or
issuable upon the exercise of any Warrant in any manner which interferes with
the timely exercise of this Warrant.
8. Definition of Common Stock. As used in this Warrant the term "COMMON
--------------------------
STOCK" shall mean and include the Company's authorized Class A Common Stock of
the par value of $0.01 per share and the Company's authorized Class B Common
Stock of the par value of $0.01 per share as constituted under the provisions of
the Company's Certificate of Incorporation, and shall also include any capital
stock of any class of the Company thereafter authorized which shall not be
limited to either a fixed sum or a percentage of its par or stated value in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; provided that, except as provided in
paragraph 3H, the shares purchasable pursuant to this Warrant shall include only
shares designated as Class A Common Stock of the Company under the provisions of
said Certificate of Incorporation, or, in case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph 3H.
9. No Participation Preferred Stock. Subject to the rights granted to the
--------------------------------
holder of this Warrant pursuant to paragraph 3H, so long as this Warrant remains
outstanding, the Company will not issue any capital stock of any class preferred
as to dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up unless the rights of the
holders thereof with respect to such dividends or distributions
18
<PAGE>
shall be limited to either a fixed sum or a percentage of par or stated value of
such stock in respect of participation in dividends and in the distribution of
such assets.
10. No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any liabilities on such holder to
purchase any securities or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
11. Appraisal Rights. In the case of any capital reorganization or
----------------
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with another Person (regardless of which entity is the
surviving entity), or the sale of all or substantially all of its assets to any
Person (a "TRANSACTION"), the Company shall, not less than 20 days prior to the
meeting of stockholders to be held for the purpose of voting on such proposed
Transaction (or, if no such meeting of stockholder is to be held, not less than
20 days prior to the consummation of such Transaction) provide notice to the
holder of this Warrant and to the holder of any shares of Common Stock issued
upon the exercise of this Warrant (a "HOLDER") of such proposed Transaction and
all material terms thereof and stating that appraisal rights are available under
this Section 11. Each Holder shall have the right to demand an appraisal of
this Warrant or such shares of Common Stock, as the case may be, by delivering a
demand therefor to the Company prior to the taking of the vote at such meeting
of stockholders or consummation of such Transaction, as the case may be. Each
Holder who has made such demand shall be entitled to be paid cash by the Company
or the entity surviving such Transaction, as applicable, for this Warrant or
such shares of Common Stock, as the case may be, within 15 days after the
consummation of such Transaction, in an amount equal to the fair market value of
this Warrant or such shares of Common Stock, as the case may be, as determined
by an independent investment banker (with an established national reputation as
a valuer of equity securities) selected by the Company with the approval of such
Holders, such fair market value to be determined with regard to all material
relevant factors but without regard to any effects arising from the
accomplishment of such Transaction. Any Holder accepting such payment shall not
receive rights under Section 3H hereof with respect to such Transaction or any
consideration payable to the stockholders of the Company with respect to such
shares of Common Stock, as the case may be, but any Holder may withdraw such
demand prior to the time such Holder accepts the payment under this Section 11
and accept such Holder's rights under Section 3H hereof or such consideration,
as the case may be.
12. Warrants Transferable. This Warrant and all rights hereunder are
---------------------
transferable, in whole or in part, without charge to the holder hereof, at the
office or agency of the Company referred
19
<PAGE>
to in paragraph 1 by the holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant properly endorsed, provided that such holder or
its transferee pays any applicable stamp or transfer taxes. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
this Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so endorsed, may be treated by
the Company and all other persons dealing with this Warrant as the absolute
owner hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered holder hereof as the owner for
all purposes.
13. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant (but for which a surety shall not be required if the holder of this
Warrant is Prudential or any other institutional investor), upon delivery of
unsecured indemnity agreement from such holder reasonably satisfactory to the
Company in form and amount or, in the case of any such mutilation, upon
surrender of this Warrant for cancellation at the principal office of the
Company, the Company will execute and deliver, in lieu thereof, a new Warrant of
like tenor dated the date hereof.
14. Acknowledgment by Company. The Company will, at the time of or at any
-------------------------
time after each exercise of this Warrant, upon the request of the holder hereof
or of any shares of Common Stock issued upon such exercise, acknowledge in
writing its continuing obligation to afford to such holder all rights to which
such holder shall continue to be entitled, after such exercise in accordance
with the terms of this Warrant, provided, that if any such holder shall fail to
make any such request, the failure shall not affect the continuing obligation of
the Company to afford such rights to such holder.
15. Rights and Obligations Survive Exercise of Warrant. The rights and
--------------------------------------------------
obligations of the Company, of the holder of this Warrant, and of the holder of
shares of Common Stock issued upon exercise of this Warrant, contained in
paragraphs 4, 5 and 11 hereof shall survive the exercise of this Warrant.
16. Warrants Exchangeable for Different Denominations. This Warrant is
-------------------------------------------------
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in paragraph 1, for new Warrants of like tenor
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 such number of
shares as shall be designated by said holder hereof at the time of such
surrender. All warrants issued on transfers or exchanges shall be dated the
date hereof and shall
20
<PAGE>
be identical with this Warrant except as to the number of shares of Common Stock
issuable pursuant hereto.
17. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
18. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The agreements of the Company contained in this Warrant are binding
upon the Company, its successors and permitted assigns and shall inure to the
benefit of and be enforceable by any holder or holders at the time of any Common
Stock issued upon the exercise of this Warrant whether so expressed or not.
19. Descriptive Headings and Governing Law. The descriptive headings of
--------------------------------------
the several paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. This Warrant shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of California, without giving effect to principles of
conflicts of laws.
21
<PAGE>
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant to be
signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of October __, 1996.
CORINTHIAN COLLEGES, INC.
By: /s/ David G. Moore
---------------------------
(CORPORATE SEAL)
Attest:
/s/ Frank J. McCord
- -------------------
22
<PAGE>
SUBSCRIPTION AGREEMENT
______________, 19__
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase _____ shares of the Common
Stock covered by such Warrant, and makes payment herewith in full therefor at
the price per share provided by such Warrant.
Signature ____________________
Address ______________________
______________________
___________________________
ASSIGNMENT
FOR VALUE RECEIVED, __________________________________________________
____________________________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the within
Warrant, with respect to the number of shares of the Common Stock covered
thereby set forth hereinbelow unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: _______________, 19__.
Signature ____________________
Witness ______________________
23
<PAGE>
EXHIBIT 10.45
- --------------------------------------------------------------------------------
LOAN AGREEMENT
IN THE AMOUNT OF $3,760,000
Dated April 30, 1997
BETWEEN
CORINTHIAN PROPERTY GROUP, INC.
BORROWER
AND
BANC ONE CAPITAL PARTNERS VI, LTD.
LENDER
- --------------------------------------------------------------------------------
<PAGE>
THIS LOAN AGREEMENT (this "Agreement") is dated April 30, 1997 between
CORINTHIAN PROPERTY GROUP, INC., a Florida corporation, with an office and
principal place of business at 6 Hutton Centre, Suite 400, Santa Ana, California
92707-5764 ("Borrower") and BANC ONE CAPITAL PARTNERS VI, LTD., an Ohio limited
liability company having an address of 150 East Gay Street, 24th Floor,
Columbus, Ohio 43215 ("Lender").
RECITALS
--------
A. The Acquisition. Borrower has entered into that certain Purchase
---------------
Agreement dated April 30, 1997 (the "Purchase Agreement') with Corinthian
Colleges, Inc. ("Seller" or "Guarantor") pursuant to which Borrower has agreed
to purchase and Seller has agreed to sell five properties described as follows:
PARKS COLLEGE - DENVER NORTH, THORNTON, COLORADO
The parcels or lots legally described on Exhibit A-I (the "Denver North
----------- ------------
Land"), together with, the two-story office building constructed thereon,
----
which is comprised of approximately 25, 943 square feet, and all other
improvements located thereon (the "Denver North Improvements") and together
-------------------------
with all furniture, fixtures, equipment and other personal property now or
hereafter used in the management and operation of said building complex
(the "Denver North Personal Property"). The Denver North Land and the
------------------------------
Denver North Improvements are hereinafter collectively referred to as the
"Denver North Premises". The Denver North Premises and the Denver North
---------------------
Personal Property are hereafter collectively referred to as the "Denver
------
North Property".
--------------
PARKS COLLEGE - DENVER SOUTH, AURORA, COLORADO
The parcels or lots legally described on Exhibit A-2 (the "Denver South
----------- ------------
Land"), together with, the three-story office building constructed thereon,
-----
which is comprised of approximately 32,200 square feet, and all other
improvements located thereon (the "Denver South Improvements") and together
-------------------------
with all furniture, fixtures, equipment and other personal property now or
hereafter used in the management and operation of said building complex
(the "Denver South Personal Property"). The Denver South Land and the
------------------------------
Denver South Improvements are hereinafter collectively referred to as the
"Denver South Premises". The Denver South Premises and the Denver South
---------------------
Personal Property are hereafter collectively referred to as the "Denver
------
South Property".
--------------
BLAIR JUNIOR COLLEGE - COLORADO SPRINGS, COLORADO
The parcels or lots legally described on Exhibit A-3 (the "Colorado Springs
----------- ----------------
Land"), together with, the one-story office building constructed thereon,
-----
which is comprised of approximately
<PAGE>
22,394 square feet, and all other improvements located thereon (the
"Colorado Springs Improvements") and together with all furniture, fixtures,
-----------------------------
equipment and other personal property now or hereafter used in the
management and operation of said building complex (the "Colorado Springs
----------------
Personal Property"). The Colorado Springs Land and the Colorado Springs
------------------
Improvements are hereinafter collectively referred to as the "Colorado
--------
Springs Premises". The Colorado Springs Premises and the Colorado Springs
----------------
Personal Property are hereafter collectively referred to as the "Colorado
--------
Springs Property".
----------------
ORLANDO COLLEGE - MELBOURNE, FLORIDA
The parcels or lots legally described on Exhibit A-4 (the "Melbourne
----------- ---------
Land"), together with, the one-story office building constructed thereon,
----
which is comprised of approximately 16,444 square feet, and all other
improvements located thereon (the "Melbourne Improvements") and together
----------------------
with all furniture, fixtures, equipment and other personal property now or
hereafter used in the management and operation of said building complex
(the "Melbourne Personal Property"). The Melbourne Land and the Melbourne
---------------------------
Improvements are hereinafter collectively referred to as the "Melbourne
---------
Premises". The Melbourne Premises and the Melbourne Personal Property are
--------
hereafter collectively referred to as the "Melbourne Property".
------------------
TAMPA COLLEGE - MAIN, TAMPA, FLORIDA
The parcels or lots legally described on Exhibit A-5 (the "Tampa Land"),
----------- ----------
together with, the two-story office building constructed thereon, which is
comprised of approximately 29,380 square feet, and all other improvements
located thereon (the "Tampa Improvements") and together with all furniture,
------------------
fixtures, equipment and other personal property now or hereafter used in
the management and operation of said building complex (the "Tampa Personal
--------------
Property"). The Tampa Land and the Tampa Improvements are hereinafter
--------
collectively referred to as the "Tampa Premises". The Tampa Premises and
--------------
the Tampa Personal Property are hereafter collectively referred to as the
"Tampa Property".
--------------
The Denver North Land, the Denver South Land, the Colorado Springs Land,
the Melbourne Land and the Tampa Land are collectively referred to as the
"Land"; the Denver North Improvements, the Denver South Improvements, the
----
Colorado Springs Improvements, the Melbourne Improvements and the Tampa
Improvements are collectively referred to as the "Improvements"; the Denver
------------
North Personal Property, the Denver South Personal Property, the Colorado
Springs Personal Property, the Melbourne Personal Property and the Tampa
Personal Property are collectively referred to as the "Personal Property"; the
-----------------
Denver North Premises, the Denver South Premises, the Colorado Springs Premises,
the Melbourne Premises and the Tampa Premises are sometimes individually or
collectively referred to as the "Premises"; the Denver North Property, the
--------
Denver South Property, the Colorado Springs Property, the Melbourne Property and
-2-
<PAGE>
the Tampa Property are sometimes individually referred to as a "Property" and
--------
collectively as the "Properties".
-----------
B. The Loan. The purchase price for the Properties is $3,400,000 and the
--------
Borrower desires to borrow from Lender $3,760,000 in order to pay such purchase
price, to pay a $110,000 commitment fee to Lender and to pay closing costs
approved by Lender. Said commitment fee is being capitalized into the principal
amount of the Loan.
NOW, THEREFORE, in consideration of the foregoing and of the covenants,
conditions and agreements contained herein, Borrower and Lender agree as
follows:
ARTICLE 1
---------
DEFINITIONS
-----------
1.1 Defined Terms. In this Agreement, the following terms shall have the
-------------
following meanings:
"Accelerated Amortization" -- see Section 1 of the Note.
------------------------
"Advance" -- an advance by Lender to Borrower in accordance with the Note
-------
or this Agreement.
"Affiliate" -- of Borrower shall mean any other person or entity directly
---------
or indirectly controlling, under common control with, or controlled by Borrower.
For purposes of the definition of Affiliate, "control" when used with respect to
any person or entity means the power to direct the management and policies of
such person or entity, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings relative to the foregoing.
"Assignment of Accounts" -- the Assignment of Accounts and Security
----------------------
Agreement of even date herewith from Borrower to Lender.
"Assignment of Permits and Contracts" -- the Assignment of Licenses,
-----------------------------------
Permits and Approvals and Contracts, Agreements and Equipment Leases
(specifically including the management agreements, if any, relating to the
Property) of even date herewith from Borrower to Lender.
"Assignment of Leases" -- the Assignment of Leases and Rents of even date
--------------------
herewith from Borrower to Lender.
-3-
<PAGE>
"Bankruptcy Code" -- the United States Bankruptcy Code and any similar
---------------
state or federal law now or hereafter in effect relating to bankruptcy,
reorganization or insolvency, or the arrangement or adjustment of debts.
"Business Day" -- any day other than a Saturday, Sunday or legal holiday on
------------
which commercial banks are authorized or required to be closed in Columbus,
Ohio.
"Capital Reserve" -- the capital improvement reserve to be paid by Borrower
---------------
to Lender pursuant to the terms and conditions of Section 4.1.Q.
------------
"CCI Leases" -- those certain lease agreements between Borrower, as
----------
landlord, and Guarantor, as tenant, of even date herewith with respect to the
Denver North Premises, the Denver South Premises, the Colorado Springs Premises,
the Melbourne Premises and the Tampa Premises.
"Closing" -- the closing of the Loan contemplated by this Agreement.
-------
"Code" -- the Internal Revenue Code of 1986, as amended, and the
----
Regulations promulgated thereunder.
"Default Rate" -- See Section 1 of the Note.
------------
"DSCR" -- the debt service coverage ratio for a Property or Properties as
----
determined by Lender, by calculating the ratio of (x) the Net Operating Income
from the Property or Properties for the immediately preceding twelve (12) months
to (y) the sum of the payments of principal and interest which are due and
payable under the Note based on the allocated Loan basis with respect to such
Property or Properties for the immediately preceding twelve (12) months or, if
the Note has been outstanding for less than twelve (12) months as of the
calculation date, the amount which results from annualizing, as applicable, the
Net Operating Income from the Property or Properties, or the sum of the monthly
payments of principal and interest which are due and payable under the Note
based on the allocated Loan basis with respect to such Property or Properties,
for such lesser period.
"Environmental Indemnity" -- the Hazardous Substances Indemnity Agreement
-----------------------
of even date herewith from Borrower and Guarantor to Lender.
"Event of Default" -- the occurrence of any one or more of the events set
-------- -------
forth in Section 8.1.
------------
"Financing Statements" -- the UCC-1 Financing Statements naming Borrower as
---------------------
debtor and Lender as secured party and filed in connection with the Mortgages,
the Assignment of Leases, the Security Agreement and the Assignment of Permits
and Contracts.
-4-
<PAGE>
"Governmental Authority" -- the United States of America, the state in
----------------------
which any Property is located, the state under the laws of which Borrower is
organized, any state in which (or to residents of which) Borrower offers to sell
or lease any portion of any Property or Improvements have been or will be made
by or on behalf of Borrower, any political subdivision of any of them, and any
court, agency, department, commission, board, bureau or instrumentality of any
of them.
"Gross Revenues" -- for each month shall mean, as to any Property, all
--------------
rents, tuition revenues and other payments received by or for the benefit of
Guarantor in cash or current funds or other consideration from any source
whatsoever in connection with its use, operation and management of such
Property, including all payments received by Borrower from all students and
tenants or other occupants of such Property. Gross Revenues shall be determined
on an accrual basis and in accordance with generally accepted accounting
principles consistently applied.
"Guarantor" -- Corinthian Colleges, Inc., a Delaware corporation, or its
---------
successors.
"Impositions" -- all taxes of every kind and nature, sewer rents, charges
-----------
for water, for setting or repairing meters and for all other utilities serving
any Premises, and assessments, levies, inspection and license fees and all other
charges imposed upon or assessed against any Premises or any portion thereof
(including the income derived from any Premises), and any stamp or other taxes
which might be required to be paid with respect to any of the Loan Documents,
any of which might, if unpaid, result in a lien on any Premises or any portion
thereof regardless of to whom assessed.
"Incipient Default" -- the existence of any condition or state of facts
-----------------
which with the giving of notice by Lender or the passage of time, or both, would
constitute an Event of Default.
"Indebtedness" -- all indebtedness, obligations, liabilities, amounts, sums
------------
and expenses payable by Borrower under the Note, this Agreement and every other
Loan Document, together with interest thereon in accordance with the terms and
conditions of the Loan Documents.
"Interest Rate" -- the Base Rate or the Maximum Rate (each as defined in
-------------
the Note).
"Lease" -- any lease or other rental or occupancy agreement, demising a
-----
portion of any Property including, without limitation, the CCI Leases.
"Limited Guaranty" -- the Limited Guaranty and Indemnity Agreement of even
----------------
date herewith from Guarantor to Lender in connection with the Loan.
"Loan" -- the loan evidenced by the Note and this Agreement.
----
"Loan Amount" -- $3,760,000.
-----------
-5-
<PAGE>
"Loan Documents" -- this Agreement, the Note, the Mortgages, the Assignment
--------------
of Leases, the Limited Guaranty, the Environmental Indemnity, the Assignment of
Permits and Contracts, the Assignment of Accounts, the Financing Statements and
such other documents and agreements as Lender may require in connection with the
Loan.
"Loan Party" -- Borrower or Guarantor.
----------
"Maturity Date" -- see Section 1 of the Note.
-------------
"Mortgages" -- the Mortgages and Security Agreements with respect to the
---------
Melbourne Premises and the Tampa Premises, and the Deeds of Trust and Security
Agreements with respect to the Denver North Premises, the Denver South Premises
and the Colorado Springs Premises, all of even date herewith from Borrower to
Lender, securing the Note and Borrower's obligations under the other Loan
Documents (or individually, each a "Mortgage").
"Net Operating Income" -- for each month shall be calculated by Lender
--------------------
based upon Lender's review of the monthly financial statements provided to
Lender pursuant to Section 4.1.J, together with such other information as Lender
-------------
may reasonably request, and, as to any Property, shall mean the difference
between:
(1) its Gross Revenues for said month; and
(2) all of its Operating Expenses for said month.
"Note" -- the Promissory Note from Borrower of even date herewith in the
----
stated principal amount of Three Million Seven Hundred Sixty Thousand Dollars
($3,760,000), which: (i) is payable to the order of Lender on or before the
Maturity Date, (ii) requires monthly payments of interest at the Interest Rate,
(iii) requires monthly payments of principal on an amortization schedule based
upon an interest rate per annum of 10.95% and an assumed term of 15 years,
subject to Accelerated Amortization, (iv) except as provided in Article 7, is
---------
closed to prepayment prior to May 1, 2000, and is open to prepayment thereafter,
but only upon payment of the Prepayment Fee (as defined in the Note) if such
prepayment is made during the period from May 1, 2000 to March 30, 2007,
inclusive, (v) has a late fee of 4% after five days, and (vi) has a default rate
of 4% in excess of the Interest Rate. A copy of the Note is attached hereto as
Exhibit E.
- ---------
"Operating Expenses" -- as to any Property, the reasonably necessary and
------------------
customary costs and expenses incurred and actually paid by Guarantor in
connection with its use, operation and management of such Property, determined
on an accrual basis and in accordance with generally accepted accounting
principles consistently applied and specifically included in Operating Expenses
an amount equal to all required payments with respect to such Property into the
Capital Reserve pursuant to Section 4.1.Q of this Agreement, any required
-------------
payments pursuant to Section 4.1(A) or
-------------
-6-
<PAGE>
Section 4.1(B) of this Agreement, and any other reserve established pursuant to
- -------------
this Agreement; specifically excluding from Operating Expenses, however (w) all
capital expenditures incurred by Guarantor, (x) any rental payments made under
the CCI Leases (other than payments for taxes, insurance or Capital Reserves)
and costs and expenses incurred by Guarantor in connection with the closing of
the Loan, and (y) depreciation, amortization and all other non-cash expenses of
such property. For purposes of calculating DSCR, Lender may include Operating
Expenses which were budgeted for the applicable month and were incurred but not
paid. Operating Expenses which are paid less frequently than each month and
which are allocable evenly to each month may be prorated to reflect such
allocation.
"Permitted Encumbrances" -- the liens, claims, assessments, encumbrances
----------------------
and rights of others encumbering title to each Premises and the Personal
Property which are set forth on Exhibit B-1, B-2, B-3, B-4 and B-5.
----------------------------------
"Proceeds" -- all proceeds, judgments, claims, compensation, awards or
--------
damages and settlements with respect to any Property as a result of or in lieu
of any condemnation or taking of such Property or any portion thereof by eminent
domain or any casualty loss or damage to any of such Property or any portion
thereof.
"Renovation Work" -- the renovations and capital expenditures described in
---------------
Exhibit C.
- ----------
"Title Company" -- First American Title Insurance Company.
-------------
"Title Policy" -- a mortgagee's policy or policies of title insurance
------------
issued on the 1992 ALTA form by the Title Company in the aggregate face amount
of $3,760,000, together with such reinsurance and direct access agreements as
Lender may request, guaranteeing as of the date of the Closing, each Mortgage to
be a valid first and prior lien on Borrower's fee simple interest in each
Premises (including any easements appurtenant thereto) subject only to the
Permitted Encumbrances. The Title Policy shall contain such endorsements as
Lender may reasonably require.
In this Agreement, the word "including" shall mean "including without
limitation."
ARTICLE 2
---------
BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
----------------------------------------------------
2.1 Borrower hereby represents, covenants and warrants as follows:
A. Accuracy of Recitals. Each of the recitals to this Agreement is true
--------------------
and correct.
-7-
<PAGE>
B. Existence and Ownership of Borrower. Borrower is a corporation duly
-----------------------------------
formed, validly existing and in good standing under the laws of the State of
Florida. Borrower is and at all times prior to the repayment of the Loan shall
remain a single purpose entity, so called, whose sole assets are the Properties
and whose sole business interest is the ownership and operation or leasing of
the Properties. The status of Borrower as a duly formed and validly existing
corporation under Florida law will not be terminated at any time prior to the
payment in full of the Loan.
C. Authority and Enforceability. Borrower has full right, power and
----------------------------
authority to execute, deliver and carry out the terms and provisions of this
Agreement and the other Loan Documents and every other document and instrument
to be executed and delivered by Borrower pursuant to this Agreement. The person
executing and delivering this Agreement and the Loan Documents on behalf of
Borrower is duly authorized to so act on behalf of Borrower. This Agreement,
each other Loan Document and every other document and instrument to be executed
and delivered by any Loan Party, when executed and delivered shall constitute
the duly authorized, valid and legally binding obligation of the party or
parties executing the same, enforceable in accordance with their respective
terms, subject only to applicable bankruptcy, reorganization, moratorium and
similar laws affecting the enforceability of creditors' rights generally
(including fraudulent conveyance laws) and by general principles of equity,
including concepts of materiality, reasonableness ,good faith and fair dealing,
and the possible unavailability of special performance or injunctive relief
regardless of whether considered in a proceeding in equity or at law.
D. Maintenance of Existence. At all times prior to the repayment in full
------------------------
of the Loan, Borrower shall do all things necessary to preserve and keep in full
force and effect its existence and all franchises, licenses, authorizations,
registrations, permits and approvals under the laws of the state of its
formation and the States of Florida and Colorado, and shall comply with all
regulations, rules, ordinances, statutes, orders and decrees of any Governmental
Authority or court applicable to Borrower and to the Properties or any portion
thereof, provided, however, that nothing contained herein shall prevent or limit
Borrower from contesting in good faith any such regulation, rule, ordinance,
statute, order or decree.
E. No Default. Neither Borrower nor any other Loan Party is in default
----------
under any contract, agreement or commitment to which it is a party or by which
it is bound. The execution and delivery of this Agreement and the other Loan
Documents and any other documents or instruments to be executed and delivered by
Borrower or any other Loan Party pursuant hereto or thereto, the consummation of
the transactions herein or therein contemplated and compliance with the terms
and provisions hereof or thereof will not (i) violate any law or any regulation,
order, writ or injunction of any court or governmental or administrative
department, commission, board, bureau, agency or instrumentality, or (ii)
conflict or be inconsistent with, or result in a breach of any of the provisions
of, or constitute a default under, any instrument, document, agreement, or
contract of any kind to which Borrower or any other Loan Party is a party or by
which Borrower or any other Loan Party or any of their respective property is
bound.
-8-
<PAGE>
F. No Litigation. There are no petitions, actions, suits, or proceedings
-------------
pending or threatened against or affecting Borrower or any other Loan Party or
any Property, by or before any court or any governmental, administrative,
regulatory, adjudicatory or arbitrational body or agency (including any such
petition, action, suit or proceeding to alter or declare invalid any laws,
regulations, permits, certificates, restrictions or agreements relating to any
Property).
G. Compliance with Laws. The use of each Property as a degree-granting,
--------------------
vocational school does not violate (i) any applicable law, regulation, ordinance
or order of any kind whatsoever (including any such relating to zoning, building
and environmental protection) (ii) any permit or license issued with respect to
such Property, or (iii) any condition, easement, right-of-way, covenant or
restriction affecting such Property. Notwithstanding any other provision of this
Agreement, Lender acknowledges that certain zoning violations have been alleged
by the City of Colorado Springs to exist with respect to the Colorado Springs
Premises and that these violations will not be remedied before the Closing.
Borrower, however, covenants to cause Guarantor, as tenant under the CCI Lease
relating to the Colorado Springs Premises, to continue prosecuting the cure of
these alleged zoning violations pursuant to the Amendment to Provisions
Concerning Purchase and Sale of Real Estate, dated as of November 25, 1996, by
and among Blalr Business College, Inc., Phillips College of Denver, Inc.,
Phillips Educational Group of Central Florida, Inc., Phillips Colleges, Inc. and
Guarantor. In all events, the alleged zoning violations shall be cured by August
15, 1997.
H. Permits. All necessary and required franchises, licenses,
-------
authorizations, registrations, permits and approvals for the use and occupancy
of each Premises have been obtained from all Governmental Authorities having
jurisdiction over such Premises so as to permit the operation of each Property
as herein contemplated. Borrower has provided Lender with true and correct
copies of all of the certificates of occupancy and other licenses, permits and
approvals respecting each Property.
I. Title. Borrower has good and indefeasible fee simple title to each
-----
Premises and good and indefeasible title to all existing Personal Property, free
and clear of all liens, clalms, assessments, encumbrances and rights of others
other than the Permitted Encumbrances. At all times prior to the repayment in
full of the Loan, Borrower shall preserve such title to each Premises and the
Personal Property and will, during such period, warrant and defend the same and
the validity and priority of the Mortgages to Lender against all claims
whatsoever.
J. Easements. In addition to the Permitted Encumbrances, all proposed
---------
easements, permits, licenses, and other instruments which would or might affect
the title to any Property have been submitted to Lender for Lender's approval
together with a survey showing the exact or, if applicable, proposed location
thereof. Borrower shall not subject any Property or any part thereof to any
restrictive covenant (including any restriction or exclusive use provision in
any lease or other
-9-
<PAGE>
occupancy agreement) without the prior written consent of Lender which shall not
be unreasonably withheld or delayed.
K. Zoning. The Denver North Premises are zoned for City Center District,
------
the Denver South Premises are zoned for City Center District, the Colorado
Springs Premises are zoned for PIP-1, Planned Industrial Park District, the
Melbourne Premises are zoned for CP, Commercial Parkway District, and the Tampa
Premises are zoned for CG, Commercial General, each of which zoning is final,
unconditional and in full force and effect. Except as expressly disclosed in
Section2.1.G with respect to the Colorado Springs Premises, each of the Premises
- ------------
are in compliance with all applicable zoning and land use laws, regulations and
ordinances. In the event that all or any part of the Improvements are destroyed
or damaged, said Improvements can be legally reconstructed to their condition
prior to such damage or destruction, and thereafter exist for the same use
without violating any zoning or other ordinances applicable thereto and without
the necessity of obtaining any variances or special permits. Each of the
Premises contains enough permanent parking spaces to satisfy all requirements
imposed by applicable laws with respect to parking. No legal proceedings are
pending or threatened with respect to the zoning of any of the Premises. Neither
the zoning nor any other right to construct, use or operate any of the Premises
is in any way dependent upon or related to any real estate other than such
Premises. No tract map, parcel map, condominium plan, condominium declaration,
or plat of subdivision will be recorded by, or at the direction or with the
consent of Borrower with respect to any of the Premises without Lender's prior
written consent.
L. Complete Disclosure. Neither this Agreement nor any document,
-------------------
financial statement, credit information, certificate or statement provided to
Lender by Borrower contains any untrue statement of material fact or omits to
state a fact necessary to make any statements made herein not misleading.
M. Agreements Affecting the Property. Borrower has provided Lender with
---------------------------------
true and complete copies of all contracts and agreements affecting any Property,
including all Leases, tenancies or other contracts or agreements relating to the
maintenance, development, operation or management thereof.
N. Brokerage Commissions. No brokerage fees or commissions are payable
---------------------
in connection with the Loan.
0. Condemnation. Borrower has not received any notice from any
------------
governmental or quasi-governmental body or agency or from any person or entity
with respect to (and Borrower does not know of) any actual or threatened taking
of any Premises, or any portion thereof for any public or quasi-public purpose
or of any moratorium which may affect the use, operation of any Property.
P. Access. Each Property has access to and full utilization of completed
------
public roads necessary for access to and full utilization of such Property for
its intended purposes.
-10-
<PAGE>
Q. Tax Division. A tax division has been effected with respect to each
------------
of the Premises so that it is taxed for ad valorem taxation without regard to or
inclusion of any other property. No subdivision or other approval is necessary
with respect to any of the Premises in order for Borrower to mortgage, convey
and otherwise deal with such Premises as a separate lot or parcel.
R. Non-Foreign Status of Borrower. Borrower is not a non-resident alien
------------------------------
for purposes of U.S. income taxation and is not a foreign corporation,
partnership, foreign trust or foreign estate (as said terms are defined in the
Code).
S. ERISA. Neither Borrower nor any Loan Party is a party to any plan
-----
defined and regulated under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") or Section 4975 of the Code. None of the assets of Borrower
or any Loan Party are "plan assets"" as defined in 29 C.F.R. (S)2509.75-2 or
(S)2510.3-101.
T. Mortgage. Each Mortgage constitutes a valid and enforceable first
--------
lien on the Premises to which it relates, subject only to the Permitted
Encumbrances for such Premises.
U. Security Interest. The Mortgages, together with the Financing
-----------------
Statements filed in connection therewith, create a valid, enforceable and
perfected first priority security interest in the Collateral (as defined
therein) including the Personal Property, subject to no other interests, liens
or encumbrances.
V. Financial Condition. There has been no material adverse change in the
-------------------
financial condition, business operations, prospects or affairs of Borrower, any
other Loan Party or any of the Premises since the date of the most recent
financial statements of Guarantor furnished to Lender.
W. Borrower's Equity. Borrower has a cash equity investment in the
-----------------
Properties of not less than $220,000.
X. Bankruptcy. No petition in bankruptcy whether voluntary or
----------
involuntary, or assignment for the benefit of creditors, or any other action
involving debtors' and creditors' rights has been filed or threatened under the
laws of the United States of America or any state thereof, against the Borrower
or any other Loan Party or against any other entity in which the Borrower or any
other Loan Party is a principal or general partner.
Y. Leases. Except as set forth on Exhibit B of the Assignment of Leases,
------
there are no Leases affecting the Property. Borrower has not executed any prior
assignment of the Leases,nor has it performed any act or executed any other
instrument which might prevent Lender from operating under any of the terms and
conditions of the Assignment of Leases or which would limit Lender in such
operation; and Borrower further covenants and warrants to Lender that Borrower
has
-11-
<PAGE>
not executed or granted any modification whatsoever of the Leases, except as
herein indicated, and that the Leases are in full force and effect, and that,
except as otherwise disclosed to Lender in writing, there are no defaults now
existing under the Leases with respect to which Borrower has notified the tenant
under the Leases.
Z. Physical Condition of Property. All of the Improvements are in the
------------------------------
condition and repair described in the appraisals and engineering reports
previously delivered by Borrower to Lender, and no material adverse change to
any Premises has occurred since the effective date of such appraisals and
reports. Except as may be disclosed in such appraisals and reports, Borrower is
aware of no latent or patent structural or other significant defect or
deficiency in such Improvements. City water supply, storm and sanitary sewers,
and electrical, gas and telephone facilities are available to each Property
within the boundary lines of such Property, are sufficient to meet the
reasonable needs of such Property as now used or contemplated to be used, no
other utility facilities are necessary to meet the reasonable needs of such
Property as now used, and design and as-built conditions of such Property are
such that surface and storm water does not accumulate on such Property and does
not drain from such Property across land of adjacent property owners. Except as
may be disclosed in such appraisals and reports, part of any Property is within
a flood plain and none of the Improvements create an encroachment over, across
or upon any Property's boundary lines, rights of way or easements, and no
building or other improvement on adjoining land create such an encroachment.
AA. Mechanics' Liens. There are no mechanics' or materialmen's liens,
----------------
alienable bills or other claims constituting or that may constitute a lien on
any Property or any part thereof, and no work for which any such lien could be
asserted has been performed within the last 90 days, except as otherwise
disclosed in writing to Lender.
BB. Payment of Liens. Borrower shall pay when due all payments and
----------------
charges due under or in connection with any liens and encumbrances on and
security interests in any Property or any portion thereof, all rents and charges
under any ground leases and other leases forming a part of the Property, and all
claims and demands of mechanics, materialmen, laborers and others which, if
unpaid, might result in or permit the creation of a lien on any Property or any
portion thereof, and shall cause the prompt (but in no event later than 30 days
after imposition), full and unconditional discharge of all liens imposed on or
against any Property or any portion thereof. Borrower shall do or cause to be
done, at the sole cost of Borrower, everything necessary to fully preserve the
initial priority of the Mortgage. If Borrower fails to make any such payment or
if a lien (other than a Permitted Encumbrance) attaches to any Property or any
portion thereof, Lender may (but shall not be obligated to) make such payment or
discharge such lien and Borrower shall reimburse Lender on demand for all such
Advances. Notwithstanding anything in this Agreement to the contrary, Borrower
may contest any such lien, encumbrance or other matter described in this Section
-------
2.1.BB in the same manner as Borrower may contest Impositions pursuant to
- ------
Section 4.1.A(b).
- ---------------
-12-
<PAGE>
CC. Commercial Purpose. Borrower holds its interests in each Property for
------------------
commercial or investment purposes.
DD. Purchase Agreement. Borrower has provided Lender with a true and
------------------
complete copy of the Purchase Agreement. The Purchase Agreement is in full force
and effect and free from default on the part of Borrower and Seller. The
Purchase Agreement embodies the entire transaction between Borrower and Seller
with respect to the Properties. Borrower shall not modify, amend or waive any
provisions of the Purchase Agreement without Lender's prior written consent.
2.2 Representations Remade. Borrower warrants and covenants that the
----------------------
foregoing representations and warranties will be true and shall be deemed remade
as of the date of the Closing. All representations and warranties made herein or
in any other Loan Document or in any certificate or other document delivered to
Lender by or on behalf of Borrower pursuant to or in connection with this
Agreement or any other Loan Document shall be deemed to have been relied upon by
Lender, notwithstanding any investigation heretofore or hereafter made by or on
behalf of Lender. All such representations and warranties shall survive the
making of the Loan and any or all of the Advances contemplated hereby and shall
continue in full force and effect until such time as the Loan has been paid in
full.
ARTICLE 3
---------
GENERAL CONDITIONS OF LOAN
--------------------------
3.1 Loan Documents. It shall be a condition precedent to Lender's
--------------
obligation to make the Loan that at or before the Closing, Borrower shall
execute and deliver or cause to be duly executed and delivered to Lender all of
the Loan Documents and that all of the Loan Documents shall be satisfactory to
Lender in form and substance.
3.2 Additional Requirements. In addition to the Loan Documents, at or
-----------------------
prior to the Closing, Borrower shall deliver or cause to be delivered to Lender
each of the following, all of which shall be in form and substance satisfactory
to Lender:
A. Title Policy. The Title Policy.
------------
B. Survey. A current, as built survey of each Premises, certified to
------
Lender and the Title Company by a surveyor reasonably satisfactory to Lender,
which survey shall contain the minimum detail for land surveys as most recently
adopted by ALTA/ASCM, and which survey shall comply with Lender's survey
requirements and shall contain Lender's standard form certification. Said survey
shall show no state of facts or conditions reasonably objectionable to Lender.
-13-
<PAGE>
C. Opinion. An opinion(s) of Borrower's and Guarantor's counsel, dated
-------
the date of the Closing and relating to such matters with respect to this
Agreement and the transaction contemplated hereby (including usury) as Lender
may reasonably require. By its execution and delivery of this Agreement,
Borrower authorizes and directs such counsel to render such opinion(s).
D. Insurance. The insurance policies described on Exhibit D or
--------- ---------
certificates of insurance evidencing the same.
E. UCC Searches. Uniform Commercial Code searches made in the States of
------------
Florida and Colorado showing no filings relating to (i) the Personal Property,
(ii) any fixtures on any Premises, or (iii) the Collateral (as such term is
defined in the Security Agreement), other than those made pursuant to this
Agreement or otherwise approved by Lender in its sole discretion.
F. Corporate Organizational Documents. A certified copy of the articles
----------------------------------
of incorporation and by-laws of Borrower, together with such other documents as
Lender may reasonably require, including evidence of the Borrower's good
standing in the States of Florida and Colorado, and resolutions authorizing the
Loan transaction contemplated by this Agreement.
G. Appraisal and Engineer's Report. An independent appraisal of each
-------------------------------
Property from a state certified appraiser engaged by Leader which indicates the
fair market value of such Property and is reasonably satisfactory to Lender in
all respects, and an engineer's report reasonably satisfactory to the Lender.
H. Environmental Assessment. The Environmental Site Assessment Reports
------------------------
and a letter from the consultant preparing the environmental site assessment
stating that Lender is authorized to rely on the information contained therein.
I. Leases/Subordination Agreements and Estoppels. Certified copies of
---------------------------------------------
the CCI Leases and other Leases, if any, which shall be satisfactory to Lender
in its reasonable discretion; in connection therewith, Borrower shall use all
reasonable efforts to obtain from each Tenant under the Leases, with the
exception of any Aurora Lease (as defined below), (i) an estoppel certificate
and (ii) a subordination non-disturbance and attornment agreement, each in form
reasonably satisfactory to Lender.
J Licenses, Permits and Approvals. A final, unconditional certificate of
-------------------------------
occupancy issued with respect to each Premises, together with such other
applicable licenses, permits and approvals as Lender or any Governmental
Authority may reasonably require.
K. Agreements. Certified copies of all operating agreements, service
----------
contracts and equipment leases, if any, relating to Borrower's ownership and
operation of each Property.
-14-
<PAGE>
L. Zoning. Subject to the acknowledgment of Lender concerning the
------
Colorado Springs Premises set forth in Section 2.1.G, evidence satisfactory to
-------------
Lender as to the zoning compliance of each Premises.
M. Financial Statements. Current financial statements satisfactory to the
--------------------
Lender for each Loan Party.
N. Equity Investment. Evidence satisfactory to Lender in its sole
-----------------
discretion that Borrower has a minimum cost equity investment in the Properties
of not less than $220,000.
O. Purchase Agreement. A certified copy of the Purchase Agreement and all
------------------
assignments thereof, if any, and all material closing and conveyance documents
related thereto.
P. Compliance with Laws. Subject to the acknowledgment of Lender
--------------------
concerning the Colorado Springs Premises set forth in Section 2.1.G evidence
-------------
that each Property is in compliance with all applicable laws, zoning and land
use requirements, regulations and ordinances, including all applicable
environmental protection laws and the American with Disabilities Act of 1990
(except as stated in the Environmental Site Assessment Report).
Q. Flood Hazards. Evidence as to whether or not any Property is or is to
-------------
be located in an area having special flood hazards as such term is used in the
federal Flood Disaster Protection Act of 1973. If any Property is or is to be
located in an area having "special flood hazards," a flood insurance policy
naming the Lender as mortgagee must be submitted to the Lender.
R. Fees and Expenses. Payment by Borrower of all applicable mortgage and
-----------------
recording taxes and all fees and charges in connection with the Loan, including
all fees and charges of Lender's legal counsel.
S. Tax Bills. Certified copies of the real estate tax bills with respect
---------
to each Property from all taxing authorities for the most recent twelve month
period.
T. Other Items. Such other documents and instruments as Lender may
-----------
reasonably require.
-15-
<PAGE>
ARTICLE 4
---------
FURTHER COVENANTS OF BORROWER
-----------------------------
4.1 Borrower hereby further covenants and agrees with Lender as follows:
A. Taxes and Impositions.
---------------------
(a) Borrower shall pay and discharge all Impositions prior to
delinquency and shall provide to Lender validated receipts or other evidence
satisfactory to Lender showing the payment of such Impositions within 15 days
after the same would otherwise have become delinquent. Borrower's obligation to
pay Impositions pursuant to this Agreement shall include, to the extent
permitted by applicable law, taxes resulting from future changes in law which
impose upon Lender an obligation to pay any property taxes or other Impositions.
Should Borrower default in the payment of any Impositions, Lender may (but shall
not be obligated to) pay such Impositions or any portion thereof and Borrower
shall reimburse Lender on demand for all such Advances.
(b) Borrower shall not be required to pay, discharge or remove any
Imposition so long as Borrower contests in good faith such Imposition or the
validity, applicability or amount thereof by an appropriate legal proceeding
which operates to prevent the collection of such amounts and the sale of the
Property or any portion thereof; provided, however, that prior to the date on
which such Imposition would otherwise have become delinquent Borrower shall have
(i) given Lender prior written notice of such contest, and (ii) if required by
Lender upon Lender's receipt of the written notice described in the foregoing
clause (i) deposited with Lender, and shall deposit such additional amounts as
are necessary to keep on deposit at all times, an amount equal to at least one
hundred ten percent (110%) of the total of (A) the balance of such Imposition
then remaining unpaid, and (B) all interest, penalties, costs and charges
accrued or accumulated thereon. Any such contest shall be prosecuted with due
diligence, and Borrower shall promptly pay the amount of such Imposition as
finally determined, together with all interest and penalties payable in
connection therewith. Lender shall have full power and authority to apply any
amount deposited with Lender under this Section 4.1.A to the payment of any
-------------
unpaid Imposition to prevent the sale or forfeiture of any Property for non-
payment thereof. Lender shall have no liability, however, for failure to so
apply any amount deposited. Any surplus retained by Lender after payment of the
Imposition for which a deposit was made shall be repaid to Borrower unless an
Event of Default shall have occurred, in which case said surplus may be retained
by Lender to be applied to the Indebtedness. Notwithstanding any provision of
this Section 4.1.A to the contrary, Borrower shall pay any Imposition which it
-------------
might otherwise be entitled to contest if, in the reasonable discretion of
Lender, any Property is in jeopardy or in danger of being forfeited or
foreclosed; provided, however, that nothing herein shall limit or prevent
Borrower from contesting any such imposition for purposes of seeking refund or
reimbursement of all amounts paid in connection with the same. If Borrower
refuses to pay any such Imposition,
-16-
<PAGE>
Lender may (but shall not be obligated to) make such payment and Borrower shall
reimburse Lender on demand for all such Advances.
B. Deposits.
--------
(a) Initially, so long as Borrower provides Lender with evidence of
the timely payment of all Impositions and insurance premiums, Borrower shall not
be required to deposit in escrow any funds for Impositions or insurance premiums
as hereinafter provided; provided, however, Lender, in its sole discretion, may
at any time require Borrower to do the following:
(i) Deposit with Lender (or such agent of Lender as Lender may
designate in writing to Borrower from time to time), monthly,
on the due date of each monthly installment under the Note,
1/12th of the annual charges (as estimated by Lender) for all
Impositions;
(ii) Deposit with Lender on a monthly basis 1/12th of the annual
insurance premiums with respect to any Property; or
(iii) Deposit with Lender, simultaneously with such above-referenced
monthly deposits, a sum of money which together with such
monthly deposits will be sufficient to make the payment of each
such charge at least 30 days prior to the date initially due.
Should such charges not be ascertainable at the time any
deposit is required to be made, the deposit shall be made on
the basis of the charges for the prior year or payment period,
as reasonably estimated by Lender. When the charges are fixed
for the then current year or period, Borrower shall deposit any
deficiency on demand.
(b) Any interest earned on the sums held by Lender pursuant to this
Section 4.1.B shall be added to said sums and shall be taxable to Borrower, and
- -------------
shall, so long as no Event of Default shall have occurred, be disbursed by
Lender for the payment of the applicable Imposition or insurance premium. Should
an Event of Default occur, the funds so deposited may be applied in payment of
the charges for which such funds shall have been deposited or to the payment of
the Indebtedness or any other charges affecting the Properties, as Lender in its
sole and absolute discretion may determine, but no such application shall be
deemed to have been made by operation of law or otherwise until actually made by
Lender as herein provided. Borrower shall provide Lender with bills and all
other documents (if available) necessary for the payment of the foregoing
charges at least 30 days prior to the date on which each payment thereof shall
first become due.
C. Mortgage Taxes. Borrower shall pay any and all taxes, charges, filing,
--------------
registration and recording fees, excises and levies imposed upon Lender by
reason of their respective interests in, or measured by amounts payable under,
the Note, this Agreement, the Mortgages or any other
-17-
<PAGE>
Loan Document (other than income, franchise and doing business taxes), and shall
pay all stamp taxes and other taxes required to be paid on the Note, this
Agreement, the Mortgages or the other Loan Documents. If Borrower fails to make
such payment within five days after notice thereof from Lender, Lender may (but
shall not be obligated to) pay the amount due, and Borrower shall reimburse
Lender on demand for all such Advances. If applicable law prohibits Borrower
from paying such taxes, charges, filing, registration and recording fees,
excises, levies, stamp taxes or other taxes, then Lender may declare the
Indebtedness then unpaid to be immediately due and payable. In such event, no
prepayment fee shall be charged.
D. No Liens. Except for Permitted Encumbrances and subject to Borrower's
--------
rights to contest the same as described in Section 2.1.BB, and except as
--------------
provided in Section 4.1.F and Section 4.1.M, the Properties shall be kept free
------------- -------------
and clear of all liens, security interests and encumbrances of every nature or
description (whether for taxes or assessments, or charges for labor, materials,
supplies or services or any other thing). Other than the Permitted Encumbrances,
Borrower will not cause or permit any instrument or document affecting any
Property to be recorded without Lender's prior written consent thereto.
E. Condition of Premises. Borrower shall keep and maintain each Property
---------------------
in good order, condition and repair and shall make, as and when the same shall
become necessary, all structural and non-structural, exterior and interior,
ordinary and extraordinary, foreseen and unforeseen, repairs and maintenance
necessary or appropriate. Borrower shall suffer or commit no waste upon any
Premises or any portion thereof. Borrower shall, at its expense, promptly
repair, restore, replace or rebuild any part of any Property which may be
damaged or destroyed by any casualty or as the result of any taking under the
power of eminent domain to the extent permitted given the size, scope and extent
of the taking. Borrower shall cause all repairs, maintenance, rebuilding,
replacement or restoration to be (in the reasonable opinion of Lender) of
substantially equivalent quality to the Premises as the same exists at Closing
(subject to the completion of the Renovation Work). Borrower shall not cause,
suffer or permit the construction of any material buildings, structures, or
improvements on the Premises without the prior written consent of Lender to the
proposed construction as well as to the plans and specifications relating
thereto. None of the buildings, structures, or improvements erected or located
on any Premises shall be removed, demolished or substantially or structurally
altered in any material respect without the prior written consent of Lender. As
used in the two (2) preceding sentences, "material" shall mean the construction,
removal, demolition or alteration, as applicable to the Premises, the cost of
any of which in, the aggregate, exceeds $5,000. Lender's consents hereunder
shall not be unreasonably withheld or delayed.
F. Personal Property. All of the Personal Property is owned by Borrower
-----------------
in Borrower's name except for those items indentified on Schedule 4.1.F.
---------------
attached hereto, which are leased by Borrower.
-18-
<PAGE>
G. Compliance. Subject to Borrower's rights to contest the same pursuant
----------
to Sections 2.l.BB and 4.l.A(b) or otherwise, and subject to the acknowledgment
---------------------------
of Lender concerning the Colorado Springs Premises set forth in Section 2.l.G,
-------------
Borrower shall comply with all (i) building, zoning, fire, health,
environmental, disability and use laws, codes, ordinances, rules and
regulations, (ii) covenants and restrictions of record and (iii) easements which
are in any way applicable to any Premises, the Improvements or any part thereof
or to the construction of any improvements thereon and the use or enjoyment
thereof.
H. Performance of Agreements. Borrower shall duly and punctually perform,
-------------------------
observe and comply with all of the terms, provisions, conditions, covenants and
agreements on its part to be performed, observed and complied with hereunder and
under (i) the other Loan Documents, (ii) the Permitted Encumbrances, (iii) the
CCI Leases, and (iv) all agreements entered into or assumed by Borrower in
connection with the Properties, and will not suffer or permit any default or
Event of Default (as defined in any of the foregoing) (giving effect to any
applicable notice requirements and cure periods) to exist under any of the
foregoing.
I. Lender's Expenses. Borrower shall, or shall cause the Guarantor to,
-----------------
pay, on demand by Lender, all reasonable expenses, charges, costs and fees in
connection with the negotiation and documentation of the Loan, including all
registration and recording fees, insurance consultant fees, if any,
enviroumental consultant fees, costs of appraisals, costs or fees incurred in
connection with market studies, costs of engineering reports, cost of credit
reports, cost of audits, fees and disbursements of all counsel (both local and
special) for Lender, escrow fees, cost of surveys, fees and expenses of Lender's
Consultant or others employed by Lender to inspect any Premises from time to
time, and travel expenses incurred by Lender and Lender's agents and employees
in connection with the Loan; provided, however, in no event shall such expenses
of Lender exceed $260,000. At Closing, Lender may pay directly from the proceeds
of the Loan each of the foregoing expenses.
J. Financial Statements.
--------------------
(a) Borrower shall provide to Lender (i) annual financial statements
of Borrower and Guarantor and all such financial statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied
and shall be prepared by a certified public accountant reasonably satisfactory
to Lender, (ii) monthly and quarterly cash flow and operating statements for the
Properties prepared by and certified by Borrower (which quarterly statements
shall include the calculation of DSCR), (iii) such other financial information
as Lender may from time to time reasonably request, and (iv) copies of all
Federal income tax returns for Borrower and Guarantor certified by Borrower to
be true and correct. All such financial statements, cash flow statements and
operating statements shall be delivered to Lender as soon as possible but not
later than forty-five (45) days after the close of each month, and in the case
of annual financial statements, not later than ninety (90) days after the close
of each fiscal year. Said copies of Borrower's and
-19-
<PAGE>
Guarantor's Federal income tax returns shall be provided to Lender within thirty
(30) days following their filing with the Internal Revenue Service.
(b) Lender may, at Borrower's sole cost and expense and following
written notice to Borrower, require that any or all of the foregoing annual
financial statements be prepared on an "audited" basis, so called.
K. Due on Sale or Encumbrance. Except as otherwise expressly provided in
--------------------------
Article 7, Borrower shall not and shall not permit others to convey, assign,
- ---------
sell, mortgage, encumber, pledge, hypothecate, grant a security interest in,
grant options with respect to, or otherwise dispose of (directly or indirectly,
voluntarily or involuntarily, by operation of law or otherwise, and whether or
not for consideration or of record) (each a "Transfer") all or any portion of
any legal or beneficial interest in all or any portion of the Properties or the
Leases. Any such Transfer shall be deemed to be an Event of Default hereunder,
and shall entitle Lender to declare the Loan immediately due and payable,
together with any applicable Prepayment Fee.
L Estoppel Certificates. Within ten (10) Business Days following a
---------------------
request by Lender, Borrower shall provide to Lender a duly acknowledged written
statement confirming the amount of the outstanding Indebtedness, the terms of
payment and maturity date of the Note, the date to which interest has been paid,
and whether, to the best of Borrower's then knowledge, any offsets or defenses
exist against the Indebtedness. If any such offsets or defenses are alleged to
exist, the nature thereof shall be set forth in detail.
M. Leasing. Borrower shall not, without the prior written consent of
-------
Lender, enter into any lease or other rental or occupancy arrangement or
concession with respect to any real property comprising the Property or any
portion thereof. In the event Borrower desires to enter into a Lease, Borrower
shall submit the proposed Lease to Lender for Lender's prior written approval,
which approval shall not be unreasonably withheld or delayed. Borrower shall not
modify, amend or terminate (except upon a default by a tenant) any Leases
affecting any part of the Property. Notwithstanding the foregoing, Borrower may,
without the prior approval or consent of Lender, amend, modify or terminate any
CCI Lease encumbering a Property that is released in accordance with Article 7.
---------
Notwithstanding anything in this Agreement to the contrary, Borrower may,
without the prior approval or consent of Lender, negotiate, enter into, modify,
amend, extend, renew or terminate any Aurora Lease; provided, however, that
Borrower shall promptly inform Lender of taking any such action and further
provided that such Aurora Lease as entered into, modified, amended, extended, or
renewed shall have a term of not more than one year and shall permit the
Premises to be used solely for office purposes except as otherwise approved by
the Lender. As used herein, "Aurora Lease" means any lease pursuant to which
Borrower, as the lessor, leases or rents to a tenant some or all of that portion
of the Denver South Premises commonly known as Suites 105, 300, 301, 302, 303,
304, 308, 310, 311, 312 and 314, as the same are now or may in the future be
configured.
-20-
<PAGE>
Within ten (10) Business Days following the execution by Borrower of any
new Lease, Borrower shall deliver to Lender a Subordination, Non-Disturbance and
Attornment Agreement executed by the tenant under such Lease which is in form
satisfactory to Lender.
Borrower shall perform and comply with all of the landlord's obligations
under each Lease and shall not suffer or permit any breach or default on the
part of the landlord to occur thereunder.
N. Condemnation. Borrower shall not enter into any agreement for the
------------
taking of any Premises or any part thereof with anyone authorized to acquire the
same in or by condemnation proceedings, or by the exercise of any power of
eminent domain, unless and until Lender shall have consented thereto in writing.
O. Litigation. Borrower shall promptly provide Lender with written notice
----------
of any material litigation in which Borrower, any other Loan Party or any
Property is named as defendant which is not reasonably expected to be fully
covered by insurance for which the insurer has assumed the defense and Borrower
shall, unless prohibited by applicable law or court order, provide Lender with
copies of all pleadings or orders filed or entered therein or with respect
thereto. As used in the preceding sentence, "material" means any litigation in
which in excess of $50,000 is claimed against Borrower, any Loan Party or any
Property.
P. Intentionally Omitted.
---------------------
Q. Capital Reserve. Beginning on the fifteenth (15th) day of the first
---------------
month after the Closing and continuing on the fifteenth (15th) day of each month
thereafter until the Loan has been repaid in full, Borrower shall deposit with
Lender on a monthly basis a reserve for each Property in an amount equal to
$.0417 per square foot of Improvements on such Property provided that on each
anniversary of the fifteenth (15th) day of the first month after the Loan
closes, the Capital Reserve deposit shall be increased by a percentage equal to
the percentage increase in the Consumer Rate Index, all Urban Consumers (1982-84
= 100) over the preceding twelve (12) months (the "CPI Inflator"). So long as no
Event of Default or Incipient Default shall exist, Lender shall make the
deposited funds pertaining to each Property available to Borrower on the
following terms and conditions: (i) all Capital Reserve funds released by Lender
to Borrower shall be used to reimburse Borrower for the reasonable expenses
actually incurred and paid by Borrower for capital improvements to such Property
under an annual budget approved by Lender for said capital improvements; (ii)
all requests by Borrower for a disbursement of Capital Reserve funds shall be in
writing and shall not be made more frequently than once per month; (iii) each
such request for a disbursement shall be in an amount of not less than
$10,000.00; and (iv) Borrower shall provide Lender with paid receipts covering
the expenses for which Borrower seeks reimbursement from the Capital Reserve
funds.
-21-
<PAGE>
R. Funds Deposited with Lender. All funds of Borrower which are deposited
---------------------------
with Lender pursuant to this Agreement or any other Loan Document may be
commingled with Lender's general funds but shall always be invested in an
interest-bearing account. Any interest which accrues on said funds shall, at
Lender's sole option, be paid to Borrower or be held as part of the applicable
funds being held by Lender for the same purpose for which the principal sum of
said funds is being held by Lender. The Capital Reserve fund shall be reviewed
by the Lender annually on the anniversary of the Loan to determine if sufficient
sums are being funded for the expenses provided for herein. If the Lender
determines, in its reasonable discretion, that the Capital Reserve fund is
insufficient, Borrower shall pay all funding shortages within thirty (30) days
after notice by Lender; provided, however, that in no event shall the funding
shortage for any year exceed l25% of the Capital Reserve fund for the previous
calendar year. To secure all of Borrower's obligations to Lender under the Loan
Documents, Borrower hereby grants to Lender a security interest in all funds now
or hereafter deposited with Lender or otherwise in Lender's possession, custody
or control pursuant to the provisions of this Agreement or any other Loan
Document, including all funds deposited pursuant to Sections 4.1.B and 4.1.O of
------------------------
this Agreement. So long as any Event of Default exists, Lender shall have such
rights with respect to such funds and any interest accrued thereon as are
provided by applicable law and may apply such funds towards the satisfaction of
Borrower's obligations hereunder or under any other Loan Documents. Without
limiting any of the foregoing provisions, at the request of Lender, Borrower
shall execute and deliver from time to time such documents as may be necessary
or appropriate, in Lender's sole judgment, to assure Lender that it has a first
priority perfected security interest in and lien on all funds deposited pursuant
to Sections 4.1.B and 4.1.O of this Agreement, including the creation of a
------------------------
deposit account in the name of Borrower in a banking institution approved by
Lender either within or outside of the State of Ohio, as directed by Lender,
into which any or all of such funds will be deposited and maintained, subject to
the rights of Lender with respect to such funds as provided herein. All funds
held by Lender pursuant to the Agreement at the time the Loan is paid in full
shall be returned to Borrower within five (5) Business Days of the date of
payment in full or, upon the mutual agreement of Borrower and Lender, shall be
applied to Borrower's final payment on the Loan.
S. Audit and Inspection by Lender. Lender shall have the right, and
------------------------------
Borrower shall permit and shall cooperate with Lender in arranging for, at any
reasonable time and from time to time, Lender and its representatives (i) to
inspect each Property, and (ii) to review and audit all books, records and
financial statements of Borrower (including all supporting data and any other
records); and Borrower shall make all such books of account and records
available for such examination at the office where the same are regularly
maintained. Lender shall have the right to copy, duplicate and make abstracts
from such books and records as Lender may reasonably require. Borrower shall pay
Lender's reasonable costs and expenses incurred in connection with no more than
one (1) such audit per year. Borrower acknowledges and agrees that (i) all of
such audits, inspections and reports shall be made for the sole benefit of
Lender, and not for the benefit of Borrower or any third party, and neither
Lender nor Lender's auditors or inspectors or any of Lender's representatives,
agents or contractors assumes any responsibility or liability (except to Lender)
by reason of such
-22-
<PAGE>
audits, inspections or reports, (ii) Borrower will not rely upon any of such
audits, inspections or reports for any purpose whatsoever, and (iii) the
performance of such audits, inspections and reports will not constitute a waiver
of any of the provisions of this Agreement or any other Loan Document or any of
the obligations of Borrower hereunder or thereunder. Borrower further
acknowledges and agrees that neither Lender nor Lender's inspectors,
representatives, agents or contractors shall be deemed to be in any way
responsible for any matters related to design or construction of the
Improvements.
T. Appraisal. At any time during the term of the Loan, but not more
---------
often than once in any calendar year, Borrower shall cooperate with Lender and
use reasonable efforts to assist Lender in obtaining an appraisal of each
Property. Such cooperation and assistance from Borrower shall include but not be
limited to the obligation to provide Lender or Lender's appraiser with the
following: (i) reasonable access to any Property, (ii) a current certified rent
roll for such Property in form and substance satisfactory to Lender, current
asking rents and a history of change in asking rents and historical vacancy for
the past three years, (iii) current and budgeted income and expense statements
for the prior three years, (iv) a site plan and survey of Property, (v) the
building plans and specifications, including typical elevation and floor plans,
(vi) a photocopy of the deed conveying such Property to Borrower, together with
the legal description of such Property, (vii) the current and prior year real
estate tax bills, (viii) a detailed list of past and scheduled capital
improvements and the costs thereof, (ix) a summary of the then current ownership
entity, (x) all environmental reports and other applicable information relating
to the Property, and (xi) copies of all recent appraisals/property description
information or brochures, including descriptions of amenities and services
relating to the Property. The appraiser performing any such appraisal shall be
engaged by Lender, and Lender shall be responsible for any fees payable to said
appraiser in connection with an appraisal of the Property.
U. Accounts. Borrower agrees that, at any time requested by Lender in
--------
writing after an Incipient Default or Event of Default has occurred, Borrower
will do all acts reasonably requested by Lender to perfect or further perfect
Lender's security interest in all of Borrower's bank accounts, including,
without limitation, appointing a collateral agent satisfactory to Lender and
segregating all of Borrower's funds from those of any Affiliates.
V. Renovations. Borrower shall: (i) cause the Renovation Work to be
-----------
completed in a good and workman-like manner within one hundred twenty (l20)
days following the date of the Closing; (ii) cause the Renovation Work to be
constructed in accordance with all applicable requirements of any Governmental
Authority having jurisdiction with respect thereto; and (iii) cause the
Renovation Work to be completed in accordance with the plans and specifications
with respect thereto. To the extent Loan proceeds and funds required to be paid
by the previous owner of the Properties are not sufficient to fund the
Renovation Work, the necessary funds will be provided by Borrower through a cash
infusion into the Borrower and no Capital Reserve funds will be available for
purposes of the Renovation Work unless otherwise agreed in writing by Lender.
-23-
<PAGE>
ARTICLE 5
---------
AGREEMENT TO LEND
-----------------
5.1 Agreement to Lend. On the basis of the covenants, agreements and
-----------------
representations of Borrower contained in, and subject to the terms and
conditions set forth in, this Agreement and the other Loan Documents, Lender
agrees to lend to Borrower the principal sum of $3,760,000. Borrower shall use
the Loan proceeds for the purpose for which they were advanced and for no other
purpose.
5.2 Disbursements. Subject to the satisfaction of the terms and conditions
-------------
herein contained, the entire Loan Amount shall be disbursed at Closing.
5.3 Allocation of Loan. The Loan shall be allocated as follows:
------------------
<TABLE>
<CAPTION>
Property Allocated Loan Basis
-------- --------------------
<S> <C>
Denver North $ 720,000
Denver South $ 936,000
Colorado Springs $ 628,000
Tampa $ 792,000
Melbourne $ 684,000
TOTAL $3,760,000
</TABLE>
Each payment of principal shall cause a proportionate reduction in the
allocated Loan basis for each Property, provided, however, that any release
payment pursuant to Article 7 shall be applied first to the allocated Loan basis
---------
for the Property being released and any excess amounts shall cause a
proportionate reduction in the allocated Loan basis for each remaining Property.
ARTICLE 6
---------
INSURANCE AND CASUALTY
----------------------
6.1
A. Insurance. Borrower, at its sole cost and expense, shall insure and
---------
keep insured each Property against such perils and hazards, and in such amounts
and with such limits, as Lender may from time to time reasonably require. At the
time of the Closing, Lender's requirements for said insurance are set forth in
Exhibit D, which requirements Borrower acknowledges are reasonable and
- ---------
customary. Borrower shall also carry such other insurance, and in such amounts,
as Lender may from
-24-
<PAGE>
time to time reasonably require, against insurable risks which at the time are
commonly insured against in the case of premises similarly situated (taking into
account geographic location), due regard being given to the availability of
insurance and to the type of construction, location, utilities, use and
occupancy of each Premises or any replacements or substitutions therefor
("Additional Insurance"). Such Additional Insurance may include flood,
--------------------
earthquake, war risk, nuclear explosion, demolition and contingent liability
from the operation of "nonconforming improvements" on each Premises, and shall
be obtained within 30 days after demand by Lender. Otherwise, Borrower shall not
obtain any separate or additional insurance which is contributing in the event
of loss, unless it is properly endorsed and otherwise reasonably satisfactory to
Lender in all respects. The Proceeds (as defined in the Mortgage) of insurance
paid on account of any damage to or destruction of each Premises or any portion
thereof shall be paid over to Lender to be applied as hereinafter provided.
B. Evidence of Coverage. The insurance shall be evidenced by the original
--------------------
policy or a true copy of the original policy, or in the case of liability
insurance, by certificates of insurance. Said copies, original policies or
certificates shall be delivered to Lender at or prior to Closing. On or before
the Closing and each stated due date thereafter, Borrower shall pay all premiums
and fees for the insurance policies required hereunder. Borrower shall deliver
certified copies of all policies and renewals (or certificates evidencing the
same) to Lender at least thirty (30) days before the expiration of existing
policies. Each such policy shall provide that such policy may not be canceled or
materially changed except upon 30 days' prior written notice of intention of
non-renewal, cancellation or material change to Lender, and that no act or thing
done by Borrower shall invalidate the policy as against Lender. Notwithstanding
anything to the contrary contained herein or in any provision of law, the
Proceeds of insurance policies coming into the possession of Lender and which
are not to be used for the Work (as hereinafter defined) shall not be deemed
trust funds and Lender shall be entitled to dispose of such Proceeds as
hereinafter provided. If Lender has not received satisfactory evidence of such
renewal or substitute insurance in the time frame herein specified, Lender shall
have the right, but not the obligation, to purchase such insurance for Lender's
interest only. Any amounts so disbursed by Lender pursuant to this Section 6.1.B
-------------
shall be deemed to be a part of the Loan and shall bear interest at the Default
Rate. Nothing contained in this Article 6 shall require Lender to incur any
---------
expense or take any action hereunder, and inaction by Lender shall never be
deemed a waiver of any rights accruing to Lender on account of this Article 6.
---------
C. Separate Insurance. Borrower shall not carry any separate insurance on
------------------
each Property concurrent in kind or form with any insurance required hereunder
or contributing in the event of loss without Lender's prior written consent, and
any such policy shall have attached a standard noncontributing mortgagee clause,
with loss payable to Lender, and shall meet all other requirements set forth
herein.
D Damage to or Destruction of Premises. In the event of any damage to or
------------------------------------
destruction of each Premises, Borrower shall give prompt written notice to
Lender and, provided Lender makes the Proceeds available for the costs of
repair, restoration and rebuilding, Borrower shall promptly
-25-
<PAGE>
commence and diligently continue to completion the repair, restoration and
rebuilding of such Premises so damaged or destroyed in full compliance with all
legal requirements and with the provisions of Section 6.1.F. below, and, except
-------------
as may be allowed under this Agreement and subject to Borrower's right to
contest the same pursuant to Sections 2.1.BB and 4.1.A(b) or otherwise, free
----------------------------
and clear from any and all liens and claims. Such repair, restoration and
rebuilding of such Premises are sometimes hereinafter collectively referred to
as the "Work." Borrower shall not adjust, compromise or settle any claim for
insurance proceeds in excess of $25,000 without the prior written consent of
Lender. Lender shall have the option in its sole discretion to apply any
insurance Proceeds it may receive pursuant to this Agreement or any Mortgage
(less any cost to Lender of recovering and paying out such Proceeds, including
reasonable attorneys' fees) to the payment of the Indebtedness or to allow all
or a portion of such Proceeds to be used for the Work. If any insurance Proceeds
are applied to reduce the Indebtedness, Lender shall apply the same in the
following order:
(i) first, to the payment of interest due on any Advances;
(ii) next, to the principal amount of any Advances;
(iii) next, to any Late Charges (as provided in the Note);
(iv) next, to accrued interest then due under the Note; and
(v) finally, to the unpaid principal balance of the Note (in the
inverse order of maturity of principal installments thereof).
If Lender applies insurance Proceeds to reduce the Indebtedness, no
prepayment fee shall be due with respect to any prepayment effected thereby.
E. Restoration. Notwithstanding the provisions of Section 6.1.D. above,
----------- --------------
if, in Lender's reasonable judgment, the cost of the Work shall not exceed
$500,000 and the Work can be completed within 12 months of the occurrence of
said damage or destruction, then Lender shall, upon request by Borrower, permit
Borrower to use the insurance Proceeds for the Work (subject to the provisions
of, and less Lender's costs described in, Section 6.l.F. below), so long as
--------------
Lender, in its reasonable judgment, is satisfied that as of each date on which
such insurance Proceeds are to be applied to payment thereof:
(i) The insurance Proceeds held by Lender in respect of the
applicable casualty equal or exceed such estimated cost of
effecting such repair and restoration, or such portion thereof as
then remains to be completed and paid for;
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<PAGE>
(ii) Except for the Aurora Leases as described in Section 4.1.M, all
-------------
Leases, if any, shall remain in full force and effect, and no
tenant thereunder shall be entitled to cancel or terminate its
Lease as a consequence of such casualty;
(iii) Upon completion of the Work, the monthly revenues from such
Property shall, in Lender's reasonable judgment, be sufficient
to pay all principal, interest and other sums due and payable
under the Note, this Agreement and the other Loan Documents;
(iv) The Work will, in Lender's reasonable judgment, be completed
not less than 180 days prior to the Maturity Date;
(v) There is in force and effect for the benefit of Borrower and
Lender rental or business interruption insurance sufficient to
provide coverage for one hundred percent (100%) of all income
lost as a consequence of such casualty for not less than 12
months;
(vi) The Work will be effected pursuant to plans and specifications
reasonably approved in writing by Lender, and by a general
contractor and major subcontractors, and pursuant to contracts,
reasonably approved in writing by Lender; and
(vii) The Work can be effected in compliance with all applicable laws
and Borrower has obtained all licenses, permits, consents and
approvals from all applicable Governmental Authorities or
private parties required to permit Borrower to effect such
restoration and repair and to use, operate and occupy the
repaired and restored premises upon completion thereof (other
than those which will issue in the ordinary course upon
completion) and that the same are in full force and effect.
Lender shall have no obligation to make such insurance Proceeds available to pay
for the Work if (A) the principal and accrued interest owing on the Loan have
become due and payable, or (B) there shall exist an Event of Default or
Incipient Default.
F. Distribution of Proceeds. If any insurance Proceeds are used for the
------------------------
Work, then such Proceeds shall be held by Lender and shall be paid out from time
to time to Borrower as the Work progresses (less any cost to Lender of
recovering and paying out such Proceeds, including reasonable attorneys' fees
and costs allocable to inspecting the Work and the plans and specifications
therefor), subject to each of the following conditions:
-27-
<PAGE>
(i) If the Work is structural or if the cost of the Work is
reasonably estimated by Lender to exceed $l00,000, the Work
shall be conducted under the supervision of a certified and
registered architect or engineer unless otherwise waived in
writing by the Lender. Before Borrower commences any Work, other
than temporary work to protect property or prevent interference
with business, Lender shall have approved in writing the plans
and specifications for the Work, which approval shall not be
unreasonably withheld or delayed, it being nevertheless
understood that such plans and specifications shall provide for
Work so that, upon completion thereof, the Premises shall be at
least equal in value and general utility to the Premises prior to
the damage or destruction.
(ii) Each request for payment shall be made on not less than ten (10)
Business Days' prior notice to Lender and shall be accompanied by
a certificate of the architect or engineer in Section 6.1.F(i)
----------------
above (or a certificate given by Borrower if no architect or
engineer is so required) stating (A) that all of the Work
completed has been done in substantial compliance with the
approved plans and specifications, if required under Section 6.1
-----------
.F(i) above, (B) that the sum requested is justly required to
-----
reimburse the Borrower for payments by Borrower, or is justly due
to the contractor, subcontractors, materialmen, laborers,
engineers, architects or other persons rendering services or
materials for the Work (giving a brief description of such
services and materials), and that when added to all sums
previously paid out by Lender does not exceed the value of the
Work done to the date of such certificate, (C) if the sum
requested is to cover payment relating to repair and restoration
of personal property required or relating to the Premises, that
title to the personal property items covered by the request for
payment is vested in Borrower, and (D) that the amount of such
Proceeds remaining in the hands of Lender will be sufficient on
completion of the Work to pay for the same in full (giving in
such reasonable detail as Lender may require an estimate of the
cost of such completion). Additionally, each request for payment
shall contain a statement signed by Borrower approving both the
Work done to date and the Work covered by the request for payment
in question. Each request for payment shall be accompanied by
waivers of lien satisfactory to Lender covering that part of the
Work for which payment or reimbursement is being requested and,
if required by Lender, a search prepared by a title company or an
attorney authorized to practice law in the State, or by other
evidence satisfactory to Lender that there has not been filed
with respect to the Premises any mechanics' or other lien or
instrument for the retention of title relating to any part of the
Work not discharged of record. Additionally, as to any personal
property covered by the request for payment, Lender shall be
-28-
<PAGE>
furnished with evidence of payment therefor and such further
evidence satisfactory to assure Lender of its valid first lien on
the personal property.
(iii) Lender or its designee shall have the right to inspect the Work
at all reasonable times and may condition any disbursement of
Proceeds upon the satisfactory completion, as determined in
Lender's reasonable discretion, of any portion of the Work for
which payment or reimbursement is being requested. The cost of
any such inspection of the Work shall be paid by Borrower prior
to or simultaneously with the next disbursement of any portion of
the Proceeds. Neither the approval by Lender of the plans and
specifications for the Work nor the inspection by Lender of the
Work shall make Lender responsible for the preparation of such
plans and specifications or the compliance of such plans and
specifications, or of the Work, with any applicable law,
regulation, ordinance, covenant or agreement.
(iv) Unless Lender determines to the contrary, proceeds shall not be
disbursed more frequently than every 30 days.
(v) Any request for payment made after the Work has been completed
shall be accompanied by a copy or copies of any certificate or
certificates required by law to render occupancy and full
operation of the Premises legal.
(vi) Upon completion of the Work and payment in full therefor, or upon
any failure on the part of Borrower to promptly commence the
Work, or upon the failure on the part of Borrower to proceed
diligently and continuously to completion of the Work (subject to
allowance for reasonable delays and interruptions in the supply
of materials and labor not caused by any act or omission of
Borrower), Lender may apply any such proceeds it then or
thereafter holds to the payment of the Indebtedness; provided,
however, that Lender shall be entitled to apply at any time all
or any portion of insurance Proceeds it then holds to the curing
of any Event of Default.
G Miscellaneous Insurance Provisions.
----------------------------------
(i) Notwithstanding any other provision of this Section 6.1, if in
-----------
Lender's reasonable judgment the cost of the Work is less than
$50,000 and such Work can be completed in less than 60 days and
provided no Event of Default has occurred and is continuing, then
Lender shall, upon request by Borrower, permit Borrower to apply
for and receive the insurance Proceeds directly from the insurer
(and Lender shall advise the insurer to pay over such Proceeds
directly to Borrower), provided that Borrower shall apply such
-29-
<PAGE>
insurance Proceeds solely to the prompt and diligent
commencement and completion of such Work.
(ii) In the event of the foreclosure of the Mortgage or other
transfer of title to or assignment of any Property in
extinguishment of the Indebtedness in whole or in part, all
right, title and interest of Borrower in and to all policies of
insurance required by this Mortgage and any insurance Proceeds
shall, to the extent permitted by applicable law and the
applicable insuring agreements, inure to the benefit of and
pass to Lender or any purchaser or transferee of the Property.
(iii) Borrower hereby authorizes Lender, during all periods in which
an Event of Default has occurred and remains unwaived or
uncured, to settle any insurance claims, to obtain insurance
Proceeds, and to endorse any checks, drafts or other
instruments representing any insurance Proceeds whether payable
by reason of loss thereunder or otherwise.
ARTICLE 7
---------
RELEASE PROVISIONS
------------------
7.1 Partial Releases. At any time during the term of the Loan, Borrower
----------------
may sell a Property (other than the Tampa Property the sale of which shall be
governed by Section 7.2) and obtain a release of the Loan Documents with respect
-----------
to such Property upon satisfaction of all of the following conditions:
A. No Event of Default or Incipient Default is then continuing.
B. Borrower pays to Lender a release payment (to be applied against the
principal of the Loan) equal to 125% of Lender's allocated Loan basis for such
Property (unless such Property is the Colorado Springs Property, in which event
the release payment shall be equal to 115% of Lender's allocated Loan basis for
such Property).
C. In the event that, after the release of a Property pursuant to this
Article 7, the aggregate DSCR from the remaining Properties does not equal or
- ---------
exceed the aggregate DSCR for all of the Properties then subject to the Loan
Documents prior to the release of the applicable Property, Borrower shall pay to
Lender an additional amount necessary to reduce the principal amount of the Loan
such that the aggregate DSCR from the remaining Properties shall equal or exceed
the DSCR for all of the Properties subject to the Loan Documents prior to the
release of the applicable Property. In each case, DSCR shall be calculated for
the twelve (12) months immediately prior to the applicable release.
-30-
<PAGE>
7.2 Release of Tampa Property. At any time after April 30, 2000, Borrower
-------------------------
may sell the Tampa Property and obtain a release of the Loan Documents with
respect to the Tampa Property upon payment in full of the outstanding principal
amount of the Loan, any accrued and unpaid interest, the Prepayment Fee, if any,
and all other obligations under the Loan Documents.
ARTICLE 8
---------
BORROWER'S DEFAULT
------------------
8.1 Events of Default. Each of the following shall constitute an "Event of
-----------------
Default" under this Agreement:
A. Borrower fails to pay, within five (5) days following the due date
thereof, any installment of interest or principal on the Note or Borrower fails
to pay the Note in full on or before the Maturity Date;
B. Borrower or any Guarantor fails to pay within ten (10) days following
written notice from Lender any amounts due hereunder or under any of the other
Loan Documents, other than installments of principal and interest on the Note;
or
C. Any representation or warranty made by Borrower or any other Loan
Party in or pursuant to this Agreement or otherwise made in writing in
connection with or as contemplated by this Agreement shall be incorrect or false
or misleading in any material respect as to the period of time to which it
relates; or
D. An Event of Default (as defined in any other Loan Document) exists
under any other Loan Document; or
E. Any representation to Lender by Borrower or any other Loan Party as to
the financial condition or credit standing of Borrower or any other Loan Party,
or any financial statement provided to Lender pursuant to any Loan Document, is
or proves to be false or misleading in any material respect; or
F. Any direct interest in Borrower or, except as provided in Article 7 or
---------
Section 4.1.K, any Property (or any part thereof) is sold, conveyed,
- -------------
transferred, assigned, disposed of or further encumbered, either directly or
indirectly, or any agreement for any of the foregoing is entered into; or
-31-
<PAGE>
G. Any Premises or any portion thereof is rezoned either voluntarily or
involuntarily, so as to no longer permit such Premises or any portion thereof to
be used as a degree-granting vocational school; or
H. Any order or decree is entered by any court of competent jurisdiction
directly or indirectly enjoining or prohibiting Lender or Borrower from
performing any of their obligations under this Agreement and such order or
decree has not been stayed within sixty (60) days after such entry; or
I. Borrower or any other Loan Party makes an assignment for the benefit
of creditors; or petitions or applies to any court for the appointment of a
trustee or receiver for itself or for any part of its assets or for any Property
or any portion thereof, or commences any proceedings under any bankruptcy,
insolvency, readjustment of debt or reorganization statute or law of any
jurisdiction, whether now or hereafter in effect; or if any such petition or
application is filed or any such proceedings are commenced, and Borrower or any
other Loan Party by any act indicates any approval thereof, consent thereto, or
acquiescence therein; or an order is entered appointing any such trustee or
receiver, or adjudicating Borrower or any other Loan Party bankrupt or
insolvent, or approving the petition in any such proceeding; or if any petition
or application for any such proceeding or for the appointment of a trustee or
receiver is filed by any third party against Borrower or any other Loan Party or
their respective assets or any Property, or any portion thereof, and any of the
aforesaid proceedings is not dismissed within sixty (60) days of its filing; or
J. A final non-appealable judgment or judgments for the payment of money
in excess of an aggregate of $50,000 shall be rendered against Borrower and such
judgment or judgments shall remain undischarged or unbonded (to Lender's
reasonable satisfaction) for a period of 90 consecutive days during which the
execution shall not be effectively stayed;
K. Borrower or any other Loan Party fails to comply with, keep or perform
any of its other obligations, agreements, undertakings, covenants, conditions or
warranties under (i) this Agreement, (ii) any other Loan Document, or (iii) any
other document or instrument executed and delivered to Lender by Borrower or any
other Loan Party pursuant to this Agreement, and such failure continues for a
period of twenty (20) days after written notice thereof by Lender to Borrower;
L. Borrower or Guarantor fails to comply with, keep or perform any of its
obligations, agreements, undertakings, covenants, conditions or warranties under
any of the CCI Leases; or
M. Except for CCI Leases encumbering any Properties released pursuant to
Article 7, any CCI Lease is modified, amended or terminated without the prior
- ---------
written consent of Lender.
8.2 Remedies. Upon the happening of an Event of Default, Lender shall have
--------
the right, in addition to all the remedies conferred upon Lender by law or
equity or the terms of any Loan
-32-
<PAGE>
Document, to do any or all of the following, concurrently or successively,
without notice to Borrower:
A. Declare the Note to be, and the Note shall thereupon become,
immediately due and payable, together with the Prepayment Fee (as defined in the
Note), if applicable, without presentment, demand, protest, notice of intention
to accelerate, notice of acceleration or notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note to the
contrary notwithstanding, and exercise any one or more of its rights and
remedies under the Loan Documents.
B. Enter upon and take possession of any Property and all material,
equipment and supplies thereon and do anything necessary or desirable to fulfill
the obligations of Borrower hereunder and to sell, manage, maintain, repair and
protect any Property. Without limiting the generality of the foregoing and for
the purposes aforesaid, Borrower hereby appoints and constitutes Lender,
effective upon the occurrence of an Event of Default, its lawful attorney-in-
fact with full power of substitution to (i) pay, settle or compromise all
existing bills and claims which may be liens upon or security interests in any
Property, or to avoid such bills and claims becoming liens or security
interests, against any Property or any fixtures or equipment thereon, or as may
be necessary or desirable for the clearance of title or otherwise, (ii) execute
all applications and certificates in the name of Borrower which may be required
to carry out the intent and purpose hereof, (iii) employ such contractors,
subcontractors, architects and others as Lender may deem reasonably appropriate,
(iv) do any and every act which Borrower might do on its own behalf, including
to enter into Leases of any portion of any Property, and (vii) prosecute or
defend any and all actions or proceedings involving any Property or any
fixtures, equipment or other installations thereon, it being understood and
agreed that this power of attorney shall be a power coupled with an interest and
cannot be revoked. Lender and its designees, representatives, agents, licensees
and contractors shall be entitled to the entry, possession and use contemplated
herein without the consent of any party and without any legal process or other
condition precedent whatsoever. Borrower acknowledges that any denial of such
entry, possession and use by Lender will cause irreparable injury and damage to
Lender and agrees that Lender may forthwith sue for any remedy to enforce the
immediate enjoyment of such right. Borrower hereby waives the posting of any
bond as a condition for exercising such remedy.
C. Apply any Capital Reserve payments then being held by Lender to the
repayment of the Loan in any order or priority.
Anything in this Agreement to the contrary notwithstanding, all funds
advanced or disbursed by Lender pursuant to the provisions of this Article 8
---------
shall be deemed advanced by Lender under an obligation to do so regardless of
the identity of the person or persons to whom such funds are owed and shall bear
interest at the Default Rate. Funds advanced or disbursed by Lender in the
exercise of its judgment that the same are needed to protect its security or to
otherwise perform any obligations of Borrower hereunder are to be deemed
obligatory advances hereunder and are to be
-33-
<PAGE>
added to the total indebtedness evidenced by the Note and secured by the
Mortgages and the other Loan Documents and said indebtedness shall, if
necessary, be increased accordingly.
In case of any Event of Default hereunder; Borrower will pay reasonable
Lender's attorneys' fees and disbursements and court costs (including those
relating to appeals) and all related reasonable expenses in connection with the
enforcement of this Agreement or any of the other Loan Documents.
ARTICLE 9
---------
MISCELLANEOUS
-------------
9.1 Indemnification. Except for Losses (as hereinafter defined) which are
---------------
finally adjudicated by a court of competent jurisdiction to have arisen directly
and proximately from the gross negligence or willful misconduct of Lender,
Borrower shall protect, defend, indemnify and hold Lender, and its officers,
directors, employees and agents (each, an "Indemnified Party") harmless from and
against any and all harm, loss, liability, damage, suit, claim, demand, expense,
fees, costs, judgments and penalties (including reasonable attorneys' fees)
(each a "Loss") suffered or incurred by an Indemnified Party in connection with
(i) any claim, demand, suit or proceeding brought or asserted by any person
against an Indemnified Party arising out of or relating to Lender's entering
into or carrying out the terms of this Agreement or any of the other Loan
Documents or being the holder of the Note, (ii) subject to the limitations set
forth in Section 9.19, any default by Borrower or any other Loan Party hereunder
------------
or under any other Loan Document, (iii) any bodily injury, death, other personal
injury or property damage occurring in or upon any Property through any cause
whatsoever, (iv) any transaction otherwise arising out of or in any way
connected with any Property, this Agreement, any other Loan Document or the
Indebtedness, excluding a Loss arising out of Lender's gross negligence or
willful misconduct.
9.2 Defense of Claims. Lender may, at Borrower's sole cost and expense,
-----------------
retain separate counsel to defend Lender against any claim relating to any Loss
or potential Loss. If Lender retains separate counsel in such an action,
Borrower, to the extent permitted by applicable law and any court order and
without waiving any conflict of interest that may arise, will cooperate with
Lender and provide Lender with copies of all existing pleadings, discovery
materials and other materials relating to said claim. In any event, Borrower
shall defend any such claim and shall provide Lender with copies of all
pleadings, filings and correspondence relating thereto. In any event of Lender
retaining separate counsel pursuant to this Section 9.2, Lender shall use
-----------
reasonable efforts to cause such counsel, to the extent practicable and
consistent with all applicable rules of professional conduct, to cooperate with
Borrower's counsel and to avoid unnecessary duplication of effort.
9.3 Performance by Lender. In the event that Borrower shall at any time
---------------------
fail to duly and punctually pay, perform, observe or comply with any of its
covenants and agreements hereunder or
-34-
<PAGE>
under the other Loan Documents, or if any Event of Default hereunder shall
exist, then Lender may (but shall in no event be required to) make any such
payment or perform any such term, provision, condition, covenant or agreement or
cure any such Event of Default. Lender shall not take action under this Section
-------
9.3 prior to the occurrence of an Event of Default unless in Lender's reasonable
- ---
judgment, such action is necessary or appropriate in order to preserve the value
of the collateral, to protect persons or property, or Borrower has abandoned any
Property or any portion thereof. Lender shall not be obligated to continue any
such action having commenced the same and may cease the same without notice to
Borrower. Any amounts expended by Lender in connection with such action shall
constitute additional advances hereunder, the payment of which is additional
indebtedness, secured by the Loan Documents and shall become due and payable
upon demand by Lender, with interest at the Default Rate from the date of
disbursement thereof until fully paid. No further direction or authorization
from Borrower shall be necessary for such disbursements. The execution of this
Agreement by Borrower shall and hereby does constitute an irrevocable direction
and authorization to Lender to so disburse such funds.
9.4 Transfer or Assignment. Lender may assign, negotiate, pledge or
----------------------
otherwise hypothecate all or any portion of the Loan or grant participations
therein, or in any of its rights and security hereunder and under the other Loan
Documents, and Borrower shall, upon written notice of the same, accord full
recognition thereto. Lender may deliver copies to any potential participant or
assignee or transferee of financial statements and other information from time
to time furnished to Lender pursuant hereto or in connection therewith.
9.5 Lender's Actions. The authority herein conferred upon Lender and any
----------------
action taken by Lender hereunder or in any other Loan Document will be taken by
Lender for its own protection only, and Lender does not and shall not be deemed
to have assumed any responsibility to Borrower or to any other person or persons
with respect to any such action herein authorized or taken by Lender. No person
shall be entitled to rely upon, or claim to have relied upon, any action taken
or failed to have been taken by Lender or any of its representatives.
9.6 Time is of the Essence. TIME IS OF THE ESSENCE OF THIS AGREEMENT.
----------------------
9.7 Waivers. No waiver of any term, provision, condition, covenant or
-------
agreement contained herein or in any other Loan Document shall be effective
unless set forth in a writing signed by Lender, and any such waiver shall be
effective only to the extent set forth in such writing. No failure by Lender to
exercise, or delay by Lender in exercising, any right, power or privilege
hereunder or in any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof, or the exercise of any other
right or remedy provided by law. No notice to or demand on Borrower in any case
shall, in itself, entitle Borrower to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of Lender to
any other or further action in any circumstances without notice or demand.
-35-
<PAGE>
9.8 Notices. Any notice which any party hereto may be required or may
-------
desire to give hereunder shall be delivered personally, or by overnight express
courier, addressed in the case of Borrower to:
Corinthian Property Group, Inc.
6 Hutton Centre
Suite 400
Santa Ana, California 92707-5764
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660-6429
Attn: David A. Krinsky, Esq.
in the case of Lender to:
Banc One Capital Partners VI, Ltd.
150 East Gay Street, 24th Floor
Columbus, Ohio 43215
Attn: Ronald L. Callentine
with a copy to:
Banc One Capital Corporation
150 East Gay Street, 24th Floor
Columbus, Ohio 43215
Attn: Kenneth J. Krebs, Esq.
or at such other addresses or to the attention of such other persons as may from
time to time be designated by the party to be addressed by written notice to the
other in the manner herein provided. Notices, demands and requests given in the
manner aforesaid shall be deemed sufficiently served or given for all purposes
hereunder when received or when delivery is refused or when the same are
returned to sender for failure to be called for.
9.9 Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
the parties and their respective successors and permitted assigns. No assignment
made by Borrower in violation of this Agreement shall confer any rights on any
assignee of Borrower.
-36-
<PAGE>
9.10 No Partnership. Nothing contained herein, or in any other Loan
--------------
Document, and no action or inaction whatsoever on the part of Lender, shall be
deemed to make Lender a partner or joint venturer with Borrower.
9.11 Brokerage Claims. Borrower shall and shall cause the Guarantor to
----------------
protect, defend, indemnify and hold Lender harmless from and against all loss,
cost, liability and expense incurred as a result of any claim for a broker's or
finder's fee against Lender or any person or entity in connection with the
transaction herein contemplated, provided such claim is made by or arises
through or under Borrower or Guarantor or is based in whole or in part upon
alleged acts or omissions of Borrower or Guarantor.
9.12 Publicity. Lender may reasonably publicize the Loan if it so elects.
---------
9.13 Documents Satisfactory to Lender. All documents and other matters
--------------------------------
required by any of the provisions of this Agreement to be submitted or provided
to Lender shall be in form and substance reasonably satisfactory to Lender.
9.14 Additional Assurances. At any time or from time to time, upon the
---------------------
written request of Lender, Borrower shall execute, and, if required, record,
file (and pay all fees, taxes or other expenses relating thereto) all such
further documents and do all such other acts and things as Lender may reasonably
request to effectuate the transaction contemplated herein in accordance with the
terms hereof.
9.15 Entire Agreement. This Agreement, the Exhibits hereto and the other
----------------
Loan Documents and other documents referred to herein constitute the entire
agreement between the Lender and Borrower with respect to the subject matter
hereof and may not be modified or amended in any manner other than by
supplemental written agreement executed by the parties hereto.
9.16 Severability. If any provision of this Agreement or any other Loan
------------
Document or the application thereof to any person or situation shall, to any
extent, be held invalid or unenforceable, the remainder of this Agreement or any
other Loan Document, and the application of such provision to persons or
situations other than those to which it shall have been held invalid or
unenforceable, shall not be affected thereby, but shall continue valid and
enforceable to the fullest extent permitted by applicable law.
9.17 No Third Party Beneficiary. This Agreement is made for the sole
--------------------------
benefit of Borrower and Lender, and no other person shall be deemed to have any
privity of contract hereunder nor any right to rely hereon to any extent or for
any purpose whatsoever, nor shall any other person have any right of action of
any kind hereon or be deemed to be a third party beneficiary hereunder.
-37-
<PAGE>
9.18 CHOICE OF LAW. THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF OHIO,
-------------
ACCEPTED BY LENDER IN THE STATE OF OHIO, AND THE PROCEEDS OF THE LOAN EVIDENCED
HEREBY WERE OR ARE TO BE DISBURSED BY LENDER FROM THE STATE OF OHIO. IN
ADDITION, LENDER HAS ITS PRINCIPAL OFFICE IN THE STATE OF OHIO, THE LOAN IS
PAYABLE IN THE STATE OF OHIO, AND THIS AGREEMENT WAS DELIVERED BY BORROWER TO
THE LENDER IN THE STATE OF OHIO. BORROWER AND LENDER AGREE THAT THE STATE OF
OHIO HAS A SUBSTANTIAL RELATIONSHIP TO THE TRANSACTION EVIDENCED HEREBY AND
AGREE THAT THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OHIO (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
9.19 Limitation on Liability.
-----------------------
(a) Subject to the limitations and exceptions contained in
subsections (b), (c), (d) and (e) below, Borrower shall not have any personal
recourse liability for amounts owing under the Note or any of the other Loan
Documents and no deficiency judgment therefor shall be enforced against
Borrower. Lender's recourse for such amounts shall, subject to the limitations
and exceptions contained in subsections (b), (c), (d) and (e) below, be limited
to the collateral and security provided under the Loan Documents.
(b) A judgment may be sought, obtained, entered and enforced
against Borrower and Guarantor to the extent necessary to preserve or enforce
the rights and remedies of Lender in, to or against the collateral and security
provided under the Loan Documents, and nothing contained in this Section 9.l9
------------
shall be construed to limit, prejudice or impair the rights of Lender to enforce
its rights and remedies against any real and personal property mortgaged,
pledged, encumbered, assigned or granted to secure payment or performance under
this Agreement, the Note and the other Loan Documents. Notwithstanding anything
to the contrary herein or elsewhere Lender shall, to the fullest extent
permitted by law, be entitled to injunctive relief and to specific performance.
(c) Anything contained herein or elsewhere to the contrary
notwithstanding, Borrower and Guarantor shall be liable to Lender, without
limitation, for Lender's harm, loss (including lost interest and principal on
the Loan), damage, costs and expenses (including Lender's reasonable attorneys'
fees and court and collection costs) arising out of or in connection with any of
the following circumstances:
(i) any misapplication or misappropriation of any insurance or
condemnation Proceeds;
-38-
<PAGE>
(ii) revenues collected after a default and not properly applied to
the Loan or normal Operating Expenses of the Properties;
(iii) any waste respecting all or any part of any Property or any
other collateral;
(iv) real estate taxes or Impositions, if any, and insurance
premiums with respect to any Property;
(v) fraud in connection with the Loan or any Loan Document;
(vi) any material breach of any representation or warranty made in
connection with the Loan known by Borrower or Guarantor to have
been false when made, or deemed made specifically including any
material misrepresentation or inaccuracy contained in any
financial statement or other document provided to Lender
pursuant to Section 4.1.J of this Agreement known by Borrower
-------------
or any Guarantor to have been false or inaccurate when
provided;
(vii) any costs incurred in order to bring any Premises into
compliance with the accessibility provisions of the Fair
Housing Act of 1988 and the Americans with Disabilities Act
unless and to the extent such Premises were not in compliance
on the date hereof;
(viii) rents collected more than one month in advance;
(ix) any destruction of any Property or any part thereof in or from
an uninsured or underinsured casualty for which Borrower was
required to obtain insurance under this Agreement;
(x) any breach of any of the terms and provisions of Section 2.10
------------
(Environmental Matters) of any Mortgage.
(d) In the event of any filing by Borrower of any voluntary
petition under the Bankruptcy Code, or the taking by Borrower of any comparable
action under any federal or state law; or the filing of any involuntary petition
under the Bankruptcy Code against Borrower or the taking of comparable action
under any federal or state law against Borrower by any affiliate of any of them,
the Loan shall become fully recourse against Borrower.
(e) Nothing contained in this Section 9.19 shall be construed to
------------
release Borrower or any Loan Party from liability under the indemnifications
contained in Section 2.10 (Environmental Matters) of any Mortgage, in the
------------
Limited Guaranty and in the Environmental Indemnity.
-39-
<PAGE>
9.20 WRITTEN AGREEMENT.
-----------------
(i) THE RIGHTS AND OBLIGATIONS OF BORROWER AND LENDER SHALL BE
DETERMINED SOLELY FROM THIS WRITTEN LOAN AGREEMENT AND THE
OTHER LOAN DOCUMENTS, AND ANY PRIOR ORAL OR WRITTEN AGREEMENTS
BETWEEN LENDER AND BORROWER CONCERNING THE SUBJECT MATTER
HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE SUPERSEDED BY AND
MERGED INTO THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS.
(ii) THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY NOT BE
VARIED BY ANY ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE,
CONTEMPORANEOUSLY WITH, OR SUBSEQUENT TO THE EXECUTION OF THIS
LOAN AGREEMENT OR THE LOAN DOCUMENTS.
(iii) THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
9.21 Construction. Borrower and Lender agree that the terms and conditions
------------
of this Agreement and the other Loan Documents are the result of negotiations
between the parties and that this Agreement and the other Loan Documents shall
not be construed in favor of or against any party by reason of the extent to
which any party or its professionals participated in the preparation of this
Agreement.
9.22 Lender's Consent. In any action or proceeding bought by Borrower
----------------
against Lender claiming or based upon an allegation that Lender unreasonably
withheld its consent to or approval of a proposed act by Borrower which requires
Lender's consent hereunder, Borrower's sole and exclusive remedies in said
action or proceeding shall be injunctive relief or specific performance
requiring Lender to grant such consent or approval, and monetary damages not to
exceed the sum of $50,000; provided, however, that the limitation of liability
set forth in this Section 9.22 shall be of no effect with respect to any action
------------
or inaction by Lender that constitutes gross negligence or willful misconduct.
-40-
<PAGE>
9.23 Notice of Breach by Lender. Borrower agrees to give Lender written
--------------------------
notice of any action or inaction by Lender or any agent or attorney of Lender in
connection with this Agreement or any other Loan Document or the obligations of
Borrower under this Agreement or any other Loan Document that may be actionable
against Lender or any agent or attorney of Lender or a defense to payment of any
obligations of Borrower under this Agreement or any other Loan Document for any
reason, including commission of a tort or violation of any contractual duty or
duty implied by law. Borrower agrees that unless such notice is given promptly
(and in any event within thirty (30) days after the Borrower has knowledge of
any such action or inaction), Borrower shall not assert, and the Borrower shall
be deemed to have waived, any claim or defense arising therefrom to the extent
that Lender could have mitigated such claim or defense after receipt of such
notice.
9.24 WAIVER OF JURY TRIAL. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO A
--------------------
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND
VOLUNTARILY MADE BY LENDER AND BORROWER, AND LENDER AND BORROWER ACKNOWLEDGE
THAT NO PERSON ACTING ON BEHALF OF ANOTHER PARTY TO THIS AGREEMENT HAS MADE ANY
REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO
MODIFY OR NULLIFY ITS EFFECT. LENDER AND BORROWER FURTHER ACKNOWLEDGE THAT THEY
HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE
SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY
TO DISCUSS THIS WAIVER WITH COUNSEL.
9.25 Consent to Jurisdiction. The parties hereto submit to personal
-----------------------
jurisdiction in the State of Ohio for the enforcement of the provisions of this
Agreement and the other Loan Documents and irrevocably waive any and all rights
to object to such to such jurisdiction for the purposes of litigation to enforce
any provision of this Agreement and the other Loan Documents. Lender and
Borrower hereby consent to the jurisdiction of and agree that any action, suit
or proceeding to enforce this Agreement may be brought in any state or federal
court in the State of Ohio. Lender and Borrower hereby irrevocably waive any
objection which they may have to the laying of the venue of any such action,
suit, or proceeding in any such court and hereby further irrevocably waive any
claim that any such action, suit or proceeding brought in such a court has been
brought in an inconvenient forum. Borrower hereby appoints the Secretary of the
State of Ohio as its agent for service of process. Borrower and Lender hereby
consent that service of process in any action, suit or proceeding may be made by
service upon the aforesaid agent for service of process (in the case of service
to be made upon Borrower), by personal service upon the party being served, or
by delivery in accordance with the notice requirements of Section 9.8 of this
-----------
Agreement.
-41-
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
executed by their duly authorized representatives as of the day, month and year
first above written.
BORROWER:
CORINTHIAN PROPERTY GROUP, INC.,
a Florida corporation
By: /s/ Frank J. McCord
-------------------------------------
Name: Frank J. McCord
-----------------------------------
Title: VP Treasurer
----------------------------------
LENDER:
BANC ONE CAPITAL PARTNERS VI,
LTD., an Ohio limited liability company
By: BOCP Holdings Corporation,
its Manager
By: /s/ Ronald L. Callentine
-------------------------------------
Name: RONALD L. CALLENTINE
-----------------------------------
Title: Authorized Signer
-42-
<PAGE>
EXHIBIT 10.46
LIMITED GUARANTY AND INDEMNITY AGREEMENT
----------------------------------------
THIS LIMITED GUARANTY AND INDEMNITY AGREEMENT (this "Agreement"), made as
---------
of the 30th day of April, 1997, by and between CORINTHIAN COLLEGES, INC., a
Delaware corporation ("Guarantor"), having an address of 6 Hutton Centre, Suite
400, Santa Ana, California 92707-5764 to and for the benefit of BANC ONE CAPITAL
PARTNERS VI, LTD. having an office at 150 East Gay Street, 24th Floor, Columbus,
Ohio 43215 ("Lender").
RECITALS:
A. Lender and Corinthian Property Group, Inc., a Florida corporation
("Borrower"), entered into a Loan Agreement of even date herewith (as the same
--------
may be amended from time to time, the "Loan Agreement") pursuant to which
--------------
Lender agreed to make a loan to Borrower in the amount of $3,760,000 (the
"Loan") which Loan is evidenced by that certain Promissory Note of even date
----
herewith in the principal amount of $3,760,000 (as the same may be amended from
time to time, the "Note"). The Loan is secured by, inter alia, an aggregate of
---- ----------
five mortgages or deeds of trust, of even date herewith, with respect to
vocational schools located in Florida and Colorado (as the same may be amended
from time to time, the "Mortgages"), (the Note, the Loan Agreement, the
Mortgages and every other document, instrument and agreement evidencing or
securing the Loan are hereinafter sometimes collectively referred to as the
"Loan Documents");
--------------
B. Guarantor is the sole shareholder of Borrower;
C. Guarantor will directly benefit from the making of the Loan to
Borrower; and
D. Lender is unwilling to make the Loan without the execution and delivery
of this Agreement by Guarantor;
NOW, THEREFORE, to induce Lender to make the loan and in consideration of
One Dollar ($1.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor, intending to be legally
bound hereby agrees as follows:
l. Liabilities.
-----------
(a) Notwithstanding any provision contained in the Note, the Loan
Agreement, the Mortgages or any other Loan Document to the contrary, Guarantor
hereby absolutely, primarily, unconditionally, irrevocably and jointly and
severally guarantees to Lender, its successors and assigns, the full, prompt and
absolute payment, performance, observance and discharge by Borrower of
Borrower's obligations and liabilities arising under (i) Section 12 of the Note,
----------
(ii) Section 9.19 of the Loan Agreement, and (iii) Section 2.10 of each of
------------ ------------
the Mortgages
1
<PAGE>
(all of which matters are collectively hereinafter referred to as the
"Liabilities"). All terms used and not otherwise defined herein shall have the
-----------
meanings given therefor in the Mortgages.
(b) The validity of this Agreement and the obligations of Guarantor
hereunder shall in no way be terminated, abated, affected or impaired by the
happening from time to time of any event or condition, including, without
limitation, any of the following: (i) the assertion or non-assertion by Lender
of any of the rights or remedies available to Lender pursuant to the provisions
of the Loan Documents or pursuant to any applicable statutes; (ii) the waiver by
Lender of, or the failure of Lender to enforce, or the lack of diligence by
Lender in connection with, the enforcement of any of its rights or remedies
under the Loan Documents; (iii) the granting by Lender of any indulgence or
extension of time; (iv) the exercise by Lender of any so-called self-help
remedies; (v) any other act, omission or conditions which might in any manner or
to any extent vary the risk to Guarantor or might otherwise operate as a
discharge or release of Guarantor under applicable law; (vi) the invalidity or
unenforceability of all or any portion or provision of the Note; (vii) any
release or discharge of or accord and satisfaction with Borrower or any other
person or entity, by variation of the terms of the Note or otherwise; (viii) the
impairment, modification, change, release, discharge or limitation of the
liability of Borrower or Guarantor or any of their estates in bankruptcy,
resulting from or pursuant to the application of the bankruptcy or insolvency
laws of or any decision of any court of the United States or any state thereof;
(ix) any present or future law or order of any government (dejure or defacto) or
------ -------
of any agency thereof purporting to reduce, amend or otherwise affect the
Liabilities or to vary any terms of payment, satisfaction or discharge thereof;
(x) the waiver, compromise, settlement, release, extension, amendment, change,
modification or termination of the terms of the Liabilities or any or all of the
obligations, covenants or agreements of Borrower under the Loan Documents
(except by satisfaction in full of all Liabilities) or of Guarantor under this
Agreement; (xi) the extension of the time for satisfaction, discharge or payment
of the Liabilities or any part thereof owing or payable by Borrower under the
Loan Documents or of the time for performance of any other obligations,
covenants or agreements under or arising out of this Agreement or the extension
or renewal of any thereof; (xii) the existence of any other guaranty of the
Liabilities in favor of Lender, or the enforcement or attempted enforcement of
such other guaranty; and (xiii) any event or action that would in the absence
of this paragraph result in the release or discharge of guarantor from the
performance or observance of any obligation, covenant or Agreement contained
in this Agreement or any other Agreement.
2. Waivers. Guarantor hereby waives all notice of any default in the
-------
payment of or non-performance of any Liabilities, all protest, demands, notices
or presentments of any kind, notice of any acceptance of this Agreement and all
matters and rights which may be raised in avoidance of, or in defense against,
any action to enforce the obligations of Guarantor hereunder; provided, however,
that nothing herein shall waive Guarantor's right to assert payment or
performance of any Liabilities as a defense to a claim relating to such
Liabilities under this Agreement, to the extent of such payment or performance.
Guarantor hereby waives any and all suretyship defenses or defenses in the
nature thereof without in any manner limiting any other
2
<PAGE>
provisions of this Agreement. Notwithstanding anything to the contrary contained
herein, Guarantor hereby irrevocably waives all rights Guarantor may have at law
or in equity, including, without limitation, any law subrogating Guarantor to
the rights of Lender, to seek contribution, indemnification or any other form of
reimbursement from Borrower and any other person now or hereafter primarily or
secondarily liable for any obligations of Borrower to Lender, including without
limitation, the Liabilities, for any payment or performance made by Guarantor
under or in connection with this Agreement, unless and until payment in full of
the Note has been received by Lender.
3. Primary Liability
-----------------
(a) Guarantor's liability under this Agreement shall be primary, and
with respect to any right of action which shall accrue to Lender relating to any
Liabilities, Lender may at its sole option and without notice or demand, proceed
directly against Guarantor without having proceeded against Borrower or any
other person or entity liable to any extent for any of the Liabilities or
against the collateral under the Loan Documents. Guarantor's liability hereunder
shall continue without regard to whether or not Lender may have instituted or
prosecuted or obtained or realized any judgment in any suit, action or
proceeding or shall have exhausted any of its remedies or taken any steps to
enforce any of its rights under or pursuant to the Loan Documents or at law or
in equity, or otherwise, and without regard to any other condition or
contingency, so long as any of the Liabilities remains unsatisfied to any
extent. This Agreement is an agreement of payment and performance and not merely
of collection.
(b) Each default on any of the Liabilities shall give rise to a
separate cause of action and separate suits may be brought hereunder as each
cause of action arises or, at Lender's option, any or all causes of action which
arise prior to or after any suit is commenced hereunder may be included in such
suit.
4. Representations. Guarantor further represents to Lender, as an
---------------
inducement to making the Loan, that there is not pending or threatened any
litigation, arbitration, administrative or governmental proceeding against
Guarantor which would in any way prohibit or impede the adoption, execution, or
performance of this Agreement by Guarantor or which would affect any of the
undertakings herein; that compliance by Guarantor with Guarantor's obligations
under this Agreement has not resulted and will not result in the violation of
this Agreement or any agreement or other instrument to which Guarantor is a
party or by which Guarantor or any of Guarantor's assets are bound; that this
Agreement and all actions contemplated to be taken by Guarantor hereunder have
been duly authorized; and that this Agreement and such actions and undertakings
are valid and binding upon Guarantor and enforceable against Guarantor in
accordance with their terms.
3
<PAGE>
5. Borrower's Actions. No encumbrance, assignment, leasing, subletting,
------------------
sale or other transfer by Borrower of any of Borrower"s assets shall operate to
extinguish or diminish the liability of Guarantor under this Agreement.
6. Bankruptcy. If Borrower files a petition for reorganization,
----------
arrangement, composition or similar relief under any present or future provision
of the Federal Bankruptcy Code, or if such a petition is filed against Borrower
by Guarantor or by any person or entity affiliated with, related to or in which
a beneficial interest is owned by Guarantor (each, a "Bankruptcy Event"),
------------------
Guarantor shall, from and after the date of such filing, absolutely, primarily,
unconditionally, irrevocably and jointly and severally guarantee to Lender, its
successors and assigns, the full, prompt and absolute payment, performance,
observance and discharge of all of Borrower's obligations and liabilities
arising under the Loan Documents, including the repayment of all principal and
interest under the Note and the payment of all other sums payable by Borrower
under the Loan Documents.
7. No Reliance. Guarantor assumes the responsibility for being and keeping
-----------
itself informed of the financial condition of Borrower and of all other
circumstances bearing upon the risk of failure to pay, perform or discharge any
of the obligations and liabilities of Borrower which diligent inquiry would
reveal, and Lender shall have no duty to advise Guarantor of information known
to Lender regarding such condition or any such circumstance.
8. Payment of Expenses. Guarantor shall be responsible to Lender for all
-------------------
expenses (including reasonable attorneys' fees), incurred by Lender in enforcing
any obligations of Guarantor under this Agreement.
9. Successors and Assigns. All references to Lender and Guarantor shall be
----------------------
deemed to include references to the successors and assigns of Lender and
Guarantor.
10. Governing Law. This Agreement was negotiated in the State of Ohio,
-------------
accepted by Lender in the State of Ohio, and the proceeds of the Loan secured
hereby were or are to be disbursed by Lender from the State of Ohio. Guarantor
agrees that the State of Ohio has a substantial relationship to the transaction
evidenced hereby and agrees that this Agreement and the rights and obligations
of the parties hereunder shall be governed by and construed in accordance with
the laws of the State of Ohio (without giving effect to principles of conflicts
of law). Interpretation and construction of this Agreement shall be according to
the contents hereof and without presumption or standard of construction in favor
of or against Guarantor or Lender.
11. Severability. If any term or provision of this Agreement or the
------------
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and enforced to the fullest
extent permitted
4
<PAGE>
by law; provided, however, all rights, powers and remedies provided herein may
be exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Agreement invalid or unenforceable under any
applicable law.
12. No Waiver. The waiver of any provision of this Agreement by Lender
---------
shall constitute a waiver of that provision on that occasion only, and shall not
constitute a waiver of any other provision of this Agreement, or that provision
with respect to any other occasion.
13. Commercial Transaction.
----------------------
(a) TO INDUCE LENDER TO ENTER INTO THE COMMERCIAL LOAN TRANSACTION
EVIDENCED BY AND SECURED BY THE LOAN DOCUMENTS, GUARANTOR AGREES THAT THE SAID
TRANSACTION IS COMMERCIAL AND NOT A CONSUMER TRANSACTION.
(b) Each of the waivers set forth in this Agreement is made with
knowledge of its significance and consequences, and under the circumstances the
waivers are reasonable. If any of said waivers is determined to be contrary to
any applicable law or public policy, such waiver shall be effective only to the
maximum extent permitted by law.
14. Jury Trial. GUARANTOR HEREBY WAIVES THE RIGHT TO A TRIAL BY
----------
JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER
OF THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY
MADE BY GUARANTOR, AND GUARANTOR ACKNOWLEDGES THAT LENDER HAS NOT MADE ANY
REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY
TO MODIFY OR NULLIFY ITS EFFECT. GUARANTOR FURTHER ACKNOWLEDGES THAT GUARANTOR
HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE
SIGNING OF THIS AGREEMENT AND IN THE MAKING OF ALL WAIVERS CONTAINED HEREIN BY
INDEPENDENT LEGAL COUNSEL, SELECTED BY GUARANTOR, AND THAT GUARANTOR HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
15. Consent to Jurisdiction. Guarantor hereby consents to the
-----------------------
jurisdiction of and agrees that any action, suit or proceeding to enforce this
Agreement may be brought in any state or federal court in the State of Ohio.
Guarantor hereby irrevocably waives any objection which it may have to the
laying of the venue of any such action, suit, or proceeding in any such court
and hereby further irrevocably waive any claim that any such action, suit or
proceeding brought in such a court has been brought in an inconvenient forum.
Guarantor hereby appoints the Secretary of the State of Ohio as its agent for
service of process. Guarantor hereby consents that service of process in any
action, suit or proceeding may be made by service upon the aforesaid agent for
5
<PAGE>
service of process, by personal service upon the party being served, or by
delivery in accordance with the notice requirements of Section 9.8 of the Loan
-----------
Agreement.
16. Miscellaneous.
-------------
(a) This Agreement may not be modified, altered or amended nor may any
provision hereof or rights hereunder be waived, except by an instrument in
writing signed by the person or entity against which such modification,
alteration, amendment or waiver is sought to be enforced.
(b) Except as provided in Section 6 above, this Agreement shall
---------
terminate upon the payment by Borrower to Lender of all amounts evidenced by the
Note.
(c) This Agreement may be executed in any number of counterparts each
of which shall be a valid and binding original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly
executed and delivered under seal as of the date first written above.
GUARANTOR:
CORINTHIAN COLLEGES, INC.,
a Delaware corporation
By: /s/ Frank J. McCord
------------------------------------
Name: Frank J. McCord
--------------------------------
TITLE: VP & Treasurer
---------------------------------
6
<PAGE>
EXHIBIT 10.47
Prudential Capital Group
Four Embarcadero Center
Suite 2700
San Francisco, California 94111
October 31, 1997
Corinthian Colleges, Inc.
6 Hutton Centre Drive
Suite 400
Santa Ana, California 92707
Re: Default Waiver and Third Amendment under Agreement;
First Amendment to Warrants
-----------------------------------------------------
Ladies and Gentlemen:
Reference is made to the Note Purchase and Revolving Credit Agreement
(as heretofore amended, the "Agreement"), dated as of October 17, 1996, between
Corinthian Colleges, Inc. (the "Company"), and The Prudential Insurance Company
of America ("Prudential"), pursuant to which (i) the Company issued and sold,
and Prudential purchased, the Company's 10.27% Senior Secured Notes due October
17, 2003 in the original principal amount of $22,500,000, and (ii) Prudential
agreed to lend to the Company from time to time sums evidenced by the Company's
Senior Secured Revolving Note in the principal face amount of $5,000,000. Unless
otherwise defined herein, capitalized terms used herein which are defined in the
Agreement shall have the meanings as given in the Agreement.
Certain Defaults or Events of Default exist under the Agreement which
are more particularly described in Attachment A hereto (the Defaults and Events
of Default described in Attachment A hereto being herein called the "Specified
Defaults'). Further, the Company has advised Prudential that it will not be able
to repay the Revolving Loans so as to reduce the amount of the Revolving Loans
to the level which the Revolving Commitment is scheduled to be reduced to on
October 17, 1997 or to make the required repayment of the principal of the Term
Notes scheduled for October 17, 1997, that it is desirous of extending the
amortization schedule for the Term Notes and the term of the commitment for the
Revolving Loans as presently in effect and that it does not expect to be able to
comply with certain of the negative covenants in the Agreement in the future as
those covenants are presently in effect. Accordingly, the Company has requested
that Prudential waive the Specified Defaults and agree to certain amendments to
the Agreement as set forth below. Subject to the satisfaction of the conditions
set forth in Section 4 below and to the Company's agreement to the amendments
to the Agreement, the Term Notes and the Warrants set forth below, Prudential is
willing to waive the Specified Defaults and agree to the amendments requested by
the Company.
1
<PAGE>
Accordingly, pursuant to paragraph 11C of the Agreement, and subject to
and effective only upon the satisfaction of the conditions set forth in Section
4 below on or before November 30, 1997, Prudential and the Company agree as
follows:
1. WAIVER. Prudential hereby waives each of the Specified Defaults
through the Effective Date (as hereinafter defined). Once effective, such waiver
is intended to be effective as of and retroactive to June 30, 1997 and, in the
case of the Specified Default relating to paragraph 6B of the Agreement, March
31, 1997.
2. AMENDMENTS TO AGREEMENT AND TERM NOTES.
Prudential and the Company agree that the Agreement and the Term
Notes be amended as follows:
(a) Paragraph 1A of the Agreement is amended (i) by changing the
"October 17, 2003" maturity date in the first sentence thereof to "October
17, 2004", and (ii) by changing the "10.27%" in the first sentence thereof to
"11.02%".
(b) The outstanding Term Notes are amended (i) by changing the interest
rate thereon of "10.27%" in the title thereof and in the first paragraph
thereof to "11.02%", (ii) by changing the interest rate thereon of "12.27%" in
clause (i) of the first paragraph thereof to "13.02%", and (iii) by changing the
stated maturity date of October 17,2003 thereof in the title thereof and in the
first paragraph thereof to October 17, 2004, and Exhibit A-1 to the Agreement is
replaced by Exhibit A-1 to this letter agreement.
(c) Paragraph 2B(1) of the Agreement is amended (i) by changing the words
"until the third anniversary of the date of this Agreement" in clause (ii) in
the first sentence thereof to "until October 17, 2000", and (iii) by changing
the words "until the first anniversary of the date of this Agreement" in the
first sentence thereof to "until October 17, 1998".
(d) Schedule 4A to the Agreement is replaced by Schedule 4A to this
letter agreement.
(e) Paragraph 5A of the Agreement is amended by redesignating clause
(xii) thereof as clause (xiv), and by adding the following new clauses (xii)
and (xiii) thereto:
"(xii) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, a
report on the status of the direct student loan program including
loan balances outstanding, loan volumes originated in the most
recent reporting period, delinquencies, and default rates
expressed as a percentage of loans made and as a percentage of
dollars loaned for each school at which such loans are made;
2
<PAGE>
(xiii) within 90 days of the end of each fiscal year, a report on
the status of the direct student loan program prepared on an annual
basis including loan balances outstanding, loan volumes originated
in the most recent fiscal year, delinquencies, and default rates
expressed as a percentage of loans made and as a percentage of
dollars loaned for each school at which such loans are made; and"
(f) Paragraph 5 of the Agreement is amended by adding the following new
paragraphs 5O, 5P and 5Q thereto:
"5O. Discussions with Third Party Student Loan Provider. The
Company shall cause any third party providing or administrating any
student loans on behalf of the Company (a "Loan Provider") to (i)
discuss with any representative designated by any Significant
Holder loan balances, loan volumes, delinquencies and default rates
of all student loans provided or administered by such Loan Provider
on behalf of the Company and (ii) permit any such representative
to examine the records relating to such student loans held by the
Loan Provider and make copies thereof or extracts therefrom. The
presentation of an executed copy of this Agreement by any
representative of any Significant Holder shall constitute the
Company's permission to the Loan Provider to comply with the
provisions of this Section 5O.
5P. Restrictions on Direct Student Loans. At any time (i) after
the aggregate outstanding loan balance of the direct student loans
provided by the Company exceeds $14,000,000 or (ii) after more than
20% of the aggregate number of direct student loans provided by the
Company shall be in default, the Required Holders may require the
Company to cease providing direct student loans and to retain a
Loan Provider to provide student loans.
5Q. Review of Direct Student Loan Program. The Required Holders
may:
(i) at any time prior to December 31, 1997, require the
Company to engage an independent third-party selected by such
holders to review the policies and procedures governing the
Company's direct student lending program and to make
recommendations to the Company with respect thereto; and
(ii) at any time after (a) December 31, 1998 or (b)
such earlier date as the aggregate outstanding loan balance of the
direct
3
<PAGE>
student loans provided by the Company shall equal or exceed
$14,000,000, require the Company to allow an independent
third-party selected by such holders to review and audit the loan
balances, loan volumes, delinquencies and default rates of all
students loans provided by the Company as of the end of the
Company's prior fiscal.
The reasonable fees and expenses of any third-party conducting a
review pursuant to this Paragraph 5Q shall be paid by the Company.
The Required Holders will not exercise any of their rights under
clause (i) or (ii) of this paragraph 5Q unless they shall have
first given notice of the desire to exercise such rights to the
Company and, within 30 days after such notice has been given, the
holders of the Series 2 Class A Preferred and Series 3 Class A
Preferred shall not have exercised their rights to require the
Company to conduct the requested review or review and audit. The
Company will promptly provide the holders of the Notes with the
results of any review or audit of the Company's direct student
lending program or the loan balances, loan volumes, delinquencies
or default rates of the student loans provided by the Company as a
result of a request by the holders of the Series 2 or Series 3
Class A Preferred."
(g) Paragraphs 6A(1), 6A(2), 6A(3), 6A(4), 6A(5),
6A(6) and 6A(7) of the Agreement are amended and restated in their
entirety to read as follows:
"6A(1). Quick Ratio. The ratio (expressed as a percentage) of
Consolidated Quick Assets to Consolidated current liabilities to be
less than (i) 60% at any time from the Closing Day through March
31, 2000; (ii) 85% at any time from April 1, 2000 through September
30, 2000; and (iii) 100% at any time after September 30, 2000;
6A(2). Maximum Ratio of Senior Debt to Cash Flow. The ratio
(expressed as a percentage) of Consolidated Senior Debt as at the
end of any fiscal quarter to Consolidated Cash Flow (a) for the two
fiscal quarter period ending December 31, 1997 to exceed 1,050%,
(B) for the three fiscal quarter period ending March 31, 1998,
465%, or (C) for the four fiscal quarter period ended at the end of
each fiscal quarter ending after March 31, 1998 to exceed (i) 350%
from April 1, 1998 through September 30, 1998; (ii) 250% from
October 1, 1998 through March 31, 1999; (iii) 200% from April 1,
1999 through June 30, 1999; (iv) 175% from July 1, 1999 through
September 30, 1999; and (v) 150% after September 30, 1999.
4
<PAGE>
6A(3). Maximum Ratio of Senior Debt to Capitalization. The ratio
(expressed as a percentage) of Consolidated Senior Debt to
Consolidated Capitalization to exceed (i) 85% at any time from the
Closing Day through June 30, 1998; (ii) 75% at any time from July
1, 1998 through September 30, 1998; (iii) 70% at any time from
October 1, 1998 through March 31, 1999, (iv) 65% at any time from
April 1, 1999 through September 30, 1999, (v) 55% at any time from
October 1, 1999 through March 31, 2000, (vi) 50% at any time from
April 1, 2000 through September 30, 2000, and (vii) 45% at all
times after September 30, 2000;
6A(4). Minimum Ratio of Cash Flow and Operating Lease Payments to
Fixed Charges. The ratio (expressed as a percentage) of (i) the sum
of Consolidated Cash Flow and Consolidated Operating Lease Payments
to (ii) Consolidated Fixed Charges, in each case for (A) the two
fiscal quarter period ending December 31, 1997 to be less than
100%, (B) the three fiscal quarter period ending March 31, 1998 to
be less than 125% or (C) the four fiscal quarter period ending at
the end of any fiscal quarter ending after March 31, 1998 to be
less than (a) 125% through June 30, 1999, (b) 130% from July 1,
1999 through September 30, 2000, (c) 150% from October 1, 2000
through December 31, 2000, and (d) 175% at any time after December
31, 2000;
6A(5). Minimum Ratio of EBIT and Operating Lease Payments to
Interest Expense and Operating Lease Payments. The ratio (expressed
as a percentage) of (i) the sum of Consolidated EBIT and
Consolidated Operating Lease Payments to (ii) Consolidated Interest
Expense and Consolidated Operating Lease Payments, in each case for
(A) the two fiscal quarter period ending December 31, 1997 to be
less than 85%, (B) the three fiscal quarter period ending March 31,
1998 to be less than 105%, or (C) the four fiscal quarter period
ending at the end of any fiscal quarter ending after March 31, 1998
to be less than (a) 105% through June 30, 1998; (b) 125% from July
1, 1998 through September 30, 1998; (c) 140% from October 13 1998
through June 30, 1999; (d) 155% from July 1, 1999 through March
31, 2000 and (e) 175% after March 31, 2000;
6A(6). Minimum Consolidated Cash Flow. Consolidated Cash Flow
From Operations for the fiscal year set forth below to be less than
the amount set forth in the table opposite such fiscal year:
5
<PAGE>
Fiscal Year Minimum Consolidated
Ending June 30 Cash Flow From Operations
-------------- -------------------------
1998 ($1,000,000)
1999 $4,500,000
2000 $8,500,000
2001 $14,500,000
2002 and $16,500,000
each fiscal
year thereafter
6A(7). Maximum Ratio of Debt to Capitalization. The ratio
(expressed as a percentage) of Consolidated Debt to Consolidated
Capitalization to exceed (i) 100% at any time from October 1, 1997
through December 31, 1997; (ii) 95% at any time from January 1,
1998 through March 31, 1998; (iii) 90% at any time from April 1,
1998 through December 31, 1998; (iv) 80% at any time from January
1, 1999 through June 30, 1999; (v) 75% at any time from July 1,
1999 through December 31, 1999; (vi) 60% at any time from January
1, 2000 through September 30, 2000, and (vii) 55% at any time after
September 30, 2000."
(h) Paragraphs 6B of the Agreement is amended and restated in its
entirety to read as follows:
"6B. Restricted Payments. The Company covenants that it shall not,
and shall not permit any Subsidiary to, make, pay or declare, or
commit to make, pay or declare, any Restricted Payment, other than:
(i) dividends paid in cash by the Company on the Series 1
Class A Preferred, provided that no proceeds of any Revolving
Loan are used to make any such payment, the dividend rate on
the Class A Series 1 Preferred shall not exceed 6% (or, to the
extent shares of Class A Preferred have not been optionally
redeemed by the Company on or prior to June 30, 2002, 12%) and
no such dividends are paid or declared prior to October
18, 1998;
(ii) dividends paid in cash by the Company on the Series 2
Class A Preferred and the Series 3 Class A Preferred,
provided that no proceeds of any Revolving Loan are used to
make any such payment, the dividend rate on the Series 2
Class A Preferred and the Series 3 Class A Preferred shall
not
6
<PAGE>
exceed 8% and no such dividends are paid or declared prior
to October 18, 1998;
(iii) interest paid in cash by the Company on the
Subordinated Debt, provided that no proceeds of any Revolving
Loan are used to make any such payment, the interest rate on
the Subordinated Debt shall not exceed 12% and, except for a
semi-annual payment of interest accrued after March 31, 1998
paid on or after September 31, 1998, no such interest shall be
paid prior to October 18, 1998;
(iv) principal payments made by the Company on the
Subordinated Debt in accordance with Schedule 6B;
(v) redemption of the Series 1 Class A Preferred at the
option of the Company on or after June 30, 2002;
(vi) redemption of the Series 2 Class A Preferred or the
Series 3 Class A Preferred at the option of the holders
thereof on or after June 30, 2002, provided that the
aggregate amount paid by the Company with respect to the
optional redemption of Series 2 Class A Preferred or Series
3 Class A Preferred on or prior to October 17, 2004
(excluding accrued and unpaid dividends) shall not exceed
$4,000,000;
(vii) mandatory redemption of the Series 1 Class A
Preferred if the Company completes an equity offering after
the Closing Day that (a) yields net proceeds to the Company
in excess of $20,000,000 and (b) values the equity on a
fully diluted basis (based on the offering price) held by
BOCP, Primus, Senior Management and Prudential, as a group,
at an amount no less than $35,000,000;
(viii) Restricted Payments made by any Subsidiary to the
Company; and
(ix) purchases or other acquisitions of shares of Common
Stock from a former employee of the Company or a Subsidiary
in connection with the termination of the employment of such
employee with the Company or any Subsidiary;
7
<PAGE>
provided, however, that the Restricted Payments described in (i)
through (ix) above shall not be declared, ordered, paid or made, or
committed for, nor shall any sum or Property be set aside for any
Restricted Payment, unless at the time thereof and immediately
after giving effect thereto (i) no Default or Event of Default is
in existence and (ii) the sum of all Restricted Payments made after
September 30, 1997 does not exceed an amount equal to the sum of
(a) 30% (or, in the case of a loss or deficit, minus 100%) of
Consolidated Net Income for each fiscal quarter ending after
September 30, 1997 and prior to the date of such proposed
Restricted Payment and (b) all interest paid on the Subordinated
Debt after September 30, 1997 and prior to the date of such
proposed Restricted Payment (but including the proposed Restricted
Payment if it is an interest payment on the Subordinated Debt). The
Restricted Payment described in clause (vii), above, may be paid
notwithstanding clause (ii) of the foregoing proviso so long as (1)
at the time such Restricted Payment is made and immediately after
giving effect thereto no Default or Event of Default exists, and
(2) prior to the time such Restricted Payment is made a portion of
the proceeds from the equity offering described in such clause
(vii) is used to prepay, pursuant to paragraph 4B(1) of this
Agreement, the entire required principal prepayments of the Term
Notes due on October 17, 1998 and October 17, 1999 under paragraph
4A of this Agreement, and all accrued and unpaid interest thereon,
and, pursuant to paragraph 2B(2) of this Agreement, the entire
outstanding principal amount of the Revolving Notes, and all
accrued and unpaid interest thereon."
(i) Schedule 6B to the Agreement is replaced by
Schedule 6B to this letter agreement.
(j) The definition of "Adjusted Commercial Paper Rate"
in Paragraph l0B of the Agreement is amended by changing "3.00%" to
"3.50%".
(k) The definition of "Class A Preferred" is deleted
from paragraph l0B of the Agreement and each reference in the
Agreement to "Class A Preferred" is amended to read "Series 1 Class
A Preferred."
(l) The definition of "LIBOR Rate" in paragraph 10B
of the Agreement is amended by changing "3.00%" in the first
sentence thereof to "3.50%".
8
<PAGE>
(m) The following definitions are added to paragraph
l0B of the Agreement:
"Series 1 Class A Preferred" shall mean the Company's Class A
Series 1 Preferred Stock of the par value of $1.00 per share.
"Series 2 Class A Preferred" shall mean the Company's Class A
Series 2 Preferred Stock of the par value of $1.00 per share.
"Series 3 Class A Preferred" shall mean the Company's Class A
Series 3 Preferred Stock of the par value of $1.00 per share.
3. AMENDMENTS TO WARRANTS. Prudential and the Company agree that each
of the Warrants is amended by (a) deleting the first sentence of Section
3A(3)(i) of each Warrants and (b) changing the "October 17, 2003" date in the
clause (a) of the definition of "Expiration Date" in each Warrant to "October
17, 2004"..
4. CONDITIONS TO EFFECTIVENESS. The effectiveness of the waivers and
amendments herein is subject to satisfaction of the following conditions on or
before November 30, 1997 (the date upon which such conditions are satisfied
being called the "Effective Date"):
(a) Prudential shall have received counterparts to this letter
agreement executed by the Company.
(b) Prudential shall have received an amended Term Note in the form of
Exhibit A-1 hereto in the aggregate principal amount of $22,500,000, registered
in the name of Prudential, dated the date as of which the last interest payment
on the Term Notes has been made and duly executed and delivered by the Company,
in replacement for a like principal amount of the existing Term Notes. Promptly
after the Effective Date Prudential will mark the existing Term Notes
"Replaced" and return them to the Company.
(c) The Company's Restated Certificate of Incorporation shall have been
amended and restated in a manner in form and substance satisfactory to
Prudential, shall be in full force and effect under the laws of Delaware as of
the Effective Date as so amended and shall not have been further amended or
modified. Prudential shall have received evidence reasonably satisfactory to it
that one or more of the Equity Sponsors have purchased shares of Series 2 Class
A Preferred and Series 3 Class A Preferred Stock for a purchase price which
provides net cash proceeds to the Company (before deducting the Company's
expenses in connection with this letter agreement and the transactions
contemplated hereby including the amendment fee referred to in Section 4(h)
hereof) of at least $5,000,000 and on terms and conditions acceptable to
Prudential, such shares of Series 2 Class A Preferred and Series 3 Class A
Preferred shall have issued free of any preemptive rights, Prudential shall have
received (i) written confirmation from such Equity Sponsors, in form and
substance satisfactory to Prudential, that such shares of Series 2 Class A
Preferred and Series 3 Class
9
<PAGE>
A Preferred constitutes "Subordinated Securities" under the Subordination and
Standstill Agreement (the "Subordination Agreement"), dated as of October 17,
1996, from the Equity Sponsors and Senior Management in favor of Prudential,
which confirmation shall be in full force and effect as of the Effective Date,
and (ii) an Officer's Certificate, dated the Effective Date, detailing the
number of authorized and outstanding shares of Capital Stock, outstanding
options to acquire or securities convertible into Capital Stock and shares of
Capital Stock reserved for issuance, in form satisfactory to Prudential.
(d) The Company shall have issued to Prudential a common stock purchase
warrant (the "New Warrant"), exercisable for 2% of the common stock of the
Company on a fully diluted basics (after giving effect to the issuance of the
Series 2 Class A Preferred and Series 3 Class A Preferred contemplated by
Section 4(c) hereof), which warrant shall be in the form of Exhibit 2 hereto
duly executed by the Company and delivered to Prudential.
(e) The Subordinated Note and Warrant Purchase Agreement and the
Subordinated Debt shall have been amended to waive all defaults thereunder, to
change the covenants therein to be less restrictive than the covenants in the
Note Agreement, after giving effect to the amendments to be made hereby, to
defer all principal payments on and the maturity date of the Subordinated Debt
by one year, to prevent a default for any failure to pay interest accrued on the
Subordinated Debt through March 31, 1998 until no earlier than October 18, 1998,
and to change the interest payment dates on the Subordinated Debt to semi-annual
(March 31 and September 30) until after September 30, 1998 (the "Subordinated
Note and Warrant Purchase Agreement Amendment"), the Subordinated Note and
Warrant Agreement Amendment shall be satisfactory in form and substance to
Prudential and such Amendment, and the amendments and waivers thereunder, shall
be in full force and effect as of the Effective Date, and Prudential shall have
received written confirmation from the holders of the Subordinated Debt that the
Subordinated Debt, as amended by such Amendment, remains subject to the
Subordination Agreement.
(f) The Registration Agreement shall have been amended as set forth
in Exhibit 4 hereto (the "Registration Agreement Amendment") and the
Registration Agreement Amendment shall be in full force and effect as of the
Effective Date.
(g) The representations and warranties of the Company contained in
Section 5 hereof shall be true on and as of the Effective Date after giving
effect to the waivers, amendments and other transactions contemplated by this
Agreement, and, after giving effect to such waivers, amendments and other
transactions, there shall exist no Default or Event of Default; no material
adverse change in the business, condition (financial or otherwise), operations
or prospects of the Company and its Subsidiaries shall have occurred or, to the
Company's best knowledge, be threatened since August 31,1997 (except that in
September , 1997 the Company received notice that the access of three of the
Company's schools to Title IV loan funds had been terminated because of
noncompliance with cohort default rate requirements, bringing the total number
of the Company's schools as to which the Company has received notice that access
to Title IV loan funds has been terminated to 6); and
10
<PAGE>
the Company shall have delivered to Prudential an Officer's Certificate, dated
the Effective Date, to both such effects.
(h) The Company shall have paid to the Prudential a $100,000
amendment fee.
(i) Each of the Equity Sponsors shall have executed an acknowledgment
(the "Equity Acknowledgment") that no adjustments to the conversion price of the
Series 2 Class A Preferred or the Series 3 Class A Preferred shall be required
in connection with the issuance of the New Warrant, the issuance of shares upon
the exercise of the New Warrant or the consummation of the transactions
contemplated hereby. The Equity Acknowledgment shall be in form and substance
satisfactory to Prudential and shall be in full force and effect as of the
Effective Date.
(j) Each Equity Sponsor and each member of Senior Management shall
have executed a waiver of such Person's rights to purchase the New Warrant or
the shares of common stock issuable upon the exercise of the New Warrant,
whether pursuant to the Rights Agreement or otherwise (the "Pre-Emptive Rights
Waiver"). The Pre-Emptive Rights Waiver shall be in form and substance
satisfactory to Prudential and shall be in full force and effects as of the
Effective Date.
(k) Prudential shall have received from O'Melveny & Myers, counsel
for the Company, an opinion which shall be addressed to Prudential, dated the
Effective Date and in form and substance satisfactory to Prudential.
(1) The Company shall have paid the fees and expenses of Prudential's
special counsel in connection with the transactions contemplated hereby.
(m) Prudential shall have received a written confirmation and
agreement from the Equity Sponsors and each member of Senior Management, in form
and substance satisfactory to Prudential, confirming that the Subordination
Agreement continues to apply to the Agreement and the Notes after giving effect
to the waivers, amendments and transactions contemplated by this letter
agreement and agreeing that, until such time as all principal of, interest on
and Yield-Maintenance Amount, if any, with respect to Term Notes and the
Revolving Note have been indefeasibly paid in full and the obligations of
Prudential to make Revolving Loans has been terminated, other than with respect
to mandatory redemption of the Series 1, Series 2 or Series 3 Class A Preferred
permitted under clauses (vi) or (vii) of paragraph 6B of the Agreement, each
will not exercise any right to require or demand the Company to redeem any
Series 1 Class A Preferred, Series 2 Class A Preferred or Series 3 Class A
Preferred or any right to require the Company to purchase any Capital Stock or
Equity Sponsor Warrants, whether pursuant to the Amended Restated Certificate of
Incorporation of the Company, the Rights Agreement, dated October 17, 1996,
among the Company, Corinthian Schools, Inc., the Equity Sponsors and Senior
Management, or otherwise, and such written confirmation and agreement shall be
in full force and effect as of the Effective Date.
(n) The transactions contemplated by this letter agreement shall not
violate any applicable law or governmental regulation and shall not subject
Prudential to any tax, penalty,
11
<PAGE>
liability or other onerous condition under or pursuant to any applicable law or
governmental regulation, and Prudential shall have received such certificates or
other evidence as may be requested to establish compliance with this condition.
(o) All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this letter
agreement shall be reasonably satisfactory in form and substance to Prudential
and its counsel, and Prudential shall have received all information and copies
of all documents and papers, including records of corporate and governmental
proceedings, which Prudential may reasonably have requested in connection
therewith, such documents and papers when appropriate to be certified by proper
corporate or governmental authorities.
5. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants as follows: (a) it has all necessary power and authority to execute and
deliver this letter agreement and the instruments delivered to Prudential
hereunder; (b) the execution, delivery and performance of this letter agreement
and the instruments delivered to Prudential hereunder have been duly authorized
by it; (c) this letter agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with the terms, and, on the Effective Date,
the Agreement, as amended hereby, and the instruments delivered to Prudential
hereunder shall have been duly executed and delivered by the Company and will
constitute the legal, valid and binding obligations of the Company, enforceable
against it in accordance with their terms; (d) the approval, execution, delivery
and performance of the terms of this letter amendment and the instruments
delivered to Prudential hereunder and the consummation of the transactions
contemplated hereby do not violate any contractual provision to which it is a
party or by which it is or its properties are bound or any law applicable to it;
(e) all consents, notices, waivers and other actions by or of the Company or any
other Person that are necessary in connection with the execution, delivery and
performance by the Company of this letter agreement and the instruments
delivered to Prudential hereunder and the consummation by the Company of the
transactions contemplated hereby have been obtained or taken; (f) as of the
Effective Date, and after giving effect to the transactions contemplated hereby,
other than the Warrants, the New Warrant, the Equity Sponsor Warrants, the
Series 2 Class A Preferred, the Series 3 Class A Preferred and the contingent
warrants to be issued in connection with the sale of such Series 2 and Series 3
Class A Preferred, there are no other options for, rights to acquire, agreements
to issue, or securities exercisable for or convertible into shares of the
Company's Capital Stock; (g) the Company has duly authorized the issuance of the
shares of the Class A Common Stock issuable under the New Warrant upon the
exercise of the New Warrant, such shares of the Class A Common Stock have been
reserved for issuance upon the exercise of the New Warrant and, upon such
exercise and payment of the purchase price therefor pursuant to the New Warrant,
such shares shall be duly authorized and issued, fully paid and non-assessable;
and (h) after giving effect to the foregoing waivers and amendments and the
transactions contemplated hereby no Default or Event of Default will be in
existence.
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<PAGE>
6. MISCELLANEOUS.
(a) Upon the Effective Date, each reference in the Agreement to
"this Agreement," "hereunder," "hereof," "herein" or words of like import shall
mean and be a reference to the Agreement as amended hereby and each reference to
the Agreement in the Notes shall mean and be a reference to the Agreement, as
amended hereby.
(b) This letter shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the internal law of the
State of California.
(c) Except as specifically amended above, the Agreement, the Notes
and the other Transaction Documents shall remain in full force and effect and
are hereby ratified and confirmed. The execution, delivery and effectiveness of
this letter agreement shall not, except as expressly provided herein, operate as
an amendment to any provision of the Agreement or any other Transaction Document
nor a waiver of any right, power or remedy of any holder of a Note, nor
constitute a waiver of, or consent to any departure from, any provision of the
Agreement, any Note or any other Transaction Document. The waiver contained in
Section 1 hereof does not act as a waiver of any Default or Event of Default
other than the Specified Defaults, and is a waiver of the Specified Defaults
only with respect to periods on and dates prior to the Effective Date. The
willingness of Prudential to agree to the waivers and amendments herein under
the circumstances described herein shall not be taken as a commitment by or an
indication of a standard for the willingness of Prudential to grant waivers or
agree to amendments under the same or similar circumstances.
(d) This letter agreement may be executed by one or more of the
parties to this letter agreement on any number of separate counterparts and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
7. TERMINATION.
This letter agreement shall terminate on December 1, 1997, and the
waivers and the amendments herein shall not become effective, if the Effective
Date has not occurred on or before November 30, 1997.
Please acknowledge the foregoing and your agreement thereto by signing
this letter agreement where indicated below.
[Signature Page to Follow]
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<PAGE>
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Jeffrey L. Dickson
------------------------
Title: Vice President
-----------------------
Accepted and Agreed to
as of the date written above:
CORINTHIAN COLLEGES, INC.
By:/s/ Frank J. McCord
------------------------------
Title: Vice President & Treasurer
--------------------------
14
<PAGE>
Attachment A
------------
SPECIFIED DEFAULTS
------------------
Paragraph 5A(iii). At September 30, 1997
Paragraph 6A(1). From September 30, 1997
Paragraph 6A(2). June 30, 1997 through September 30, 1997
Paragraph 6A(3). June 30, 1997 through September 30, 1997
Paragraph 6A(4). June 30, 1997 through September 30, 1997
Paragraph 6A(5). June 30, 1997 through September 30, 1997
Paragraph 6A(7). June 30, 1997 through September 30, 1997
Paragraph 6B. As a result of the payment of interest on the
Subordinated Debt due on March 31, 1997
15
<PAGE>
EXHIBIT 10.48
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT (this "Agreement") is made as of November 7,
---------
1997 by and among Corinthian Colleges, Inc., a Delaware corporation (the
"Company"), Primus Capital Fund III Limited Partnership, an Ohio limited
- --------
partnership ("Primus"), and BancOne Capital Partners II, LLC ("BancOne"). Primus
------ -------
and BancOne are collectively referred to herein as the "Purchasers" and
----------
individually as a "Purchaser." The Company and the Purchasers are collectively
---------
referred to herein as the "Parties" and individually as a "Party."
------- -----
The Company (as successor by merger to Corinthian Schools, Inc.) and
the Purchasers are parties to a Purchase Agreement, dated June 30, 1995 (the
"Purchase Agreement"), pursuant to which the Company sold to each Purchaser and
------------------
each Purchaser purchased from the Company certain shares of the Company's Class
A Series 1 Preferred Stock, par value $1.00 per share.
The Company desires to sell to BancOne and BancOne desires to purchase
from the Company certain shares of the Company's Class A Series 2 Convertible
Preferred Stock, par value $1.00 per share (the "A-2 Preferred"), having the
-------------
rights and preferences set forth in the Restated Certificate of Incorporation
(defined below). The Company desires to sell to Primus and Primus desires to
purchase from the Company certain shares of the Company's Class A Series 3
Convertible Preferred Stock, par value $1.00 per share (the "A-3 Preferred"),
-------------
having the rights and preferences set forth in the Restated Certificate of
Incorporation (defined below). The A-2 Preferred and the A-3 Preferred are
collectively referred to herein as the "Convertible Preferred."
---------------------
The Parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Convertible Preferred. The Company shall
------------------------------------------
authorize the issuance and sale to BancOne of an aggregate of 25,000 shares of
its A-2 Preferred having the rights and preferences set forth in Exhibit A
---------
attached hereto. The Company shall authorize the issuance and sale to Primus of
an aggregate of 25,000 shares of its A-3 Preferred having the rights and
preferences set forth in Exhibit A attached hereto.
---------
1B. Purchase and Sale of the Convertible Preferred. At the Closing, the
----------------------------------------------
Company shall sell to each Purchaser and, subject to the terms and conditions
set forth in this Agreement, each Purchaser shall purchase from the Company, the
number of shares of Convertible Preferred set forth opposite such Purchaser's
name in the Schedule of Purchasers attached hereto at the prices specified
----------------------
therein. The sale of the Convertible Preferred to each Purchaser shall
constitute a separate sale hereunder.
1C. The Closing. The closing of the separate purchases and sales of the
-----------
Convertible Preferred (the "Closing") shall take place by an exchange of
-------
executed counterpart copies of this Agreement and the other closing documents
via facsimile and overnight courier between counsel for the Company and the
Purchasers' special counsel on November 14, 1997, or at such other place or
<PAGE>
on such other date as may be mutually agreeable to the Company and each
Purchaser. At the Closing, the Company shall deliver to each Purchaser stock
certificates evidencing the Convertible Preferred to be purchased by such
Purchaser, registered in such Purchaser's or its nominee's name, upon payment of
the purchase price thereof by wire transfer of immediately available funds to
the Company's account or such other account as may be designated by the Company
prior to the Closing, in the aggregate amount set forth opposite such
Purchaser's name on the Schedule of Purchasers attached hereto.
----------------------
Section 2. Conditions of Each Purchaser's Obligation at the Closing.
--------------------------------------------------------
The obligation of each Purchaser to purchase and pay for the Convertible
Preferred at the Closing is subject to the satisfaction as of the Closing of the
following conditions:
2A. Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of the Company contained in the Incorporated Sections (as defined in
Section 3 below) shall be true and correct at and as of the Closing as though
then made, except to the extent of changes caused by the transactions (i)
expressly contemplated herein or in connection herewith, (ii) effected in
connection with the acquisition of Phillips Colleges, Inc. and certain of its
subsidiaries by the Company and the related financing, (iii) effected in
connection with the asset purchase by the Company from National Education
Centers, Inc. and the related financing and (iv) resulting from actions taken by
the United States Department of Education relating to the cohort default rates
of the Company's schools.
2B. Amendment of Certificate of Incorporation. The Company's Restated
-----------------------------------------
Certificate of Incorporation shall have been amended and restated (the
"Restated Certificate of Incorporation"), in form and substance satisfactory to
- --------------------------------------
each Purchaser and shall be in full force and effect under the laws of Delaware
as of the Closing as so amended and shall not have been further amended or
modified.
2C. Default Waiver and Third Amendment to the Note Purchase and Revolving
---------------------------------------------------------------------
Credit Agreement. The Note Purchase and Revolving Credit Agreement (the "Credit
- ----------------
Agreement"), dated October 17, 1996, as amended, between the Company and The
Prudential Insurance Company of America ("Prudential") shall have been amended
----------
as set forth in Exhibit B hereto (the "Loan Agreement Amendment") and the Loan
--------- ------------------------
Agreement Amendment shall be in full force and effect as of the Closing.
2D. Default Waiver and Amendment to the Subordinated Note and Warrant
-----------------------------------------------------------------
Purchase Agreement. The Subordinated Note and Warrant Purchase Agreement, dated
- ------------------
October 17, 1996, between the Company and the Purchasers shall have been amended
as set forth in Exhibit C hereto (the "Subordinated Debt Amendment") and the
--------- ---------------------------
Subordinated Debt Amendment shall be in full force and effect as of the Closing.
2E. Amendment to Registration Agreement. The Amended and Restated
-----------------------------------
Registration Agreement, dated October 17, 1996, among the Company, the
Purchasers and certain other persons
2
<PAGE>
signatory thereto (the "Registration Agreement") shall have been amended in form
----------------------
and substance satisfactory to each Purchaser and such amendment shall be in full
force and effect as of the Closing.
2F. Amendment to Rights Agreement. The Rights Agreement, dated October
-----------------------------
17, 1996, between the Company, the Purchasers and certain other parties
signatory thereto, shall have been amended in form and substance satisfactory to
each Purchaser and such amendment shall be in full force and effect as of the
Closing.
2G. Acknowledgment of No Anti-Dilution Adjustment. Prudential shall have
----------------------------------------------
executed an acknowledgment (the "Prudential Acknowledgment") that no adjustment
-------------------------
to the conversion price set forth in the Stock Subscription Warrant issued to
Prudential in connection with the Credit Agreement shall be required in
connection with the consummation of the transactions contemplated hereby. The
Prudential Acknowledgment shall be in form and substance satisfactory to each
Purchaser and shall be in full force and effect as of the Closing.
2H. Waiver of Executive Pre-Emptive Rights. Each Executive shall have
--------------------------------------
executed a waiver of such Executive's rights pursuant to the Rights Agreement or
otherwise to purchase the Convertible Preferred issued by the Company at the
Closing or the Common Stock issuable upon conversion thereof (the "Pre-Emptive
-----------
Rights Waiver"). The Pre-Emptive Rights Waiver shall be in form and substance
- -------------
satisfactory to each Purchaser and shall be in full force and effect as of the
Closing.
2I. Opinion of the Company's Counsel. Each Purchaser shall have received
--------------------------------
from O'Melveny & Myers, counsel for the Company, an opinion which shall be
addressed to each Purchaser, dated the date of the Closing and in form and
substance satisfactory to each Purchaser.
2J. Cancellation of Guaranty. Simultaneous with the Closing hereunder,
------------------------
Primus Capital Fund III Limited Partnership shall have received from Prudential
that certain Guaranty, dated October 17, 1997, marked "cancelled."
2K. Sale of Convertible Preferred to Each Purchaser. The Company shall
-----------------------------------------------
have simultaneously sold to each Purchaser the Convertible Preferred to be
purchased by such Purchaser hereunder at the Closing and shall have received
payment therefor in full.
2L. Grant of Contingent Warrant. Simultaneous with the Closing hereunder,
---------------------------
the Company shall have granted to each Purchaser a contingent warrant (the
"Contingent Warrant") to purchase certain shares of the Company's common stock.
- -------------------
The Contingent Warrant shall be in form and substance satisfactory to each
Purchaser and shall be in full force and effect as of the Closing.
2M. Securities Law Compliance. The Company shall have made all filings
-------------------------
under all applicable federal and state securities laws necessary to consummate
the issuance of the Convertible Preferred pursuant to this Agreement in
compliance with such laws.
3
<PAGE>
2N. Closing Documents. The Company shall have delivered to each
-----------------
Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A through 2M,
inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and performance
of this Agreement, the Registration Agreement Amendment, the Loan Agreement
Amendment, the Subordinated Debt Amendment, the Rights Agreement Amendment and
each of the other agreements contemplated hereby, the filing of the Restated
Certificate of Incorporation referred to in paragraph 2B, the issuance and sale
of the Convertible Preferred, and the consummation of all other transactions
contemplated by this Agreement, and (b) the resolutions duly adopted by the
Company's stockholders adopting the Restated Certificate of Incorporation
referred to in paragraph 2B;
(iii) certified copies of the Restated Certificate of Incorporation,
and the Company's bylaws, each as in effect at the Closing;
(iv) certificates of good standing issued by the secretary of state
of Delaware and California;
(v) copies of all third party and governmental consents, approvals
and filings required in connection with the consummation of the transactions
hereunder (including, without limitation, all blue sky law filings and waivers
of all pre-emptive rights and rights of first refusal); and
(vi) such other documents relating to the transactions contemplated
by this Agreement as any Purchaser or its special counsel may reasonably
request.
2O. Proceedings. All corporate and other proceedings taken or required
-----------
to be taken by the Company in connection with the transactions contemplated
hereby to be consummated at or prior to the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to each Purchaser
and its special counsel.
2P. Expenses. At the Closing, the Company shall have reimbursed the
--------
Purchasers for the fees and expenses of their special counsel as provided in
paragraph 7A of the Incorporated Sections (as defined in Section 3 below).
2Q. Waiver. Any condition specified in this Section 2 may be waived if
------
consented to by each Purchaser; provided that no such waiver shall be effective
against any Purchaser unless it is set forth in a writing executed by such
Purchaser.
4
<PAGE>
Section 3. Incorporation of Purchase Agreement Provisions.
----------------------------------------------
3A. Incorporation of Certain Sections of the Purchase Agreement. Section
-----------------------------------------------------------
3 through Section 7 (other than Sections 3.1A, 3.1J, 3.1M, 5.1K, 5.1L and 7.1C),
inclusive, of the Purchase Agreement (the "Incorporated Sections") are hereby
---------------------
incorporated into this Agreement by reference thereto and shall have the same
force and effect as if restated in their entirety in this Agreement, except that
certain definitions used in such Incorporated Sections shall have the meaning
set forth in Section 4 below. All representations and warranties of the Company
set forth in Section 5 of the Incorporated Sections shall be true and correct as
of the date hereof and as of the Closing, except as set forth on the attached
"Disclosure Schedule" and except to the extent of changes caused by the
- --------------------
transactions (i) expressly contemplated herein or in connection herewith, (ii)
effected in connection with the acquisition of Phillips Colleges, Inc. and
certain of its subsidiaries by the Company and the related financing, (iii)
effected in connection with the asset purchase by the Company from National
Education Centers, Inc. and the related financing and (iv) resulting from
actions taken by the United States Department of Education relating to the
cohort default rates of the Company's schools.
Section 4. Certain Definitions for the Purposes of the Incorporated
--------------------------------------------------------
Provisions.
- ----------
4A. Definition of "Certificate of Incorporation." As used in the
-------------------------------------------
Incorporated Sections, all references to the "Certificate of Incorporation"
----------------------------
shall mean the Restated Certificate of Incorporation.
4B. Definition of "Class A Preferred Stock." As used in the Incorporated
--------------------------------------
Sections, all references to "Class A Preferred" shall mean the Convertible
-----------------
Preferred.
4C. Definition of "Closing." As used in the Incorporated Sections, all
----------------------
references to the "Closing" shall mean the Closing.
-------
4D. Definition of "Executive Stock Agreements." As used in the
-----------------------------------------
Incorporated Sections, all references to "Executive Stock Agreements" shall mean
--------------------------
the Executive Stock Agreements and all amendments and modifications thereto as
of the date of the Closing.
4E. Definition of "Investor Stock." As used in the Incorporated Sections,
-----------------------------
all references to the "Investor Stock" shall mean the Convertible Preferred.
--------------
4F. Definition of "Latest Balance Sheet." As used in the Incorporated
-----------------------------------
Sections, all references to the "Latest Balance Sheet" shall mean the
--------------------
Corporation's unaudited balance sheet as of September 30, 1997.
4G. Definition of "Purchaser" and "Purchasers." As used in the
-----------------------------------------
Incorporated Sections, all references to a "Purchaser" or the "Purchasers" shall
--------- ----------
mean respectively, the Purchaser or the Purchasers hereunder.
5
<PAGE>
4H. Definition of "Registration Agreement." As used in the Incorporated
-------------------------------------
Sections, all references to the "Registration Agreement" shall mean the
----------------------
Registration Agreement as amended pursuant to the Registration Agreement
Amendment.
4I. Definition of "Restricted Securities." As used in the Incorporated
--------------------------------------
Sections, all references to"Restricted Securities" shall mean (i) the Investor
---------------------
Stock, (ii) the Convertible Preferred, (iii) the Underlying Common Stock and
(iv) any securities issued with respect to the securities referred to in clauses
(i), (ii) or (iii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization.
4J. Definition of "Underlying Common Stock." As used in the Incorporated
--------------------------------------
Sections, all references to "Underlying Common Stock" shall mean (i) any Class A
-----------------------
Common or Class B Common issued or issuable upon conversion of the Convertible
Preferred, (ii) the Class A Common issued or issuable upon exchange of the Class
B Common issued upon conversion of the Convertible Preferred, and (iii) any
Common Stock issued or issuable with respect to the securities referred to in
clause (i) or (ii) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization.
4K. Incorporation of Other Definitions. Except as expressly provided
----------------------------------
herein, as used in the Incorporated Sections, all other capitalized terms shall
have the meanings given such terms in the Purchase Agreement.
Section 5. Additional Covenants.
--------------------
5A. Financial Statements and Other Information. The Company shall deliver
------------------------------------------
to each Purchaser (so long as such Purchaser holds any Convertible Preferred or
any Underlying Common Stock (as defined in Section 4J)) and to each holder of at
least 5% of the outstanding Convertible Preferred and each holder of at least 5%
of the Underlying Common Stock:
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the Company's annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied
and shall be certified by the Company's chief financial officer;
(ii) accompanying the financial statements referred to in subparagraph
(i) an Officer's Certificate stating that there is no Event of Noncompliance in
existence and that neither the Company nor any of its Subsidiaries is in default
under any of its other material agreements or, if any Event of Noncompliance or
any such default exists, specifying the nature and period of existence
6
<PAGE>
thereof and what actions the Company and its Subsidiaries have taken and propose
to take with respect thereto;
(iii) within 90 days after the end of each fiscal year, consolidating
and consolidated statements of income and cash flows of the Company and its
Subsidiaries for such fiscal year, and consolidating and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such fiscal year,
setting forth in each case comparisons to the Company's annual budget and to the
preceding fiscal year, all prepared in accordance with generally accepted
accounting principles, consistently applied, and accompanied by (a) with respect
to the consolidated portions of such statements, an opinion containing no
exceptions or qualifications (except for qualifications regarding specified
contingent liabilities) of an independent accounting firm of recognized national
standing acceptable to the holders of a majority of the outstanding Convertible
Preferred and the holders of a majority of the Underlying Common Stock, (b) a
certificate from such accounting firm, addressed to the Company's board of
directors, stating that in the course of its examination nothing came to its
attention that caused it to believe that there was an Event of Noncompliance in
existence or that there was any other default by the Company or any Subsidiary
in the fulfillment of or compliance with any of the terms, covenants, provisions
or conditions of any other material agreement to which the Company or any
Subsidiary is a party or, if such accountants have reason to believe any Event
of Noncompliance or other default by the Company or any Subsidiary exists, a
certificate specifying the nature and period of existence thereof, and (c) a
copy of such firm's annual management letter to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(v) until the consummation of an initial public offering of the
Company's common stock, at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis for
the Company and its Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant budgets prepared by the Company and
any revisions of such or other budgets, and within 30 days after any monthly
period in which there is a material adverse deviation from such budget, an
Officer's Certificate explaining the deviation and what actions the Company has
taken and proposes to take with respect thereto;
(vi) promptly (but in any event within five business days) after the
discovery or receipt of notice of any Event of Noncompliance, any default under
any material agreement to which it or any of its Subsidiaries is a party or any
other material adverse change, event or circumstance affecting the Company or
any Subsidiary (including, without limitation, the filing of any material
litigation against the Company or any Subsidiary or the existence of any dispute
with any Person which involves a reasonable likelihood of such litigation being
commenced), an Officer's Certificate
7
<PAGE>
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or any of its officers or directors file with respect to the Company,
with the Securities and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press releases
and other statements made available generally by the Company to the public
concerning material developments in the Company's and its Subsidiaries'
businesses; and
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 5A may reasonably request.
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments for recurring accruals (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
For purposes of this Agreement and the Registration Agreement, all
holdings of Convertible Preferred and Underlying Common Stock by Persons who are
Affiliates of each other shall be aggregated for purposes of meeting any
threshold tests under this Agreement and the Registration Agreement.
"Affiliate" means any Person that controls, is controlled by or is under common
control with another Person and Persons which have received distributions of
securities from a partnership holding such securities.
5B. Direct Student Loan Statements. The Company shall deliver to each
------------------------------
Purchaser (so long as such Purchaser holds any Convertible Preferred or any
Underlying Common Stock) and to each holder of at least 5% of the outstanding
Convertible Preferred and each holder of at least 5% of the Underlying Common
Stock:
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, a report on the
status of the direct student loan program including loan balances outstanding,
loan volumes originated in the most recent reporting period, delinquencies, and
default rates expressed as a percentage of loans made and as a percentage of
dollars loaned for each school at which such loans are made; and
(ii) within 90 days of the end of each fiscal year, a report on the
status of the direct student loan program prepared on an annual basis including
loan balances outstanding, loan volumes
8
<PAGE>
originated in the most recent fiscal year, delinquencies, and default rates
expressed as a percentage of loans made and as a percentage of dollars loaned
for each school at which such loans are made.
5C. Discussions with Third Party Student Loan Provider. The Company shall
--------------------------------------------------
cause any third party providing or administrating any student loans on behalf of
the Company (a "Loan Provider") to (i) discuss with any representative
-------------
designated by any Purchaser (so long as such Purchaser holds at least 5% of the
Convertible Preferred or at least 5% of the Underlying Common Stock) loan
balances, loan volumes, delinquencies and default rates of all students loans
provided or administered by such Loan Provider on behalf of the Company and (ii)
permit any such representative to examine the records relating to such student
loans held by the Loan Provider and make copies thereof or extracts therefrom.
The presentation of an executed copy of this Agreement by any representative of
any such Purchaser to the Loan Provider shall constitute the Company's
permission to the Loan Provider to comply with the provisions of this Section
5C.
5D. Restrictions on Direct Student Loans. At any time (i) after the
------------------------------------
aggregate outstanding loan balance of the direct student loans provided by the
Company exceeds $14,000,000 or (ii) after more than 20% of the aggregate number
of direct student loans provided by the Company shall be default, the holders of
a majority of the Convertible Preferred, for so long at least 5% of the original
amount thereof is outstanding, may require the Company to retain a different
Loan Provider reasonably acceptable to the holders of a majority of the
Convertible Preferred.
5E. Review of Direct Student Loan Program. The holders of a majority of
-------------------------------------
the Convertible Preferred, for so long as at least 5% of the original amount
thereof is outstanding, may:
(i) at any time prior to December 31, 1997, require the Company to
engage an independent third-party selected by such holders to review the
policies and procedures governing the Company's direct student lending program
and to make recommendations to the Company with respect thereto; and
(ii) at any time after (a) December 31, 1998 or (b) such earlier date
as the aggregate outstanding loan balance of the direct student loans provided
by the Company shall equal or exceed $14,000,000 require the Company to allow an
independent third-party selected by such holders to review and audit the loan
balances, loan volumes, delinquencies and default rates of all students loans
provided by the Company as of the end of the Company's prior fiscal.
The reasonable fees and expenses of any third-party conducting a
review pursuant to this Section 5E shall be paid by the Company.
5F. Restrictions on Acquisitions. The Company shall not, without the
----------------------------
prior written consent of the holders of a majority of the Convertible Preferred
for so long as at least 5% of the original amount thereof is outstanding,
acquire, or permit any Subsidiary to acquire, any interest in any company or
business (whether by a purchase of assets, purchase of stock, merger or
otherwise), or enter into any joint venture.
9
<PAGE>
Section 6. Additional Representations of the Company. As a material
-----------------------------------------
inducement to the Purchasers to enter into this Agreement and purchase the
Convertible Preferred hereunder, the Company hereby represents and warrants that
attached hereto as the "Financial Statement Schedule" are the following
financial statements:
(i) the audited consolidated balance sheet of the Company and its
Subsidiaries as of June 30, 1997 and the related statements of income and cash
flows for the respective twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of September 30, 1997 and the related statements of income and
cash flows.
Each of the financial statements set forth in the Financial Statements Schedule
(including in all cases the notes thereto, if any) is accurate and complete in
all material respects, is consistent with the books and records of the Company
(which, in turn, are accurate and complete in all material respects) and has
been prepared in accordance with generally accepted accounting principles,
consistently applied.
Section 7. Purchaser's Investment Representation. Each Purchaser hereby
-------------------------------------
represents that it is acquiring the Restricted Securities (as defined in Section
4I above) purchased hereunder or acquired pursuant hereto for its own account
with the present intention of holding such securities for purposes of
investment, and that it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein shall prevent any
Purchaser and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 4 of the Incorporated
Sections. Each certificate or instrument representing Restricted Securities
shall be imprinted with a legend in substantially the following form:
"The securities represented by this certificate were originally
issued on November 7, 1997, and have not been registered under
the Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of
November 7, 1997 and as amended and modified from time to time,
between the issuer (the "Company") and certain investors, and the
-------
Company reserves the right to refuse the transfer of such
securities until such conditions have been fulfilled with respect
to such transfer. A copy of such conditions shall be furnished by
the Company to the holder hereof upon written request and without
charge."
Section 8. Acknowledgment of Voting Agreement. Each Purchaser hereby
----------------------------------
acknowledges and agrees that any shares of the Company's Class A Common Stock
issuable upon conversion of the Convertible Preferred shall be subject to the
voting agreement set forth in paragraph 7(a) of each of the Executive Stock
Agreements.
10
<PAGE>
Section 9. Amendment of Notice Provision. The address of the Company
-----------------------------
set forth in Section 7.1N of the Incorporated Sections is hereby deleted in its
entirety and replaced with the following address:
6 Hutton Centre Drive, Suite 400
Santa Ana, California 92707-5764
* * * *
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
CORINTHIAN COLLEGES, INC.
By: __________________________
Its __________________________
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc., its
General Partner
By ___________________________
Its __________________________
BANC ONE CAPITAL PARTNERS II,
LIMITED LIABILITY COMPANY
By:___________________________
By ___________________________
Its __________________________
SIGNATURE PAGE FOR THE PURCHASE AGREEMENT
12
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Total
No. of No. of Purchase
Shares Shares Price
of of for
Names and Class A Series 2 Class A Series 3 Convertible
Addresses Preferred Preferred Preferred
--------- --------- --------- ---------
<S> <C> <C> <C>
Primus Capital Fund III Limited 0 25,000 $2,500,000
Partnership
Attn: Loyal W. Wilson
1375 East Ninth Street
Suite 2700
Cleveland, Ohio 44114
Banc One Capital Partners II, L.L.C. 25,000 0 $2,500,000
Attn: Earle J. Bensing
10 West Broad Street
Suite 400
Columbus, Ohio 43215
TOTAL ______ ______ ______
25,000 25,000 5,000,000
</TABLE>
13
<PAGE>
EXHIBIT 10.49
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE
WARRANT AND/OR THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR AN EXEMPTION THEREFROM.
No. W-_______ Warrant to Subscribe
November ___, 1997 for 2010.04 Shares
STOCK SUBSCRIPTION WARRANT
To Subscribe for and Purchase Class B Common Stock
of Corinthian Colleges, Inc.
THIS CERTIFIES that Banc One Capital Partners II, LLC ("BANC ONE"), or
registered assigns, is entitled to subscribe for and purchase from Corinthian
Colleges, Inc., a Delaware corporation (the "Company"), at the price of $0.01
per share at any time after the date hereof to and including the Expiration Date
(as hereinafter defined), 2010.04 duly authorized, validly issued, fully paid
and non-assessable shares of the Company's Class B Common Stock (as hereinafter
defined in paragraph 9), as adjusted from time to time pursuant to the terms
hereof. This Warrant is issued for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged.
This Warrant was issued in connection with the issuance of the Stock
Subscription Warrant issued to The Prudential Company of America ("Prudential")
on the date hereof (the "Prudential Warrant") issued in connection with the
amendment dated October 31, 1997 (the "Amendment"), to the Note Purchase and
Revolving Credit Agreement, dated as of October 17, 1996, between the Company
and Prudential (as amended, the "Note Agreement"). The "EXPIRATION DATE" shall
be the date of the Expiration Date as defined in the Prudential Warrant.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. The rights
------------------------------------------------------
represented by this Warrant may be exercised by the holder hereof from time to
time after October 17, 1999, in whole or in part (but not as to a fractional
share of Common Stock), by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company at 6 Hutton Centre Drive, Suite
400, Santa Ana, California 92707 Attention: Chief Financial Officer (or such
other office or agency of the Company as it may designate by notice in writing
to the holder hereof at the address of such holder appearing on the books of the
Company at any time within the period above named) and upon payment to the
Company by certified check, bank draft or wire transfer of the Warrant Purchase
Price (as hereinafter defined in paragraph 3A(1)) for the shares being purchased
upon such exercise.
<PAGE>
The Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Subject to the provisions of
paragraph 2 below, certificates for the shares of Common Stock so purchased
shall be delivered to the holder hereof within a reasonable time, not exceeding
ten business days, after the rights represented by this Warrant shall have been
so exercised (unless such exercise shall be in connection with an underwritten
public offering of shares of Common Stock, in which event concurrently with such
exercise), and, unless this Warrant has expired, a new Warrant representing the
number of shares of Common Stock, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
2. Shares to be Fully Paid; Reservation of Shares. The Company
----------------------------------------------
covenants and agrees that all shares of Common Stock which may be issued
directly or indirectly 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; and without limiting
the generality of the foregoing, the Company covenants and agrees that it will
from time to time take all such action as may be requisite to assure that the
par value (if any) per share of the Common Stock is at all times equal to or
less than the then effective Warrant Purchase Price per share of the Common
Stock issuable pursuant to this Warrant. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its Common
Stock to provide for the exercise of the rights represented by this Warrant. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which any class of Common Stock of the Company may be listed. The Company will
not take any action which would result in any adjustment of the Warrant Purchase
Price if the total number of shares of Common Stock issuable after such action
upon exercise of this Warrant, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
Options (as hereinafter defined) (other than this Warrant) and upon conversion
of all Convertible Securities (as hereinafter defined) then outstanding, would
exceed the total number of shares of Common Stock then authorized by the
Company's Certificate of Incorporation.
3. Warrant Purchase Price. The above provisions are, however,
-----------------------
subject to the following:
3A. Warrant Purchase Price; Adjustment of Number of Shares.
------------------------------------------------------
3A(1). Warrant Purchase Price. The initial Warrant Purchase Price of
----------------------
$0.01 per share shall be subject to adjustment from time to time as hereinafter
provided (such price or price as last adjusted, as the case may be, being herein
called the "WARRANT PURCHASE PRICE").
2
<PAGE>
3A(2). Adjustment of Number of Shares When Adjustment of Warrant
---------------------------------------------------------
Purchase Price. Upon each adjustment of the Warrant Purchase Price, the holder
- --------------
of this Warrant shall thereafter be entitled to purchase, at the Warrant
Purchase Price resulting from such adjustment, the number of shares obtained by
multiplying the Warrant Purchase Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the Warrant Purchase
Price resulting from such adjustment. Notwithstanding anything to the contrary
contained herein, in no event shall the adjustment of the number of shares set
forth above allow the holder of this Warrant to purchase a number of shares of
Common Stock which represents more than 1.21% of the aggregate number of Fully
Diluted Shares.
3A(3). Special Adjustments of Number of Shares. If on or after the
---------------------------------------
date of the original issuance of this Warrant and on or prior to the date of the
consummation by the Company of an Initial Public Offering the Company shall
issue any Options (as defined in Section 3D(1) hereof), whether or not such
Options are immediately exercisable, then the aggregate number of shares of
Common Stock which the holder of this Warrant shall be entitled to purchase upon
the exercise of this Warrant shall be adjusted on the date of such issuance to
equal the number which is the same percentage of the number of the Fully Diluted
Shares immediately after such issuance and adjustment (calculated after giving
effect to the adjustment provisions in any other outstanding Options) as the
percentage which the aggregate number of shares of Common Stock which the holder
of this Warrant is entitled to purchase immediately before such issuance is of
the Fully Diluted Shares immediately before such issuance. If an adjustment is
made pursuant to this paragraph 3A(3) as the result of the issuance of any
Option, then no adjustment to the Warrant Purchase Price or the number of shares
issuable upon the exercise of this Warrant shall be made under any other
provision of this Warrant as a result of (a) the issuance of such Option, (b)
any increase to the number of shares of Common Stock issuable under any other
outstanding Options under the adjustment provisions thereof as a result of the
issuance of such Option, (c) the issuance of shares of Common Stock upon the
exercise of such Option, or (d) the issuance of such additional shares of Common
Stock upon the exercise of such other outstanding Options. For the purposes of
this Warrant: (a) "INITIAL PUBLIC OFFERING" shall mean the first offer and sale
to the public by the Company or any holder of shares of Common Stock, pursuant
to a registration statement that has been declared effective by the Securities
and Exchange Commission; provided, however, that the gross proceeds of the
shares issued and sold by the Company are at least $20,000,000, and (b) "FULLY
DILUTED SHARES" shall mean on any date all shares of Common Stock outstanding on
such date, plus all shares of Common Stock which would be outstanding on such
date if all Options and Convertible Securities (including this Warrant)
outstanding on such date, and all Options and Convertible Securities issuable
upon the full exercise of all then outstanding Options and Convertible
Securities, in either case whether or not then exercisable under the terms
thereof, were fully exercised on such date.
3A(4). Special Adjustment for Management Shares. Any Class B Common
----------------------------------------
Stock of the Company purchased by the members of Senior Management pursuant to
the Executive Stock Agreements between the Company and the members of Senior
Management (the "Executive Stock Agreements") which will vest upon a Trigger
Event as defined in the Executive Stock Agreements
3
<PAGE>
(the "Earnback Shares") and any Common Stock issuable upon exercise of the
Contingent Warrants (the "Contingent Warrant Shares") shall not be deemed to be
issued and outstanding on the date of issuance of this Warrant and shall be
deemed to be issued at the time of vesting of the Earnback Shares as a result of
such Trigger Event. Notwithstanding anything to the contrary contained herein,
but subject to the second sentence of paragraph 3A(2), if the Earnback Shares
vest and/or the Contingent Warrant Shares are issuable, the aggregate number of
shares of Common Stock which the holder of this Warrant shall be entitled to
purchase upon the exercise of this Warrant shall be adjusted on the date of such
deemed issuance of equal the number which is the same percentage of the number
of Fully Diluted Shares immediately after such deemed issuance and adjustment as
the percentage which the aggregate number of shares of Common Stock which the
holder of this Warrant is entitled to purchase immediately before such deemed
issuance is of the number of Fully Diluted Shares immediately before such deemed
issuance. For purposes of this Warrant: (a) "SENIOR MANAGEMENT" shall have the
meaning given such term in the Note Agreement; and (b) "CONTINGENT WARRANTS"
shall mean the Contingent Stock Purchase Warrants, dated October 17, 1996,
issued to Prudential, Primus Capital Fund III Limited Partnership, Banc One
Capital Partners II, Ltd. and BOCA II Limited Liability Company.
3B. Adjustment of Warrant Purchase Price Upon Purchase of Common
------------------------------------------------------------
Stock by Company. If the Company directly or indirectly through a subsidiary or
- ----------------
otherwise, purchases, redeems or otherwise acquires any of its Common Stock
(other than a purchase or other acquisition of shares of Common Stock from a
former employee of the Company or a subsidiary in connection with the
termination of the employment of such employee with the Company or any
Subsidiary) at a price per share greater than the Market Price then in effect,
then the Warrant Purchase Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Purchase Price existing at that time by a fraction (i) the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such purchase, redemption or acquisition minus the number of shares of
Common Stock which the aggregate consideration for the total number of such
shares of Common Stock so purchased, redeemed or acquired would purchase at the
Market Price; and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such purchase, redemption or
acquisition. For the purposes of this paragraph, the date as of which the Market
Price shall be computed shall be the earlier of (x) the date on which the
Company shall enter into a firm contract for the purchase, redemption or
acquisition of such Common Stock, or (y) the date of actual purchase, redemption
or acquisition of such Common Stock. For the purposes of this paragraph, a
purchase, redemption or acquisition of any Options or Convertible Securities
shall be deemed to be a purchase of the underlying Common Stock, and the
computation herein required shall be made on the basis of the full exercise,
conversion or exchange of any such Option or Convertible Security on the date as
of which such computation is required hereby to be made, even if such Option or
right to convert or exchange any such Convertible Securities is not exercisable
on such date.
3C. Adjustment of Warrant Purchase Price upon Issuance of Common
------------------------------------------------------------
Stock. Except as provided in paragraph 3G and except that no adjustment will be
- -----
made pursuant to this paragraph 3C when an adjustment is made pursuant to
paragraph 3F or paragraph 3A(3), if and whenever after
4
<PAGE>
the date hereof the Company shall issue or sell any shares of its Common Stock
for a consideration per share less than the 95% of the Market Price (as
determined pursuant to Section 3D(8) hereof) at the time of such issue or sale,
then, forthwith upon such issue or sale, the Warrant Purchase Price shall be
reduced to the lower of the prices (calculated to the nearest one-thousandth
cent) determined as follows:
(1) by dividing (i) an amount equal to the sum of (a) the number
of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the Market Price at the time of such sale, and
(b) the aggregate consideration, if any, received by the Company upon
such issue or sale, by (ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale; and
(2) by multiplying the Warrant Purchase Price in effect
immediately prior to the time of such issue or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale
multiplied by the Market Price of such Common Stock immediately prior
to such issue or sale plus (ii) the consideration received by the
Company upon such issue or sale, and the denominator of which shall be
the product of (iii) the total number of shares of Common Stock
outstanding immediately after such issue or sale, multiplied by (iv)
the Market Price of such Common Stock immediately prior to such issue
or sale.
Adjustments of the Warrant Purchase Price shall be made in fractions of a cent
per share to the nearest one-thousandth ($.00001) per share.
3D. Factors Affecting Adjustments. For all purposes of this
-----------------------------
paragraph 3, the following provisions shall also be applicable:
3D(1). Issuance of Rights or Options. In case at any time after the
-----------------------------
date hereof the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to purchase,
or any options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such rights or options being
herein called "OPTIONS" and such convertible or exchangeable stock or securities
being herein called "CONVERTIBLE SECURITIES") whether or not such Options or the
right to convert or exchange any such Convertible Securities are immediately
exercisable (where no adjustment as a result of such issuance is made pursuant
to paragraph 3A(3)), and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock
5
<PAGE>
issuable upon the exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such Options)
shall be less than 95% of the Market Price of such Common Stock in effect
immediately prior to the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall (as of
the date of granting of such Options) be deemed to be outstanding (and included
as Common Stock outstanding for purposes of paragraphs 3B and 3C) and to have
been issued for such price per share. Except as otherwise provided in paragraph
3D(3) below, no adjustment or further adjustment (as the case may be) of the
Warrant Purchase Price shall be made upon the actual issue of Common Stock or of
Convertible Securities upon exercise of Options or upon the actual issue of
Common Stock upon conversion or exchange of Convertible Securities (whether or
not the granting or issuance of such Options or Convertible Securities resulted
in an adjustment of the Warrant Purchase Price).
3D(2). Issuance of Convertible Securities. In case the Company shall
----------------------------------
in any manner issue (whether directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than 95% of the Market Price of such
Common Stock on the date of such issue or sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding (and
included as Common Stock for purposes of paragraphs 3B and 3C) and to have been
issued for such price per share, provided that (a) except as otherwise provided
in paragraph 3D(3) below, no adjustment or further adjustment (as the case may
be) of the Warrant Purchase Price shall be made upon the actual issue of Common
Stock upon conversion or exchange of Convertible Securities whether or not the
granting or issuance of such Convertible Securities resulted in an adjustment in
the Warrant Purchase Price, and (b) if any issue or sale of Convertible
Securities is made upon exercise of any Options, no further adjustment of the
Warrant Purchase Price shall be made by reason of such issue or sale (whether or
not the granting or issuance of such Options or Convertible Securities resulted
in an adjustment of the Warrant Purchase Price).
3D(3). Change in Option Price or Conversion Rate. Upon the happening
-----------------------------------------
of any of the following events, namely, if the purchase price provided for in
any Option referred to in paragraph 3D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in paragraph 3D(1) or 3D(2), or the rate at which any Convertible Securities
referred to in paragraph 3D(1) or 3D(2) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Warrant Purchase Price in
effect at the time of such event shall
6
<PAGE>
forthwith be readjusted to the Warrant Purchase Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold; and on
the expiration of any such Option or the termination of any such right to
convert or exchange such Convertible Securities, the Warrant Purchase Price then
in effect hereunder shall forthwith be increased to the Warrant Purchase Price
which would have been in effect at the time of such expiration or termination
had such Option or Convertible Security, to the extent outstanding immediately
prior to such expiration or termination, never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the purchase
price provided for in any such Option referred to in paragraph 3D(1) or the rate
at which any Convertible Securities referred to in paragraph 3D(1) or 3D(2) are
convertible into or exchangeable for Common Stock, shall be reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution other than as a result of a stock dividend or stock split which
results in an adjustment of the Warrant Purchase Price, then in case of the
delivery of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Warrant Purchase Price then in
effect hereunder shall forthwith be adjusted to such amount as would have
obtained had such Option or Convertible Security never been issued as to such
Common Stock and had adjustments been made upon the issuance of the shares of
Common Stock delivered as aforesaid, but only if as a result of such adjustment
the Warrant Purchase Price then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Company shall declare a dividend
---------------
or make any other distribution upon any stock of the Company payable in Common
Stock, Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
3D(5). Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, or offered
by the Company for subscription, the consideration received therefor shall be
deemed to be the amount received by the Company therefor plus any additional
consideration payable to the Company upon the exercise, conversion or exchange
of such Common Stock, Options or Convertible Securities, excluding any amounts
paid or receivable for accrued interest or accrued dividends and after deducting
therefrom any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of the Company, after
deducting any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. The amount of
consideration deemed to be received by the Company pursuant to the foregoing
provisions of this paragraph 3D(5) upon any issuance and/or sale, pursuant to an
established compensation plan of the Company, to directors, officers or
employees of the Company in connection with their employment, of shares of
Common Stock, Options or Convertible Securities,
7
<PAGE>
shall be increased by the amount of any tax benefit realized by the Company as a
result of such issuance and/or sale, the amount of such tax benefit being the
amount by which the Federal and/or State income or other tax liability of the
Company shall be reduced by reason of any deduction or credit in respect of such
issuance and/or sale. In case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the Company is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the fair value as determined by the Board of Directors of the Company of
such portion of the assets and business of the non-surviving corporation as such
Board shall determine to be attributable to such Common Stock, Options or
Convertible Securities as the case may be. In case any Options shall be issued
in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued without consideration. In the event of any
consolidation or merger of the Company in which the Company is not the surviving
corporation or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its Common Stock
for stock or securities of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such transaction of
such stock or securities of the other corporation, and if any such calculation
results in adjustment of the Warrant Purchase Price, the determination of the
number of shares of Common Stock receivable upon exercise of the Warrants
immediately prior to such merger, consolidation or sale, for purposes of this
paragraph 3D, shall be made after giving effect to such adjustment of the
Warrant Purchase Price. In all cases where the amount of consideration received
by the Company upon the issuance or sale of any Common Stock, Options, or
Convertible Securities is to be determined by the Board of Directors of the
Company, the Board shall notify the holder of this Warrant of its determination
of the consideration prior to payment or accepting receipt thereof. If, within
ten days after receipt of said notice, the holder of this Warrant shall notify
the Board of any objection to such determination of consideration, a
determination of the fair market value of the consideration will then be made by
arbitration in accordance with the Rules of the American Arbitration
Association, by an arbitrator in the City of San Francisco, California.
3D(6). Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
3D(7). Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the subsequent issuance of any such shares shall
be considered an issue or sale of Common Stock for the purposes of paragraph 3D.
8
<PAGE>
3D(8). Definition of Market Price. "Market Price" for any particular
--------------------------
class of Common Stock shall mean the average of the closing prices of the Common
Stock sales on all domestic exchanges on which such class of Common Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any such day, the average of the bid prices at the end of such day, or, if
such class of Common Stock is not listed, the average of the high and low bid
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 20 consecutive business days prior
to the date as of which "Market Price" is being determined; provided that if
such class of Common Stock is listed on any domestic exchange the term "business
days" as used in this sentence shall mean business days on which such exchange
is open for trading. If at any time such Common Stock is not listed on any
domestic exchange or quoted in the domestic over-the-counter market, the "Market
Price" shall be deemed to be an amount mutually agreed upon in writing between
the Company and the holder of this Warrant within 15 days immediately following
the date on which the Market Price is to be determined and shall be the Market
Price for purposes of such date. If no agreement as to Market Price is
determined as stated herein, (i) the holder of this Warrant and the Company
shall mutually agree upon the selection of an independent appraiser who shall
then determine Market Price (and whose determination shall be binding upon the
parties), but if no agreement on the selection of the appraiser is obtained
within 20 days after the expiration of said 15 day period, (ii) the holder of
this Warrant and the Company shall each select an independent appraiser who
shall, independently of the other appraiser, determine the fair market value of
the Common Stock of the Company. If the value determined by the appraiser whose
determination is the higher of the two appraisals does not exceed by more than
twenty percent (20%) the average of the values determined by each appraiser,
then the Market Price shall be the average of the values determined by the two
appraisers and said average shall be binding on the parties. If the value
determined by the appraiser whose determination is the higher of the two
appraisals does exceed by more than twenty percent (20%) the average of the
values determined by each appraiser, then the two appraisers shall select a
third independent appraiser who shall, independently of the other appraisals,
determine the fair market value of the Common Stock of the Company. The value
determined by the appraiser whose determination is the most discrepant from the
average of the three appraisals shall be discarded, and the Market Price shall
equal the average of the remaining two appraisals; except that in the event that
the highest and lowest appraisals are equally discrepant from the average of the
three appraisals, the Market Price shall be such average and said average shall
be binding on the parties. The Company shall bear the expenses of all appraisals
except the holder of this Warrant shall pay the expenses of the appraiser
selected by the holder of this Warrant under clause (ii).
3D(9). Determination of Market Price under Certain Circumstances.
---------------------------------------------------------
Anything herein to the contrary notwithstanding, in case the Company shall issue
any shares of Common Stock, Options or Convertible Securities in connection with
the acquisition by the Company of the stock or assets of any other corporation
or the merger of any other corporation into the Company under circumstances
where on the date of the issuance of such shares of Common Stock, Options or
Convertible Securities the consideration received for such Common Stock or
deemed to have been received for the Common Stock issuable upon exercise of such
Options or into which such
9
<PAGE>
Convertible Securities are convertible is less than 95% of the Market Price of
such Common Stock, but on the date when the number of shares of Common Stock,
Options or Convertible Securities (or in the case of Convertible Securities
other than stock, the aggregate principal amount of Convertible Securities) was
determined (as set forth in a binding agreement between the Company and the
other party to the transaction) the consideration received for such Common Stock
or deemed to have been received for the Common Stock issuable upon exercise of
such Options or into which such Convertible Securities are convertible was not
less than 95% of the Market Price of such Common Stock, such shares of Common
Stock shall not be deemed to have been issued for less than 95% of the Market
Price of such Common Stock.
3E. Liquidating Dividends. The Company will not declare a dividend
---------------------
upon the Common Stock payable otherwise than out of consolidated earnings or
consolidated earned surplus, determined in accordance with generally accepted
accounting principles, including the making of appropriate deductions for
minority interests, if any, in subsidiaries, and otherwise than in Common Stock,
unless the Company shall pay over to the holder of this Warrant, on the dividend
payment date, the cash, stock or other securities and other property which the
holder of this Warrant would have received if such holder had exercised this
Warrant in full to purchase Common Stock and had been the record holder of such
Common Stock on the date on which a record is taken for the purpose of such
dividend, or, if a record is not taken, the date as of which the holders of
Common Stock of record entitled to such dividend are to be determined. For the
purposes of the foregoing a dividend other than in cash shall be considered
payable out of earnings or surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or surplus are charged an amount equal to
the fair value of such dividend as determined in good faith by the Board of
Directors of the Company.
3F. Subdivision or Combination of Stock. In case the Company shall
-----------------------------------
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Warrant Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Warrant Purchase Price in effect immediately prior
to such combination shall be proportionately increased. For purposes hereof,
such subdivision or combination shall be deemed to have occurred on the earlier
of the date of such event or the record date for determining holders whose
shares of Common Stock are subject to such subdivision or combination.
3G. Certain Issues Excepted. Anything herein to the contrary
-----------------------
notwithstanding, the Company shall not be required to make any adjustment of the
Warrant Purchase Price in the case of (i) the issuance of Common Stock upon the
exercise of the Equity Sponsor Warrants (as defined in the Note Agreement), so
long as the terms of such Equity Sponsor Warrants, as in effect on the date
hereof, are not amended or modified, (ii) the grant of Options after the date of
the consummation by the Company of an Initial Public Offering to employees,
officers, or directors of the Company or any Subsidiary pursuant to any option
plan approved by the Board of Directors of the Company to purchase up to an
aggregate of 14,375 shares of Common Stock and the issuance of Common Stock upon
the exercise of such Options, (iii) the issuance of 25,000 shares of Class A
Series 2 Preferred
10
<PAGE>
Stock to Banc One pursuant to that certain Purchase Agreement dated as of
November 7, 1997 (the "Purchase Agreement"), among the Company, Banc One and
Primus Capital Fund III Limited Partnership ("Primus"), and the issuance of
Common Stock upon the conversion of such Class A Series 2 Preferred Stock, so
long as the terms of such Class A Series 2 Preferred Stock, as in effect on the
date hereof, are not amended or modified, (iv) the issuance of 25,000 shares of
Class A Series 3 Preferred Stock to Primus pursuant to the Purchase Agreement,
and the issuance of Common Stock upon the conversion of such Class A Series 3
Preferred Stock, so long as the terms of such Class A Series 3 Preferred Stock,
as in effect on the date hereof, are not amended or modified, and (v) the
issuance of Common Stock upon the exercise of the Warrants (as defined in the
Note Agreement), so long as the terms of such Warrants, as in effect on the date
hereof, are not amended or modified.
3H. Merger or Sale. If any capital reorganization or
--------------
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with another Person (regardless of which entity is the
surviving entity), or the sale of all or substantially all of its assets to
another Person corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets (including
cash) with respect to or in exchange for Common Stock, then, as a condition to
such reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions (in form reasonably satisfactory to the holder of this
Warrant) shall be made whereby the holder hereof shall thereafter have the right
to purchase and receive, upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets
(including cash) as may be issued or payable with respect to or in exchange for
a number of outstanding shares of Common Stock equal to the number of shares of
such stock which immediately theretofore were purchasable and receivable upon
the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including without limitation provisions for adjustments of the Warrant Purchase
Price and of the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may be
practicable, in relation to any shares of stock, securities or assets (including
cash) thereafter deliverable upon the exercise hereof. In the event of a merger
or consolidation of the Company or any subsidiary with or into another Person as
a result of which a number of shares of common stock or other equity interests
of the surviving Person greater or less than the number of shares of Common
Stock of the Company outstanding immediately prior to such merger or
consolidation are issuable to holders of Common Stock of the Company, then the
Warrant Purchase Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument (in form reasonably
satisfactory to the holder of this Warrant) executed and mailed or delivered to
the registered holder hereof at the last address of such holder appearing on the
books of the Company, the obligation to
11
<PAGE>
deliver to such holder such shares of stock, securities or assets (including
cash) as, in accordance with the foregoing provisions, such holder may be
entitled to purchase. If a purchase, tender or exchange offer is made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock of the Company, the Company shall not effect any consolidation, merger or
sale with the Person having made such offer or with any Affiliate of such
Person, unless prior to the consummation or such consolidation, merger or sale
the holder of this Warrant shall have been given a reasonable opportunity to
then elect to receive upon the exercise of this Warrant either the stock,
securities or assets then issuable with respect to the Common Stock of the
Company or the stock, securities or assets (including cash), or the equivalent,
issued to previous holders of the Common Stock in accordance with such offer as
if the shares of Common Stock issued upon the exercise of this Warrant had been
issued. The term "PERSON" as used in this Warrant shall mean and include an
individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization and a government or any department or agency
thereof. For the purposes of this paragraph 3H, an "AFFILIATE" of any Person
shall mean any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with, such other Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this Warrant, a
corporation is a "SUBSIDIARY" of another corporation (the "PARENT") if a
majority of the subsidiary's outstanding shares of capital stock ordinarily
entitled to vote for the election of directors (excluding stock which is
entitled to vote in the election of directors only upon the happening of some
contingency such as failure to pay dividends) is owned by the parent and/or one
or more of the parent's subsidiaries. A corporation is also the subsidiary of
another corporation if its parent is a subsidiary of such other corporation.
3I. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment in the shares of Common Stock issuable upon the exercise of this
Warrant, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and cause independent
public accountants of recognized national standing selected by the Company
(which may be the regular auditors of the Company) to verify such computation
and prepare a report setting forth such adjustment or readjustment and showing
in reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any shares of Common
Stock issued or sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the Warrant
Purchase Price in effect immediately prior to such issue or sale and as adjusted
and readjusted (if required by paragraph 3) on account thereof. The Company
will forthwith mail a copy of each such report to the holder of this Warrant and
will, upon the written request at any time of any holder of this Warrant,
furnish to each such holder a like report setting forth the Warrant Purchase
Price at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by the holder or holders of this Warrant or
any prospective purchaser of this Warrant designated by the holder or holders
thereof.
12
<PAGE>
3J. Other Notices. In case at any time:
-------------
(1) the Company shall declare any cash dividend upon its Common
Stock payable at a rate in excess of the rate of the last cash
dividend theretofore paid;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution
(other than regular cash dividends) to the holders of its Common
Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation of winding up of the Company;
then, in each such case, the Company shall give, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the address of such holder
as shown on the books of the Company, (a) at least 35 days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 35 days' prior written
notice of the earliest date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (b) shall also specify the date (if then known, and if
not then known, then the holder of this Warrant shall be advised thereof when
known) on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
3K. Certain Events. If any event occurs as to which, in the opinion
--------------
of the Board of Directors of the Company, the other provisions of this paragraph
3 are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid, but in no event shall any such
adjustment have the effect of increasing the Warrant Purchase Price or
decreasing the number of underlying shares of Common Stock as otherwise
determined pursuant to this paragraph 3, except
13
<PAGE>
in the event of a combination of shares of the type contemplated in paragraph 3F
and then in no event to an amount larger than the Warrant Purchase Price as
adjusted pursuant to paragraph 3F.
4. Financial and Other Information. The Company covenants that it
-------------------------------
will deliver to each Holder (as defined in Section 12 hereof) by first-class
mail, postage prepaid, addressed to the address of such Holder as shown on the
books of the Company:
(i) as soon as practicable and in any event within 20 days
after the end of each calendar month in each fiscal year, unaudited
consolidated and consolidating statements of income, stockholders'
equity and cash flows of the Company and its Subsidiaries (as defined
in the Note Agreement) for such calendar month and for the period from
the beginning of the current fiscal year to the end of such calendar
month, and a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such calendar month, all in reasonable
detail and satisfactory in form to the Holders;
(ii) as soon as practicable and in any event within 45 days
after the end of each fiscal quarter (other than the fourth fiscal
quarter) in each fiscal year, unaudited consolidated and consolidating
statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal quarter and for the
period from the beginning of the current fiscal year to the end of
such fiscal quarter, and a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such fiscal quarter, setting
forth in each case in comparative form figures for the corresponding
periods in the preceding fiscal year, all in reasonable detail and
satisfactory in form to the Holders and certified by an authorized
financial officer of the Company, provided, however, that delivery
within such time period of the Company's Quarterly Report on Form 10-Q
containing such financial statements and financial information
prepared in compliance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirement of this clause (ii) as to delivery of consolidated
financial statements;
(iii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, consolidated and consolidating
statements of income and cash flows and a consolidated and
consolidating statement of stockholders' equity of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, setting forth
in each case in comparative form corresponding consolidated figures
from the preceding annual audit, all in reasonable detail and
satisfactory in form to the Holders and, as to consolidated
statements, reported on by independent public accountants of
recognized national standing selected by the Company or other
independent public accountants reasonably acceptable to the Holders
whose report shall be without limitation as to the scope of the audit
and satisfactory in substance to the Holders, and as to consolidating
statements certified by an authorized financial officer of the
14
<PAGE>
Company; provided, however, that delivery within such time period of
the Company's Annual Report on Form 10-K containing such financial
statements and financial information prepared in compliance with the
requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this clause
(iii) as to delivery of consolidated financial statements;
(iv) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it
shall send to its public stockholders and copies of all registration
statements (without exhibits) and all reports (including reports on
Form 8-K) which it files with the Securities and Exchange Commission
(or any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(v) promptly upon receipt thereof, a copy of each management
letter and other report submitted to the management or board of
directors of the Company or any Subsidiary by independent accountants
in connection with any annual, interim or special audit made by them
of the books of the Company or any Subsidiary;
(vi) promptly after the preparation thereof, school-by-school
information with the content and in the form prepared by management
for internal review and use (which information can be in the form
contained in the Private Placement Memorandum (as defined in the Note
Agreement)), provided that the Company need not provide the
information under this clause (vi) more frequently than once each
fiscal quarter;
(vii) promptly after the Company's receipt thereof, copies of
any notice from the United States Department of Education or any other
Federal, state or local governmental body, agency or department
alleging non-compliance by the Company or any of its Subsidiaries with
any material statute, law decree, court or administrative order or
regulation, including maximum cohort default rates, the "85/15 RULE",
denial of a requested change of control in connection with acquisition
of schools or threatened loss of school accreditation; and
(viii) promptly after the Company or any Subsidiary becomes aware
thereof, notice of the occurrence of any other event which is material
to the Company or any of its Subsidiaries, including the initiation of
any material disputes, administrative proceeding, investigation or
litigation or any material developments in any such disputes or
litigation, conditions that could result in a material adverse change
in the business, condition (financial or otherwise), operations or
prospects of the Company or any of its Subsidiaries, and generally
accepted accounting principles or Company accounting practices (which
notice shall describe such event and the effect, if any, of such event
or change on the Company's results of operations, financial condition
or compliance with this Agreement in reasonable detail).
15
<PAGE>
5. Termination Prior to Expiration Date. Anything herein to the
------------------------------------
contrary notwithstanding, this Warrant, and the rights of the Holder hereof,
will terminate prior to the Expiration Date upon the termination of the
Prudential Warrant pursuant to paragraph 5 of the Prudential Warrant.
6. Registration. If either this Warrant or any shares of Common
------------
Stock required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any Federal or
State law, or listing on any domestic securities exchange, before such shares
may be issued upon exercise, the Company will, at its expense, as expeditiously
as possible, use its best efforts to cause such Warrant and such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
7. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon the exercise of Warrants shall be made without charge to the holders
of such Warrants for any issuance tax in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Warrant exercised.
8. Closing of Books. The Company will at no time close its transfer
----------------
books against the transfer of any Warrant or of any shares of Common Stock
issued or issuable upon the exercise of any Warrant in any manner which
interferes with the timely exercise of this Warrant.
9. Definition of Common Stock. As used in this Warrant the term
--------------------------
"COMMON STOCK" shall mean and include the Company's authorized Class B Common
Stock of the par value of $0.01 per share and the Company's authorized Class B
Common Stock of the par value of $0.01 per share as constituted under the
provisions of the Company's Second Restated Certificate of Incorporation, and
shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to either a fixed sum or a percentage of
its par or stated value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company; provided
that, except as provided in paragraph 3H, the shares purchasable pursuant to
this Warrant shall include only shares designated as Class B Common Stock of the
Company under the provisions of said Certificate of Incorporation, or, in case
of any reclassification of the outstanding shares thereof, the stock, securities
or assets provided for in paragraph 3H.
10. No Participation Preferred Stock. Other than the Series 2
--------------------------------
Preferred Stock and the Class A Series 3 Preferred Stock issued pursuant to the
Purchase Agreement, subject to the rights granted to the holder of this Warrant
pursuant to paragraph 3H, so long as this Warrant remains outstanding, the
Company will not issue any capital stock of any class preferred as to dividends
or as to the distribution of assets upon voluntary or involuntary liquidation,
dissolution or winding up unless the rights of the holders thereof with respect
to such dividends or distributions shall be limited to either a fixed sum or a
percentage of par or stated value of such stock in respect of participation in
dividends and in the distribution of such assets.
16
<PAGE>
11. No Rights or Liabilities as Stockholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the holder hereof any rights
as a stockholder of the Company or as imposing any liabilities on such holder to
purchase any securities or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
12. Appraisal Rights. In the case of any capital reorganization or
----------------
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with another Person (regardless of which entity is the
surviving entity), or the sale of all or substantially all of its assets to any
Person (a "TRANSACTION"), the Company shall, not less than 20 days prior to the
meeting of stockholders to be held for the purpose of voting on such proposed
Transaction (or, if no such meeting of stockholder is to be held, not less than
20 days prior to the consummation of such Transaction) provide notice to the
holder of this Warrant and to the holder of any shares of Common Stock issued
upon the exercise of this Warrant (a "HOLDER") of such proposed Transaction and
all material terms thereof and stating that appraisal rights are available under
this Section 12. Each Holder shall have the right to demand an appraisal of this
Warrant or such shares of Common Stock, as the case may be, by delivering a
demand therefor to the Company prior to the taking of the vote at such meeting
of stockholders or consummation of such Transaction, as the case may be. Each
Holder who has made such demand shall be entitled to be paid cash by the Company
or the entity surviving such Transaction, as applicable, for this Warrant or
such shares of Common Stock, as the case may be, within 15 days after the
consummation of such Transaction, in an amount equal to the fair market value of
this Warrant or such shares of Common Stock, as the case may be, as determined
by an independent investment banker (with an established national reputation as
a valuer of equity securities) selected by the Company with the approval of such
Holders, such fair market value to be determined with regard to all material
relevant factors but without regard to any effects arising from the
accomplishment of such Transaction. Any Holder accepting such payment shall not
receive rights under Section 3H hereof with respect to such Transaction or any
consideration payable to the stockholders of the Company with respect to such
shares of Common Stock, as the case may be, but any Holder may withdraw such
demand prior to the time such Holder accepts the payment under this Section 12
and accept such Holder's rights under Section 3H hereof or such consideration,
as the case may be.
13. Warrants Transferable. This Warrant and all rights hereunder are
---------------------
transferable, in whole or in part, without charge to the holder hereof, at the
office or agency of the Company referred to in paragraph 1 by the holder hereof
in person or by duly authorized attorney, upon surrender of this Warrant
properly endorsed, provided that such holder or its transferee pays any
applicable stamp or transfer taxes. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that this Warrant, when endorsed
in blank, shall be deemed negotiable, and that the holder hereof, when this
Warrant shall have been so endorsed, may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding; but until such transfer on such books, the Company may
treat the registered holder hereof as the owner for all
17
<PAGE>
purposes. Banc One represents that it is not acquiring this Warrant with a view
to or for sale in connection with any distribution thereof within the meaning of
the Act, provided that the disposition of Banc One's property shall at all times
be and remain within its control.
14. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant (but for which a surety shall not be required if the holder of this
Warrant is Banc One or any other institutional investor), upon delivery of
unsecured indemnity agreement from such holder reasonably satisfactory to the
Company in form and amount or, in the case of any such mutilation, upon
surrender of this Warrant for cancellation at the principal office of the
Company, the Company will execute and deliver, in lieu thereof, a new Warrant of
like tenor dated the date hereof.
15. Acknowledgment by Company. The Company will, at the time of or
-------------------------
at any time after each exercise of this Warrant, upon the request of the holder
hereof or of any shares of Common Stock issued upon such exercise, acknowledge
in writing its continuing obligation to afford to such holder all rights to
which such holder shall continue to be entitled, after such exercise in
accordance with the terms of this Warrant, provided, that if any such holder
shall fail to make any such request, the failure shall not affect the continuing
obligation of the Company to afford such rights to such holder.
16. Rights and Obligations Survive Exercise of Warrant. The rights
--------------------------------------------------
and obligations of the Company, of the holder of this Warrant, and of the holder
of shares of Common Stock issued upon exercise of this Warrant, contained in
paragraphs 4, 6 and 12 hereof shall survive the exercise of this Warrant.
17. Warrants Exchangeable for Different Denominations. This Warrant
-------------------------------------------------
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in paragraph 1, for new Warrants of like tenor
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 such number of
shares as shall be designated by said holder hereof at the time of such
surrender. All warrants issued on transfers or exchanges shall be dated the
date hereof and shall be identical with this Warrant except as to the number of
shares of Common Stock issuable pursuant hereto.
18. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
19. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which
18
<PAGE>
enforcement of such change, waiver, discharge or termination is sought. The
agreements of the Company contained in this Warrant are binding upon the
Company, its successors and permitted assigns and shall inure to the benefit of
and be enforceable by any holder or holders at the time of any Common Stock
issued upon the exercise of this Warrant whether so expressed or not.
20. Descriptive Headings and Governing Law. The descriptive headings
--------------------------------------
of the several paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. This Warrant shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of California, without giving effect to principles of
conflicts of laws.
19
<PAGE>
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of November ___, 1997.
CORINTHIAN COLLEGES, INC.
By: /s/ Frank J. McCord
-----------------------
(CORPORATE SEAL)
Attest:
/s/ Paul St. Pierre
___________________________
<PAGE>
SUBSCRIPTION AGREEMENT
______________, 19__
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase ______________ shares of
the Common Stock covered by such Warrant, and makes payment herewith in full
therefor at the price per share provided by such Warrant.
Signature ____________________________________
Address ______________________________________
___________________________
ASSIGNMENT
FOR VALUE RECEIVED, _______________________________________________________
______________________________________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the within Warrant, with
respect to the number of shares of the Common Stock covered thereby set forth
hereinbelow unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: _______________, 19__.
Signature ____________________________________
Witness ____________________________________
<PAGE>
EXHIBIT 10.50
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE WARRANT AND/OR
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN
EXEMPTION THEREFROM.
No. W-_______ Warrant to Subscribe
November ___, 1997 for 4228.80 Shares
STOCK SUBSCRIPTION WARRANT
To Subscribe for and Purchase Class A Common Stock
of Corinthian Colleges, Inc.
THIS CERTIFIES that Primus Capital Fund III Limited Partnership ("PRIMUS"),
or registered assigns, is entitled to subscribe for and purchase from Corinthian
Colleges, Inc., a Delaware corporation (the "Company"), at the price of $0.01
per share at any time after the date hereof to and including the Expiration Date
(as hereinafter defined), 4228.80 duly authorized, validly issued, fully paid
and non-assessable shares of the Company's Class A Common Stock (as hereinafter
defined in paragraph 9), as adjusted from time to time pursuant to the terms
hereof. This Warrant is issued for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged.
This Warrant was issued in connection with the issuance of the Stock
Subscription Warrant issued to The Prudential Company of America ("Prudential")
on the date hereof (the "Prudential Warrant") issued in connection with the
amendment dated October 31, 1997 (the "Amendment"), to the Note Purchase and
Revolving Credit Agreement, dated as of October 17, 1996, between the Company
and Prudential (as amended, the "Note Agreement"). The "EXPIRATION DATE" shall
be the date of the Expiration Date as defined in the Prudential Warrant.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. The rights
------------------------------------------------------
represented by this Warrant may be exercised by the holder hereof from time to
time after October 17, 1999, in whole or in part (but not as to a fractional
share of Common Stock), by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company at 6 Hutton Centre Drive, Suite
400, Santa Ana, California 92707 Attention: Chief Financial Officer (or such
other office or agency of the Company as it may designate by notice in writing
to the holder hereof at the address of such holder appearing on the books of the
Company at any time within the period above named) and upon payment to the
Company by certified check, bank draft or wire transfer of the Warrant Purchase
Price (as hereinafter defined in paragraph 3A(1)) for the shares being purchased
upon such exercise.
<PAGE>
The Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Subject to the provisions of
paragraph 2 below, certificates for the shares of Common Stock so purchased
shall be delivered to the holder hereof within a reasonable time, not exceeding
ten business days, after the rights represented by this Warrant shall have been
so exercised (unless such exercise shall be in connection with an underwritten
public offering of shares of Common Stock, in which event concurrently with such
exercise), and, unless this Warrant has expired, a new Warrant representing the
number of shares of Common Stock, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all shares of Common Stock which may be issued directly or
indirectly 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; and without limiting the
generality of the foregoing, the Company covenants and agrees that it will from
time to time take all such action as may be requisite to assure that the par
value (if any) per share of the Common Stock is at all times equal to or less
than the then effective Warrant Purchase Price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which any class of Common Stock of the Company may be listed. The Company will
not take any action which would result in any adjustment of the Warrant Purchase
Price if the total number of shares of Common Stock issuable after such action
upon exercise of this Warrant, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
Options (as hereinafter defined) (other than this Warrant) and upon conversion
of all Convertible Securities (as hereinafter defined) then outstanding, would
exceed the total number of shares of Common Stock then authorized by the
Company's Certificate of Incorporation.
3. Warrant Purchase Price. The above provisions are, however, subject to
----------------------
the following:
3A. Warrant Purchase Price; Adjustment of Number of Shares.
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3A(1). Warrant Purchase Price. The initial Warrant Purchase Price of
----------------------
$0.01 per share shall be subject to adjustment from time to time as hereinafter
provided (such price or price as last adjusted, as the case may be, being herein
called the "WARRANT PURCHASE PRICE").
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3A(2). Adjustment of Number of Shares When Adjustment of Warrant Purchase
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Price. Upon each adjustment of the Warrant Purchase Price, the holder of this
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Warrant shall thereafter be entitled to purchase, at the Warrant Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying the
Warrant Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Warrant Purchase Price
resulting from such adjustment. Notwithstanding anything to the contrary
contained herein, in no event shall the adjustment of the number of shares set
forth above allow the holder of this Warrant to purchase a number of shares of
Common Stock which represents more than 2.54% of the aggregate number of Fully
Diluted Shares.
3A(3). Special Adjustments of Number of Shares. If on or after the date
------------------=--------------------
of the original issuance of this Warrant and on or prior to the date of the
consummation by the Company of an Initial Public Offering the Company shall
issue any Options (as defined in Section 3D(1) hereof), whether or not such
Options are immediately exercisable, then the aggregate number of shares of
Common Stock which the holder of this Warrant shall be entitled to purchase upon
the exercise of this Warrant shall be adjusted on the date of such issuance to
equal the number which is the same percentage of the number of the Fully Diluted
Shares immediately after such issuance and adjustment (calculated after giving
effect to the adjustment provisions in any other outstanding Options) as the
percentage which the aggregate number of shares of Common Stock which the holder
of this Warrant is entitled to purchase immediately before such issuance is of
the Fully Diluted Shares immediately before such issuance. If an adjustment is
made pursuant to this paragraph 3A(3) as the result of the issuance of any
Option, then no adjustment to the Warrant Purchase Price or the number of shares
issuable upon the exercise of this Warrant shall be made under any other
provision of this Warrant as a result of (a) the issuance of such Option, (b)
any increase to the number of shares of Common Stock issuable under any other
outstanding Options under the adjustment provisions thereof as a result of the
issuance of such Option, (c) the issuance of shares of Common Stock upon the
exercise of such Option, or (d) the issuance of such additional shares of Common
Stock upon the exercise of such other outstanding Options. For the purposes of
this Warrant: (a) "INITIAL PUBLIC OFFERING" shall mean the first offer and sale
to the public by the Company or any holder of shares of Common Stock, pursuant
to a registration statement that has been declared effective by the Securities
and Exchange Commission; provided, however, that the gross proceeds of the
shares issued and sold by the Company are at least $20,000,000, and (b) "FULLY
DILUTED SHARES" shall mean on any date all shares of Common Stock outstanding on
such date, plus all shares of Common Stock which would be outstanding on such
date if all Options and Convertible Securities (including this Warrant)
outstanding on such date, and all Options and Convertible Securities issuable
upon the full exercise of all then outstanding Options and Convertible
Securities, in either case whether or not then exercisable under the terms
thereof, were fully exercised on such date.
3A(4). Special Adjustment for Management Shares. Any Class B Common Stock
----------------------------------------
of the Company purchased by the members of Senior Management pursuant to the
Executive Stock Agreements between the Company and the members of Senior
Management (the "Executive Stock Agreements") which will vest upon a Trigger
Event as defined in the Executive Stock Agreements
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(the "Earnback Shares") and any Common Stock issuable upon exercise of the
Contingent Warrants (the "Contingent Warrant Shares") shall not be deemed to be
issued and outstanding on the date of issuance of this Warrant and shall be
deemed to be issued at the time of vesting of the Earnback Shares as a result of
such Trigger Event. Notwithstanding anything to the contrary contained herein,
but subject to the second sentence of paragraph 3A(2), if the Earnback Shares
vest and/or the Contingent Warrant Shares are issuable, the aggregate number of
shares of Common Stock which the holder of this Warrant shall be entitled to
purchase upon the exercise of this Warrant shall be adjusted on the date of such
deemed issuance of equal the number which is the same percentage of the number
of Fully Diluted Shares immediately after such deemed issuance and adjustment as
the percentage which the aggregate number of shares of Common Stock which the
holder of this Warrant is entitled to purchase immediately before such deemed
issuance is of the number of Fully Diluted Shares immediately before such deemed
issuance. For purposes of this Warrant: (a) "SENIOR MANAGEMENT" shall have the
meaning given such term in the Note Agreement; and (b) "CONTINGENT WARRANTS"
shall mean the Contingent Stock Purchase Warrants, dated October 17, 1996,
issued to Prudential, Primus Capital Fund III Limited Partnership, Banc One
Capital Partners II, Ltd. and BOCA II Limited Liability Company.
3B. Adjustment of Warrant Purchase Price Upon Purchase of Common Stock by
---------------------------------------------------------------------
Company. If the Company directly or indirectly through a subsidiary or
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otherwise, purchases, redeems or otherwise acquires any of its Common Stock
(other than a purchase or other acquisition of shares of Common Stock from a
former employee of the Company or a subsidiary in connection with the
termination of the employment of such employee with the Company or any
Subsidiary) at a price per share greater than the Market Price then in effect,
then the Warrant Purchase Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Purchase Price existing at that time by a fraction (i) the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such purchase, redemption or acquisition minus the number of shares of
Common Stock which the aggregate consideration for the total number of such
shares of Common Stock so purchased, redeemed or acquired would purchase at the
Market Price; and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such purchase, redemption or
acquisition. For the purposes of this paragraph, the date as of which the Market
Price shall be computed shall be the earlier of (x) the date on which the
Company shall enter into a firm contract for the purchase, redemption or
acquisition of such Common Stock, or (y) the date of actual purchase, redemption
or acquisition of such Common Stock. For the purposes of this paragraph, a
purchase, redemption or acquisition of any Options or Convertible Securities
shall be deemed to be a purchase of the underlying Common Stock, and the
computation herein required shall be made on the basis of the full exercise,
conversion or exchange of any such Option or Convertible Security on the date as
of which such computation is required hereby to be made, even if such Option or
right to convert or exchange any such Convertible Securities is not exercisable
on such date.
3C. Adjustment of Warrant Purchase Price upon Issuance of Common Stock.
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Except as provided in paragraph 3G and except that no adjustment will be made
pursuant to this paragraph 3C when an adjustment is made pursuant to paragraph
3F or paragraph 3A(3), if and whenever after
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the date hereof the Company shall issue or sell any shares of its Common Stock
for a consideration per share less than the 95% of the Market Price (as
determined pursuant to Section 3D(8) hereof) at the time of such issue or sale,
then, forthwith upon such issue or sale, the Warrant Purchase Price shall be
reduced to the lower of the prices (calculated to the nearest one-thousandth
cent) determined as follows:
(1) by dividing (i) an amount equal to the sum of (a) the number
of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the Market Price at the time of such sale, and
(b) the aggregate consideration, if any, received by the Company upon
such issue or sale, by (ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale; and
(2) by multiplying the Warrant Purchase Price in effect
immediately prior to the time of such issue or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale
multiplied by the Market Price of such Common Stock immediately prior
to such issue or sale plus (ii) the consideration received by the
Company upon such issue or sale, and the denominator of which shall be
the product of (iii) the total number of shares of Common Stock
outstanding immediately after such issue or sale, multiplied by (iv)
the Market Price of such Common Stock immediately prior to such issue
or sale.
Adjustments of the Warrant Purchase Price shall be made in fractions of a cent
per share to the nearest one-thousandth ($.00001) per share.
3D. Factors Affecting Adjustments. For all purposes of this
-----------------------------
paragraph 3, the following provisions shall also be applicable:
3D(1). Issuance of Rights or Options. In case at any time after the
-----------------------------
date hereof the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to purchase,
or any options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such rights or options being
herein called "OPTIONS" and such convertible or exchangeable stock or securities
being herein called "CONVERTIBLE SECURITIES") whether or not such Options or the
right to convert or exchange any such Convertible Securities are immediately
exercisable (where no adjustment as a result of such issuance is made pursuant
to paragraph 3A(3)), and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock
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<PAGE>
issuable upon the exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such Options)
shall be less than 95% of the Market Price of such Common Stock in effect
immediately prior to the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall (as of
the date of granting of such Options) be deemed to be outstanding (and included
as Common Stock outstanding for purposes of paragraphs 3B and 3C) and to have
been issued for such price per share. Except as otherwise provided in paragraph
3D(3) below, no adjustment or further adjustment (as the case may be) of the
Warrant Purchase Price shall be made upon the actual issue of Common Stock or of
Convertible Securities upon exercise of Options or upon the actual issue of
Common Stock upon conversion or exchange of Convertible Securities (whether or
not the granting or issuance of such Options or Convertible Securities resulted
in an adjustment of the Warrant Purchase Price).
3D(2). Issuance of Convertible Securities. In case the Company shall
----------------------------------
in any manner issue (whether directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than 95% of the Market Price of such
Common Stock on the date of such issue or sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding (and
included as Common Stock for purposes of paragraphs 3B and 3C) and to have been
issued for such price per share, provided that (a) except as otherwise provided
in paragraph 3D(3) below, no adjustment or further adjustment (as the case may
be) of the Warrant Purchase Price shall be made upon the actual issue of Common
Stock upon conversion or exchange of Convertible Securities whether or not the
granting or issuance of such Convertible Securities resulted in an adjustment in
the Warrant Purchase Price, and (b) if any issue or sale of Convertible
Securities is made upon exercise of any Options, no further adjustment of the
Warrant Purchase Price shall be made by reason of such issue or sale (whether or
not the granting or issuance of such Options or Convertible Securities resulted
in an adjustment of the Warrant Purchase Price).
3D(3). Change in Option Price or Conversion Rate. Upon the happening
-----------------------------------------
of any of the following events, namely, if the purchase price provided for in
any Option referred to in paragraph 3D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in paragraph 3D(1) or 3D(2), or the rate at which any Convertible Securities
referred to in paragraph 3D(1) or 3D(2) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Warrant Purchase Price in
effect at the time of such event shall
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<PAGE>
forthwith be readjusted to the Warrant Purchase Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold; and on
the expiration of any such Option or the termination of any such right to
convert or exchange such Convertible Securities, the Warrant Purchase Price then
in effect hereunder shall forthwith be increased to the Warrant Purchase Price
which would have been in effect at the time of such expiration or termination
had such Option or Convertible Security, to the extent outstanding immediately
prior to such expiration or termination, never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the purchase
price provided for in any such Option referred to in paragraph 3D(1) or the rate
at which any Convertible Securities referred to in paragraph 3D(1) or 3D(2) are
convertible into or exchangeable for Common Stock, shall be reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution other than as a result of a stock dividend or stock split which
results in an adjustment of the Warrant Purchase Price, then in case of the
delivery of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Warrant Purchase Price then in
effect hereunder shall forthwith be adjusted to such amount as would have
obtained had such Option or Convertible Security never been issued as to such
Common Stock and had adjustments been made upon the issuance of the shares of
Common Stock delivered as aforesaid, but only if as a result of such adjustment
the Warrant Purchase Price then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Company shall declare a dividend
---------------
or make any other distribution upon any stock of the Company payable in Common
Stock, Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
3D(5). Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, or offered
by the Company for subscription, the consideration received therefor shall be
deemed to be the amount received by the Company therefor plus any additional
consideration payable to the Company upon the exercise, conversion or exchange
of such Common Stock, Options or Convertible Securities, excluding any amounts
paid or receivable for accrued interest or accrued dividends and after deducting
therefrom any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of the Company, after
deducting any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. The amount of
consideration deemed to be received by the Company pursuant to the foregoing
provisions of this paragraph 3D(5) upon any issuance and/or sale, pursuant to an
established compensation plan of the Company, to directors, officers or
employees of the Company in connection with their employment, of shares of
Common Stock, Options or Convertible Securities,
7
<PAGE>
shall be increased by the amount of any tax benefit realized by the Company as a
result of such issuance and/or sale, the amount of such tax benefit being the
amount by which the Federal and/or State income or other tax liability of the
Company shall be reduced by reason of any deduction or credit in respect of such
issuance and/or sale. In case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the Company is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the fair value as determined by the Board of Directors of the Company of
such portion of the assets and business of the non-surviving corporation as such
Board shall determine to be attributable to such Common Stock, Options or
Convertible Securities as the case may be. In case any Options shall be issued
in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued without consideration. In the event of any
consolidation or merger of the Company in which the Company is not the surviving
corporation or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its Common Stock
for stock or securities of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such transaction of
such stock or securities of the other corporation, and if any such calculation
results in adjustment of the Warrant Purchase Price, the determination of the
number of shares of Common Stock receivable upon exercise of the Warrants
immediately prior to such merger, consolidation or sale, for purposes of this
paragraph 3D, shall be made after giving effect to such adjustment of the
Warrant Purchase Price. In all cases where the amount of consideration received
by the Company upon the issuance or sale of any Common Stock, Options, or
Convertible Securities is to be determined by the Board of Directors of the
Company, the Board shall notify the holder of this Warrant of its determination
of the consideration prior to payment or accepting receipt thereof. If, within
ten days after receipt of said notice, the holder of this Warrant shall notify
the Board of any objection to such determination of consideration, a
determination of the fair market value of the consideration will then be made by
arbitration in accordance with the Rules of the American Arbitration
Association, by an arbitrator in the City of San Francisco, California.
3D(6). Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
3D(7). Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the subsequent issuance of any such shares shall
be considered an issue or sale of Common Stock for the purposes of paragraph 3D.
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<PAGE>
3D(8). Definition of Market Price. "Market Price" for any particular
--------------------------
class of Common Stock shall mean the average of the closing prices of the Common
Stock sales on all domestic exchanges on which such class of Common Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any such day, the average of the bid prices at the end of such day, or, if
such class of Common Stock is not listed, the average of the high and low bid
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 20 consecutive business days prior
to the date as of which "Market Price" is being determined; provided that if
such class of Common Stock is listed on any domestic exchange the term "business
days" as used in this sentence shall mean business days on which such exchange
is open for trading. If at any time such Common Stock is not listed on any
domestic exchange or quoted in the domestic over-the-counter market, the "Market
Price" shall be deemed to be an amount mutually agreed upon in writing between
the Company and the holder of this Warrant within 15 days immediately following
the date on which the Market Price is to be determined and shall be the Market
Price for purposes of such date. If no agreement as to Market Price is
determined as stated herein, (i) the holder of this Warrant and the Company
shall mutually agree upon the selection of an independent appraiser who shall
then determine Market Price (and whose determination shall be binding upon the
parties), but if no agreement on the selection of the appraiser is obtained
within 20 days after the expiration of said 15 day period, (ii) the holder of
this Warrant and the Company shall each select an independent appraiser who
shall, independently of the other appraiser, determine the fair market value of
the Common Stock of the Company. If the value determined by the appraiser whose
determination is the higher of the two appraisals does not exceed by more than
twenty percent (20%) the average of the values determined by each appraiser,
then the Market Price shall be the average of the values determined by the two
appraisers and said average shall be binding on the parties. If the value
determined by the appraiser whose determination is the higher of the two
appraisals does exceed by more than twenty percent (20%) the average of the
values determined by each appraiser, then the two appraisers shall select a
third independent appraiser who shall, independently of the other appraisals,
determine the fair market value of the Common Stock of the Company. The value
determined by the appraiser whose determination is the most discrepant from the
average of the three appraisals shall be discarded, and the Market Price shall
equal the average of the remaining two appraisals; except that in the event that
the highest and lowest appraisals are equally discrepant from the average of the
three appraisals, the Market Price shall be such average and said average shall
be binding on the parties. The Company shall bear the expenses of all appraisals
except the holder of this Warrant shall pay the expenses of the appraiser
selected by the holder of this Warrant under clause (ii).
3D(9). Determination of Market Price under Certain Circumstances.
---------------------------------------------------------
Anything herein to the contrary notwithstanding, in case the Company shall issue
any shares of Common Stock, Options or Convertible Securities in connection with
the acquisition by the Company of the stock or assets of any other corporation
or the merger of any other corporation into the Company under circumstances
where on the date of the issuance of such shares of Common Stock, Options or
Convertible Securities the consideration received for such Common Stock or
deemed to have been received for the Common Stock issuable upon exercise of such
Options or into which such
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Convertible Securities are convertible is less than 95% of the Market Price of
such Common Stock, but on the date when the number of shares of Common Stock,
Options or Convertible Securities (or in the case of Convertible Securities
other than stock, the aggregate principal amount of Convertible Securities) was
determined (as set forth in a binding agreement between the Company and the
other party to the transaction) the consideration received for such Common Stock
or deemed to have been received for the Common Stock issuable upon exercise of
such Options or into which such Convertible Securities are convertible was not
less than 95% of the Market Price of such Common Stock, such shares of Common
Stock shall not be deemed to have been issued for less than 95% of the Market
Price of such Common Stock.
3E. Liquidating Dividends. The Company will not declare a dividend
---------------------
upon the Common Stock payable otherwise than out of consolidated earnings or
consolidated earned surplus, determined in accordance with generally accepted
accounting principles, including the making of appropriate deductions for
minority interests, if any, in subsidiaries, and otherwise than in Common Stock,
unless the Company shall pay over to the holder of this Warrant, on the dividend
payment date, the cash, stock or other securities and other property which the
holder of this Warrant would have received if such holder had exercised this
Warrant in full to purchase Common Stock and had been the record holder of such
Common Stock on the date on which a record is taken for the purpose of such
dividend, or, if a record is not taken, the date as of which the holders of
Common Stock of record entitled to such dividend are to be determined. For the
purposes of the foregoing a dividend other than in cash shall be considered
payable out of earnings or surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or surplus are charged an amount equal to
the fair value of such dividend as determined in good faith by the Board of
Directors of the Company.
3F. Subdivision or Combination of Stock. In case the Company shall
-----------------------------------
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Warrant Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Warrant Purchase Price in effect immediately prior
to such combination shall be proportionately increased. For purposes hereof,
such subdivision or combination shall be deemed to have occurred on the earlier
of the date of such event or the record date for determining holders whose
shares of Common Stock are subject to such subdivision or combination.
3G. Certain Issues Excepted. Anything herein to the contrary
-----------------------
notwithstanding, the Company shall not be required to make any adjustment of the
Warrant Purchase Price in the case of (i) the issuance of Common Stock upon the
exercise of the Equity Sponsor Warrants (as defined in the Note Agreement), so
long as the terms of such Equity Sponsor Warrants, as in effect on the date
hereof, are not amended or modified, (ii) the grant of Options after the date of
the consummation by the Company of an Initial Public Offering to employees,
officers, or directors of the Company or any Subsidiary pursuant to any option
plan approved by the Board of Directors of the Company to purchase up to an
aggregate of 14,375 shares of Common Stock and the issuance of Common Stock upon
the exercise of such Options, (iii) the issuance of 25,000 shares of Class A
Series 2 Preferred
10
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Stock to Banc One Capital Partners II, Limited Liability Company ("Banc One")
pursuant to that certain Purchase Agreement dated as of November 7, 1997 (the
"Purchase Agreement"), among the Company, Banc One and Primus, and the issuance
of Common Stock upon the conversion of such Class A Series 2 Preferred Stock, so
long as the terms of such Class A Series 2 Preferred Stock, as in effect on the
date hereof, are not amended or modified, (iv) the issuance of 25,000 shares of
Class A Series 3 Preferred Stock to Primus pursuant to the Purchase Agreement,
and the issuance of Common Stock upon the conversion of such Class A Series 3
Preferred Stock, so long as the terms of such Class A Series 3 Preferred Stock,
as in effect on the date hereof, are not amended or modified, and (v) the
issuance of Common Stock upon the exercise of the Warrants (as defined in the
Note Agreement), so long as the terms of such Warrants, as in effect on the date
hereof, are not amended or modified.
3H. Merger or Sale. If any capital reorganization or
--------------
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with another Person (regardless of which entity is the
surviving entity), or the sale of all or substantially all of its assets to
another Person corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets (including
cash) with respect to or in exchange for Common Stock, then, as a condition to
such reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions (in form reasonably satisfactory to the holder of this
Warrant) shall be made whereby the holder hereof shall thereafter have the right
to purchase and receive, upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets
(including cash) as may be issued or payable with respect to or in exchange for
a number of outstanding shares of Common Stock equal to the number of shares of
such stock which immediately theretofore were purchasable and receivable upon
the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including without limitation provisions for adjustments of the Warrant Purchase
Price and of the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may be
practicable, in relation to any shares of stock, securities or assets (including
cash) thereafter deliverable upon the exercise hereof. In the event of a merger
or consolidation of the Company or any subsidiary with or into another Person as
a result of which a number of shares of common stock or other equity interests
of the surviving Person greater or less than the number of shares of Common
Stock of the Company outstanding immediately prior to such merger or
consolidation are issuable to holders of Common Stock of the Company, then the
Warrant Purchase Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument (in form reasonably
satisfactory to the holder of this Warrant) executed and mailed or delivered to
the registered holder
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hereof at the last address of such holder appearing on the books of the Company,
the obligation to deliver to such holder such shares of stock, securities or
assets (including cash) as, in accordance with the foregoing provisions, such
holder may be entitled to purchase. If a purchase, tender or exchange offer is
made to and accepted by the holders of more than 50% of the outstanding shares
of Common Stock of the Company, the Company shall not effect any consolidation,
merger or sale with the Person having made such offer or with any Affiliate of
such Person, unless prior to the consummation or such consolidation, merger or
sale the holder of this Warrant shall have been given a reasonable opportunity
to then elect to receive upon the exercise of this Warrant either the stock,
securities or assets then issuable with respect to the Common Stock of the
Company or the stock, securities or assets (including cash), or the equivalent,
issued to previous holders of the Common Stock in accordance with such offer as
if the shares of Common Stock issued upon the exercise of this Warrant had been
issued. The term "PERSON" as used in this Warrant shall mean and include an
individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization and a government or any department or agency
thereof. For the purposes of this paragraph 3H, an "AFFILIATE" of any Person
shall mean any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with, such other Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this Warrant, a
corporation is a "SUBSIDIARY" of another corporation (the "PARENT") if a
majority of the subsidiary's outstanding shares of capital stock ordinarily
entitled to vote for the election of directors (excluding stock which is
entitled to vote in the election of directors only upon the happening of some
contingency such as failure to pay dividends) is owned by the parent and/or one
or more of the parent's subsidiaries. A corporation is also the subsidiary of
another corporation if its parent is a subsidiary of such other corporation.
3I. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment in the shares of Common Stock issuable upon the exercise of this
Warrant, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and cause independent
public accountants of recognized national standing selected by the Company
(which may be the regular auditors of the Company) to verify such computation
and prepare a report setting forth such adjustment or readjustment and showing
in reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any shares of Common
Stock issued or sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the Warrant
Purchase Price in effect immediately prior to such issue or sale and as adjusted
and readjusted (if required by paragraph 3) on account thereof. The Company
will forthwith mail a copy of each such report to the holder of this Warrant and
will, upon the written request at any time of any holder of this Warrant,
furnish to each such holder a like report setting forth the Warrant Purchase
Price at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during
12
<PAGE>
normal business hours by the holder or holders of this Warrant or any
prospective purchaser of this Warrant designated by the holder or holders
thereof.
3J. Other Notices. In case at any time:
-------------
(1) the Company shall declare any cash dividend upon its Common
Stock payable at a rate in excess of the rate of the last cash
dividend theretofore paid;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution
(other than regular cash dividends) to the holders of its Common
Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation of winding up of the Company;
then, in each such case, the Company shall give, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the address of such holder
as shown on the books of the Company, (a) at least 35 days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 35 days' prior written
notice of the earliest date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (b) shall also specify the date (if then known, and if
not then known, then the holder of this Warrant shall be advised thereof when
known) on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
3K. Certain Events. If any event occurs as to which, in the opinion
--------------
of the Board of Directors of the Company, the other provisions of this paragraph
3 are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the Warrants in accordance with the essential intent and
principles of such provisions, then the Board of Directors of the Company shall
make an adjustment in the application of such provisions, in accordance with
such essential
13
<PAGE>
intent and principles, so as to protect such purchase rights as aforesaid, but
in no event shall any such adjustment have the effect of increasing the Warrant
Purchase Price or decreasing the number of underlying shares of Common Stock as
otherwise determined pursuant to this paragraph 3, except in the event of a
combination of shares of the type contemplated in paragraph 3F and then in no
event to an amount larger than the Warrant Purchase Price as adjusted pursuant
to paragraph 3F.
4. Financial and Other Information. The Company covenants that it
-------------------------------
will deliver to each Holder (as defined in Section 12 hereof) by first-class
mail, postage prepaid, addressed to the address of such Holder as shown on the
books of the Company:
(i) as soon as practicable and in any event within 20 days
after the end of each calendar month in each fiscal year, unaudited
consolidated and consolidating statements of income, stockholders'
equity and cash flows of the Company and its Subsidiaries (as defined
in the Note Agreement) for such calendar month and for the period from
the beginning of the current fiscal year to the end of such calendar
month, and a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such calendar month, all in reasonable
detail and satisfactory in form to the Holders;
(ii) as soon as practicable and in any event within 45 days
after the end of each fiscal quarter (other than the fourth fiscal
quarter) in each fiscal year, unaudited consolidated and consolidating
statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal quarter and for the
period from the beginning of the current fiscal year to the end of
such fiscal quarter, and a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such fiscal quarter, setting
forth in each case in comparative form figures for the corresponding
periods in the preceding fiscal year, all in reasonable detail and
satisfactory in form to the Holders and certified by an authorized
financial officer of the Company, provided, however, that delivery
within such time period of the Company's Quarterly Report on Form 10-Q
containing such financial statements and financial information
prepared in compliance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirement of this clause (ii) as to delivery of consolidated
financial statements;
(iii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, consolidated and consolidating
statements of income and cash flows and a consolidated and
consolidating statement of stockholders' equity of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, setting forth
in each case in comparative form corresponding consolidated figures
from the preceding annual audit, all in reasonable detail and
satisfactory in form to the Holders and, as to consolidated
statements, reported on by independent public
14
<PAGE>
accountants of recognized national standing selected by the Company or
other independent public accountants reasonably acceptable to the
Holders whose report shall be without limitation as to the scope of
the audit and satisfactory in substance to the Holders, and as to
consolidating statements certified by an authorized financial officer
of the Company; provided, however, that delivery within such time
period of the Company's Annual Report on Form 10-K containing such
financial statements and financial information prepared in compliance
with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of
this clause (iii) as to delivery of consolidated financial statements;
(iv) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it
shall send to its public stockholders and copies of all registration
statements (without exhibits) and all reports (including reports on
Form 8-K) which it files with the Securities and Exchange Commission
(or any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(v) promptly upon receipt thereof, a copy of each management
letter and other report submitted to the management or board of
directors of the Company or any Subsidiary by independent accountants
in connection with any annual, interim or special audit made by them
of the books of the Company or any Subsidiary;
(vi) promptly after the preparation thereof, school-by-school
information with the content and in the form prepared by management
for internal review and use (which information can be in the form
contained in the Private Placement Memorandum (as defined in the Note
Agreement)), provided that the Company need not provide the
information under this clause (vi) more frequently than once each
fiscal quarter;
(vii) promptly after the Company's receipt thereof, copies of
any notice from the United States Department of Education or any other
Federal, state or local governmental body, agency or department
alleging non-compliance by the Company or any of its Subsidiaries with
any material statute, law decree, court or administrative order or
regulation, including maximum cohort default rates, the "85/15 RULE",
denial of a requested change of control in connection with acquisition
of schools or threatened loss of school accreditation; and
(viii) promptly after the Company or any Subsidiary becomes
aware thereof, notice of the occurrence of any other event which is
material to the Company or any of its Subsidiaries, including the
initiation of any material disputes, administrative proceeding,
investigation or litigation or any material developments in any such
disputes or litigation, conditions that could result in a material
adverse change in the business, condition (financial or otherwise),
operations or prospects of the Company or any of its Subsidiaries, and
generally accepted accounting principles or Company
15
<PAGE>
accounting practices (which notice shall describe such event and the
effect, if any, of such event or change on the Company's results of
operations, financial condition or compliance with this Agreement in
reasonable detail).
5. Termination Prior to Expiration Date. Anything herein to the
------------------------------------
contrary notwithstanding, this Warrant, and the rights of the Holder hereof,
will terminate prior to the Expiration Date upon the termination of the
Prudential Warrant pursuant to paragraph 5 of the Prudential Warrant.
6. Registration. If either this Warrant or any shares of Common
------------
Stock required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any Federal or
State law, or listing on any domestic securities exchange, before such shares
may be issued upon exercise, the Company will, at its expense, as expeditiously
as possible, use its best efforts to cause such Warrant and such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
7. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon the exercise of Warrants shall be made without charge to the holders
of such Warrants for any issuance tax in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Warrant exercised.
8. Closing of Books. The Company will at no time close its transfer
----------------
books against the transfer of any Warrant or of any shares of Common Stock
issued or issuable upon the exercise of any Warrant in any manner which
interferes with the timely exercise of this Warrant.
9. Definition of Common Stock. As used in this Warrant the term
--------------------------
"COMMON STOCK" shall mean and include the Company's authorized Class A Common
Stock of the par value of $0.01 per share and the Company's authorized Class B
Common Stock of the par value of $0.01 per share as constituted under the
provisions of the Company's Second Restated Certificate of Incorporation, and
shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to either a fixed sum or a percentage of
its par or stated value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company; provided
that, except as provided in paragraph 3H, the shares purchasable pursuant to
this Warrant shall include only shares designated as Class A Common Stock of the
Company under the provisions of said Certificate of Incorporation, or, in case
of any reclassification of the outstanding shares thereof, the stock, securities
or assets provided for in paragraph 3H.
10. No Participation Preferred Stock. Other than the Class A Series
--------------------------------
2 Preferred Stock and the Class A Series 3 Preferred Stock issued pursuant to
the Purchase Agreement, subject to the rights granted to the holder of this
Warrant pursuant to paragraph 3H, so long as this Warrant remains outstanding,
the Company will not issue any capital stock of any class preferred as to
16
<PAGE>
dividends or as to the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding up unless the rights of the holders thereof
with respect to such dividends or distributions shall be limited to either a
fixed sum or a percentage of par or stated value of such stock in respect of
participation in dividends and in the distribution of such assets.
11. No Rights or Liabilities as Stockholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the holder hereof any rights
as a stockholder of the Company or as imposing any liabilities on such holder to
purchase any securities or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
12. Appraisal Rights. In the case of any capital reorganization or
----------------
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with another Person (regardless of which entity is the
surviving entity), or the sale of all or substantially all of its assets to any
Person (a "TRANSACTION"), the Company shall, not less than 20 days prior to the
meeting of stockholders to be held for the purpose of voting on such proposed
Transaction (or, if no such meeting of stockholder is to be held, not less than
20 days prior to the consummation of such Transaction) provide notice to the
holder of this Warrant and to the holder of any shares of Common Stock issued
upon the exercise of this Warrant (a "HOLDER") of such proposed Transaction and
all material terms thereof and stating that appraisal rights are available under
this Section 12. Each Holder shall have the right to demand an appraisal of this
Warrant or such shares of Common Stock, as the case may be, by delivering a
demand therefor to the Company prior to the taking of the vote at such meeting
of stockholders or consummation of such Transaction, as the case may be. Each
Holder who has made such demand shall be entitled to be paid cash by the Company
or the entity surviving such Transaction, as applicable, for this Warrant or
such shares of Common Stock, as the case may be, within 15 days after the
consummation of such Transaction, in an amount equal to the fair market value of
this Warrant or such shares of Common Stock, as the case may be, as determined
by an independent investment banker (with an established national reputation as
a valuer of equity securities) selected by the Company with the approval of such
Holders, such fair market value to be determined with regard to all material
relevant factors but without regard to any effects arising from the
accomplishment of such Transaction. Any Holder accepting such payment shall not
receive rights under Section 3H hereof with respect to such Transaction or any
consideration payable to the stockholders of the Company with respect to such
shares of Common Stock, as the case may be, but any Holder may withdraw such
demand prior to the time such Holder accepts the payment under this Section 12
and accept such Holder's rights under Section 3H hereof or such consideration,
as the case may be.
13. Warrants Transferable. This Warrant and all rights hereunder are
---------------------
transferable, in whole or in part, without charge to the holder hereof, at the
office or agency of the Company referred to in paragraph 1 by the holder hereof
in person or by duly authorized attorney, upon surrender of this Warrant
properly endorsed, provided that such holder or its transferee pays any
applicable stamp or transfer taxes. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that this Warrant, when endorsed
in blank, shall be deemed negotiable,
17
<PAGE>
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to the transfer hereof on the books of
the Company, any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered holder hereof as the owner
for all purposes. Primus represents that it is not acquiring this Warrant with a
view to or for sale in connection with any distribution thereof within the
meaning of the Act, provided that the disposition of Primus's property shall at
all times be and remain within its control.
14. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant (but for which a surety shall not be required if the holder of this
Warrant is Primus or any other institutional investor), upon delivery of
unsecured indemnity agreement from such holder reasonably satisfactory to the
Company in form and amount or, in the case of any such mutilation, upon
surrender of this Warrant for cancellation at the principal office of the
Company, the Company will execute and deliver, in lieu thereof, a new Warrant of
like tenor dated the date hereof.
15. Acknowledgment by Company. The Company will, at the time of or
-------------------------
at any time after each exercise of this Warrant, upon the request of the holder
hereof or of any shares of Common Stock issued upon such exercise, acknowledge
in writing its continuing obligation to afford to such holder all rights to
which such holder shall continue to be entitled, after such exercise in
accordance with the terms of this Warrant, provided, that if any such holder
shall fail to make any such request, the failure shall not affect the continuing
obligation of the Company to afford such rights to such holder.
16. Rights and Obligations Survive Exercise of Warrant. The rights
--------------------------------------------------
and obligations of the Company, of the holder of this Warrant, and of the holder
of shares of Common Stock issued upon exercise of this Warrant, contained in
paragraphs 4, 6 and 12 hereof shall survive the exercise of this Warrant.
17. Warrants Exchangeable for Different Denominations. This Warrant
-------------------------------------------------
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in paragraph 1, for new Warrants of like tenor
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 such number of
shares as shall be designated by said holder hereof at the time of such
surrender. All warrants issued on transfers or exchanges shall be dated the
date hereof and shall be identical with this Warrant except as to the number of
shares of Common Stock issuable pursuant hereto.
18. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific
18
<PAGE>
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
19. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The agreements of the Company contained in this Warrant are binding
upon the Company, its successors and permitted assigns and shall inure to the
benefit of and be enforceable by any holder or holders at the time of any Common
Stock issued upon the exercise of this Warrant whether so expressed or not.
20. Descriptive Headings and Governing Law. The descriptive headings
--------------------------------------
of the several paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. This Warrant shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of California, without giving effect to principles of
conflicts of laws.
19
<PAGE>
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of November ___, 1997.
CORINTHIAN COLLEGES, INC.
By: /s/ Frank J. McCord
-----------------------
(CORPORATE SEAL)
Attest:
/s/ Paul St. Pierre
- ---------------------
<PAGE>
SUBSCRIPTION AGREEMENT
______________, 19__
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase ______________ shares of
the Common Stock covered by such Warrant, and makes payment herewith in full
therefor at the price per share provided by such Warrant.
Signature ___________________________________
Address _____________________________________
_____________________________________
___________________________
ASSIGNMENT
FOR VALUE RECEIVED, _______________________________________________________
______________________________________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the within Warrant, with
respect to the number of shares of the Common Stock covered thereby set forth
hereinbelow unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: _______________, 19__.
Signature ___________________________________
Witness _____________________________________
<PAGE>
EXHIBIT 10.51
THIS WARRANT AND THE SECURITIES SUBJECT HERETO HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE WARRANT AND/OR
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN
EXEMPTION THEREFROM.
No. W-1977-1 Warrant to Subscribe
November 25, 1997 for 3,683.29 Shares
STOCK SUBSCRIPTION WARRANT
To Subscribe for and Purchase Class A Common Stock
of Corinthian Colleges, Inc.
THIS CERTIFIES that The Prudential Insurance Company of America
("Prudential"), or registered assigns, is entitled to subscribe for and purchase
from Corinthian Colleges, Inc., a Delaware corporation (the "Company"), at the
price of $0.01 per share at any time after the date hereof to and including the
Expiration Date (as hereinafter defined), 3,683.29 duly authorized, validly
issued, fully paid and non-assessable shares of the Company's Class A Common
Stock (as hereinafter defined in paragraph 9), as adjusted from time to time
pursuant to the terms hereof. This Warrant is issued for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged.
This Warrant was issued in connection with the amendment dated October 31,
1997 (the "Amendment"), to the Note Purchase and Revolving Credit Agreement,
dated as of October 17, 1996, between the Company and Prudential (as amended,
the "Note Agreement"). Under the Note Agreement there is outstanding, after
giving effect to the Amendment, $22,500,000 principal amount of the Company's
11.02% Senior Secured Term Notes due October 17, 2004 (the "Term Notes"). The
"Expiration Date" shall be the earlier of (a) October 17, 2004, or (b) the date
which is six months after the date upon which the entire outstanding principal
amount of, accrued interest on, and any Yield-Maintenance Amount (as defined in
the Note Agreement) or any other amount due with respect to the Term Notes has
been indefeasibly paid in cash.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. The rights
------------------------------------------------------
represented by this Warrant may be exercised by the holder hereof from time to
time after October 17, 1999, in whole or in part (but not as to a fractional
share of Common Stock), by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company at 6 Hutton Centre Drive, Suite
400, Santa Ana, California 92707 Attention: Chief Financial Officer (or such
other office or agency of the Company as it may designate by notice in writing
to the holder hereof at the address
<PAGE>
of such holder appearing on the books of the Company at any time within the
period above named) and upon payment to the Company by certified check, bank
draft or wire transfer of the Warrant Purchase Price (as hereinafter defined in
paragraph 3A(1)) for the shares being purchased upon such exercise. The Company
agrees that the shares so purchased shall be and are deemed to be issued to the
holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered and payment made for
such shares as aforesaid. Subject to the provisions of paragraph 2 below,
certificates for the shares of Common Stock so purchased shall be delivered to
the holder hereof within a reasonable time, not exceeding ten business days,
after the rights represented by this Warrant shall have been so exercised
(unless such exercise shall be in connection with an underwritten public
offering of shares of Common Stock, in which event concurrently with such
exercise), and, unless this Warrant has expired, a new Warrant representing the
number of shares of Common Stock, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all shares of Common Stock which may be issued directly or
indirectly 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; and without limiting the
generality of the foregoing, the Company covenants and agrees that it will from
time to time take all such action as may be requisite to assure that the par
value (if any) per share of the Common Stock is at all times equal to or less
than the then effective Warrant Purchase Price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of its Common Stock to provide
for the exercise of the rights represented by this Warrant. The Company will
take all such action as may be necessary to assure that such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirements of any domestic securities exchange upon which any class of
Common Stock of the Company may be listed. The Company will not take any action
which would result in any adjustment of the Warrant Purchase Price if the total
number of shares of Common Stock issuable after such action upon exercise of
this Warrant, together with all shares of Common Stock then outstanding and all
shares of Common Stock then issuable upon exercise of all Options (as
hereinafter defined) (other than this Warrant) and upon conversion of all
Convertible Securities (as hereinafter defined) then outstanding, would exceed
the total number of shares of Common Stock then authorized by the Company's
Certificate of Incorporation.
3. Warrant Purchase Price. The above provisions are, however, subject to
----------------------
the following:
2
<PAGE>
3A. Warrant Purchase Price; Adjustment of Number of Shares.
------------------------------------------------------
3A(1). Warrant Purchase Price. The initial Warrant Purchase Price of $0.0l
----------------------
per share shall be subject to adjustment from time to tie as hereinafter
provided (such price or price as last adjusted, as the case may be, being herein
called the "Warrant Purchase Price").
3A(2). Adjustment of Number of Shares When Adjustment of Warrant Purchase
------------------------------------------------------------------
Price. Upon each adjustment of the Warrant Purchase Price, the holder of this
- -----
Warrant shall thereafter be entitled to purchase, at the Warrant Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying the
Warrant Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Warrant Purchase Price
resulting from such adjustment. Notwithstanding anything to the contrary
contained herein, in no event shall the adjustment of the number of shares set
forth above allow the holder of this Warrant to purchase a number of shares of
Common Stock which represents more than 2.20% of the aggregate number of Fully
Diluted Shares.
3A(3). Special Adjustments of Number of Shares. If on or after the date of
---------------------------------------
the original issuance of this Warrant and on or prior to the date of the
consummation by the Company of an Initial Public Offering the Company shall
issue any Options (as defined in Section 3D(l) hereof), whether or not such
Options are immediately exercisable, then the aggregate number of shares of
Common Stock which the holder of this Warrant shall be entitled to purchase upon
the exercise of this Warrant shall be adjusted on the date of such issuance to
equal the number which is the same percentage of the number of the Fully
Diluted Shares immediately after such issuance and adjustment (calculated after
giving effect to the adjustment provisions in any other outstanding Options) as
the percentage which the aggregate number of shares of Common Stock which the
holder of this Warrant is entitled to purchase immediately before such issuance
is of the Fully Diluted Shares immediately before such issuance. If an
adjustment is made pursuant to this paragraph 3A(3) as the result of the
issuance of any Option, then no adjustment to the Warrant Purchase Price or the
number of shares issuable upon the exercise of this Warrant shall be made under
any other provision of this Warrant as a result of (a) the issuance of such
Option, (b) any increase to the number of shares of Common Stock issuable under
any other outstanding Options under the adjustment provisions thereof as a
result of the issuance of such Option, (c) the issuance of shares of Common
Stock upon the exercise of such Option, or (d) the issuance of such additional
shares of Common Stock upon the exercise of such other outstanding Options. For
the purposes of this Warrant: (a) "Initial Public Offering" shall mean the first
offer and sale to the public by the Company or any holder of shares of Common
Stock, pursuant to a registration statement that has been declared effective by
the Securities and Exchange Commission; provided, however, that the gross
proceeds of the shares issued and sold by the Company are at least $20,000,000,
and (b) "Fully Diluted Shares" shall mean on any date all shares of Common Stock
outstanding on such date, plus all shares of Common Stock which would be
outstanding on such date if all Options and Convertible Securities (including
this Warrant) outstanding On such date, and all Options and Convertible
Securities issuable upon the full exercise of all then outstanding Options and
Convertible Securities,
3
<PAGE>
in either case whether or not then exercisable under the terms thereof, were
fully exercised on such date.
3A(4). Special Adjustment for Management Shares. Any Class B Common Stock
----------------------------------------
of the Company purchased by the members of Senior Management pursuant to the
Executive Stock Agreements between the Company and the members of Senior
Management (the "Executive Stock Agreements") which will vest upon a Trigger
Event as defined in the Executive Stock Agreements (the "Earnback Shares") and
any Common Stock issuable upon exercise of the Contingent Warrants (the
"Contingent Warrant Shares") shall not be deemed to be issued and outstanding on
the date of issuance of this Warrant and shall be deemed to be issued at the
time of vesting of the Earnback Shares as a result of such Trigger Event.
Notwithstanding anything to the contrary contained herein, but subject to the
second sentence of Section 3A(2) above, if the Earnback Shares vest and/or the
Contingent Warrant Shares are issuable, the aggregate number of shares of Common
Stock which the holder of this Warrant shall be entitled to purchase upon the
exercise of this Warrant shall be adjusted on the date of such deemed issuance
to equal the number which is the same percentage of the number of Fully Diluted
Shares immediately after such deemed issuance and adjustment as the percentage
which the aggregate number of shares of Common Stock which the holder of this
Warrant is entitled to purchase immediately before such deemed issuance is of
the number of Fully Diluted Shares immediately before such deemed issuance. For
purposes of this Warrant: (a) "Senior Management" shall have the meaning given
such term in the Note Agreement; and (b) "Contingent Warrants" shall mean the
Contingent Stock Purchase Warrants, dated October 17, 1996, issued to
Prudential, Primus Capital Fund III Limited Partnership, Banc One Capital
Partners II, Ltd. and BOCA II Limited Liability Company.
3B. Adjustment of Warrant Purchase Price Upon Purchase of Common Stock by
---------------------------------------------------------------------
Company. If the Company directly or indirectly through a subsidiary or
- -------
otherwise, purchases, redeems or otherwise acquires any of its Common Stock
(other than a purchase or other acquisition of shares of Common Stock from a
former employee of the Company or a subsidiary in connection with the
termination of the employment of such employee with the Company or any
Subsidiary) at a price per share greater than the Market Price then in effect,
then the Warrant Purchase Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Purchase Price existing at that time by a fraction (i) the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such purchase, redemption or acquisition minus the number of shares of
Common Stock which the aggregate consideration for the total number of such
shares of Common Stock so purchased, redeemed or acquired would purchase at the
Market Price; and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such purchase, redemption or
acquisition. For the purposes of this paragraph, the date as of which the Market
Price shall be computed shall be the earlier of (x) the date on which the
Company shall enter into a firm contract for the purchase, redemption or
acquisition of such Common Stock, or (y) the date of actual purchase, redemption
or acquisition of such Common Stock. For the purposes of this paragraph, a
purchase, redemption or acquisition of any Options or Convertible Securities
shall be deemed to be a purchase of the underlying Common Stock, and the
computation herein required shall be made on
4
<PAGE>
the basis of the full exercise, conversion or exchange of any such Option or
Convertible Security on the date as of which such computation is required hereby
to be made, even if such Option or right to convert or exchange any such
Convertible Securities is not exercisable on such date.
3C. Adjustment of Warrant Purchase Price upon Issuance of Common Stock.
------------------------------------------------------------------
Except as provided in paragraph 3G and except that no adjustment will be made
pursuant to this paragraph 3C when an adjustment is made pursuant to paragraph
3F or paragraph 3A(3), if and whenever after the date hereof the Company shall
issue or sell any shares of its Common Stock for a consideration per share less
than the 95% of the Market Price (as determined pursuant to Section 3D(8)
hereof) at the time of such issue or sale, then, forthwith upon such issue or
sale, the Warrant Purchase Price shall be reduced to the lower of the prices
(calculated to the nearest one-thousandth cent) determined as follows:
(1) by dividing (i) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Market Price at the time of such sale, and (b) the
aggregate consideration, if any, received by the Company upon such issue or
sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale; and
(2) by multiplying the Warrant Purchase Price in effect immediately
prior to the time of such issue or sale by a fraction, the numerator of
which shall be the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the
Market Price of such Common Stock immediately prior to such issue or sale
plus (ii) the consideration received by the Company upon such issue or
sale, and the denominator of which shall be the product of (iii) the total
number of shares of Common Stock outstanding immediately after such issue
or sale, multiplied by (iv) the Market Price of such Common Stock
immediately prior to such issue or sale.
Adjustments of the Warrant Purchase Price shall be made in fractions of a cent
per share to the nearest one-thousandth ($.00001) per share.
3D. Factors Affecting Adjustments. For all purposes of this paragraph 3,
-----------------------------
the following provisions shall also be applicable:
3D(l). Issuance of Rights or Options. In case at any time after the date
-----------------------------
hereof the Company shall in any manner grant (whether directly or by assumption
in a merger or otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or securities convertible
into or exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities") whether or not such Options or the right
to convert or exchange any such Convertible Securities are immediately
exercisable (where no adjustment as a result of such issuance is made pursuant
to paragraph 3A(3)), and the price per share for which Common Stock is issuable
5
<PAGE>
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise
of such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than 95% of
the Market Price of such Common Stock in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall (as of the date of granting of such Options) be
deemed to be outstanding (and included as Common Stock outstanding for purposes
of paragraphs 3B and 3C) and to have been issued for such price per share.
Except as otherwise provided in paragraph 3D(3) below, no adjustment or further
adjustment (as the case may be) of the Warrant Purchase Price shall be made upon
tile actual issue of Common Stock or of Convertible Securities upon exercise of
Options or upon the actual issue of Common Stock upon conversion or exchange of
Convertible Securities (whether or not the granting or issuance of such Options
or Convertible Securities resulted in an adjustment of the Warrant Purchase
Price).
3D(2). Issuance of Convertible Securities. In case the Company shall in any
----------------------------------
manner issue (whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than 95% of the Market Price of such
Common Stock on the date of such issue or sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding (and
included as Common Stock for purposes of paragraphs 3B and 3C) and to have been
issued for such price per share, provided that (a) except as otherwise provided
in paragraph 3D(3) below, no adjustment or further adjustment (as the case may
be) of the Warrant Purchase Price shall be made upon the actual issue of Common
Stock upon conversion or exchange of Convertible Securities whether or not the
granting or issuance of such Convertible Securities resulted in an adjustment in
the Warrant Purchase Price, and (b) if any issue or sale of Convertible
Securities is made upon exercise of any Options, no further adjustment of the
Warrant Purchase Price shall be made by reason of such issue or sale (whether or
not the granting or issuance of such Options or Convertible Securities resulted
in an adjustment of the Warrant Purchase Price).
6
<PAGE>
3D(3). Change in Option Price or Conversion Rate. Upon the happening of
-----------------------------------------
any of the following events, namely, if the purchase price provided for in any
Option referred to in paragraph 3D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in paragraph 3D(l) or 3D(2), or the rate at which any Convertible Securities
referred to in paragraph 3D(l) or 3D(2) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Warrant Purchase Price in
effect at the time of such event shall forthwith be readjusted to the Warrant
Purchase Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange such
Convertible Securities, the Warrant Purchase Price then in effect hereunder
shall forthwith be increased to the Warrant Purchase Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase price
provided for in any such Option referred to in paragraph 3D(l) or the rate at
which any Convertible Securities referred to in paragraph 3D(l) or 3D(2) are
convertible into or exchangeable for Common Stock, shall be reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution other than as a result of a stock dividend or stock split which
results in an adjustment of the Warrant Purchase Price, then in case of the
delivery of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Warrant Purchase Price then
in effect hereunder shall forthwith be adjusted to such amount as would have
obtained had such Option or Convertible Security never been issued as to such
Common Stock and had adjustments been made upon the issuance of the shares of
Common Stock delivered as aforesaid, but only if as a result of such adjustment
the Warrant Purchase Price then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Company shall declare a dividend or
---------------
make any other distribution upon any stock of the Company payable in Common
Stock, Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
3D(5). Consideration for Stock. In case any shares of Common Stock, Options
-----------------------
or Convertible Securities shall be issued or sold for cash, or offered by the
Company for subscription, the consideration received therefor shall be deemed to
be the amount received by the Company therefor plus any additional consideration
payable to the Company upon the exercise, conversion or exchange of such Common
Stock, Options or Convertible Securities, excluding any amounts paid or
receivable for accrued interest or accrued dividends and after deducting
therefrom any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
7
<PAGE>
received by the Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of the Company, after
deducting any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. The amount of
consideration deemed to be received by the Company pursuant to the foregoing
provisions of this paragraph 3D(5) upon any issuance and/or sale, pursuant to an
established compensation plan of the Company, to directors, officers or
employees of the Company in connection with their employment, of shares of
Common Stock, Options or Convertible Securities, shall be increased by the
amount of any tax benefit realized by the Company as a result of such issuance
and/or sale, the amount of such tax benefit being the amount by which the
Federal and/or State income or other tax liability of the Company shall be
reduced by reason of any deduction or credit in respect of such issuance and/or
sale. In case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the fair value as determined by the Board of Directors of the Company of such
portion of the assets and business of the non-surviving corporation as such
Board shall determine to be attributable to such Common Stock, Options or
Convertible Securities as the case may be. In case any Options shall be issued
in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued without consideration. In the event of any
consolidation or merger of the Company in which the Company is not the surviving
corporation or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its Common Stock
for stock or securities of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such transaction of
such stock or securities of the other corporation, and if any such calculation
results in adjustment of the Warrant Purchase Price, the determination of the
number of shares of Common Stock receivable upon exercise of the Warrants
immediately prior to such merger, consolidation or sale, for purposes of this
paragraph 3D, shall be made after giving effect to such adjustment of the
Warrant Purchase Price. In all cases where the amount of consideration received
by the Company upon the issuance or sale of any Common Stock, Options, or
Convertible Securities is to be determined by the Board of Directors of the
Company, the Board shall notify the holder of this Warrant of its determination
of the consideration prior to payment or accepting receipt thereof. If, within
ten days after receipt of said notice, the holder of this Warrant shall notify
the Board of any objection to such determination of consideration, a
determination of the fair market value of the consideration will then be made by
arbitration in accordance with the Rules of the American Arbitration
Association, by an arbitrator in the City of San Francisco, California.
3D(6). Record Date. In case the Company shall take a record of the holders
-----------
of its Common Stock for the purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Stock, Options or in Convertible
Securities, or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon
8
<PAGE>
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
3D(7). Treasury Shares. The number of shares of Common Stock outstanding at
---------------
any given time shall not include shares owned or held by or for the account of
the Company, and the subsequent issuance of any such shares shall be considered
an issue or sale of Common Stock for the purposes of paragraph 3D.
3D(8). Definition of Market Price. "Market Price" for any particular class
--------------------------
of Common Stock shall mean the average of the closing prices of the Common Stock
sales on all domestic exchanges on which such class of Common Stock may at the
time be listed, or, if there shall have been no sales on any such exchange on
any such day, the average of the bid prices at the end of such day, or, if such
class of Common Stock is not listed, the average of the high and low bid prices
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of 20 consecutive business days prior to the
date as of which "Market Price" is being determined; provided that if such class
of Common Stock is listed on any domestic exchange the term "business days" as
used in this sentence shall mean business days on which such exchange is open
for trading. If at any time such Common Stock is not listed on any domestic
exchange or quoted in the domestic over-the-counter market, the "Market Price"
shall be deemed to be an amount mutually agreed upon in writing between the
Company and the holder of this Warrant within 15 days immediately following the
date on which the Market Price is to be determined and shall be the Market Price
for purposes of such date. If no agreement as to Market Price is determined as
stated herein, (i) the holder of this Warrant and the Company shall mutually
agree upon the selection of an independent appraiser who shall then determine
Market Price (and whose determination shall be binding upon the parties), but if
no agreement on the selection of the appraiser is obtained within 20 days after
the expiration of said 15 day period, (ii) the holder of this Warrant and the
Company shall each select an independent appraiser who shall, independently of
the other appraiser, determine the fair market value of the Common Stock of the
Company. If the value determined by the appraiser whose determination is the
higher of the two appraisals does not exceed by more than twenty percent (20%)
the average of the values determined by each appraiser, then the Market Price
shall be the average of the values determined by the two appraisers and said
average shall be binding on the parties. If the value determined by the
appraiser whose determination is the higher of the two appraisals does exceed by
more than twenty percent (20%) the average of the values determined by each
appraiser, then the two appraisers shall select a third independent appraiser
who shall, independently of the other appraisals, determine the fair market
value of the Common Stock of the Company. The value determined by the appraiser
whose determination is the most discrepant from the average of the three
appraisals shall be discarded, and the Market Price shall equal the average of
the remaining two appraisals; except that in the event that the highest and
lowest appraisals are equally discrepant from the average of the three
appraisals, the Market Price shall be such average and said average shall be
binding on the parties. The Company shall bear the expenses of all appraisals
except the holder of this Warrant shall pay the expenses of the appraiser
selected by the holder of this Warrant under clause (ii).
9
<PAGE>
3D(9). Determination of Market Price under Certain Circumstances. Anything
---------------------------------------------------------
herein to the contrary notwithstanding, in case the Company shall issue any
shares of Common Stock, Options or Convertible Securities in connection with the
acquisition by the Company of the stock or assets of any other corporation or
the merger of any other corporation into the Company under circumstances where
on the date of the issuance of such shares of Common Stock, Options or
Convertible Securities the consideration received for such Common Stock or
deemed to have been received for the Common Stock issuable upon exercise of such
Options or into which such Convertible Securities are convertible is less than
95% of the Market Price of such Common Stock, but on the date when the number of
shares of Common Stock, Options or Convertible Securities (or in the case of
Convertible Securities other than stock, the aggregate principal amount of
Convertible Securities) was determined (as set forth in a binding agreement
between the Company and the other party to the transaction) the consideration
received for such Common Stock or deemed to have been received for the Common
Stock issuable upon exercise of such Options or into which such Convertible
Securities are convertible was not less than 95% of the Market Price of such
Common Stock, such shares of Common Stock shall not be deemed to have been
issued for less than 95% of the Market Price of such Common Stock.
3E. Liquidating Dividends. The Company will not declare a dividend upon the
---------------------
Common Stock payable otherwise than out of consolidated earnings or consolidated
earned surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries, and otherwise than in Common Stock, unless
the Company shall pay over to the holder of this Warrant, on the dividend
payment date, the cash, stock or other securities and other property which the
holder of this Warrant would have received if such holder had exercised this
Warrant in full to purchase Common Stock and had been the record holder of such
Common Stock on the date on which a record is taken for the purpose of such
dividend, or, if a record is not taken, the date as of which the holders of
Common Stock of record entitled to such dividend are to be determined. For the
purposes of the foregoing a dividend other than in cash shall be considered
payable out of earnings or surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or surplus are charged an amount equal to
the fair value of such dividend as determined in good faith by the Board of
Directors of the Company.
3F. Subdivision or Combination of Stock. In case the Company shall at any
-----------------------------------
time subdivide its outstanding shares of Common Stock into a greater number of
shares, the Warrant Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Warrant Purchase Price in effect immediately prior
to such combination shall be proportionately increased. For purposes hereof,
such subdivision or combination shall be deemed to have occurred on the earlier
of the date of such event or the record date for determining holders whose
shares of Common Stock are subject to such subdivision or combination.
3G. Certain Issues Expected. Anything herein to the contrary
-----------------------
notwithstanding, the Company shall not be required to make any adjustment of the
Warrant Purchase Price in the case
10
<PAGE>
of (i) the issuance of Common Stock upon the exercise of the Equity Sponsor
Warrants (as defined in the Note Agreement), so long as the terms of such Equity
Sponsor Warrants, as in effect on the date hereof, are not amended or modified,
(ii) the grant of Options after the date of the consummation by the Company of
an Initial Public Offering to employees, officers, or directors of the Company
or any Subsidiary pursuant to any option plan approved by the Board of Directors
of the Company to purchase up to an aggregate of 14,375 shares of Common Stock
and the issuance of Common Stock upon the exercise of such Options, (iii) the
issuance of 25,000 shares of Class A Series 2 Preferred Stock to Banc One
Capital Partners II, Limited Liability Company ("Banc One") pursuant to that
certain Purchase Agreement dated as of November 7, 1997 (the "Purchase
Agreement"), among the Company, Banc One and Primus Capital Fund III Limited
Partnership ("Primus"), and the issuance of Common Stock upon the conversion of
such Class A Series 2 Preferred Stock, so long as the terms of such Class A
Series 2 Preferred Stock, as in effect on the date hereof, are not amended or
modified, (iv) the issuance of 25,000 shares of Class A Series 3 Preferred Stock
to Primus pursuant to the Purchase Agreement, and the issuance of Common Stock
upon the conversion of such Class A Series 3 Preferred Stock, so long as the
terms of such Class A Series 3 Preferred Stock, as in effect on the date hereof,
are not amended or modified, and (v) the issuance of Common Stock upon the
exercise of the Warrants (as defined in the Note Agreement), so long as the
terms of such Warrants, as in effect on the date hereof, are not amended or
modified.
3H. Merger or Sale. If any capital reorganization or reclassification of
--------------
the capital stock of the Company or any consolidation or merger of the Company
with another Person (regardless of which entity is the surviving entity), or the
sale of all or substantially all of its assets to another Person corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets (including cash) with respect to or in
exchange for Common Stock, then, as a condition to such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
(in form reasonably satisfactory to the holder of this Warrant) shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets (including cash)
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of such stock
which immediately theretofore were purchasable and receivable upon the exercise
of the rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including without
limitation provisions for adjustments of the Warrant Purchase Price and of the
number of shares purchasable and receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be practicable, in relation to
any shares of stock, securities or assets (including cash) thereafter
deliverable upon the exercise hereof. In the event of a merger or consolidation
of the Company or any subsidiary with or into another Person as a result of
which a number of shares of common stock or other equity interests of the
surviving Person greater or less than the number of shares of Common Stock of
the Company outstanding immediately prior to such merger or consolidation are
issuable to holders of
11
<PAGE>
Common Stock of the Company, then the Warrant Purchase Price in effect
immediately prior to such merger or consolidation shall be adjusted in the same
manner as though there were a subdivision or combination of the outstanding
shares of Common Stock of the Company. The Company will not effect any
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument (in form reasonably satisfactory to the holder of this
Warrant) executed and mailed or delivered to the registered holder hereof at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
(including cash) as, in accordance with the foregoing provisions, such holder
may be entitled to purchase. If a purchase, tender or exchange offer is made to
and accepted by the holders of more than 50% of the outstanding shares of Common
Stock of the Company, the Company shall not effect any consolidation, merger or
sale with the Person having made such offer or with any Affiliate of such
Person, unless prior to the consummation or such consolidation, merger or sale
the holder of this Warrant shall have been given a reasonable opportunity to
then elect to receive upon the exercise of this Warrant either the stock,
securities or assets then issuable with respect to the Common Stock of the
Company or the stock, securities or assets (including cash), or the equivalent,
issued to previous holders of the Common Stock in accordance with such offer as
if the shares of Common Stock issued upon the exercise of this Warrant had been
issued. The term "Person" as used in this Warrant shall mean and include an
individual, a partnership, a corporation, a trust, a joint venture, an
unincorporated organization and a government or any department or agency
thereof. For the purposes of this paragraph 3H, an "Affiliate" of any Person
shall mean any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with, such other Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this Warrant, a
corporation is a "subsidiary" of another corporation (the "parent") if a
majority of the subsidiary's outstanding shares of capital stock ordinarily
entitled to vote for the election of directors (excluding stock which is
entitled to vote in the election of directors only upon the happening of some
contingency such as failure to pay dividends) is owned by the parent and/or one
or more of the parent's subsidiaries. A corporation is also the subsidiary of
another corporation if its parent is a subsidiary of such other corporation.
3I. Accountants' Report as to Adjustments. In each case of any adjustment
-------------------------------------
in the shares of Common Stock issuable upon the exercise of this Warrant, the
Company at its expense will promptly compute such adjustment or readjustment in
accordance with the terms of this Warrant and cause independent public
accountants of recognized national standing selected by the Company (which may
be the regular auditors of the Company) to verify such computation and prepare a
report setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any shares of Common
Stock issued or sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the Warrant
Purchase Price in effect
12
<PAGE>
immediately prior to such issue or sale and as adjusted and readjusted (if
required by paragraph 3) on account thereof. The Company will forthwith mail a
copy of each such report to the holder of this Warrant and will, upon the
written request at any time of any holder of this Warrant, furnish to each such
holder a like report setting forth the Warrant Purchase Price at the time in
effect and showing in reasonable detail how it was calculated. The Company will
also keep copies of all such reports at its principal office and will cause the
same to be available for inspection at such office during normal business hours
by the holder or holders of this Warrant or any prospective purchaser of this
Warrant designated by the holder or holders thereof.
3J. Other Notices. In case at any time:
-------------
(1) the Company shall declare any cash dividend
upon its Common Stock payable at a rate in excess of the
rate of the last cash dividend theretofore paid;
(2) the Company shall declare any dividend upon its
Common Stock payable in stock or make any special dividend
or other distribution (other than regular cash dividends)
to the holders of its Common Stock;
(3) the Company shall offer for subscription pro
rata to the holders of its Common Stock any additional
shares of stock of any class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all
or substantially all of its assets to, another corporation;
or
(5) there shall be a voluntary or involuntary
dissolution, liquidation of winding up of the Company;
then, in each such case, the Company shall give, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the address of such holder
as shown on the books of the Company, (a) at least 35 days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 35 days' prior written
notice of the earliest date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (b) shall also specify the date (if then known, and
if not then known, then the holder of this Warrant shall be advised thereof
when known) on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
13
<PAGE>
3K. Certain Events. If any event occurs as to which, in the opinion of the
--------------
Board of Directors of the Company, the other provisions of this paragraph 3 are
not strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the Warrants in accordance with the essential intent and
principles of such provisions, then the Board of Directors of the Company shall
make an adjustment in the application of such provisions, in accordance with
such essential intent arid principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
increasing the Warrant Purchase Price or decreasing the number of underlying
shares of Common Stock as otherwise determined pursuant to this paragraph 3,
except in the event of a combination of shares of the type contemplated in
paragraph 3F and then in no event to an amount larger than the Warrant Purchase
Price as adjusted pursuant to paragraph 3F.
4. Financial and Other Information. The Company covenants that it will
-------------------------------
deliver to each holder (as defined in Section 12 hereof) by first-class mail,
postage prepaid, addressed to the address of such Holder as shown on the books
of the Company:
(i) as soon as practicable and in any event within 20 days after the
end of each calendar month in each fiscal year, unaudited consolidated and
consolidating statements of income, stockholders' equity and cash flows of
the Company and its Subsidiaries (as defined in the Note Agreement) for
such calendar month and for the period from the beginning of the current
fiscal year to the end of such calendar month, and a consolidated balance
sheet of the Company and its Subsidiaries as at the end of such calendar
month, all in reasonable detail and satisfactory in form to the Holders;
(ii) as soon as practicable and in any event within 45 days after the
end of each fiscal quarter (other than the fourth fiscal quarter) in each
fiscal year, unaudited consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for
such fiscal quarter and for the period from the beginning of the current
fiscal year to the end of such fiscal quarter, and a consolidated balance
sheet of the Company and its Subsidiaries as at the end of such fiscal
quarter, setting forth in each case in comparative form figures for the
corresponding periods in the preceding fiscal year, all in reasonable
detail and satisfactory in form to the Holders and certified by an
authorized financial officer of the Company, provided, however, that
delivery within such time period of the Company's Quarterly Report on Form
l0-Q containing such financial statements and financial information
prepared in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirement of this clause (ii) as to delivery of consolidated financial
statements;
(iii) as soon as practicable and in any event within 90 days after the
end of each fiscal year, consolidated and consolidating statements of
income and cash flows and a consolidated and consolidating statement of
stockholders' equity of the Company and its Subsidiaries for such year, and
a consolidated balance sheet of the
14
<PAGE>
Company and its Subsidiaries as at the end of such year, setting forth in each
case in comparative form corresponding consolidated figures from the preceding
annual audit, all in reasonable detail and satisfactory in form to the Holders
and, as to consolidated statements, reported on by independent public
accountants of recognized national standing selected by the Company or other
independent public accountants reasonably acceptable to the Holders whose report
shall be without limitation as to the scope of the audit and satisfactory in
substance to the Holders, and as to consolidating statements certified by an
authorized financial officer of the Company; provided, however, that delivery
within such time period of the Company's Annual Report on Form 1O-K containing
such financial statements and financial information prepared in compliance with
the requirements therefor and filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this clause (iii) as to delivery
of consolidated financial statements;
(iv) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its public
stockholders and copies of all registration statements (without exhibits) and
all reports (including reports on Form 8-K) which it files with the Securities
and Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);
(v) promptly upon receipt thereof, a copy of each management letter
and other report submitted to the management or board of directors of the
Company or any Subsidiary by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company or any
Subsidiary;
(vi) promptly after the preparation thereof, school-by-school
information with the content and in the form prepared by management for internal
review and use (which information can be in the form contained in the Private
Placement Memorandum (as defined in the Note Agreement)), provided that the
Company need not provide the information under this clause (vi) more frequently
than once each fiscal quarter;
(vii) promptly after the Company's receipt thereof, copies of any
notice from the United States Department of Education or any other Federal,
state or local governmental body, agency or department alleging non-compliance
by the Company or any of its Subsidiaries with any material statute, law decree,
court or administrative order or regulation, including maximum cohort default
rates, the "85/15 Rule", denial of a requested change of control in connection
with acquisition of schools or threatened loss of school accreditation; and
(viii) promptly after the Company or any Subsidiary becomes aware
thereof, notice of the occurrence of any other event which is material to the
Company or any
15
<PAGE>
of its Subsidiaries, including the initiation of any material disputes,
administrative proceeding, investigation or litigation or any material
developments in any such disputes or litigation, conditions that could
result in a material adverse change in the business, condition (financial
or otherwise), operations or prospects of the Company or any of its
Subsidiaries, and generally accepted accounting principles or Company
accounting practices (which notice shall describe such event and the
effect, if any, of such event or change on the Company's results of
operations, financial condition or compliance with this Agreement in
reasonable detail).
5. Termination Prior to Expiration Date. Anything herein to the contrary
------------------------------------
notwithstanding, this Warrant, and the rights of the Holder hereof, will
terminate prior to the Expiration Date (i) if, on or before October 17, 1998,
each of the following shall have occurred: (a) the Company has consummated a
Qualified Equity Offering, (b) a portion of the proceeds from such Qualified
Equity Offering are used to prepay, pursuant to paragraph 4B(1) of the Note
Agreement, the entire required principal prepayments of the Term Notes due on
October 17, 1998 and on October 17, 1999 under paragraph 4A of the Note
Agreement, and all accrued and unpaid interest thereon, (c) a portion of the
proceeds from such Qualified Equity Offering are used to prepay, pursuant to
paragraph 2B(2) of the Note Agreement, the entire outstanding principal amount
of Revolving Notes, and all accrued and unpaid interest thereon, (d) on the date
the Company receives the proceeds from such Qualified Equity Offering, after
giving effect to the prepayments described in clauses (b) and (c) above and any
Restricted Payments which the Company is required to or elects to make
concurrent with or prior to the consummation of, or as a result of, such
Qualified Equity Offering, (1) the Company shall have at least $5,000,000 in
unrestricted cash and (2) no Specified Event of Default under the Note Agreement
shall have occurred and be continuing or (ii) if, on October 17, 1999, each of
the following shall have occurred: (x) the Company shall have prepaid when due
each required principal prepayment of the Term Notes due on or before October
17, 1999 under paragraph 4A of the Note Agreement, and all accrued and unpaid
interest thereon, (y) the Company shall have prepaid when due, pursuant to
paragraph 2B(1) of the Note Agreement, the amount by which the outstanding
principal amount of Revolving Loans exceeded the Revolving Commitment on or
before October 17, 1999 (including any such prepayment which may be due as a
result of the reduction of the Revolving Commitment on October 17, 1999) and all
accrued and unpaid interest thereon and (z) after giving effect to the
prepayments described in clauses (x) and (y) above and any Restricted Payments
due on or before October 17, 1999, no Event of Default under the Note Agreement
shall have occurred and be continuing; provided, however, that if the conditions
-------- -------
of clauses (i) or (ii) above are not satisfied, this Warrant, and the rights of
the Holder hereof, will continue until the Expiration Date. The effective time
of any termination pursuant to clause (i) above will be the date the Company
receives proceeds from a Qualified Equity Offering, and the effective time of
termination pursuant to clause (ii) above will be October 17, 1999. For purposes
of this Warrant: (a) "Qualified Equity Offering", "Revolving Notes", "Revolving
Loans", "Event of Default" and "Restricted Payments" shall have the meanings
given in the Note Agreement and (b) "Specified Event of Default" shall mean (1)
an Event of Default under Section 7A(i), 7A(ii), 7A(iv), 7A(vi) through 7A(xii),
inclusive, 7A(xiv), 7A(xv) or 7A(xvi) of the Note Agreement, or (2) an Event of
Default under Section 7A(v) of the Note Agreement resulting from
16
<PAGE>
the failure to perform or observe any agreement, term or condition under Section
5F, 5H, 5K, or 5M of the Note Agreement.
6. Registration. If either this Warrant or any shares of Common Stock
------------
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any Federal or
State law, or listing on any domestic securities exchange, before such shares
may be issued upon exercise, the Company will, at its expense, as expeditiously
as possible, use its best efforts to cause such Warrant and such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
7. Issue Tax. The issuance of certificates for shares of Common Stock upon
---------
the exercise of Warrants shall be made without charge to the holders of such
Warrants for any issuance tax in respect thereof, provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Warrant exercised.
8. Closing of Books. The Company will at no time close its transfer books
----------------
against the transfer of any Warrant or of any shares of Common Stock issued or
issuable upon the exercise of any Warrant in any manner which interferes with
the timely exercise of this Warrant.
9. Definition of Common Stock. As used in this Warrant the term "Common
--------------------------
Stock" shall mean and include the Company's authorized Class A Common Stock of
the par value of $0.01 per share and the Company's authorized Class B Common
Stock of the par value of $ 0.01 per share as constituted under the provisions
of the Company's Second Restated Certificate of incorporation, and shall also
include any capital stock of any class of the Company thereafter authorized
which shall not be limited to either a fixed sum or a percentage of its par or
stated value in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company; provided that, except as
provided in paragraph 3H, the shares purchasable pursuant to this Warrant shall
include only shares designated as Class A Common Stock of the Company under the
provisions of said Certificate of Incorporation, or, in case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in paragraph 3H.
10. No Participation Preferred Stock. Other than the Class A Series 2
--------------------------------
Preferred Stock and the Class A Series 3 Preferred Stock issued pursuant to the
Purchase Agreement, subject to the rights granted to the holder of this Warrant
pursuant to paragraph 3H, so long as this Warrant remains outstanding, the
Company will not issue any capital stock of any class preferred as to dividends
or as to the distribution of assets upon voluntary or involuntary liquidation,
dissolution or winding up unless the rights of the holders thereof with respect
to such dividends or distributions shall be limited to either a fixed sum or a
percentage of par or stated value of such stock in respect of participation in
dividends and in the distribution of such assets.
17
<PAGE>
11. No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any liabilities on such holder to
purchase any securities or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
12. Appraisal Rights. In the case of any capital reorganization or
----------------
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with another Person (regardless of which entity is the
surviving entity), or the sale of all or substantially all of its assets to any
Person (a "Transaction"), the Company shall, not less than 20 days prior to the
meeting of stockholders to be held for the purpose of voting on such proposed
Transaction (or, if no such meeting of stockholder is to be held, not less than
20 days prior to the consummation of such Transaction) provide notice to the
holder of this Warrant and to the holder of any shares of Common Stock issued
upon the exercise of this Warrant (a "Holder") of such proposed Transaction and
all material terms thereof and stating that appraisal rights are available under
this Section 12. Each Holder shall have the right to demand an appraisal of this
Warrant or such shares of Common Stock, as the case may be, by delivering a
demand therefor to the Company prior to the taking of the vote at such meeting
of stockholders or consummation of such Transaction, as the case may be. Each
Holder who has made such demand shall be entitled to be paid cash by the Company
or the entity surviving such Transaction, as applicable, for this Warrant or
such shares of Common Stock, as the case may be, be, within 15 days after the
consummation of such Transaction, in an amount equal to the fair market value of
this Warrant or such shares of Common Stock, as the case may be, as determined
by an independent investment banker (with an established national reputation as
a valuer of equity securities) selected by the Company with the approval of such
Holders, such fair market value to be determined with regard to all material
relevant factors but without regard to any effects arising from the
accomplishment of such Transaction. Any Holder accepting such payment shall not
receive rights under Section 3H hereof with respect to such Transaction or any
consideration payable to the stockholders of the Company with respect to such
shares of Common Stock, as the case may be, but any Holder may withdraw such
demand prior to the time such Holder accepts the payment under this Section 12
and accept such Holder's rights under Section 3H hereof or such consideration,
as the case may be.
13. Warrants Transferable. This Warrant and all rights hereunder are
---------------------
transferable, in whole or in part, without charge to the holder hereof, at the
office or agency of the Company referred to in paragraph 1 by the holder hereof
in person or by duly authorized attorney, upon surrender of this Warrant
properly endorsed, provided that such holder or its transferee pays any
applicable stamp or transfer taxes. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that this Warrant, when endorsed
in blank, shall be deemed negotiable and that the holder hereof, when this
Warrant shall have been so endorsed, may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding; but until such transfer on such books, the Company may
treat the registered holder hereof as the owner for all
18
<PAGE>
purposes. Prudential represents that it is not acquiring this Warrant with a
view to or for sale in connection with any distribution thereof within the
meaning of the Act, provided that the disposition of Prudential's property shall
at all times be and remain within its control.
14. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant (but for which a surety shall not be required if the holder of this
Warrant is Prudential or any other institutional investor), upon delivery of
unsecured indemnity agreement from such holder reasonably satisfactory to the
Company in form and amount or, in the case of any such mutilation, upon
surrender of this Warrant for cancellation at the principal office of the
Company, the Company will execute and deliver, in lieu thereof, a new Warrant of
like tenor dated the date hereof.
15. Acknowledgment by Company. The Company will, at the time of or at any
-------------------------
time after each exercise of this Warrant, upon the request of the holder hereof
or of any shares of Common Stock issued upon such exercise, acknowledge in
writing its continuing obligation to afford to such holder all rights to which
such holder shall continue to be entitled, after such exercise in accordance
with the terms of this Warrant, provided, that if any such holder shall fail to
make any such request, the failure shall not affect the continuing obligation of
the Company to afford such rights to such holder.
16. Rights and Obligations Survive Exercise of Warrant. The rights and
--------------------------------------------------
obligations of the Company, of the holder of this Warrant, and of the holder of
shares of Common Stock issued upon exercise of this Warrant, contained in
paragraphs 4, 6 and 12 hereof shall survive the exercise of this Warrant.
17. Warrants Exchangeable for Different Denominations. This Warrant is
-------------------------------------------------
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in paragraph 1, for new Warrants of like tenor
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 such
number of shares as shall be designated by said holder hereof at the time of
such surrender. All warrants issued on transfers or exchanges shall be dated the
date hereof and shall be identical with this Warrant except as to the number of
shares of Common Stock issuable pursuant hereto.
18. Remedies. The Company stipulates that the remedies at law of the holder
--------
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific performance
of any agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
19. Miscellaneous. This Warrant and any term hereof may be changed, waived,
-------------
discharged or terminated only by an instrument ill writing signed by the party
against which
19
<PAGE>
enforcement of such change, waiver, discharge or termination is sought. The
agreements of the Company contained in this Warrant are binding upon the
Company, its successors and permitted assigns and shall inure to the benefit of
and be enforceable by any holder or holders at the time of any Common Stock
issued upon the exercise of this Warrant whether so expressed or not.
20. Descriptive Headings and Governing Law. The descriptive headings of the
--------------------------------------
several paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the law
of the State of California, without giving effect to principles of conflicts of
laws.
20
<PAGE>
IN WITNESS WHEREOF, CORINTHIAN COLLEGES, INC. has caused this Warrant to be
signed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of November 24, 1997.
CORINTHIAN COLLEGES, INC.
By: /s/ Frank J. McCord
----------------------------------
(CORPORATE SEAL)
Attest:
/s/ Paul St. Pierre
- ----------------------------------
<PAGE>
SUBSCRIPTION AGREEMENT
________________, 19__
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase _____________ shares of the
Common Stock covered by such Warrant, and makes payment herewith in full
therefor at the price per share provided by such Warrant.
Signature
----------------------------
Address
------------------------------
------------------------------
-----------------------------
ASSIGNMENT
FOR VALUE RECEIVED, _________________________________________________
_____________________________________ hereby sells, assigns and transfers all of
the rights of the undersigned under the within Warrant, with respect to the
number of shares of the Common Stock covered thereby set forth hereinbelow unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: _________________, 19__.
Signature
----------------------------
Witness
----------------------------
<PAGE>
EXHIBIT 10.52
CORINTHIAN COLLEGES, INC.
1998 PERFORMANCE AWARD PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. The Plan ................................................................. 1
1.1 Purpose ............................................................ 1
1.2 Administration and Authorization; Power and Procedure............... 1
1.3 Participation ...................................................... 2
1.4 Shares Available for Awards; Share Limits .......................... 3
1.5 Grant of Awards .................................................... 3
1.6 Award Period ....................................................... 4
1.7 Limitations on Exercise and Vesting of Awards ...................... 4
1.8 No Transferability; Limited Exception to Transfer Restrictions...... 4
2. Options .................................................................. 5
2.1 Grants ............................................................. 5
2.2 Option Price ....................................................... 5
2.3 Vesting; Limits on Exercise; Other Limitations ..................... 6
2.4 Limitations on Grant and Terms of Incentive Stock Options .......... 7
2.5 Limits on 10% Holders .............................................. 7
2.6 Option Repricing/Cancellation and Regrant/Waiver
of Restrictions .................................................... 7
2.7 Options and Rights in Substitution for Stock Options Granted
by Other Corporations .............................................. 8
3. Stock Appreciation Rights (Including Limited Stock Appreciation Rights)... 8
3.1 Grants ............................................................. 8
3.2 Exercise of Stock Appreciation Rights .............................. 8
3.3 Payment ............................................................ 9
3.4 Limited Stock Appreciation Rights .................................. 9
4. Restricted Stock Awards .................................................. 10
4.1 Grants ............................................................. 10
4.2 Restrictions ....................................................... 10
4.3 Return to the Corporation .......................................... 10
5. Performance Share Awards and Stock Bonuses ............................... 11
5.1 Grants of Performance Share Awards ................................. 11
5.2 Special Performance-Based Share Awards ............................. 11
5.3 Grants of Stock Bonuses ............................................ 12
5.4 Deferred Payments .................................................. 13
5.5 Cash Bonus Awards .................................................. 13
6. Other Provisions ......................................................... 13
6.1 Rights of Eligible Persons, Participants and Beneficiaries ......... 13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.2 Effects of Termination of Employment; Termination of Subsidiary
Status; Discretionary Provisions ................................... 14
6.3 Adjustments; Acceleration .......................................... 15
6.4 Compliance with Laws ............................................... 17
6.5 Tax Withholding .................................................... 19
6.6 Plan Amendment, Termination and Suspension ......................... 19
6.7 Privileges of Stock Ownership ...................................... 20
6.8 Effective Date of the Plan ......................................... 20
6.9 Term of the Plan ................................................... 20
6.10 Governing Law/Construction/Severability ............................ 20
6.11 Captions ........................................................... 21
6.12 Effect of Change of Subsidiary Status .............................. 21
6.13 Non-Exclusivity of Plan ............................................ 21
7. Definitions .............................................................. 21
</TABLE>
ii
<PAGE>
CORINTHIAN COLLEGES, INC.
1998 PERFORMANCE AWARD PLAN
1. The Plan.
--------
1.1 Purpose. The purpose of this Plan is to promote the success of the Company
-------
and the interests of its stockholders by attracting, motivating, retaining
and rewarding directors, officers, employees and other eligible persons
with awards and incentives for high levels of individual performance and
improved financial performance of the Company. Capitalized terms used
herein are defined in Section 7.
1.2 Administration and Authorization; Power and Procedure.
-----------------------------------------------------
1.2.1 Committee. This Plan will be administered by and all Awards will be
---------
authorized by the Committee. Action of the Committee with respect to
the administration of this Plan will be taken pursuant to a majority
vote or by written consent of its members.
1.2.2 Plan Awards; Interpretation; Powers of Committee. Subject to the
------------------------------------------------
express provisions of this Plan and any express limitations on the
delegated authority of a Committee, the Committee will have the
authority to:
(a) determine eligibility and the particular Eligible Persons who
will receive Awards;
(b) grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such
Awards consistent with the express limits of this Plan, and
establish the installments (if any) in which such Awards will
become exercisable or will vest, or determine that no delayed
exercisability or vesting is required, and establish the events
of termination or reversion of such Awards;
(c) approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
(d) construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and employee
Participants under this Plan, further define the terms used in
this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
<PAGE>
(e) cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Persons, subject to any
required consent under Section 6.6;
(f) accelerate or extend the exercisability or extend the term of any
or all such outstanding Awards within the maximum ten-year term
of Awards under Section 1.6; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for
the administration of this Plan and the effectuation of its
purposes.
1.2.3 Binding Determinations. Any action taken by, or inaction of, the
----------------------
Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan will be within the absolute discretion of that
entity or body and will be conclusive and binding upon all persons.
No member of the Board or Committee, or officer of the Corporation or
any Subsidiary, will be liable for any such action or inaction of the
entity or body, of another person or, except in circumstances
involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee
may act in their absolute discretion in matters within their authority
related to this Plan.
1.2.4 Reliance on Experts. In making any determination or in taking or
-------------------
not taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts,
including employees of and professional advisors to the Corporation.
No director, officer or agent of the Company will be liable for any
such action or determination taken or made or omitted in good faith.
1.2.5 Bifurcation of Plan Administration; Delegation. Subject to the
----------------------------------------------
limits of Section 7, the Board may delegate different levels of
authority to different Committees with administration and grant
authority under this Plan, provided that each designated Committee
granting any Awards hereunder shall consist exclusively of a member or
members of the Board. A majority of the members of the acting
Committee shall constitute a quorum. The vote of a majority of a
quorum or the unanimous written consent of the Committee shall
constitute action by the Committee. A Committee may delegate
ministerial, non-discretionary functions to individuals who are
officers or employees of the Company.
1.3 Participation. Discretionary Awards may be granted by the Committee only
-------------
to those persons that the Committee determines to be Eligible Persons. An
Eligible Person
2
<PAGE>
who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee so determines.
1.4 Shares Available for Awards; Share Limits.
-----------------------------------------
1.4.1 Shares Available. Subject to the provisions of Section 6.3, the
----------------
capital stock that may be delivered under this Plan will be shares
of the Corporation's authorized but unissued Common Stock and any
shares of its Common Stock held as treasury shares. The shares may
be delivered for any lawful consideration.
1.4.2 Share Limits. The maximum number of shares of Common Stock that may
------------
be delivered pursuant to Awards granted to Eligible Persons under
this Plan will not exceed 12,000 shares (the "Share Limit"). The
maximum number of shares subject to those Options and Stock
Appreciation Rights that are granted during any calendar year to any
one individual will be limited to 500 and the maximum individual
limit on the number of shares in the aggregate subject to all Awards
that during any calendar year are granted under this Plan to any one
individual will be 500. Each of the foregoing numerical limits will
be subject to adjustment as contemplated by this Section 1.4 and
Section 6.3.
1.4.2 Share Reservation; Replenishment and Reissue of Unvested Awards. No
---------------------------------------------------------------
Award may be granted under this Plan unless, on the date of grant,
the sum of (i) the maximum number of shares issuable at any time
pursuant to such Award, plus (ii) the number of shares that have
previously been issued pursuant to Awards granted under this Plan,
other than reacquired shares available for reissue consistent with
any applicable legal limitations, plus (iii) the maximum number of
shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not
exceed the Share Limit. Shares that are subject to or underlie
Awards that expire or for any reason are canceled or terminated, are
forfeited, fail to vest, or for any other reason are not paid or
delivered under this Plan, as well as reacquired shares, will again,
except to the extent prohibited by law, be available for subsequent
Awards under this Plan. Except as limited by law, if an Award is or
may be settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.
1.5 Grant of Awards. Subject to the express provisions of this Plan, the
---------------
Committee will determine the number of shares of Common Stock subject to
each Award, the price (if any) to be paid for the shares or the Award and,
in the case of performance share awards, in addition to matters addressed
in Section 1.2.2, the specific objectives, goals and "business criteria" as
such term is used in Section 5.2 that further define the terms of the
performance share award. Each Award will be evidenced by an Award
3
<PAGE>
Agreement signed by the Corporation and, if required by the Committee, by
the Participant.
1.6 Award Period. Any Option, SAR, warrant or similar right shall expire and
------------
any other Award shall either vest or be forfeited not more than 10 years
after the date of grant; provided, however, that any payment of cash or
delivery of stock pursuant to an Award may be delayed until a future date
if specifically authorized by the Committee in writing.
1.7 Limitations on Exercise and Vesting of Awards.
---------------------------------------------
1.7.1 Provisions for Exercise. Unless the Committee otherwise expressly
-----------------------
provides, no Award will be exercisable or will vest until at least
six months after the initial Award Date, and once exercisable an
Award will remain exercisable until the expiration or earlier
termination of the Award.
1.7.2 Procedure. Any exercisable Award will be deemed to be exercised
---------
when the Corporation receives written notice of such exercise from
the Participant, together with any required payment made in
accordance with Section 2.2.2.
1.7.3 Fractional Shares/Minimum Issue. Fractional share interests will be
-------------------------------
disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Persons that cash, other
securities, or other property will be paid or transferred in lieu of
any fractional share interests. No fewer than 100 shares may be
purchased on exercise of any Award at one time unless the number
purchased is the total number at the time available for purchase
under the Award.
1.8 No Transferability; Limited Exception to Transfer Restrictions.
--------------------------------------------------------------
1.8.1 Limit On Exercise and Transfer. Unless otherwise expressly provided
------------------------------
in (or pursuant to) this Section 1.8, by applicable law and by the
Award Agreement, as the same may be amended, (i) all Awards are non-
transferable and will not be subject in any manner to sale,
transfer, anticipation, alienation, assignment, pledge, encumbrance
or charge; Awards will be exercised only by the Participant; and
(ii) amounts payable or shares issuable pursuant to an Award will be
delivered only to (or for the account of) the Participant.
1.8.2 Exceptions. The Committee may permit Awards to be exercised by and
----------
paid only to certain persons or entities related to the Participant
pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer will be subject to the condition
that the Committee receive evidence satisfactory to it that the
transfer is being made for estate and/or tax planning purposes and
without consideration (other than nominal consideration).
4
<PAGE>
Incentive Stock Options and Restricted Stock Awards, however, will be
subject to any and all additional transfer restrictions under the
Code.
1.8.3 Further Exceptions to Limits On Transfer. The exercise and transfer
----------------------------------------
restrictions in Section 1.8.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers to
or exercises by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will
or the laws of descent and distribution,
(c) transfers pursuant to a QDRO if approved or ratified by the
Committee,
(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by the
Participant's legal representative, or
(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the
purpose of (or who otherwise facilitate) the exercise of Awards
consistent with applicable laws and the express authorization
of the Committee.
2. Options.
-------
2.1 Grants. One or more Options may be granted under this Section 2 to any
------
Eligible Person. Each Option granted will be designated in the applicable
Award Agreement, by the Committee, as either an Incentive Stock Option,
subject to Section 2.4, or a Nonqualified Stock Option.
2.2 Option Price.
------------
2.2.1 Pricing Limits. The purchase price per share of the Common Stock
--------------
covered by each Option will be determined by the Committee at the
time of the Award, but will not be less than 100% (110% in the case
of a Participant described in Section 2.5) of the Fair Market Value
of the Common Stock on the date of grant and will not be less than
the par value thereof.
2.2.2 Payment Provisions. The purchase price of any shares purchased on
------------------
exercise of an Option granted under this Section 2 will be paid in
full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by electronic funds transfer; (ii)
by certified or cashier's check payable to the order of the
Corporation; (iii) by notice and third party payment in such
5
<PAGE>
manner as may be authorized by the Committee; or (iv) by the
delivery of shares of Common Stock of the Corporation already owned
by the Participant, but the Committee may in its absolute discretion
limit the Participant's ability to exercise an Award by delivering
such shares, and any shares delivered that were initially acquired
upon exercise of a stock option must have been owned by the
Participant at least six months as of the date of delivery. Shares
of Common Stock used to satisfy the exercise price of an Option will
be valued at their Fair Market Value on the date of exercise.
Without limiting the generality of the foregoing, the Committee may
provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the
Corporation the amount of sale proceeds necessary to pay the
exercise price and, unless otherwise prohibited by the Committee or
applicable law, any applicable tax withholding under Section 6.5.
The Corporation will not be obligated to deliver certificates for
the shares unless and until it receives full payment of the exercise
price therefor and any related withholding obligations have been
satisfied.
2.3 Vesting; Limits on Exercise; Other Limitations.
----------------------------------------------
2.3.1 Vesting. Subject to Section 1.7, each Option shall vest as of the
-------
date or dates determined by the Committee and set forth in the
applicable Award Agreement.
2.3.2 Limits on Exercise. Unless otherwise explicitly provided by the
------------------
Committee in the applicable Award Agreement, an Option that is
vested may be exercised only to the extent that it has not expired
or terminated and only after one of the following times or events:
---
(a) one year, or such lesser period of time as the Committee may
permit, after (i) the closing of a bona fide, firm commitment
underwritten public offering of the Common Stock pursuant to a
registration statement declared effective under the Securities
Act, or (ii) a registration of the Corporation under the
Exchange Act if the Common Stock is then publicly held;
(b) the receipt by the Participant of a notice from the Corporation
stating that the Corporation has entered into a definitive
agreement or the Board has adopted definitive resolutions
calling for the Corporation, subject to certain terms and
conditions, to effect a Change in Control Event and stating
that acceleration of exercisability will occur pursuant to
Section 6.3.2; or
(c) the date which is five years after the Effective Date.
6
<PAGE>
An Option may be exercised only to the extent that it is then both
vested and exercisable.
---
2.4 Limitations on Grant and Terms of Incentive Stock Options.
---------------------------------------------------------
2.4.1 $100,000 Limit. To the extent that the aggregate "Fair Market
--------------
Value" of stock with respect to which incentive stock options first
become exercisable by a Participant in any calendar year exceeds
$100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock
options under all other plans of the Company or any parent
corporation, such options will be treated as Nonqualified Stock
Options. For this purpose, the "Fair Market Value" of the stock
subject to options will be determined as of the date the options
were awarded. In reducing the number of options treated as incentive
stock options to meet the $100,000 limit, the most recently granted
options will be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000
limit, the Committee may, in the manner and to the extent permitted
by law, designate which shares of Common Stock are to be treated as
shares acquired pursuant to the exercise of an Incentive Stock
Option.
2.4.2 Option Period. Subject to Section 1.6, each Option and all rights
-------------
thereunder will expire no later than 10 years after the Award Date.
2.4.3 Other Code Limits. Incentive Stock Options may only be granted to
-----------------
Eligible Employees of the Corporation or a Subsidiary that satisfies
the other eligibility requirements of the Code. There will be
imposed in any Award Agreement relating to Incentive Stock Options
such other terms and conditions as from time to time are required in
order that the Option be an "incentive stock option" as that term is
defined in Section 422 of the Code.
2.5 Limits on 10% Holders. No Incentive Stock Option may be granted to any
---------------------
person who, at the time the Option is granted, owns (or is deemed to own
under Section 424(d) of the Code) shares of outstanding Common Stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Corporation, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five
years from the date such Option is granted.
2.6 Option Repricing/Cancellation and Regrant/Waiver of Restrictions. Subject
----------------------------------------------------------------
to Section 1.4 and Section 6.6 and the specific limitations on Awards
contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person
any adjustment in the exercise or purchase price, the vesting schedule, the
number of shares subject to, or the restrictions upon or the term of, an
Award granted under this Section 2 by cancellation of an outstanding Award
and a subsequent regranting of an Award, by
7
<PAGE>
amendment, by substitution of an outstanding Award, by waiver or by other
legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price that is higher or lower than the
exercise or purchase price of the original or prior Award, provide for a
greater or lesser number of shares subject to the Award, or provide for a
longer or shorter vesting or exercise period.
2.7 Options and Rights in Substitution for Stock Options Granted by Other
---------------------------------------------------------------------
Corporations. Options and Stock Appreciation Rights may be granted to
------------
Eligible Persons under this Plan in substitution for employee stock options
granted by other entities to persons who are or who will become Eligible
Persons in respect of the Company, in connection with a distribution,
merger or reorganization by or with the granting entity or an affiliated
entity, or the acquisition by the Company, directly or indirectly, of all
or a substantial part of the stock or assets of the employing entity.
3. Stock Appreciation Rights (Including Limited Stock Appreciation Rights).
-----------------------------------------------------------------------
3.1 Grants. The Committee may grant to any Eligible Person Stock Appreciation
------
Rights either concurrently with the grant of another Award or in respect of
an outstanding Award, in whole or in part, or independently of any other
Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option will contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations
promulgated thereunder, unless the holder otherwise agrees.
3.2 Exercise of Stock Appreciation Rights.
-------------------------------------
3.2.1 Exercisability. Unless the Award Agreement or the Committee
--------------
otherwise provides, a Stock Appreciation Right related to another
Award will be exercisable at such time or times, and to the extent,
that the related Award will be exercisable.
3.2.2 Effect on Available Shares. To the extent that a Stock Appreciation
--------------------------
Right is exercised, only the actual number of delivered shares of
Common Stock will be charged against the maximum amount of Common
Stock that may be delivered pursuant to Awards under this Plan. The
number of shares subject to the Stock Appreciation Right and the
related Option of the Participant will, however, be reduced by the
number of underlying shares as to which the exercise related, unless
the Award Agreement otherwise provides.
3.2.3 Stand-Alone SARs. A Stock Appreciation Right granted independently
----------------
of any other Award will be exercisable pursuant to the terms of the
Award Agreement but in no event earlier than six months after the
Award Date, except in the case of death or Total Disability.
8
<PAGE>
3.2.4 Proportionate Reduction If an SAR extends to less than all the
-----------------------
shares covered by the related Award and if a portion of the related
Award is thereafter exercised, the number of shares subject to the
unexercised SAR shall be reduced only if and to the extent that the
remaining number of shares covered by such related Award is less
than the remaining number of shares subject to such SAR.
3.3 Payment.
-------
3.3.1 Amount. Unless the Committee otherwise provides, upon exercise of a
------
Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant will be
entitled to receive, subject to Section 6.5, payment of an amount
determined by multiplying:
(a) the difference (which shall not be less than zero) obtained by
subtracting the exercise price per share of Common Stock under
the related Award (if applicable) or the initial share value
specified in the Award from the Fair Market Value of a share of
Common Stock on the date of exercise of the Stock Appreciation
Right, by
(b) the number of shares with respect to which the Stock
Appreciation Right has been exercised.
3.3.2 Form of Payment. The Committee, in its sole discretion, will
---------------
determine the form in which payment will be made of the amount
determined under Section 3.3.1 above, either solely in cash, solely
in shares of Common Stock (valued at Fair Market Value on the date
of exercise of the Stock Appreciation Right), or partly in such
shares and partly in cash, but the Committee will have determined
that such exercise and payment are consistent with applicable law.
If the Committee permits the Participant to elect to receive cash or
shares (or a combination thereof) on such exercise, any such
election will be subject to such conditions as the Committee may
impose.
3.4 Limited Stock Appreciation Rights. The Committee may grant to any Eligible
---------------------------------
Person Stock Appreciation Rights exercisable only upon or in respect of a
change in control or any other specified event ("Limited SARs") and such
Limited SARs may relate to or operate in tandem or combination with, or
substitution for, Options, other SARs or other Awards (or any combination
thereof), and may be payable in cash or shares based on the spread between
the base price of the SAR and a price based upon or equal to the Fair
Market Value of the Common Stock during a specified period or at a
specified time within a specified period before, after or including the
date of such event.
9
<PAGE>
4. Restricted Stock Awards.
-----------------------
4.1 Grants. The Committee may grant one or more Restricted Stock Awards to any
------
Eligible Person. Each Restricted Stock Award Agreement will specify the
number of shares of Common Stock to be issued to the Participant, the date
of such issuance, the consideration for such shares (but not less than the
minimum lawful consideration under applicable state law) to be paid by the
Participant, the extent (if any) to which and the time (if ever) at which
the Participant will be entitled to dividends, voting and other rights in
respect of the shares prior to vesting, and the restrictions (which may be
based on performance criteria, passage of time or other factors or any
combination thereof) imposed on such shares and the conditions of release
or lapse of such restrictions. Such restrictions will not lapse earlier
than six months after the Award Date, except to the extent the Committee
may otherwise provide. Stock certificates evidencing shares of Restricted
Stock pending the lapse of the restrictions ("Restricted Shares") will bear
a legend making appropriate reference to the restrictions imposed hereunder
and will be held by the Corporation or by a third party designated by the
Committee until the restrictions on such shares have lapsed and the shares
have vested in accordance with the provisions of the Award and Section 1.7.
Upon issuance of the Restricted Stock Award, the Participant may be
required to provide such further assurances and documents as the Committee
may require to enforce the restrictions.
4.2 Restrictions.
------------
4.2.1 Pre-Vesting Restraints. Except as provided in Sections 4.1 and 1.8,
----------------------
restricted shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until the
restrictions on such shares have lapsed and the shares have become
vested.
4.2.2 Dividend and Voting Rights. Unless otherwise provided in the
--------------------------
applicable Award Agreement, a Participant receiving a Restricted
Stock Award will be entitled to cash dividend and voting rights for
all shares issued even though they are not vested, but such rights
will terminate immediately as to any Restricted Shares which cease
to be eligible for vesting.
4.2.3 Cash Payments. If the Participant has paid or received cash
-------------
(including any dividends) in connection with the Restricted Stock
Award, the Award Agreement will specify whether and to what extent
such cash will be returned (with or without an earnings factor) as
to any restricted shares that cease to be eligible for vesting.
4.3 Return to the Corporation. Unless the Committee otherwise expressly
-------------------------
provides, Restricted Shares that remain subject to restrictions at the time
of termination of employment, or are subject to other conditions to vesting
that have not been satisfied
10
<PAGE>
by the time specified in the applicable Award Agreement, will not vest and
will be returned to the Corporation in such manner and on such terms as the
Committee provides.
5. Performance Share Awards and Stock Bonuses.
------------------------------------------
5.1 Grants of Performance Share Awards. The Committee may grant Performance
----------------------------------
Share Awards to Eligible Employees based upon such factors as the Committee
deems relevant in light of the specific type and terms of the award. An
Award Agreement will specify the maximum number of shares of Common Stock
(if any) subject to the Performance Share Award, the consideration (but not
less than the minimum lawful consideration) to be paid for any such shares
as may be issuable to the Participant, the duration of the Award and the
conditions upon which delivery of any shares or cash to the Participant
will be based. The amount of cash or shares or other property that may be
deliverable pursuant to such Award will be based upon the degree of
attainment over a specified period of not more than 10 years (a
"performance cycle") as may be established by the Committee of such
measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may
provide for full or partial credit, prior to completion of such performance
cycle or the attainment of the performance achievement specified in the
Award, in the event of the Participant's death, Retirement, or Total
Disability, a Change in Control Event or in such other circumstances as the
Committee (consistent with Section 6.10.3(b), if applicable) may determine.
5.2 Special Performance-Based Share Awards. Options or SAR's granted with an
--------------------------------------
exercise price not less than Fair Market Value at the applicable date of
grant for Section 162(m) purposes to Eligible Employees which otherwise
satisfy the conditions to deductibility under Section 162(m) are deemed
"Qualifying Awards". Without limiting the generality of the foregoing, and
in addition to Qualifying Awards granted under other provisions of this
Plan, other performance-based awards within the meaning of Section 162(m)
("Performance-Based Awards"), whether in the form of restricted stock,
performance stock, phantom stock or other rights, the vesting of which
depends on the performance of the Company on a consolidated, segment,
subsidiary, or division basis, with reference to revenue growth, net
earnings (before or after taxes, interest, depreciation, and/or
amortization), cash flow, return on equity or on assets or on net
investment, stock appreciation, total stockholder return, or cost
containment or reduction, or any combination thereof (the "business
criteria") relative to preestablished performance goals, may be granted
under this Plan. To the extent so defined, these terms are used as applied
under generally accepted accounting principles and in the Company's
financial reporting. The applicable business criterion or criteria and the
specific performance goals must be approved by the Committee in advance of
applicable deadlines under the Code and while the performance relating to
such goals remains substantially uncertain. The applicable performance
measurement period may not be less than one (except as
11
<PAGE>
provided in Section 1.6) nor more than 10 years. Other types of
performance and non-performance awards may also be granted under the other
provisions of this Plan. The following provisions relate to all
Performance-Based Awards (other than Qualifying Awards) granted under this
Plan:
5.2.1 Eligible Class. The eligible class of persons for Awards under this
--------------
Section 5.2 is executive officers of the Corporation.
5.2.2 Maximum Award. Subject to Section 1.4.2, in no event will grants in
-------------
any calendar year to any one individual under this Section 5.2
relate to more than 500 shares or, (if payable solely in cash) a
cash amount of more than $200,000.
5.2.3 Committee Certification. To the extent required by Section 162(m),
-----------------------
before any Performance-Based Award under this Section 5.2 is paid,
the Committee must certify that the material terms of the
Performance-Based Award were satisfied.
5.2.4 Terms and Conditions of Awards. The Committee will have discretion
------------------------------
to determine the restrictions or other limitations of the individual
Awards under this Section 5.2 (including the authority to reduce
Awards, payouts or vesting or to pay no Awards, in its sole
discretion, if the Committee preserves such authority at the time of
grant by language to this effect in its authorizing resolutions or
otherwise).
5.2.5 Stock Payout Features. In lieu of cash payment of an Award, the
---------------------
Committee may require or allow all or a portion of the Award to be
paid in the form of stock, Restricted Shares, an Option, or another
Award.
5.2.6 Adjustments for Material Changes. Performance goals or other
---------------------------------
features of an Award under this Section 5.2 may provide that they
(i) shall be adjusted to reflect a change in corporate
capitalization, a corporate transaction (such as a reorganization,
combination, separation, or merger) or a complete or partial
corporate liquidation, or (ii) shall be calculated either without
regard for or to reflect any change in accounting policies or
practices affecting the Company and/or the business criteria or
performance goals or targets, or (iii) shall be adjusted for any
other circumstance or event, or (iv) any combination of (i) through
(iii), but only to the extent in each case that such adjustment or
determination in respect of Performance-Based Awards would be
consistent with the requirements of Section 162(m) to qualify as
performance-based compensation.
5.3 Grants of Stock Bonuses. The Committee may grant a Stock Bonus to any
-----------------------
Eligible Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares)
12
<PAGE>
as determined from time to time by the Committee. The number of shares so
awarded will be determined by the Committee. The Award may be granted
independently or in lieu of a cash bonus.
5.4 Deferred Payments. The Committee may authorize for the benefit of any
-----------------
Eligible Person the deferral of any payment of cash or shares that may
become due or of cash otherwise payable under this Plan, and provide for
accredited benefits thereon based upon such deferment, at the election or
at the request of such Participant, subject to the other terms of this
Plan. Such deferral will be subject to such further conditions,
restrictions or requirements as the Committee may impose, subject to any
then vested rights of Participants.
5.5 Cash Bonus Awards.
-----------------
5.5.1 Performance Goals. The Committee may establish a program of annual
-----------------
incentive awards that are payable in cash to Eligible Persons based
upon the extent to which performance goals are met during the
performance period. The performance goals may depend upon the
performance of the Company on a consolidated, subsidiary division
basis with reference to any one or combination of the business
criteria (as such term is used in Section 5.2). In addition, the
award may depend upon the Eligible Person's individual performance.
5.5.2 Payment in Restricted Stock. In lieu of cash payment of an Award,
---------------------------
the Committee may require or allow all or a portion of the Award to
be paid in the form of stock, Restricted Stock, an Option or other
Award.
6. Other Provisions.
----------------
6.1 Rights of Eligible Persons, Participants and Beneficiaries.
----------------------------------------------------------
6.1.1 Employment Status. Status as an Eligible Person will not be
-----------------
construed as a commitment that any Award will be made under this
Plan to an Eligible Person or to Eligible Persons generally.
6.1.2 No Employment Contract. Nothing contained in this Plan (or in any
----------------------
other documents related to this Plan or to any Award) will confer
upon any Eligible Person or other Participant any right to continue
in the employ or other service of the Company or constitute any
contract or agreement of employment or other service, nor will
interfere in any way with the right of the Company to otherwise
change such person's compensation or other benefits or to terminate
the employment of such person, with or without cause, but nothing
contained in this Plan or any related document will adversely affect
any independent contractual right of such person without the
Person's consent.
13
<PAGE>
6.1.3 Plan Not Funded. Awards payable under this Plan will be payable in
---------------
shares or from the general assets of the Corporation, and (except as
provided in Section 1.4.3) no special or separate reserve, fund or
deposit will be made to assure payment of such Awards. No
Participant, Beneficiary or other person will have any right, title
or interest in any fund or in any specific asset (including shares of
Common Stock, except as expressly otherwise provided) of the Company
by reason of any Award hereunder. Neither the provisions of this Plan
(or of any related documents), nor the creation or adoption of this
Plan, nor any action taken pursuant to the provisions of this Plan
will create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive payment
pursuant to any Award hereunder, such right will be no greater than
the right of any unsecured general creditor of the Company.
6.1.4 Charter Documents. The Articles of Incorporation and By-Laws of the
-----------------
Corporation, as either of them may be amended from time to time, may
provide for additional restrictions and limitations with respect to
the Common Stock (including additional restrictions and limitations
on the transfer of shares). To the extent that these restrictions and
limitations are greater than those set forth in this Plan or any
Award Agreement, such restrictions and limitations shall apply to any
shares of Common Stock acquired pursuant to the exercise of Awards
and are incorporated herein by reference.
6.2 Effects of Termination of Employment; Termination of Subsidiary Status;
-----------------------------------------------------------------------
Discretionary Provisions.
------------------------
6.2.1 Options - Resignation or Dismissal. Unless otherwise provided in
----------------------------------
the Award Agreement and subject to earlier termination pursuant to
or as contemplated by Section 1.6 or 6.3, if the Participant's
employment by (or other service specified in the Award Agreement to)
the Company terminates for any reason (the date of such termination
being referred to as the "Severance Date") other than due to
Retirement, Total Disability or death, or "for cause" (as determined
in the sole discretion of the Committee), the Participant will have
until the later of the following two dates to exercise an Option to
the extent that it is vested on the Severance Date: (i) the date
------
which is three months after the Severance Date, or (ii) the date
which is one month after the date the Option first becomes
exercisable pursuant to Section 2.3.2. In the case of a termination
"for cause", the Option will terminate on the Severance Date
(whether or not vested and/or exercisable). In all cases, the
Option, to the extent not vested on the Severance Date, will
----------
terminate.
6.2.2 Options - Death or Disability. Unless otherwise provided in the
-----------------------------
Award Agreement and subject to earlier termination pursuant to or as
contemplated
14
<PAGE>
by Section 1.6 or 6.3, if the Participant's employment by (or
specified service to) the Company terminates as a result of Total
Disability or death, or the Participant suffers a Total Disability or
dies within 30 days after a termination described in Section 6.2.1,
the Participant, the Participant's Personal Representative or the
Participant's Beneficiary, as the case may be, will have until the
later of the following two dates to exercise an Option to the extent
that it is vested on the Severance Date: (i) the date which is twelve
------
months after the Severance Date, or (ii) the date which is one month
after the date the Option first becomes exercisable pursuant to
Section 2.3.2. The Option, to the extent not vested on the Severance
----------
Date, will terminate.
6.2.3 Options - Retirement. Unless otherwise provided in the Award
--------------------
Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.3, if the Participant's employment by
(or specified service to) the Company terminates as a result of
Retirement, the Participant, Participant's Personal Representative or
the Participant's Beneficiary, as the case may be, will have until the
later of the following two dates to exercise an Option to the extent
that it is vested on the Severance Date: (i) the date which is twelve
------
months after the Severance Date, or (ii) the date which is one month
after the date the Option first becomes exercisable pursuant to
Section 2.3.2. The Option, to the extent not vested on the Severance
----------
Date, will terminate.
6.2.4 Certain SARs. Any SAR granted concurrently or in tandem with an
------------
Option will have the same post-termination provisions and
exercisability periods as the Option to which it relates, unless the
Committee otherwise provides.
6.2.5 Other Awards. The Committee will establish in respect of each other
------------
Award granted hereunder the Participant's rights and benefits (if any)
if the Participant's employment is terminated and in so doing may make
distinctions based upon the cause of termination and the nature of the
Award.
6.2.6 Committee Discretion. Notwithstanding the foregoing provisions of
--------------------
this Section 6.2, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other than
discharge for cause, the Committee may increase the portion of the
Participant's Award available to the Participant, or Participant's
Beneficiary or Personal Representative, as the case may be, or,
subject to the provisions of Section 1.6, extend the exercisability
period upon such terms as the Committee determines and expressly sets
forth in or by amendment to the Award Agreement.
6.3 Adjustments; Acceleration.
-------------------------
6.3.1 Adjustments. The following provisions will apply if any
-----------
extraordinary dividend or other extraordinary distribution occurs in
respect of the Common
15
<PAGE>
Stock (whether in the form of cash, Common Stock, other securities, or
other property), or any reclassification, recapitalization, stock
split (including a stock split in the form of a stock dividend),
reverse stock split, reorganization, merger, combination,
consolidation, split-up, spin-off, combination, repurchase, or
exchange of Common Stock or other securities of the Corporation, or
any similar, unusual or extraordinary corporate transaction (or event
in respect of the Common Stock) or a sale of substantially all the
assets of the Corporation as an entirety occurs. The Committee will,
in such manner and to such extent (if any) as it deems appropriate and
equitable
(a) proportionately adjust any or all of (i) the number and type of
shares of Common Stock (or other securities) that thereafter may
be made the subject of Awards (including the specific maxima and
numbers of shares set forth elsewhere in this Plan), (ii) the
number, amount and type of shares of Common Stock (or other
securities or property) subject to any or all outstanding Awards,
(iii) the grant, purchase, or exercise price of any or all
outstanding Awards, (iv) the securities, cash or other property
deliverable upon exercise of any outstanding Awards, or (v) the
performance standards appropriate to any outstanding Awards, or
(b) in the case of an extraordinary dividend or other distribution,
recapitalization, reclassification, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange,
or spin off, make provision for a cash payment or for the
substitution or exchange of any or all outstanding Awards or the
cash, securities or property deliverable to the holder of any or
all outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock upon or in
respect of such event. In each case, with respect to Incentive
Stock Options, no such adjustment will be made that would cause
this Plan to violate Section 422 or 424(a) of the Code or any
successor provisions without the written consent of the holders
materially adversely affected thereby. In any of such events,
the Committee may take such action sufficiently prior to such
event if necessary to permit the Participant to realize the
benefits intended to be conveyed with respect to the underlying
shares in the same manner as is available to stockholders
generally.
6.3.2 Acceleration of Awards Upon Change in Control. Unless prior to a
---------------------------------------------
Change in Control Event the Committee determines that, upon its
occurrence, benefits under any or all Awards will not accelerate or
determines that only certain or limited benefits under any or all
Awards will be accelerated and the extent to which they will be
accelerated, and/or establishes a different time in respect of such
Change in Control Event for such acceleration, then upon the
occurrence of a Change in Control Event
16
<PAGE>
(a) each Option and Stock Appreciation Right will become immediately
vested and exercisable,
(b) Restricted Stock will immediately vest free of restrictions, and
(c) each Performance Share Award will become payable to the
Participant.
However, in the case of a transaction intended to be accounted for as
a pooling of interests transaction, the Committee shall have no
discretion with respect to the foregoing acceleration of Awards. The
Committee may override the limitations on acceleration in this Section
6.3.2 by express provision in the Award Agreement and may accord any
Eligible Person a right to refuse any acceleration, whether pursuant
to the Award Agreement or otherwise, in such circumstances as the
Committee may approve. Any acceleration of Awards will comply with
applicable legal requirements.
6.3.3 Possible Early Termination of Accelerated Awards. If any Option or
------------------------------------------------
other right to acquire Common Stock under this Plan has been fully
accelerated as required or permitted by Section 6.3.2 but is not
exercised prior to (i) a dissolution of the Corporation, or (ii) an
event described in Section 6.3.1 that the Corporation does not
survive, or (iii) the consummation of an event described in Section
6.3.1 involving a Change in Control Event approved by the Board, such
Option or right will terminate, subject to any provision that has been
expressly made by the Committee through a plan of reorganization
approved by the Board or otherwise for the survival, substitution,
assumption, exchange or other settlement of such Option or right.
6.3.4 Golden Parachute Limitations. Unless otherwise specified in an
----------------------------
Award Agreement, no Award will be accelerated under this Plan to an
extent or in a manner that would not be fully deductible by the
Company for federal income tax purposes because of Section 280G of the
Code, nor will any payment hereunder be accelerated if any portion of
such accelerated payment would not be deductible by the Company
because of Section 280G of the Code. If a holder would be entitled to
benefits or payments hereunder and under any other plan or program
that would constitute "parachute payments" as defined in Section 280G
of the Code, then the holder may by written notice to the Company
designate the order in which such parachute payments will be reduced
or modified so that the Company is not denied federal income tax
deductions for any "parachute payments" because of Section 280G of the
Code.
6.4 Compliance with Laws.
--------------------
6.4.1 General. This Plan, the granting and vesting of Awards under this
-------
Plan and the offer, issuance and delivery of shares of Common Stock
and/or the
17
<PAGE>
payment of money under this Plan or under Awards granted hereunder are
subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal
securities law, and federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Corporation, be necessary or advisable in
connection therewith. Any securities delivered under this Plan will
be subject to such restrictions, and to any restrictions the Committee
may require to preserve a pooling of interests under generally
accepted accounting principles, and the person acquiring such
securities will, if requested by the Corporation, provide such
assurances and representations to the Corporation as the Corporation
may deem necessary or desirable to assure compliance with all
applicable legal requirements.
6.4.2 Compliance with Securities Laws. No Participant shall sell, pledge
-------------------------------
or otherwise transfer shares of Common Stock acquired pursuant to an
Award or any interest in such shares except in accordance with the
express terms of this Plan and the applicable Award Agreement. Any
attempted transfer in violation of this Section 6.4 shall be void and
of no effect. Without in any way limiting the provisions set forth
above, no Participant shall make any disposition of all or any portion
of shares acquired pursuant to an Award, except in compliance with all
applicable federal and state securities laws and unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration
statement; or
(b) such disposition is made in accordance with Rule 144 under the
Securities Act; or
(c) such Participant notifies the Corporation of the proposed
disposition and furnishes the Corporation with a statement of the
circumstances surrounding the proposed disposition, and, if
requested by the Corporation, such Participant furnishes the
Corporation with an opinion of counsel acceptable to the
Corporation's counsel, that such disposition will not require
registration under the Securities Act and will be in compliance
with all applicable state securities laws.
Notwithstanding anything else herein to the contrary, the Company has
no obligation to register the Common Stock or file any registration
statement under either federal or state securities laws.
18
<PAGE>
6.5 Tax Withholding.
---------------
6.5.1 Provision for Tax Withholding Offset. Upon any exercise, vesting,
------------------------------------
or payment of any Award or upon the disposition of shares of Common
Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section
422 of the Code, the Company shall have the right at its option to
(i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of
the amount of any taxes which the Company may be required to
withhold with respect to such Award event or payment, or (ii) deduct
from any amount payable in cash the amount of any taxes which the
Company may be required to withhold with respect to such cash
payment. In any case where a tax is required to be withheld in
connection with the delivery of shares of Common Stock under this
Plan, the Committee may in its sole discretion (subject to Section
6.4) grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject
to such conditions as the Committee may establish, to have the
Corporation reduce the number of shares to be delivered by (or
otherwise reacquire) the appropriate number of shares valued at
their then Fair Market Value, to satisfy such withholding
obligation.
6.6 Plan Amendment, Termination and Suspension.
------------------------------------------
6.6.1 Board Authorization. The Board may, at any time, terminate or, from
-------------------
time to time, amend, modify or suspend this Plan, in whole or in
part. No Awards may be granted during any suspension of this Plan or
after termination of this Plan, but the Committee will retain
jurisdiction as to Awards then outstanding in accordance with the
terms of this Plan.
6.6.2 Stockholder Approval. To the extent then required under Sections
--------------------
422 and 424 of the Code or any other applicable law, or deemed
necessary or advisable by the Board, any amendment to this Plan
shall be subject to stockholder approval.
6.6.3 Amendments to Awards. Without limiting any other express authority
--------------------
of the Committee under but subject to the express limits of this
Plan, the Committee by agreement or resolution may waive conditions
of or limitations on Awards to Eligible Persons that the Committee
in the prior exercise of its discretion has imposed, without the
consent of a Participant, and may make other changes to the terms
and conditions of Awards that do not affect in any manner materially
adverse to the Participant, the Participant's rights and benefits
under an Award.
6.6.4 Limitations on Amendments to Plan and Awards. No amendment,
--------------------------------------------
suspension or termination of this Plan or change of or affecting any
outstanding Award
19
<PAGE>
will, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the
Participant or obligations of the Corporation under any Award granted
under this Plan prior to the effective date of such change. Changes
contemplated by Section 6.3 will not be deemed to constitute changes
or amendments for purposes of this Section 6.6.
6.7 Privileges of Stock Ownership. Except as otherwise expressly authorized by
-----------------------------
the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not actually
delivered to and held of record by the Participant. No adjustment will be
made for dividends or other rights as a stockholder for which a record date
is prior to such date of delivery.
6.8 Effective Date of the Plan. This Plan is effective upon its approval by
--------------------------
the Board (the "Effective Date"), subject to approval by the stockholders
of the Corporation within twelve months after the date of such Board
approval.
6.9 Term of the Plan. Unless earlier terminated by the Board, this Plan will
----------------
terminate at the close of business on the day before the tenth anniversary
of the Effective Date (the "Termination Date") and no Awards may be granted
under this Plan after that date. Unless otherwise expressly provided in
this Plan or in an applicable Award Agreement, any Award granted prior to
the termination date may extend beyond such date, and all authority of the
Committee with respect to Awards hereunder, including the authority to
amend an Award, will continue during any suspension of this Plan and in
respect of Awards outstanding on the termination date.
6.10 Governing Law/Construction/Severability.
---------------------------------------
6.10.1 Choice of Law. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents will be governed by, and
construed in accordance with, the laws of the state of Delaware.
6.10.2 Severability. If a court of competent jurisdiction holds any
------------
provision invalid and unenforceable, the remaining provisions of
this Plan will continue in effect.
6.10.3 Plan Construction.
-----------------
(a) Rule 16b-3. It is the intent of the Corporation that
----------
transactions involving the Awards under this Plan, in the case
of Participants who are or may be subject to Section 16 of the
Exchange Act, satisfy to the extent feasible the requirements
for applicable exemptions under Rule 16 so that such persons
(unless they otherwise agree) will be entitled to the benefits
of Rule 16b-3 or other exemptive rules under
20
<PAGE>
Section 16 of the Exchange Act in respect of those transactions
and will not be subjected to avoidable liability thereunder.
(b) Section 162(m). It is the further intent of the Company that
--------------
Options or SARs with an exercise or base price not less than Fair
Market Value on the date of grant and Performance-Based Awards
under Section 5.2 of this Plan that are granted to or held by a
person subject to Section 162(m) will qualify as performance-
based compensation under Section 162(m) to the extent that the
Committee authorizing the Award (or the payment thereof, as the
case may be) satisfies the administrative requirements thereof.
This Plan shall be interpreted consistent with such intent.
6.11 Captions. Captions and headings are given to the sections and subsections
--------
of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision thereof.
6.12 Effect of Change of Subsidiary Status. For purposes of this Plan and any
-------------------------------------
Award hereunder, if an entity ceases to be a Subsidiary, a termination of
employment and service will be deemed to have occurred with respect to each
Eligible Person in respect of such Subsidiary who does not continue as an
Eligible Person in respect of another entity within the Company.
6.13 Non-Exclusivity of Plan. Nothing in this Plan will limit or be deemed to
-----------------------
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
7. Definitions.
-----------
"Award" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"Award Agreement" means any writing setting forth the terms of an Award that has
been authorized by the Committee.
"Award Date" means the date upon which the Committee took the action granting an
Award or such later date as the Committee designates as the Award Date at the
time of the Award.
"Beneficiary" means the person, persons, trust or trusts designated by a
Participant, or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to
21
<PAGE>
receive the benefits specified in the Award Agreement and under this Plan if the
Participant dies, and means the Participant's executor or administrator if no
other Beneficiary is designated and able to act under the circumstances.
"Board" means the Board of Directors of the Corporation.
"Change in Control Event" means any of the following:
(a) Approval by the stockholders of the Corporation of the dissolution or
liquidation of the Corporation;
(b) Approval by the stockholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or
more entities that are not Subsidiaries or other affiliates, as a
result of which less than 50% of the outstanding voting securities of
the surviving or resulting entity immediately after the reorganization
are, or will be, owned, directly or indirectly, by stockholders of the
Corporation immediately before such reorganization (assuming for
purposes of such determination that there is no change in the record
ownership of the Corporation's securities from the record date for
such approval until such reorganization and that such record owners
hold no securities of the other parties to such reorganization), but
including in such determination any securities of the other parties to
such reorganization held by affiliates of the Corporation);
(c) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a
person or entity that is not a Subsidiary or other affiliate; or;
(d) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act but excluding any person described in and satisfying the
conditions of Rule 13d-1(b)(1) thereunder), other than a person that
is a stockholder of the Corporation on the Effective Date, becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
more than 50% of the combined voting power of the Corporation's then
outstanding securities entitled to then vote generally in the election
of directors of the Corporation; or
(e) During any period not longer than two consecutive years, individuals
who at the beginning of such period constituted the Board cease to
constitute at least a majority thereof, unless the election, or the
nomination for election by the Corporation's stockholders, of each new
Board member was approved by a vote of at least three-fourths of the
Board members then still in office who were Board members at the
beginning of such period (including for these purposes, new members
whose election or nomination was so approved).
22
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Commission" means the Securities and Exchange Commission.
"Committee" means the Board or any one or more committees of director(s)
appointed by the Board to administer this Plan with respect to the Awards within
the scope of authority delegated by the Board. At least one committee will be
comprised only of two or more directors, each of whom, in respect of any
decision involving both (i) a Participant affected by the decision who is or may
be subject to Section 162(m), and (ii) compensation intended as performance-
based compensation within the meaning of Section 162(m), will be Disinterested;
in acting on any transaction with or for the benefit of a Section 16 Person, the
participating members of such Committee also shall be Non-Employee Directors
within the meaning of Rule 16b-3.
"Common Stock" means the Class A Common Stock of the Corporation and such other
securities or property as may become the subject of Awards, or become subject to
Awards, pursuant to an adjustment made under Section 6.3 of this Plan.
"Company" means, collectively, the Corporation and its Subsidiaries.
"Corporation" means Corinthian Colleges, Inc., a Delaware corporation, and its
successors.
"Disinterested" means a director who is an "outside director" within the meaning
of Section 162(m) and any applicable legal or regulatory requirements.
"Eligible Employee" means an officer (whether or not a director) or employee of
the Company.
"Eligible Person" means an Eligible Employee, or any Other Eligible Person, as
determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Fair Market Value" on any date means (a) if the stock is listed or admitted to
trade on a national securities exchange, the closing price of the stock on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on such
date, then the closing price of the stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such shares; (b) if the
stock is not listed or admitted to trade on a national securities exchange, the
last/closing price for the stock on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National
Market Reporting System or a similar organization if the NASD is no longer
reporting such information; (c) if the stock is not listed or admitted to trade
on a national securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked
23
<PAGE>
price for the stock on such date, as furnished by the NASD or a similar
organization; or (d) if the stock is not listed or admitted to trade on a
national securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by the NASD
or a similar organization, the value as established by the Committee at such
time for purposes of this Plan. Any determination as to fair market value made
pursuant to this Plan shall be determined without regard to any restriction
other than a restriction which, by its terms, will never lapse, and shall be
conclusive and binding on all persons.
"Incentive Stock Option" means an Option that is designated and intended as an
incentive stock option within the meaning of Section 422 of the Code, the award
of that contains such provisions (including but not limited to the receipt of
stockholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
"Nonqualified Stock Option" means an Option that is designated as a Nonqualified
Stock Option and will include any Option intended as an Incentive Stock Option
that fails to meet the applicable legal requirements thereof. Any Option
granted hereunder that is not designated as an incentive stock option will be
deemed to be designated a nonqualified stock option under this Plan and not an
incentive stock option under the Code.
"Non-Employee Director" means a member of the Board of Directors of the
Corporation who is not an officer or employee of the Company.
"Option" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
"Other Eligible Person" means any individual consultant or advisor or agent who
renders or has rendered bona fide services (other than services in connection
---- ----
with the offering or sale of securities of the Company in a capital raising
transaction) to the Company or any Non-Employee Director, and who (to the extent
provided in the next sentence) is selected to participate in this Plan by the
Committee. A person who is neither an employee, officer, nor director who
provides bona fide services to the Company may be selected as an Other Eligible
---- ----
Person only if such person's participation in this Plan would not adversely
affect (a) the Corporation's eligibility to use Form S-8 to register under the
Securities Act, the offering of shares issuable under this Plan by the Company,
or (b) the Corporation's compliance with any other applicable laws.
"Participant" means an Eligible Person who has been granted an Award under this
Plan.
"Performance Share Award" means an Award of a right to receive shares of Common
Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of
which is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
24
<PAGE>
"Personal Representative" means the person or persons who, upon the disability
or incompetence of a Participant, has acquired on behalf of the Participant, by
legal proceeding or otherwise, the power to exercise the rights or receive
benefits under this Plan by virtue of having become the legal representative of
the Participant.
"Plan" means this Corinthian Colleges, Inc. 1998 Performance Award Plan, as it
may hereafter be amended from time to time.
"QDRO" means a qualified domestic relations order.
"Restricted Shares" or "Restricted Stock" means shares of Common Stock awarded
to a Participant under this Plan, subject to payment of such consideration, if
any, and such conditions on vesting (which may include, among others, the
passage of time, specified performance objectives or other factors) and such
transfer and other restrictions as are established in or pursuant to this Plan
and the related Award Agreement, for so long as such shares remain unvested
under the terms of the applicable Award Agreement.
"Retirement" means retirement with the consent of the Company or, from active
service as an employee or officer of the Company on or after attaining (a) age
55 with ten or more years of employment with the Company, or (b) age 65.
"Rule 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to the
Exchange Act, as amended from time to time.
"Section 16 Person" means a person subject to Section 16(a) of the Exchange Act.
"Section 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Stock Appreciation Right" or "SAR" means a right authorized under this Plan to
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"Stock Bonus" means an Award of shares of Common Stock granted under this Plan
for no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"Subsidiary" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
25
<PAGE>
"Total Disability" means a "total and permanent disability" within the meaning
of Section 22(e)(3) of the Code and, with respect to Awards other than Incentive
Stock Options, such other disabilities, infirmities, afflictions, or conditions
as the Committee may include.
26
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports of Corinthian Colleges, Inc. and the Eleven Career Colleges purchased
from National Education Centers, Inc. (and all references to our Firm)
included in or made a part of this registration statement.
/s/ Arthur Andersen LLP
Orange County, California
July 21, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated August 15, 1997, on our audits of the combined financial
statements of the seventeen operating companies of Phillips Colleges, Inc. We
also consent to the references to our firm under the captions "Experts".
/s/ PricewaterhouseCoopers LLP
Jacksonville, Florida
July 16, 1998
