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EXHIBIT 10.58
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of September 10, 2000 (this
"Agreement"), is entered into by and among Corinthian Schools, Inc., a Delaware
corporation ("Buyer"), Computer Training Academy, Inc. a California corporation
("Seller"), and Sam Shirazi, Bahman Imani, Marilyn Emel, Mahammad Tahmasebi and
Peter Tsuda (collectively, "Owners").
BACKGROUND
A. Owners are the sole stockholders of Seller, which owns, operates
and administers those certain proprietary, post-secondary, vocational training
schools collectively known as Computer Training Academy (collectively, the
"Schools," and individually, a "School"), located at (i) 235 Charcot Avenue, San
Jose, California 95131-1107 (the "San Jose Facility") and (ii) 2174 Rheem Drive,
Pleasanton, California 94588 (the "Pleasanton Facility"). The San Jose Facility
and the Pleasanton Facility are sometimes individually referred to in this
Agreement as the "Facility" and collectively as the "Facilities".
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 Schools, 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 herein), and Buyer
hereby agrees to purchase from Seller, all of the Seller's right, title and
interest in, to and under all of the business, properties, assets, goodwill,
rights and claims and property owned by Seller and used in the business of the
Schools of the types set forth below (the "Purchased Assets"), free and clear of
all mortgages, pledges, liens, claims, restrictions, encumbrances and security
interests of any kind or nature except as described on Schedule 5.8(c) (such
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mortgages, pledges, liens, etc., as described on Schedule 5.8(c), the "Permitted
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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) ("Accounts Receivable");
1.1.2 Inventory. All of Seller's inventory, including without
limitation, textbooks, course materials and supplies;
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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 Schools;
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, financial
statements and records, operating data, correspondence, employment records,
placement records, marketing materials, information and data, mailing lists 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, and excluding
personal records of Owners and Seller's tax returns, subject to the reasonable
inspection rights of Buyer described and set forth in Section 7.6 of this
Agreement;
1.1.5 Contracts and Leases. All of the rights of Seller under
contracts, purchase orders and leases applicable to the Schools to which Seller
is a party entered into in the course of Seller's business, including, without
limitation, those identified as Assumed Contracts in Schedule 5.9;
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1.1.6 Intellectual Property. All rights of Seller with respect
to patents, trademarks, service marks, logos, licenses and copyrights (whether
or not registered) and all applications and registrations therefor, owned or
licensed by Seller, and all rights of Seller with respect to computer programs
and software, including those described in Schedule 5.10;
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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 Schools, including those described in Schedule 5.5(a);
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1.1.10 Goodwill and Other Intangibles. All of the goodwill and
going concern value of the Schools and all other intangibles used in connection
with the Schools;
1.1.11 Curriculum Materials. All rights of Seller with respect to
Curriculum (as defined in Section 5.8.5) used in connection with the educational
programs of the Schools, whether proprietary or licensed from third parties
(including all periodic updates to the curriculum as developed or used by Seller
or any such third parties); and
1.1.12 Other Assets. All other assets and property of any kind,
wherever located, which is owned, leased or licensed by Seller and used in the
business of the Schools (other than the Excluded Assets), including, without
limitation, promotional and marketing materials.
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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; and
1.2.2 Other Assets. Such other assets as are identified on
Schedule 1.2.2 attached hereto.
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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 (i) the
cash consideration referred to in Section 2.2, plus (ii) 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 Five Million Four Hundred Thousand Dollars
($5,400,000.00), payable as follows: (A) at the Closing, Buyer shall pay to
Seller, by wire transfer, Four Million Eight Hundred Sixty Thousand Dollars
($4,860,000.00) (the "Closing Payment"), and (B) on each of the next succeeding
eight (8) three-month anniversaries of the Closing, Buyer shall pay to Seller,
by check or wire transfer, Sixty-seven Thousand Five Hundred Dollars
($67,500.00) (for an aggregate payment over such time of Five Hundred Forty
Thousand Dollars ($540,000.00)), subject to Buyer's right of set-off as set
forth in Section 9.14 (such quarterly payments shall be referred to herein
collectively as the "Deferred 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 A hereto (the "Assignment and Assumption
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Agreement"), assume only the following liabilities (the "Assumed Liabilities")
of the Seller and the Schools: (i) short term accounts payable, except to the
extent such accounts payable relate to liabilities of the types described in
clauses (i) through (viii) in Section 2.4 below, (ii) other current liabilities
consisting solely of (A) deferred tuition revenue, and (B) deferred rent, (iii)
the School's teach-out obligation with respect to students enrolled as of the
Closing, (iv) outstanding and unpaid indebtedness of Seller attributable to the
tenant improvements installed at the Pleasanton Facility up to a maximum amount
of $195,000, and (v) Seller's duties, liabilities and obligations (whether of
payment, performance or otherwise) arising on and after the Closing Date with
respect to (A) the facilities leases for the San Jose Facility and the
Pleasanton Facility and (B) the Assumed Contracts.
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)
(collectively, the "Excluded Liabilities") of Seller, any other owner or
operator of the Schools prior to the Closing Date, or any Affiliate of any of
the foregoing, other than those liabilities and obligations which have been
specifically assumed by Buyer pursuant to Section 2.3. The "Excluded
Liabilities" shall include, without limitation, any liabilities or obligations
to the extent that they 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 (the "DOE") and/or the applicable
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state regulatory agencies with respect to Seller and/or the Schools for periods
prior to the Closing Date, (ii) liabilities relating to employees of Seller and
the Schools for periods prior to the Closing Date (including, without
limitation, payroll taxes payable, accrued vacation liability and accrued
payroll), (iii) liabilities with respect to accounts payable incurred on or
before the Closing Date that are set forth on Schedule 2.4, (iv) liabilities and
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costs (including those incurred post-Closing) associated with or caused by a
determination by the DOE that the Seller and/or Schools have not demonstrated
compliance with 34 CFR 668.15 (Factors of Financial Responsibility) and 34 CFR
668.16 (Standards of Administrative Capability) for dates and periods prior to
the Closing Date, (v) Tax liabilities of Seller or the Owners (including,
without limitation, sales tax liabilities in connection with this Agreement),
(vi) liabilities with respect to the claims referenced on Schedule 5.14 hereto,
(vii) long-term debt of Seller and the Schools (including current portion)
except amounts expressly assumed by Buyer pursuant to Section 2.3 of this
Agreement, (viii) any intercompany payables or debt (whether to any of the
Owners or any Affiliate of Seller or the Owners) and (ix) any other liability or
obligation which has not been specifically assumed by Buyer pursuant to Section
2.3.
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
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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. For the purposes of this Agreement, the term
"Tax" or "Taxes" means any foreign, federal, state, county or local income,
sales and use, excise, franchise, real and personal property, transfer, gross
receipt, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
governmental entity, and any interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof.
2.6 Working Capital Adjustment. If the Purchased Working Capital (as
defined below) is less than $1.00, then Seller and/or the Owners, jointly and
severally, shall pay to Buyer within ten (10) business days after final
determination of the amount of the Purchased Working Capital (pursuant to the
procedures set forth in Section 2.7), by check or wire transfer of immediately
available funds, an amount of cash which equals the amount by which such
Purchased Working Capital is less than $1.00 and if the Purchased Working
Capital is more than $1.00, then Buyer shall pay to Seller within ten (10)
business days after final determination of the amount of the Purchased Working
Capital (pursuant to the procedures set forth in Section 2.7) by check or wire
transfer of immediately available funds, an amount of cash which equals the
amount by which such Purchased Working Capital exceeds $1.00 (the "Working
Capital Adjustment"). The term "Purchased Working Capital" shall mean all
current assets (accounts receivable, net of allowance for doubtful accounts,
inventory and prepaid expenses) purchased by Buyer hereunder, minus all assumed
current liabilities (short term accounts payable, deferred tuition revenue and
deferred rent) assumed by Buyer hereunder, each as of the Closing Date.
2.7. Post-Closing Audit. (A) Within five (5) business days of the
Closing Date, Seller shall deliver to Buyer true and correct copies of all
financial books and records of Seller necessary for Buyer to prepare a balance
sheet of Seller dated as of the Closing Date. Within fifteen (15) business days
after receipt of such books and records from Seller, Buyer shall, at buyer's
sole cost and expense, prepare and have audited a balance sheet dated as of the
Closing Date (the "Closing Balance Sheet") on
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which shall be shown the purchased current assets and the assumed current
liabilities of the Seller as of the Closing Date.
(B) The Closing Balance Sheet shall be prepared in accordance with
Generally Accepted Accounting Principles ("GAAP"), applied on a basis consistent
with Buyer's past practices (provided, however, that the reserve of accounts
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receivable shall be calculated using the Average Accounts Receivable Reserve as
defined in subsection 2.7(C) below), and audited by Almich & Associates
("Almich") in accordance with Generally Accepted Government Auditing Standards
("GAGAS"). Upon receipt of the Closing Balance Sheet prepared by Buyer and
audited by Almich, the Seller shall have fifteen (15) business days in which to
review it and either accept it or identify objections by written notice to
Buyer. If, within fifteen (15) business days following delivery of the Closing
Balance Sheet to Seller, Seller has not given notice to Buyer of objections to
the Closing Balance Sheet (such notice must contain a statement of the basis of
Seller's objections in reasonable detail), then the calculation of Purchased
Working Capital as shown on the Closing Balance Sheet shall be used in computing
the Working Capital Adjustment, if any. If exceptions or objections are noted
by Seller, Buyer, Seller and their respective accountants shall meet to resolve
the dispute. If such dispute has not been resolved within fifteen (15) business
days after Seller gives notice of an objection, then the issues in dispute shall
be submitted to a "Big 5" accounting firm selected by mutual agreement of Buyer
and Seller (the "Accountants") for resolution; provided, however, that absent
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such agreement, Buyer's accounting firm and Seller's accounting firm shall
select the Accountants by mutual agreement; provided further, however, that
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absent such agreement of Buyer's accounting firm and Seller's accounting firm,
the Accountants shall be selected by arbitration in the manner set forth in
Section 9.15.2. If the issues are submitted to the Accountants for resolution:
(i) each party will furnish to the Accountants such work papers and other
documents and information relating to the disputed issues as the Accountants may
request and are available to such party (or its accountants), and will be
afforded the opportunity to present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants; (ii)
the determination by the Accountants, as set forth in a notice delivered to the
parties, will be binding and conclusive on the parties; and (iii) Buyer, on the
one hand, and Seller, on the other hand, will each bear 50% of the fees of the
Accountants for such determination. The amount of Purchased Working Capital and
the Working Capital Adjustment for all purposes of this Agreement shall be as
determined in accordance with this Section 2.7. It is understood, however, that
Buyer is free to use any calculations it deems appropriate when preparing
financial statements for any purpose other than that contemplated by this
Section 2.7, and no such financial statements shall be subject to the terms of
this Agreement.
(C) For purposes of calculating the amount of the Purchased Working
Capital and the Working Capital Adjustment, if any, Buyer (or Buyer's
accountants) shall prepare (i) a calculation in accordance with GAAP, applied on
a basis consistent with Buyer's past practices, of the allowance for doubtful
and/or uncollectible accounts (the "Buyer's Accounts Receivable Reserve"), and
(ii) a calculation in accordance with GAAP, applied on a basis consistent with
Seller's past practices as determined in preparation of Seller's December 31,
1999 audited financial statements, of the allowance for doubtful and/or
uncollectible accounts (the "Seller's Accounts Receivable Reserve"). The
accounts receivable reserve utilized by the parties and their accountants solely
in the determination of Purchased Working Capital and the Working Capital
Adjustment (notwithstanding and irrespective of any other or different allowance
or reserve for doubtful and/or uncollectible accounts receivable, if any,
determined by the Buyer and/or Almich in preparing and auditing the Closing
Balance Sheet) shall be
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calculated as the arithmetic mean of the amount of the Buyer's Accounts
Receivable Reserve and the amount of the Seller's Accounts Receivable Reserve
(the "Average Accounts Receivable Reserve").
ARTICLE III
CLOSING
3.1 Closing. Consummation of the purchase and sale of the Purchased
Assets contemplated hereby is referred to herein as the "Closing," and the date
on which the Closing takes place is referred to herein as the "Closing Date."
The Closing shall take place, as soon as practicable following satisfaction or
waiver of all conditions precedent to the parties' obligations to close, at the
offices of Buyer at 6 Hutton Centre Drive, Suite 400, Santa Ana, California.
Delivery of documents at the Closing may be accomplished by facsimile, to be
followed by delivery of originals by overnight courier of national reputation on
the day after the Closing. The Closing shall be effective at 12:01 a.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
and, if required by applicable law, Seller's shareholders, authorizing the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein;
(2) A duly executed counterpart of the Bill of Sale
substantially in the form of Exhibit B hereto (the "Bill of Sale") and such
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other instruments of conveyance as shall, in the opinion of Buyer and its
counsel, be necessary to vest in Buyer title to the Purchased Assets;
(3) A duly executed counterpart of the Assignment and
Assumption Agreement;
(4) An officers' certificate signed by the President and
the Chief Financial Officer of Seller, or such other officer reasonably
acceptable to Buyer, certifying (i) as to the representations, warranties
and covenants of Seller made herein as provided in Sections 8.1(1), and
8.1(3), and (ii) as to the absence of a material adverse change as provided
in Section 8.1(2);
(5) Duly executed estoppel certificates and consents to
assignment of lease for each of the Facilities (executed by the respective
landlords of the Facilities);
(6) Duly executed counterparts of Assignments and
Assumption of Lease for each of the Facilities substantially in the form of
Exhibit C hereto (the "Lease Assignment" and collectively, the "Lease
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Assignments");
(7) Duly executed counterparts of the Non-Competition
Agreement substantially in the form of Exhibit D hereto (the "Non-
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Competition Agreement"), executed by Seller and each of the Owners, in
which Seller and the Owners shall have agreed to not participate in the
business of proprietary, post-secondary education in those portions of the
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counties of Alameda, Amador, Calaveras, Contra Costa, Fresno, Madera,
Marin, Merced, Monterey, Napa, Sacramento, San Benito, San Francisco, San
Joaquin, San Mateo, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus,
Yolo and Yuba, California that lie within a 100-mile radius of the existing
locations of either of the Schools, for a period of five years after the
Closing Date; and
(8) Any other documents reasonably requested by Buyer and
its counsel 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;
(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) A Duly executed counterpart of the Assignment and
Assumption Agreement;
(4) A Duly executed counterpart of the Lease Assignments
for each of the Facilities;
(5) a Duly executed counterpart of the Non-Competition
Agreement; and
(6) Any other documents reasonably necessary to
effectuate the transactions contemplated hereby.
3.4 Delivery of Employment Agreement. At the Closing, Buyer and
Seller shall deliver or cause to be delivered duly executed counterparts of an
employment agreement between Sam Shirazi and Buyer (the "Employment Agreement")
substantially in the form of Exhibit E hereto; provided, however, that if by the
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Closing Date Sam Shirazi and Buyer have failed to agree upon the terms of
Sections II.A., III.B. and IV.D.3 of the Employment Agreement, but Buyer
nonetheless desires to proceed with the Closing, then the obligations of the
parties to deliver the Employment Agreement shall automatically be rendered null
and void, provided, that if the Closing thereafter occurs and no employment
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agreement is entered into between Sam Shirazi and Buyer, Buyer shall pay to Sam
Shirazi $125,000 on the first anniversary of the Closing Date and $125,000 on
the second anniversary of the Closing Date.
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;
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(2) Prior to the Closing, (a) by Buyer if Seller or the
Owners shall be in breach of any covenant, undertaking, representation or
warranty contained herein, which breach either (i) materially misrepresents
the business, operations or financial condition of the Seller as of the
date hereof, (ii) causes a material adverse change in the business,
operations or financial condition of the Schools or (iii) prohibits the
satisfaction of a condition to the Closing, and/or (b) by Seller if Buyer
shall be in breach of any covenant, undertaking, representation or warranty
contained herein which breach either (i) constitutes a material
misrepresentation by Buyer under this Agreement or (ii) prohibits the
satisfaction of a condition to the Closing.
(3) Prior to the Closing, by Buyer if the DOE, the
California Bureau for Private Postsecondary and Vocational Education
("BPPVE"), the State of California or any of its agencies, any applicable
regulatory body, any guaranty agency or any accreditation agency
(including, but not limited to the Accrediting Counsel for Continuing
Education & Training (hereinafter, "ACCET") determines that the Seller or
the Schools, or any of their respective programs, will not be certified as
eligible to receive funds administered under Title IV of the Higher
Education Act of 1965, as amended (hereinafter, "Title IV");
(4) Prior to the Closing, by Buyer, at its sole and
absolute discretion, if, based on the DOE pre-review of the application for
certification and provisional extension of certification, Buyer determines
that the Schools will be unable to obtain certification by the DOE
subsequent to the Closing Date at any time, in a timely matter, or without
being subject to material adverse conditions and Buyer notifies Seller in
writing no later than fifteen (15) business days following Buyer's
determination thereof that Buyer is electing to terminate this Agreement
(and if Buyer fails to notify Seller in writing within such time period,
Buyer shall be deemed to have elected not to terminate this Agreement); or
(5) If the Closing has not occurred before the ninetieth
(90th) day after the date hereof, by Seller or Buyer, by notice to all other
parties, at any time thereafter and before the Closing.
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 Owners (or their respective
officers or directors) to any other party, except for liabilities arising from a
breach of this Agreement prior to such termination; provided, however, that (1)
Seller's and Owners' obligations under the last sentence of Section 5.20 shall
survive the termination of this Agreement and (2) Buyer's obligations under the
last sentence of Section 6.4 shall survive the termination of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER AND OWNERS
As a material inducement to Buyer to enter into this Agreement, to
purchase the Purchased Assets and to assume the Assumed Liabilities, Seller and
Owners, jointly and severally, hereby represent and warrant (a) as of the date
hereof and (b) as of the Closing Date, that:
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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
California, the jurisdiction in which it is incorporated. Seller has all
requisite 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 Schools. True and correct copies of
Seller's articles of incorporation and bylaws have been furnished to Buyer and
reflect all amendments made thereto at any time prior to the date of this
Agreement and the Closing Date.
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(c). 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 shareholders 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 Schools. The Schools are owned and operated by
Seller directly, and no other Person has any ownership interest in the Schools.
No other Person has any right, option, subscription or other arrangement to
purchase or otherwise acquire any interest in the Schools. For purposes of this
Agreement, the term "Person" shall include any individual, corporation,
partnership, joint venture, trust, unincorporated association or government or
any agency or political subdivisions thereof.
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 by Seller of the transactions contemplated hereby
and thereby will not: (a) to Seller's knowledge, 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, or any instrument, license,
agreement or 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) to Seller's knowledge, require any approval of, or filing or registration
with, any governmental entity or regulatory authority other than those set forth
or described on Schedule 5.4 or Schedule 6.3 attached hereto.
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5.5 Compliance with Laws; Licenses and Permits. Except as disclosed
in Schedule 5.5, Seller is not in violation of any law, regulation or
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requirement of any governmental authority that would have a material adverse
effect on the Company. Seller has not received notice that it is in violation
of any law, regulation or requirement of any governmental authority. Seller
currently
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maintains all licenses, accreditations, 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
Schools as presently being conducted, including, without limitation, all
requisite approvals for the educational and training programs currently offered
from the Schools' institutional accrediting agency and the state in which the
Schools operate. Each program offered by the Schools is an eligible program in
compliance with the requirements of 34 C.F.R. (S) 668.8. Seller has duly filed
all reports and returns required to be filed by it with respect to the Schools
with governmental authorities and accrediting bodies and complied with all
stipulations, conditions or other requirements that they have imposed. The
Licenses and Permits for the Schools are in full force and effect, and no
proceedings for the suspension or cancellation of any of them is pending or
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 Schools and the governmental authority or accrediting body
granting such Licenses and Permits. Seller has delivered to Buyer true and
correct 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 Seller's
knowledge, there is no basis for nonrenewal. The Schools are accredited as set
forth on Schedule 5.5(b) attached hereto, are certified by the DOE as an
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eligible institution under Title IV and are parties to, and in compliance with,
valid program participation agreements with the DOE with respect to the Schools'
respective operations, and are authorized by the state in which they are located
to operate for-profit postsecondary educational institutions. Seller has not
received any notice, not previously complied with, in respect of any alleged
violation of the rules or regulations of the DOE, any state licensing body, or
any applicable accrediting body in respect of the Schools, 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 any School's state
license accreditation 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 Schools, 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"). Schedule 5.6(b) attached hereto sets forth a list of the
---------------
Policy Guidelines with respect to those students continuing in the Schools after
the Closing Date (the "Disclosed Guidelines"). Seller has delivered to Buyer
true, correct and complete copies of all Policy Guidelines, Disclosed Guidelines
and all documents and other information disseminated to students or prospective
students. Seller's operations with respect to the Schools have 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, including, without
limitation, all annual compliance audits and audited financial statements, for
the Schools 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
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to which Seller or its students receive funding. Complete and accurate records
for all present and past students attending the Schools have been maintained
consistent with the operations of a school business. All forms and records with
respect to the Schools have been prepared, completed, maintained and filed in
accordance with all applicable federal and state laws and regulations, and are
true and correct. 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 deficiencies in respect thereto. The
Schools and Seller have complied with the legal requirements that no student at
the Schools be funded prior to the date for which such student was eligible for
funding. Seller covenants and agrees that it 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 Schools conform in form and substance
to all relevant regulatory requirements.
5.7 Cohort Default Rate. Schedule 5.7 attached hereto sets forth the
------------
cohort default rate for the Schools, calculated in the manner prescribed by the
DOE, of all students attending the Schools receiving assistance pursuant to
Title IV programs for the fiscal years 1993 through 1999. Such schedule is
correct and accurate in all respects.
5.8 Title to and Condition of the Purchased Assets.
5.8.1 Leased Facilities. The leased Facilities described on
Schedule 5.8(a) constitute the only real property used in connection with the
---------------
operation of the Schools by Seller.
5.8.2 Laws and Regulations; Records. All of Seller's
operations with respect to the Schools are conducted at the Facilities, and all
of the tangible Purchased Assets and records relating to intangible Purchased
Assets of the Schools are 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 other than those
set forth on Schedule 5.8(c). To Seller's knowledge, 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 and the Facilities are not subject to any condemnation
proceedings. To Seller's knowledge, each Facility and Seller's use thereof is
in compliance 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, free and clear of all liens, claims and
encumbrances, retained ownership interests, options, rights, and restrictions,
other than as set forth on Schedule 5.8(c). All leases for tangible personal
---------------
property used by Seller in connection with the operation of the Schools are (i)
valid and in full force and effect, (ii) are enforceable in accordance with
their terms, and (iii) are capable of being assigned, and will in fact be
assigned to Buyer, upon the execution and delivery by Buyer and Seller of the
Assignment and Assumption Agreement. Seller is not in default, nor, to Seller's
knowledge, is any other party 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 Schools which are owned or leased by Seller and
used in connection with the operation of the Schools are in good operating
condition, order and repair (reasonable wear and tear excepted),
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useable in the ordinary course of business consistent with past practice and are
appropriate 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 which remains
uncured or has not been resolved.
5.8.5 Title; Condition and Quality of the Curriculum. (a)
Seller owns outright, and has good and marketable title to, the Curriculum of
the Schools, free and clear of all encumbrances, and the execution of this
Agreement will vest good and marketable title to the Curriculum in Buyer, free
and clear of all encumbrances. No employee or Affiliate of Seller or any of the
Owners or any other Person owns or has any interest, directly or indirectly, in
any part of the Curriculum. Seller does not use any part of the Curriculum by
consent of any other Person and is not required to and does not make any
payments to others with respect thereto. No component of the Curriculum
infringes or violates any copyright, patent, trade secret, trademark, service
mark, registration or other proprietary right of any other Person, and Seller's
and Owner's past and current use of any part of the Curriculum does not infringe
upon or violate any such right. Neither Seller nor any of the Owners have taken
any action, or failed to take any action, to cause any part of the Curriculum to
enter the public domain. The term "Curriculum," as used in this Agreement, means
the curriculum used in the educational programs of the Schools in the form of
computer programs, slide shows, texts, films, videos or any other form or media,
including, without limitation, the following items: (1) course objectives, (2)
lesson plans, (3) exams, (4) class materials (including interactive or computer-
aided materials), (5) faculty notes, (6) course handouts, (7) diagrams, (8)
syllabi, (9) sample externship and placement materials, (10) clinical
checklists, (11) course and faculty evaluation materials, (12) policy and
procedure manuals, and (13) other related materials. The Curriculum shall also
include, without limitation, (a) all copyrights, copyright applications,
copyright registrations and trade secrets relating to the above-listed items and
(b) Revisions. The term "Revisions," as used in this Agreement, means all
periodic updates or revisions to the Curriculum as developed or used by Seller
during its period of operation of the Schools from the beginning of time through
the Closing Date.
5.9 Assumed Contracts. Schedule 5.9 attached hereto lists each
------------
assumed contract of Seller (the "Assumed Contracts") relating to the Schools or
to which any of the Purchased Assets is subject or bound that individually, or
together as a series of related 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 $5,000 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 Schools. Each Assumed Contract is valid and existing. Seller
has duly performed all its obligations under the Assumed Contracts to the extent
that such obligations to perform have accrued. Seller has not received written
notice of any alleged breach or default, and no event which would (with the
passage of time, notice or both) constitute a material breach or default by
Seller or, to Seller's knowledge, 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 Buyer
or are attached to Schedule 5.9. Each of the Assumed Contracts is (i)
------------
enforceable in accordance with its respective terms, and (ii) is capable of
being assigned to Buyer and will in fact be assigned to Buyer upon the execution
and delivery by Buyer and Seller of the Assignment and Assumption Agreement.
For purposes of this Agreement, the term "Affiliate" of any Person means any
other Person who directly or indirectly controls, is controlled by, or is under
common control with such Person.
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<PAGE>
5.10 Tradenames; Confidential Information. All tradenames,
trademarks or service marks and all forms, derivatives and graphic presentations
thereof of Seller having any value to the operation of the Schools are set forth
or described on Schedule 5.10 attached hereto (collectively, the "Tradenames").
-------------
To Seller's knowledge, 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 lists 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, to Seller's knowledge, threatened
with suit for infringement, violation or breach with respect to any Tradename,
and no basis exists for any such suit. Except as disclosed on Schedule 5.10,
-------------
Seller is not on notice of any infringement, 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 Schools. 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 Schools.
5.11 Financial Statements; Indebtedness. Attached hereto as Schedule
--------
5.11(a) are the following financial statements of Seller: (a) audited Balance
-------
Sheets at December 31, 1999, 1998 and 1997 and audited Statements of Operations
and Statements of Cash Flows for the years ended December 31, 1999, 1998 and
1997 (including consolidating schedules containing corresponding Statements of
Assets and Liabilities and Statements of Revenue and Expenses of the Schools in
the form appropriate for filing with the DOE), and (b) an unaudited Balance
Sheet at June 30, 2000 and an unaudited Statement of Operations and Statement of
Cash Flows for the six months ended June 30, 2000 (collectively, the "Financial
Statements"). The basis of presentation of the Financial Statements of the
Seller and each of the Schools is disclosed on Schedule 5.11(b) attached hereto
----------------
or in the notes thereto. Except as disclosed on Schedule 5.11(b), the balance
----------------
sheets included in the Financial Statements present fairly in accordance with
GAAP the assets and liabilities of Seller and each of the Schools 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 Seller and
each of the Schools for the respective periods covered thereby. The Financial
Statements (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 Seller
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
Schedule 5.11(b), Seller has maintained the books and records of the Seller and
----------------
the Schools in accordance with applicable laws, rules and regulations and with
GAAP and GAGAS, 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 Seller and the
Schools. On the date hereof, Seller does not have any liabilities required to
be set forth in a balance sheet prepared in accordance with GAAP and GAGAS that
were not included in the latest balance sheet included in the Financial
Statements. Except as provided in Schedule 5.11(c), Seller is not required to
----------------
provide any letters of credit, guarantees or other financial security
arrangements in connection with any transactions, approvals or licenses in the
ordinary course of the Schools' business. As of the date hereof, Seller has no
indebtedness, liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, other than:
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<PAGE>
(1) those set forth or reserved against in the balance
sheet of Seller as of June 30, 2000, to the extent set forth, reserved
against or disclosed;
(2) those incurred since June 30, 2000 in the ordinary
course of business of the Schools and consistent in nature with past
practice, and in an aggregate amount of not more than $20,000; and
(3) those described in the Schedules attached hereto.
There exists no condition relating to the Schools, whether absolute, accrued,
contingent or otherwise, which could have an adverse effect on the properties,
business, Purchased Assets, results of operations or condition (financial or
otherwise) of the Schools or which would prevent the operations of the Schools
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(d) attached
----------------
hereto, there are no long-term fixed or contractual liabilities relating to the
operation of the Schools which are required to be assumed by Buyer in order to
continue to operate the Schools as presently operated by Seller, the annual
expense of which are not reflected in the Financial Statements.
5.12 Receivables. The Accounts Receivable, except to the extent of
the allowance for 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 Schools, are recorded correctly on the books
and records of Seller and the Schools, and Seller has no reason to believe that
such Accounts Receivables will not be collected in full in the ordinary course
of business within the ordinary time frame for such receivables. Such
receivables are not subject to any defense, counterclaim or setoff or 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 as reflected in reserves or allowance for
doubtful accounts shown on the Financial Statements), and (A) no facts or
circumstances exist which would cause any of such Accounts Receivable to have to
be written down or written off, and (B) since the date of Seller's most recent
audited Balance Sheet, seller has not discounted or sold such Accounts
Receivable or any portion thereof (either to the debtor(s) or in connection with
the sale of such receivables to a third party).
5.13 Inventories. The only inventories maintained by Seller in
connection with the operation of the Schools consist of supplies used in the
ordinary course of business of the Schools and are expensed on a current basis
as such inventories are purchased. Such supplies are usable in the ordinary and
regular course of business, are appropriate and adequate 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 Schools. Subject to the first
sentence of this Section 5.13, all excess or obsolete items, to the extent any
such items have been reflected on the Company's balance sheet, 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 Seller's knowledge, threatened against or affecting the
Schools or their respective 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 Schools, (ii) neither
Seller, the Owners (solely with respect to their involvement with Seller or the
Schools), nor the Schools is the subject of any governmental
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<PAGE>
investigations or inquiries (including inquiries as to the qualification to hold
or receive any of the Licenses and Permits with respect to the Schools) and
(iii) there is no basis for any of the foregoing.
5.15 Insurance. Schedule 5.15 attached hereto sets forth the
-------------
insurance coverages maintained by Seller on the Facilities, the Purchased Assets
and the operations of the Schools, 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 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 Schools is
sufficient and is customary for adequately insured schools of similar size and
engaged in similar lines of business. There are no claims pending or threatened
under any of said policies pertaining to the Schools or disputes with
underwriters regarding coverage under such policies pertaining to the Schools.
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 Schools prior to the Closing.
Within the five years prior to the date hereof, Seller has not been denied
insurance for the Schools, or been offered insurance for the Schools only at a
commercially prohibitive premium.
5.16 Environmental Matters. In connection with the operations of the
Schools, Seller has not generated, transported, stored, treated or disposed, nor
has Seller 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 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 Schools except as set forth on Schedule 5.16. 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 Schools 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 of the Schools which may result in
judicial, regulatory or other legal proceedings having a material adverse impact
on the operations of the Schools or result in the imposition of any lien, claim,
assessment or other encumbrance against the Purchased Assets. The Facilities do
not contain asbestos or polychlorinated biphenyls or any underground storage
tanks. Seller acknowledges that Buyer is not assuming any of Seller's
liabilities with respect to the matters addressed in this Section 5.16 and that
any liabilities of Seller related to the matters addressed herein are Excluded
Liabilities, except to the extent of tenant responsibilities arising on and
after the Closing Date under the leases for the Facilities which are assumed by
Buyer pursuant to the Lease Assignments.
5.17 Employee Benefit Plans. Schedule 5.17 attached hereto sets
-------------
forth a complete accurate and detailed description of all of Seller's employee
welfare and benefit plans ("Plans"). Seller
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<PAGE>
acknowledges that 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 Schools 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 Schools
and to current employees of the 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"). 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.
5.18 Employment Matters. Seller and the Schools are in compliance
with all federal, state and local laws, rules and regulations affecting
employment and employment practices with respect to the Schools, 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 Schools; there are no complaints against Seller with respect to employees of
the 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 threatened with respect to any employees of
the Schools; no labor organization activities have occurred with respect to
employees of the Schools during the past three years; there are no collective
bargaining agreements binding on Seller relating to the operation of the
Schools; no grievances have been asserted against Seller with respect to
employees of the Schools; and Seller has not experienced any work stoppage by
its employees at the Schools during the last three years.
5.19 Tax Matters. Except as disclosed on Schedule 5.19, Seller and
-------------
the Owners have 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 Schools, and such returns are true and correct.
Seller and/or the Owners, as applicable, 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 Closing. Neither Seller nor any of the Owners is not a party
to, nor 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 Schools.
5.20 Brokers or Finders. 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, except for David S. Shefrin
("Broker"), the responsibility for the payment of whose fee shall be solely and
exclusively that of Seller and the Owners. Seller and the Owners, jointly and
severally, agree to defend, indemnify and hold harmless Buyer and its Affiliates
from and against any and all claims arising in connection with its or their
discussions and/or use of the services of Broker or any other 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 December 31,
-------------
1999, there has not been, occurred or arisen with respect to the Schools:
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(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 Schools
(tangible or intangible);
(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 Schools 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 Seller 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 adverse change in the financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves
or operations of the Schools;
(4) any damage, destruction or loss to the assets,
business or operations of the Schools, whether or not covered by insurance;
(5) any change in the business policies or practices of
the Schools or a failure to operate the business of the Schools in the
ordinary course with a view to (i) preserving such business intact, (ii)
retaining the services of the present officers, employees and agents of
Seller employed or providing services in connection with the operation of
the Schools, and (iii) preserving the business relationships of the Schools
with, and the goodwill of, students, sales representatives, suppliers,
accrediting bodies, governmental authorities and others;
(6) any agreement, whether in writing or otherwise, to
take any action described in this Section 5.21; or
(7) any withdrawal, revocation or denial of
accreditation, or order to show cause why accreditation should not be
revoked, or any revocation, termination or denial of license to operate, or
any termination or suspension of eligibility to participate in the federal
student financial aid programs authorized by Title IV, for the Schools, or
any program offered by the Schools.
5.22 Delivery of Documents. True, correct and complete copies of all
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 Schools have been
delivered to Buyer.
5.23 Program Revenues. For each of Seller's fiscal years ending on
June 30, 1998, 1997 and 1996, none of the Schools have received greater than
eighty-five percent (85%) of such School's respective revenues from programs
authorized by Title IV or other federal student financial aid funds, and for
Seller's fiscal year ending on June 30, 1999, none of the Schools have received
greater than ninety percent (90%), of such School's respective revenues from
programs authorized by Title IV or other federal student financial aid funds,
and each of the Schools satisfies the requirements regarding
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Title IV program funds established by the DOE as set forth at 34 C.F.R.
(S)600.5. The attached Schedule 5.23 contains a correct statement of each
-------------
School's percentage of revenue from such federal funding sources.
5.24 Accrediting Body and Governmental Approvals. There exist no
facts or circumstances attributable to Seller or the Schools that would cause
the DOE, or any other governmental authority or accrediting body (including
without limitation the BPPVE or ACCET) whose authorization, consent or similar
approval is required for the consummation of the transactions contemplated by
this Agreement or the operation of the Schools after the Closing Date, to refuse
to deliver such authorization, consent or similar approval.
5.25 Capitalization and Voting Rights. The authorized capital of the
Seller consists of Fifty Thousand (50,000) shares of common stock, of which
Fifty Thousand (50,000) shares are issued and outstanding. The outstanding
shares of common stock are all duly and validly authorized and issued, fully
paid and nonassessable. The Owners own all of the issued and outstanding shares
of common stock of the Seller, free and clear of any liens or encumbrances or
other rights in favor of any third party as follows: Sam Shirazi owns fifteen
thousand (15,000) shares; Bahman Imani owns eleven thousand (11,000) shares;
Marilyn Emel owns eight thousand five hundred (8,500) shares; Mahammad Tahmasebi
owns eight thousand five hundred (8,500) shares; and Peter Tsuda owns seven
thousand (7,000) shares. There are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements, commitments or
letters of intent for the purchase or acquisition from the Seller of any shares
of its capital stock. Neither the Owners nor the Seller is a party or subject
to any agreement or understanding which affects or relates to the voting or
giving of written consents with respect to any security of the Seller.
5.26 Disclosure; Seller's Knowledge. Neither this Agreement nor any
of the schedules, exhibits, attachments, documents, certificates or other items
prepared or supplied to Buyer by or on behalf of Seller with respect to the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary to make any such other
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 Seller or any of the Owners 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 Schools. For purposes of this Agreement, the
phrase "Seller's knowledge" shall mean and be limited to the current actual
knowledge of Sam Shirazi, Marilyn Emel, Peter Tsuda, Mahammad Tahmasebi and
Bahman Imani (and no others).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Seller to enter into this Agreement and to
sell the Purchased Assets, Buyer hereby represents and warrants to Seller 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 the corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereunder.
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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 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 constitutes, or will constitute when
delivered, 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 articles of
incorporation or bylaws of Buyer (as heretofore amended), any 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 regulatory authority other than those set forth
or described on Schedule 5.4 attached hereto or Schedule 6.3 attached hereto.
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6.4 Brokers or Finders. Buyer represents that no agent, broker,
investment banker or other firm or person retained by Buyer is 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,
indemnify, and hold harmless Seller, Owners and their respective Affiliates from
and against any and all claims arising in connection with Buyer's discussions
with and/or use of the services of any broker or finder.
6.5 Litigation. No law or order has been enacted, entered, issued,
or promulgated by any governmental entity which prohibits or restricts the
transactions contemplated hereby, nor is there any pending or, to Buyer's
knowledge, threatened 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.
ARTICLE VII
COVENANTS
7.1 Covenants of Seller and Owners Prior to the 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 commercially reasonable best efforts
fulfill or satisfy, or cause to be fulfilled or satisfied, all of the conditions
precedent to Seller's and Buyer's obligations to consummate and complete the
sale provided herein and to take all other steps and do all other things
required to consummate this Agreement in accordance with
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its terms, (ii) shall not interfere with the performance by Buyer of its
obligations under this Agreement, (iii) shall not fail to pay 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
any individual capital expenditure in excess of $5,000 without Buyer's prior
written consent, (v) shall not engage in any sale or discount of its Accounts
Receivable (whether by discount to the debtors or by sale to any third party),
(vi) shall promptly notify Buyer (A) of any notice from any governmental or
regulatory agency or authority, (B) of any fact or circumstance which would make
any representation or warranty set forth herein untrue or inaccurate as of the
Closing Date, or (C) 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 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 (including pledging any of such assets as security for
obligations of Owners or Seller). Until the termination of this Agreement,
Seller and the Owners will not directly or indirectly solicit, respond to or
negotiate with or release any information relative to the Seller or the Schools
to any potential buyer other than Buyer.
7.2 Covenants of Buyer Prior to the 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 commercially reasonable best efforts to fulfill
or satisfy, or to cause to be fulfilled or satisfied, all of the conditions
precedent to Seller's and 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,
(ii) shall not interfere with the performance by Seller of its obligations under
this Agreement, and (iii) shall promptly notify Seller of (A) any notice from
any governmental or regulatory agency or authority which reasonably affects or
could affect the transactions contemplated by this Agreement or (B) any fact or
circumstance which would make any representation or warranty set forth herein
untrue or inaccurate as of the Closing Date.
7.3 Closing and Post-Closing Covenants.
7.3.1 Further Assurances. From time to time after the Closing,
(i) Seller and Owners will 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
Schools 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 Schools, including furnishing Buyer such
information and assistance as Buyer may request in connection with its
preparation of filings, submissions or accreditation applications to any
governmental agency in connection with the transactions contemplated hereby;
provided, that Seller and Owners shall bear no cost or expense associated
--------
therewith and, to the extent Buyer is conducting activities described in this
sentence at the Facilities prior to the Closing, Buyer's activities shall take
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place subject to the reasonable and good faith discretion of Seller with respect
to the timing and manner in which Buyer conducts any such activities,
particularly with respect to any undue disruption to the business of Seller
and/or the Schools or disruption of Seller's employees in the performance of
their duties.
7.3.3 Access to Employees. From and after the Closing, each
of Buyer and Seller (the "Requested Party") shall afford to the other party (the
"Requesting Party"), its officers, counsel, accountants and other authorized
representatives reasonable access to the Requested Party's employees who
formerly were or currently are employed by the Requested Party, 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 (i) any claim, action, litigation or other proceeding involving
Seller, Buyer or the Schools, and (ii) the preparation of the Post-Closing
Audit. Each party shall use its best efforts to cause such employees reasonably
to cooperate with and assist the Requesting Party in its prosecution or defense
of such claims, actions, litigation 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 or such employee's duties of employment.
7.3.4 Certification. Seller hereby acknowledges and agrees
that the transactions contemplated hereby are subject to the usual and customary
conditions relating to a change of ownership resulting in a change of control of
a postsecondary educational institution certified as eligible to participate in
the student financial assistance programs authorized under Title IV, including
the following: (1) approval by the BPPVE in the State of California; (2)
approval by all accrediting agencies which accredit the Schools, including but
not limited to ACCET; (3) the issuance by the DOE of a temporary Provisional
Program Participation Agreement extending the Schools' certification to
participate in Title IV funding programs immediately following the Closing; and
(4) the issuance of a new Provisional Program Participation Agreement permitting
the Schools to resume participation in Title IV funding under the new ownership.
Prior to and after the Closing, subject to the restrictions and limitations set
forth in this subsection 7.3.4, Seller and Buyer shall provide to the DOE and to
all state regulatory agencies and accrediting bodies all information required or
reasonably requested by any of them, and shall use their reasonable efforts to
satisfy all requirements and demands of the DOE or any such agency or body
requisite to obtaining certification of the Schools as eligible to participate
in the Title IV programs after the Closing. Seller and the Owners shall
cooperate with Buyer to ensure that a materially complete application for
recertification and provisional extension of certificate (the "Application") for
the Schools is filed with the DOE no later than ten (10) business days following
the Closing. For purposes of this Agreement, a materially complete Application
consists of a completed application for approval to participate in federal
student financial aid programs and the following: (i) a copy of the Schools'
state licenses or other equivalent document currently authorizing the Schools to
provide a program of postsecondary education in the State of California; (ii)
copies of documentation from the Schools' accrediting agency demonstrating that
the Schools currently are accredited and that the accrediting agency has
approved or accredited all programs offered by the Schools; (iii) audited
financial statements of the Seller's two most recently completed fiscal years
that are prepared in accordance with GAAP and audited in accordance with GAGAS;
and (iv) audited financial statements of the Buyer's two most recently completed
fiscal years that are prepared in accordance with GAAP and audited in accordance
with GAGAS, or acceptable equivalent information. Seller shall further cooperate
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with Buyer to ensure that the following are filed with the DOE by the last day
of the month following the month in which the Closing occurred: (i) a balance
sheet showing the financial position of the Seller and Schools, as of the date
of the Closing, that is prepared in accordance with GAAP and audited in
accordance with GAGAS, provided the same is timely provided to Seller in
accordance with the procedures described and set forth in Section 2.7 of this
Agreement; (ii) approval of the change of ownership from the State of
California; (iii) approval of the change of ownership from the Schools'
accrediting agency; and (iv), if necessary, a default management plan. At
Buyer's option, as soon as practicable after the date of this Agreement, Buyer
and Seller shall provide the DOE with all information necessary to obtain a pre-
Closing review of the Application and, to the extent Buyer is conducting
activities described in this sentence prior to the Closing, Buyer's activities
shall take place only during normal business hours in such a manner as not to
interfere unreasonably with the operation of Seller's business. If, on the basis
of the pre-Closing submission to the DOE, Buyer determines or is informed that
it will not be able to obtain certification of the Schools subsequent to the
Closing at any time, in a timely manner, or without being subject to material
adverse conditions, then notwithstanding any other provision hereof, Buyer may
elect to terminate this Agreement pursuant to Section 4.1(4) of this Agreement,
provided such election is timely made in accordance with the provisions of
Section 4.1(4) of this Agreement. Buyer may withdraw its election if, subsequent
to the giving of notice, Buyer is satisfied that the basis cited in the notice
has been satisfactorily resolved, provided that notice of such withdrawal must
be given to Seller, if at all, prior to the expiration of the time period
provided for in Section 4.1(4) of this Agreement. Buyer's determination, in its
sole and absolute discretion, shall be dispositive.
7.3.5 Satisfaction and Payment of the Excluded Liabilities;
Release of Liens. Seller and Owners shall immediately pay and satisfy, or cause
to be paid and satisfied, all debts of Seller incurred prior to the Closing Date
relating to the Schools that constitute the Excluded Liabilities, and shall
secure the release and termination of any and all liens relating thereto,
including but not limited to termination of the UCC-1 statement filed by
Citibank, F.S.B. as secured party.
7.4 Excise and Property Taxes. Seller shall pay all Taxes arising
out of the transfer of the Purchased Assets; provided, however, that, upon
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receipt of reasonably satisfactory written evidence that Seller has actually
paid sales tax in connection with the transfer to Buyer of the tangible assets
conveyed hereunder, Buyer shall, within ten (10) business days, by check or wire
transfer of same day funds, pay to Seller an amount equal to one-half (1/2) of
the sales tax so paid, up to a maximum to be paid by Buyer of $35,000. Each of
Buyer and Seller shall pay its respective portion, prorated as of the Closing,
of state and local real and personal property taxes of the business of the
Schools.
7.5 Administration in Accordance with Accreditations. From and after
the date of this Agreement through the Closing Date, Seller, at Seller'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. 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 DOE, 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 Schools and to release
Seller from further liability or obligations in connection with the
administration or operation of the Schools.
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7.6 Access and Maintenance of Records. From and after the Closing,
each of Buyer and Seller (the "Requested Party") shall afford to the other party
(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 (which
notice shall describe the business reason for any such request), 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 Schools,
(iii) the Requesting Party's preparation of its financial statements and Tax
returns, (iv) any other essential business purpose of the Requesting Party. 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. Additionally, prior
to destruction or disposition of any such records, the party intending to
destroy or dispose of any such records shall give notice to the other party
prior to such destruction or disposition and afford such other party the right
to copy or retain such records, at such other party's cost and expense, if such
other party elects to do so. Access to any such records 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.
7.7 Employment Matters.
Buyer and Seller agree that Buyer has not assumed and shall not assume
any obligations to (or regarding the employment of) any Persons previously or
currently employed by Seller. As of the Closing Date, Seller shall terminate
all of its employees employed at the Schools in accordance with all applicable
laws and, prior to the Closing, shall provide any required notices in a timely
manner in connection therewith. All of Seller's obligations for compensation,
wages, bonuses, severance pay, vacation time, pay in lieu of vacation, sickness
and accident benefits, leaves of absence, and similar employee benefits accrued
as of the Closing shall be paid by Seller as of the day prior to the Closing
Date.
7.7.1 Buyer may, at its option and in its sole and absolute
discretion, offer employment to any current or former employee of Seller on such
terms and conditions as may be mutually agreed upon by Buyer and such employees.
Seller shall use its best efforts to assist Buyer in hiring any such employees
with respect to whom Buyer elects to offer employment. Seller shall not take
any action, directly or indirectly, to prevent or discourage any such employee
from being employed by Buyer after the Closing Date and shall not solicit,
invite, induce or entice any such employee to remain in the employ of Seller or
otherwise attempt to retain the services of any such employee, except with the
prior written consent of Buyer.
7.7.2 Notwithstanding any possible inferences to the contrary,
neither Seller nor Buyer intends for this Section 7.7 to create any rights or
obligations except as between Seller and Buyer, and no past, present or future
employees of Seller or Buyer shall be treated as third-party beneficiaries of
this Section 7.4.
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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 accurate, complete, and true and correct in all
material respects as of the Closing Date with the same effect as though
made at and 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 an officer of Seller to such
effect;
(2) There shall have been no material adverse change in the
condition (financial or otherwise), assets, liabilities (absolute, accrued,
contingent or otherwise), prospects, earning power, commercial
relationships, reserves, business or operations of the Seller or any of the
Schools from and after the date of this Agreement;
(3) 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 an officer of Seller to such effect;
(4) All instruments and documents required on Seller's part to
effectuate and consummate the transactions contemplated hereby as of the
Closing, including those described in Section 3.2, but subject to the
provisions of Section 3.4, shall be delivered by Seller and shall be in
form and substance satisfactory to Buyer and its counsel;
(5) 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;
(6) Seller and Buyer shall have obtained all required regulatory
approvals that are capable of being obtained prior to Closing, including,
but not limited to, all registrations, licenses, permits and approvals
required by any governmental entity or agency or other regulatory body to
operate the Schools in the State of California and all local jurisdictions
contained therein (including, without limitation, the BPPVE);
(7) Buyer shall be reasonably satisfied that, with respect to
all required regulatory approvals that are not capable of being obtained
prior to Closing, Buyer will be able to obtain all such other required
regulatory approvals within a reasonable time period after the Closing Date
without material expense or undue burden;
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(8) The Schools shall have received all required accreditation
approvals and shall not have received from any accrediting agency or body
(including, without limitation, ACCET) any "show cause" letter or other
notice which would tend to call into question the validity of such
accreditation or the ability of the Schools to maintain such accreditation
in good standing at any time after the Closing Date;
(9) All third party consents required by the transactions
contemplated hereby shall have been obtained (including, without
limitation, all necessary consents of other parties to the Assumed
Contracts);
(10) 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; and
(11) Buyer shall have received from the landlords of the
Facilities executed estoppel certificates and consents to the Lease
Assignments; and
(12) Buyer shall have completed its due diligence investigation
of the Seller and the Schools, and shall be satisfied with the results of
such investigation in its sole and absolute discretion.
8.2 Conditions Precedent to Obligations of Seller. The obligation of
Seller to complete the sale 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 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, and Seller shall have received a
certificate signed by an 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 an 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 described in Section 3.3, but subject to the provisions of Section
3.4, 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
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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.
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 such party without the prior written consent of all
parties hereto. Even if Seller or Buyer consents to an assignment by the other
party, no assignment of any right or delegation of any duty shall relieve the
assignor or delegator of any liabilities hereunder, except to the extent, if
any, so provided in a writing signed by the obligee(s).
9.2 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be given or made (a) by
personal delivery, (b) by a nationally recognized courier service for overnight
delivery, charges prepaid, or (c) by registered or certified mail, postage
prepaid, return receipt requested, in each case addressed
if to Buyer, at:
Corinthian Schools, Inc.
6 Hutton Centre Drive, Suite 400
Santa Ana, California 92707
Attention: David Moore and Stan A. Mortensen, Esq.
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.
Facsimile: (949) 823-6994
if to Seller, at:
Computer Training Academy, Inc.
235 Charcot Avenue
San Jose, California 95131
Attention: Sam Shirazi
if to Owners, at:
Sam Shirazi
820 West Parr Avenue
Los Gatos, California 95032
Bahman Imani
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2279 Maroel Drive
San Jose, California 95130
Marilyn Emel
233 Gregg Court
Los Gatos, California 95032
Mahammad Tahmasebi
6133 Mount Rushmore Court
Castro Valley, California 94552
Peter Tsuda
1106 Waterton Lane
San Jose, California 95131
with each such notice to Seller and/or Owners, a copy to:
McKenna & Cuneo, LLP
750 B Street, Suite 3300
San Diego, California 92101
Attention: F. Gregory Pyke, Esq.
Facsimile: (619) 595-5450
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 day
of 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 Owners 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,
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warranties, covenants and agreements shall survive the Closing until August 30,
2002 and shall be of no further force or effect on or after August 30, 2002.
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 any material asset
comprising a portion of the Purchased Assets prior to the Closing, Buyer shall
have the right, at its sole option, to elect either (a) to terminate this
Agreement or (b) 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 Date.
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 and the Owners. Seller and the
Owners, jointly and severally, hereby agree to indemnify, defend and hold
harmless Buyer and its Affiliates and their respective officers, directors,
stockholders, employees, agents, successors and assigns from and against any and
all claims, liabilities, obligations, losses, costs, expenses (including,
without limitation, interest, penalties and 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 or Owners in this
Agreement or any other agreement, statement or certificate delivered
pursuant hereto;
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(2) any breach of or violation by Seller or Owners of any of the
covenants made by Seller and/or the Owners in this Agreement or any other
agreement, statement or certificate delivered pursuant hereto;
(3) any claim related to or arising out of Seller's operation of
the Schools prior to the Closing Date that are asserted with respect to any
liabilities that are not Assumed Liabilities;
(4) any of the Excluded Liabilities (and/or Seller's or the
Owners' failure or refusal to discharge any obligation related to the
Excluded Liabilities);
(5) any of the matters disclosed on Schedule 5.14 and Schedule
------------- --------
5.19;
----
(6) any determination by the DOE or any accrediting agency that
the Seller and/or Schools have not demonstrated compliance with 34 CFR
668.15 (Factors of Financial Responsibility) and 34 CFR 668.16 (Standards
of Administrative Capability) for dates and periods prior to Closing Date;
and
(7) 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 agrees to indemnify and
hold harmless Seller and its Affiliates 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 or
arising out of operation of the Schools on or after the Closing Date;
(4) all Losses arising out of or resulting from the Assumed
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 9.13.
9.14 Indemnification of Third Party Claims; Limitations on
Indemnification Amount; Right to Set-Off. (a) The provisions of this Section
9.14 shall govern any claim for
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indemnification of Buyer, pursuant to Section 9.12, or 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 Section 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 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 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
Losses incurred by the Indemnitee in connection with the defense against or
settlement of such claim or litigation.
(b) Notwithstanding the foregoing, the Indemnitee shall only be
entitled to indemnification under Section 9.12 or Section 9.13, as applicable,
if all Losses by the Indemnitee to date exceed $100,000 in the aggregate, in
which case the Indemnitee may recover all Losses exceeding $5,000 from the
Indemnitor, including those counted for the purpose of determining aggregate
Losses.
(c) Upon notice to Seller, Buyer is hereby authorized at any time, and
from time to time, to set-off and apply any and all amounts owing by Buyer to
Seller, whether under this Agreement or otherwise, against any and all of the
obligations of Seller and/or Owners to Buyer pursuant to Section 9.12 hereunder.
The set-off right with respect to indemnification obligations of Seller and/or
Owners described in this subsection 9.14(c) shall not be exercisable unless
Seller and/or Owners shall have failed to satisfy such indemnification
obligation to Buyer after Buyer has given thirty (30) days' prior written notice
to Seller and/or Owners specifying the nature and amount of such indemnification
obligation and indicating its intention to exercise said set-off right under
this Agreement. If Seller and/or Owners shall reasonably and in good faith
object to Buyer's written notice, the issue of whether or not Buyer shall be
entitled to a set-off shall be resolved in accordance with the dispute
resolution
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provisions of Section 9.15 of this Agreement; provided, however, that Buyer
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shall not be obligated to pay any amounts it believes are subject to such set-
off right pending the resolution of such dispute.
9.15 Dispute Resolution and Arbitration.
9.15.1 Negotiation Between Parties. 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 shall 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 all
applicable rules of evidence.
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 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 rules of civil
procedure in the jurisdiction in which such arbitration proceeding is initiated,
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. For claims
initiated by Buyer, the place of arbitration shall be Santa Clara County,
California, and for claims initiated by Seller, 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.
9.16 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. Each party hereto shall bear its own expenses
relating to the transactions contemplated by this Agreement.
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9.18 Representation by Counsel. EACH PARTY HERETO REPRESENTS AND
AGREES WITH EACH OTHER THAT IT HAS BEEN REPRESENTED BY, OR HAD THE OPPORTUNITY
TO BE REPRESENTED BY, INDEPENDENT COUNSEL OF ITS OWN CHOOSING, AND THAT IT HAS
HAD THE FULL RIGHT AND OPPORTUNITY TO CONSULT WITH ITS RESPECTIVE ATTORNEY(S),
THAT TO THE EXTENT, IF ANY, THAT IT DESIRED, IT AVAILED ITSELF OF THIS RIGHT AND
OPPORTUNITY, THAT IT OR ITS AUTHORIZED OFFICERS (AS THE CASE MAY BE) HAVE
CAREFULLY READ AND FULLY UNDERSTAND THIS AGREEMENT IN ITS ENTIRETY AND HAVE HAD
IT FULLY EXPLAINED TO THEM BY SUCH PARTY'S RESPECTIVE COUNSEL, THAT EACH IS
FULLY AWARE OF THE CONTENTS THEREOF AND ITS MEANING, INTENT AND LEGAL EFFECT,
AND THAT IT OR ITS AUTHORIZED OFFICER (AS THE CASE MAY BE) IS COMPETENT TO
EXECUTE THIS AGREEMENT AND HAS EXECUTED THIS AGREEMENT FREE FROM COERCION,
DURESS OR UNDUE INFLUENCE. THIS AGREEMENT IS THE PRODUCT OF NEGOTIATIONS
BETWEEN THE PARTIES HERETO REPRESENTED BY COUNSEL AND ANY RULES OF CONSTRUCTION
RELATING TO INTERPRETATION AGAINST THE DRAFTER OF AN AGREEMENT SHALL NOT APPLY
TO THIS AGREEMENT AND ARE EXPRESSLY WAIVED. THE PROVISIONS OF THIS AGREEMENT
SHALL BE INTERPRETED IN A REASONABLE MANNER TO EFFECT THE INTENTIONS OF THE
PARTIES TO THIS AGREEMENT.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the date first above written.
"BUYER"
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: _____________________________
Name: _________________________
Title: __________________________
"SELLER"
COMPUTER TRAINING ACADEMY, INC.
a California corporation
By: _____________________________
Name: _________________________
Title: __________________________
"OWNERS"
_____________________________
Sam Shirazi
_____________________________
Bahman Imani
_____________________________
Marilyn Emel
_____________________________
Mahammad Tahmasebi
_____________________________
Peter Tsuda
S - 1 (Asset Purchase Agreement)
<PAGE>
ASSET PURCHASE AGREEMENT
Corinthian/Computer Training Academy
LIST OF EXHIBITS
----------------
Exhibit Designation Exhibit Contents
------------------- ----------------
A Form of Assignment and Assumption
Agreement
B Form of Bill of Sale
C Form of Lease Assignment
D Form of Non-Competition Agreement
E Form of Employment Agreement
A - 1 (Asset Purchase Agreement)
