<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number 0-25283
CORINTHIAN COLLEGES, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0717312
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
6 Hutton Centre Drive, Suite 400, Santa Ana, California
(Address of principal executive offices)
92707
(Zip Code)
(714) 427-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
At May 4, 2000, 10,347,253 shares of Common Stock and Nonvoting Common Stock
of the Registrant were outstanding.
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
INDEX
PAGE
NO.
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1999 and
March 31, 2000................................................ 3
Condensed Consolidated Statements of Operations for the
quarter and nine months ended March 31, 1999 and 2000......... 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1999 and 2000...................... 5
Notes to Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk....... 11
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................... 11
Item 6. Exhibits........................................................ 11
Signatures................................................................ 12
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
-------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
----------------------------------------
CURRENT ASSETS:
Cash and cash equivalents............................ $ 1,787 $18,084
Restricted cash...................................... 10 10
Marketable investments............................... 14,501 16,551
Accounts receivable, net of allowance for
doubtful accounts of $3,258 and $3,639 at
June 30, 1999 and March 31, 2000, respectively...... 11,385 12,335
Student notes receivable, net of allowance for
doubtful accounts of $463 and $319 at June 30,
1999 and March 31, 2000, respectively............... 1,959 874
Deferred income taxes................................ 1,901 2,161
Prepaid expenses and other current assets............ 4,037 3,355
------- -------
Total current assets............................. 35,580 53,370
PROPERTY AND EQUIPMENT, net............................. 10,981 12,196
OTHER ASSETS:
Intangibles, net of accumulated amortization of
$3,110 and $3,930 at June 30, 1999 and March 31,
2000, respectively.................................. 21,218 20,611
Student notes receivable, net of allowance for
doubtful accounts of $1,435 and $820 at June 30,
1999 and March 31, 2000, respectively............... 5,175 2,062
Deposits and other assets............................ 903 1,142
------- -------
TOTAL ASSETS..................................... $73,857 $89,381
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------
CURRENT LIABILITIES:
Accounts payable..................................... $ 4,828 $ 4,963
Accrued compensation and related liabilities......... 5,749 7,850
Accrued expenses..................................... 618 1,117
Accrued interest..................................... 34 32
Income tax payable................................... 1,848 1,623
Prepaid tuition...................................... 3,257 5,301
Current portion of long-term debt.................... 138 143
------- -------
Total current liabilities.......................... 16,472 21,029
------- -------
LONG-TERM DEBT, net of current portion.................. 3,396 3,288
------- -------
OTHER LONG-TERM LIABILITIES............................. -- 2
------- -------
DEFERRED INCOME TAXES................................... 453 635
------- -------
STOCKHOLDERS' EQUITY:
Common Stock, $0.0001 par value:
Common Stock, 40,000 shares authorized, 9,169
and 9,170 shares issued and outstanding at
June 30, 1999 and March 31, 2000, respectively.... 1 1
Nonvoting Common Stock, 2,500 shares authorized,
1,177 shares issued and outstanding at June 30,
1999 and March 31, 2000........................... -- --
Additional paid-in capital........................... 49,609 49,609
Retained earnings.................................... 3,926 14,817
------- -------
Total stockholders' equity....................... 53,536 64,427
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $73,857 $89,381
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
CORINTHIAN COLLEGES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- --------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUE................................................. $34,939 $43,874 $98,209 $124,701
------- ------- ------- --------
OPERATING EXPENSES:
Educational services...................................... 19,791 22,989 56,480 67,569
General and administrative................................ 3,617 4,129 10,374 12,269
Marketing and advertising................................. 7,306 9,212 22,163 27,373
------- ------- ------- --------
Total operating expenses............................... 30,714 36,330 89,017 107,211
------- ------- ------- --------
Income from operations................................. 4,225 7,544 9,192 17,490
INTEREST EXPENSE (Income), net.............................. 190 (420) 1,884 (1,160)
------- ------- ------- --------
Income before provision for income taxes and
extraordinary loss................................... 4,035 7,964 7,308 18,650
PROVISION FOR INCOME TAXES.................................. 1,683 3,305 3,143 7,759
------- ------- ------- --------
INCOME BEFORE EXTRAORDINARY LOSS............................ 2,352 4,659 4,165 10,891
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
(net of tax benefit of $1,518)............................ 2,011 - 2,011 -
------- ------- ------- --------
NET INCOME.................................................. $ 341 $ 4,659 $ 2,154 $ 10,891
======= ======= ======= ========
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Income before extraordinary loss.......................... $ 2,352 $ 4,659 $ 4,165 $ 10,891
Less preferred stock dividends............................ (75) - (355) -
------- ------- ------- --------
Income before extraordinary loss attributable to
common stockholders................................... 2,277 4,659 3,810 10,891
Extraordinary loss........................................ (2,011) - (2,011) -
------- ------- ------- --------
Net income attributable to common stockholders.......... $ 266 $ 4,659 $ 1,799 $ 10,891
======= ======= ======= ========
INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Basic --
Income before extraordinary loss........................ $ 0.27 $ 0.45 $ 0.61 $ 1.05
Extraordinary loss...................................... (0.24) - (0.32) -
------- ------- ------- --------
Net income.............................................. $ 0.03 $ 0.45 $ 0.29 $ 1.05
======= ======= ======= ========
Diluted --
Income before extraordinary loss........................ $ 0.25 $ 0.45 $ 0.48 $ 1.05
Extraordinary loss...................................... (0.22) - (0.25) -
------- ------- ------- --------
Net income........................................... $ 0.03 $ 0.45 $ 0.23 $ 1.05
======= ======= ======= ========
Weighted average number of common shares outstanding
Basic..................................................... 8,302 10,346 6,243 10,346
======= ======= ======= ========
Diluted................................................... 9,178 10,435 7,940 10,416
======= ======= ======= ========
</TABLE>
See accompanying notes.
4
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------
1999 2000
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 2,154 $10,891
Adjustments to reconcile net income to net cash provided by
(used in) operating activities--
Depreciation and amortization............................. 2,585 2,753
Deferred income taxes..................................... 250 (78)
Write-off of deferred financing costs..................... 913 -
Changes in assets and liabilities, net of effects from
purchase of colleges:
Accounts receivable..................................... (1,559) (925)
Student notes receivable................................ (86) 4,198
Prepaid expenses and other assets....................... (3,016) 426
Accounts payable........................................ (85) 135
Accrued expenses........................................ (90) 2,598
Income tax payable...................................... (929) (225)
Prepaid tuition......................................... 618 2,031
-------- -------
Net cash provided by operating activities................. 755 21,804
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Phillips Colleges acquisition purchase price adjustment..... 402 -
Purchase of Harbor Medical College.......................... - (246)
Decrease in restricted cash................................. 750 -
Increase in marketable investments.......................... (4,459) (2,050)
Capital expenditures........................................ (1,931) (3,107)
-------- -------
Net cash used in investing activities..................... (5,238) (5,403)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering....................... 45,198 -
Payment of redeemable preferred stock and accrued dividends. (2,252) -
Payment of convertible preferred stock dividends............ (510) -
Proceeds from stock subscription receivable................. 187 -
Increase in deferred financing costs........................ (259) -
Borrowings under long-term debt............................. 3,200 -
Principal repayments on long-term debt...................... (35,799) (104)
-------- -------
Net cash provided by (used in) financing activities....... 9,765 (104)
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 5,282 16,297
CASH AND CASH EQUIVALENTS, beginning of period............... 2,402 1,787
-------- -------
CASH AND CASH EQUIVALENTS, end of period..................... $ 7,684 $18,084
======== =======
</TABLE>
See accompanying notes.
5
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1--The Company and Basis of Presentation
Corinthian Colleges, Inc. (the "Company") is in the business of operating
degree and non-degree granting private, for-profit post-secondary schools
devoted to career program training primarily in the medical, technical and
business fields.
The accompanying unaudited consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements and,
in the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial condition and
results of operation of the Company. These consolidated financial statements and
notes thereto are unaudited and should be read in conjunction with the Company's
audited financial statements included in the Company's Report on Form 10-K, as
filed with the Securities and Exchange Commission (the "SEC") on September 27,
1999. The results of operations for the three months and nine months ended March
31, 2000 are not necessarily indicative of results that could be expected for
the entire fiscal year.
The consolidated financial statements as of March 31, 2000 and for the three
months and nine months then ended are consolidated and include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Note 2--Weighted Average Number of Common Shares Outstanding
The table below indicates the weighted average number of common share
calculations used in computing basic and diluted net income per common share
utilizing the treasury stock method (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
--------------- --------------
<S> <C> <C> <C> <C>
1999 2000 1999 2000
----- ------ ----- ------
Basic common shares outstanding................. 8,302 10,346 6,243 10,346
Effects of dilutive securities:
Warrants..................................... 387 -- 777 --
Non-vested executive Common Stock............ 110 -- 221 --
Non-vested executive Nonvoting Common Stock.. 331 -- 664 --
Stock options................................ 48 89 35 70
----- ------ ----- ------
Diluted common shares outstanding............... 9,178 10,435 7,940 10,416
===== ====== ===== ======
</TABLE>
Note 3--Post Retirement Benefit Obligation
The Company has elected to provide certain postretirement benefits to certain
key officers. Accordingly, the Company has adopted SFAS No. 106 "Accounting For
Postretirement Benefits Other Than Pensions". The adoption of SFAS No. 106 did
not have a material effect on the Company's consolidated financial position or
results of operations.
6
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Governmental Regulation
In its Report on Form 10-K for the fiscal year ended June 30, 1999, the
Company reported that the Inspector General's Office (the "IG") of the U.S.
Department of Education (the "DOE") had visited the Company's headquarters to
examine the Company's compliance with the 85/15 Rule (now the 90/10 Rule) and to
review in general the Company's administration of Title IV funds. The Company
has received the final audit report from the DOE, and there were no actions
taken against the Company as a result of the examination.
Note 5--Loan to Company Officer
The Company has loaned a Company officer a total of $350,000 under the terms
of a promissory note and pledge agreement (the "Agreements") between the Company
and the officer. The terms of the Agreements provide for an interest rate of
seven percent per annum, payable on an annual basis and when the principal
becomes due and payable in August 2002. As security for this loan, the officer
has pledged to the Company 34,043 shares of his common stock in the Company.
Note 6--Subsequent Event
On April 1, 2000, the Company completed the acquisition of substantially all
of the assets of Georgia Medical Institute, which consists of three campuses in
the Atlanta, Georgia greater metropolitan area, for $6,993,000. The acquisition
will be accounted for as an asset purchase and, accordingly, the purchase price
will be allocated to the assets acquired and the liabilities assumed based upon
the fair values at the date of acquisition.
Note 7--New Accounting Pronouncement
In December 1999, the Securities Exchange Commission ("SEC") staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," as amended by
SAB No. 101A, to provide guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 explains the SEC
staff's general framework for revenue recognition, stating that certain criteria
be met in order to recognize revenue. The Company will adopt SAB No. 101 in the
first quarter of 2001. While the Company has not yet determined the full effect
of this pronouncement, management believes its adoption will not have a material
impact on operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report on Form 10-Q contains statements that may constitute
"forward-looking statements" as defined by the U.S. Private Securities
Litigation Reform Act of 1995. Such forward-looking statements can be identified
by the use of forward-looking terminology such as "believes," "estimates,"
"anticipates," "continues," "contemplates," "expects," "hopes," "may,"
"will," "could," "should" or "would," or the negatives thereof. Such
statements are based on the intent, belief or expectation of the Company as of
the date of this Quarterly Report. Any such forward-looking statements are not
guarantees of future performance and may involve risks and uncertainties that
are outside the control of the Company. Results may differ materially from the
forward-looking statements contained herein as a result of changes in
governmental regulations, including those governing student financial aid, the
effect of competitive pressures on the Company's tuition pricing, and other
factors, including those discussed under the heading entitled "Additional Risks
Related to the Business" in the Company's Annual Report on Form 10-K (File No.
0-25283) and other documents periodically filed with the Securities and Exchange
Commission. The Company expressly disclaims any obligation to release publicly
any updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based. The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the interim unaudited
condensed financial statements of the Company and the notes thereto included
herein and in conjunction with the information contained in the aforementioned
Report on Form 10-K.
7
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net revenues increased $8.9 million, or 25.6%, from $34.9 million in the third
quarter of fiscal 1999 to $43.9 million in the third quarter of fiscal 2000, due
primarily to a 15.2% increase in the average student population during the
quarter and an 8.8% increase in the average tuition rate per student. At March
31, 2000, the total student population was 18,886, compared with 16,467 at March
31, 1999.
Educational services expense increased $3.2 million, or 16.2%, from $19.8
million in the third quarter of fiscal 1999 to $23.0 million in the third
quarter of fiscal 2000, due primarily to the increase in student population,
wage increases for employees, the cost of two new locations opened in the third
quarter of fiscal 1999, and higher rent from certain school relocations to
larger upgraded facilities and annual lease escalations. As a percentage of net
revenue, educational services expense decreased from 56.6% to 52.4%.
General and administrative expense increased $0.5 million, or 14.2%, from $3.6
million in the third quarter of fiscal 1999 to $4.1 million in the third quarter
of fiscal 2000, primarily as a result of (i) additional headquarters staff to
support operations, (ii) wage increases for employees, and (iii) increased
performance bonus accrual. As a percentage of net revenue, general and
administrative expense decreased from 10.4% to 9.4%.
Marketing and advertising expense increased $1.9 million, or 26.1%, from $7.3
million in the third quarter of fiscal 1999 to $9.2 million in the third quarter
of fiscal 2000, primarily as a result of increased advertising expenditures due
both to an increase in the quantity of advertisements and general cost inflation
for advertising products and increased staffing costs resulting from wage
increases and additional admissions representatives. As a percentage of net
revenue, marketing and advertising expense increased from 20.9% to 21.0%.
Net interest income was $0.4 million in the third quarter of fiscal 2000
versus net interest expense of $0.2 million in the third quarter of fiscal 1999,
or an improvement of $0.6 million, due primarily to the repayment of debt with a
portion of the proceeds from the Company's initial public offering in February
1999 and interest income from short-term investments.
The Company's effective income tax rate decreased from 41.7% in the third
quarter of fiscal 1999 to 41.5% in the third quarter of fiscal 2000 due to a
reduction in the effective rate for state income taxes.
Income before extraordinary loss increased $2.3 million, or 98.1%, from $2.4
million in the third quarter of fiscal 1999 to $4.7 million in the third quarter
of fiscal 2000, due primarily to the factors discussed above.
In the third quarter of fiscal 1999, the Company recorded an extraordinary
loss of $2.0 million (net of a $1.5 million tax benefit) related to a prepayment
penalty and the write-off of deferred loan fees associated with the early
extinguishment of debt with a portion of the Company's initial public offering
proceeds, compared with no extraordinary items in the third quarter of fiscal
2000.
Net income increased $4.3 million, or 1,266.3%, from $0.3 million in the third
quarter of fiscal 1999 to $4.7 million in the third quarter of fiscal 2000, due
primarily to the factors discussed above.
8
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999
Net revenues increased $26.5 million, or 27.0%, from $98.2 million in the
first nine months of fiscal 1999 to $124.7 million in the first nine months of
fiscal 2000, due primarily to a 15.3% increase in the average student population
during the nine month period and a 9.6% increase in the average tuition rate per
student.
Educational services expense increased $11.1 million, or 19.6%, from $56.5
million in the first nine months of fiscal 1999 to $67.6 million in the first
nine months of fiscal 2000, due primarily to the increase in student population,
wage increases for employees, higher bad debt expense resulting from higher
revenue, cost of two new locations opened in the third quarter of fiscal 1999,
and higher rent from certain school relocations to larger upgraded facilities
and annual lease escalations. As a percentage of net revenue, educational
services expense decreased from 57.5% to 54.2%.
General and administrative expense increased $1.9 million, or 18.3%, from
$10.4 million in the first nine months of fiscal 1999 to $12.3 million in the
first nine months of fiscal 2000, primarily as a result of (i) additional
headquarters staff to support operations, (ii) wage increases for employees, and
(iii) increased performance bonus accrual. As a percentage of net revenue,
general and administrative expense decreased from 10.6% to 9.8%.
Marketing and advertising expense increased $5.2 million, or 23.5%, from $22.2
million in the first nine months of fiscal 1999 to $27.4 million in the first
nine months of fiscal 2000, primarily as a result of increased advertising
expenditures due both to an increase in the quantity of advertisements and
general cost inflation for advertising products and increased staff costs
resulting from wage increases and additional admissions representatives. As a
percentage of net revenue, marketing and advertising expense decreased from
22.6% to 22.0%.
Net interest income was $1.2 million in the first nine months of fiscal 2000
versus net interest expense of $1.9 million in the first nine months of fiscal
1999, or an improvement of $3.0 million, due primarily to the repayment of debt
with a portion of the proceeds from the Company's initial public offering in
February 1999 and interest income from short-term investments.
The Company's effective income tax rate decreased from 43.0% in the first nine
months of fiscal 1999 to 41.6% in the first nine months of fiscal 2000 due to a
reduction in the effective rate for state income taxes.
Income before extraordinary loss increased $6.7 million, or 161.5%, from $4.2
million in the first nine months of fiscal 1999 to $10.9 million in the first
nine months of fiscal 2000, due primarily to the factors discussed above.
In the first nine months of fiscal 1999, the Company recorded an extraordinary
loss of $2.0 million (net of a $1.5 million tax benefit) related to a prepayment
penalty and the write-off of deferred loan fees associated with the early
extinguishment of debt with a portion of the Company's initial public offering
proceeds, compared with no extraordinary items in the first nine months of
fiscal 2000.
Net income increased $8.7 million, or 405.6%, from $2.2 million in the first
nine months of fiscal 1999 to $10.9 million in the first nine months of fiscal
2000, due primarily to the factors discussed above.
9
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
Tuition Price Increases
The 8.8% and 9.6% increases in the average tuition rate per student for the
quarter and nine months ended March 31, 2000, respectively, resulted from a
combination of (i) tuition price increases averaging approximately 7.5%, (ii) an
increase in the percentage of students in higher cost programs, and (iii) the
effect of graduation and attrition of students in certain degree-granting
colleges that had fixed tuition contracts significantly below the prevailing
rate being charged new students. Under prior ownership, students in these
colleges were guaranteed a fixed tuition price for the duration of their
programs. Thus, any subsequent tuition price increases applied only to new
students. Subsequent to the Company's acquisition of these colleges, the pricing
mechanism has been changed so that tuition increases now affect both new
students and continuing students. However, the Company honored the fixed price
commitment to those students already in school when the Company acquired the
colleges. The result is a greater increase in the average tuition rate per
student than the actual period to period tuition price increase because of the
period to period mix impact of new to "grandfathered" students. The Company
expects that the majority of the remaining "grandfathered" students will
graduate or discontinue by the end of fiscal 2000. After that time, the Company
expects period to period increases in the average tuition rate per student to
more closely track the actual tuition price increases implemented period to
period. Accordingly, the average tuition rate increases discussed herein are not
necessarily indicative of average rate increases that may occur in the future.
Seasonality and Other Factors Affecting Quarterly Results
The Company's revenues normally fluctuate as a result of seasonal variations
in its business, principally in its total student population. Student population
varies as a result of new student enrollments, graduates and student attrition.
The Company's expenses, however, do not vary as significantly as student
population and revenue. The Company expects quarterly fluctuations in operating
results to continue as a result of seasonal enrollment patterns. Such patterns
may change, however, as a result of acquisitions, new school openings, new
program introductions and increased high school enrollments. The operating
results for any quarter are not necessarily indicative of the results that could
be expected for the full fiscal year or for any future period.
Liquidity and Capital Resources
Cash provided by operating activities totaled $21.8 million in the first nine
months of fiscal 2000 compared to $0.8 million provided by operating activities
in the same period of fiscal 1999. The Company had $32.3 million of working
capital as of March 31, 2000 compared to $19.1 million of working capital as of
June 30, 1999. The increase in working capital was due primarily to favorable
operating results during the period.
Capital expenditures increased from $1.9 million in the nine months ended
March 31, 1999 to $3.1 million in the same period in fiscal 2000. The increase
was due to the upgrading of school equipment and facilities and purchases of
additional equipment to accommodate the increasing student population and the
addition of another branch campus in January 2000. Capital expenditures for the
remainder of fiscal 2000 and for fiscal 2001 are expected to increase as the
student population increases and the Company continues to upgrade and expand
current facilities and equipment and add new campuses.
10
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
Effective February 1, 2000, the Company entered into a new $10.0 million
credit facility with Union Bank of California (the "Credit Facility"). The new
Credit Facility expires on September 30, 2002, contains a sub-limit on standby
letters of credit of $2.0 million, bears interest at LIBOR plus 150 basis
points, and includes a non-usage fee of 1/8% per year on the unused portion.
Borrowings under the Credit Facility are unsecured. At maturity, any
Acquisition Advances (as defined in the Credit Facility) will convert to a
three-year, fully amortizing term loan, due September 30, 2005. Under the new
Credit Facility, the Company will be required to maintain certain financial and
other covenants. At March 31, 2000 the Company had no outstanding borrowings
under the Credit Facility.
The Company believes that its current working capital and expected cash flow
from operations, supplemented from time to time by borrowings from the Credit
Facility, will provide adequate funds for ongoing operations, planned routine
capital expenditures, planned expansion to new locations and debt service during
the term of the Credit Facility.
The Company leases all of its facilities except five. The Company expects that
future commitments on existing leases will be paid from cash flow from
operations.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company does not utilize interest rate swaps, forward or option contracts
on foreign currencies or commodities, or other types of derivative financial
instruments. The only assets or liabilities of the Company which are subject to
risks from interest rate changes are (i) the mortgage debt of the Company in the
aggregate amount of $3.4 million, (ii) notes receivable from students for the
aggregate amount of $2.9 million, and (iii) marketable investments of $16.6
million, all as of March 31, 2000. The mortgage debt of the Company, the student
notes receivable, and the marketable investments are all at fixed interest
rates. The Company does not believe it is subject to material risks from
reasonably possible near-term changes in market interest rates.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is subject to occasional disputes, claims and litigation in the
ordinary course of its business. Although outcomes cannot be predicted with
certainty, the Company does not believe that any currently pending legal
proceeding against the Company is likely to result in a material adverse effect
on the Company's financial condition, results of operations or liquidity.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Amended and Restated Loan Agreement, dated as of February 1,
2000, by and among Corinthian Colleges, Inc., and Union Bank of
California, N.A.
10.2 Asset Purchase Agreement, dated as of March 8, 2000, by and
among Corinthian Schools, Inc., a Delaware corporation, Cuff &
Dean Incorporated (d/b/a Georgia Medical Institute), a Georgia
corporation, and Dominic J. Dean and Arthur Cuff.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CORINTHIAN COLLEGES, INC.
/s/ David G. Moore
May 12, 2000
David G. Moore
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Frank J. McCord
May 12, 2000
Frank J. McCord
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
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EXHIBIT 10.1
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and entered
into as of February 1, 2000 by and between Corinthian Colleges, Inc., a Delaware
corporation ("Borrower") and UNION BANK OF CALIFORNIA, N.A., a national banking
association ("Bank"). This Agreement amends and restates in its entirety that
certain loan agreement dated February 10, 1999 between Bank and Borrower.
SECTION 1. THE LOAN
1.1.1 The Revolving Loan. Bank will loan to Borrower an
amount not to exceed TEN MILLION DOLLARS ($10,000,000) outstanding in the
aggregate at any one time (the "Revolving Loan"). Borrower may borrow, repay and
reborrow all or part of the Revolving Loan in amounts of not less than Ten
Thousand Dollars ($10,000) in accordance with the terms of the Revolving Note;
provided, however, that for at least thirty (30) consecutive days during each
twelve (12)-month period, the principal amount outstanding under the Revolving
Loan, exclusive of Acquisition Advances, must be zero (0). All borrowings of the
Revolving Loan must be made before September 30, 2002 at which time all unpaid
principal and interest of the Revolving Loan shall be due and payable except as
provided in Section 1.1.2 hereof. The Revolving Loan shall be evidenced by a
promissory note (the "Revolving Note") on the form attached as Exhibit 1 hereto.
Bank shall enter each amount borrowed and repaid in Bank's records and such
entries shall be deemed to be the amount of the Revolving Loan outstanding.
Omission of Bank to make any such entries shall not discharge Borrower of its
obligation to repay in full with interest all amounts borrowed.
1.1.1.1 The Standby L/C Sublimit. As a sublimit to
the Revolving Loan, Bank shall issue, for the account of Borrower, one or more
irrevocable, standby letters of credit (individually, an "L/C" and collectively,
the "L/Cs"). All such standby L/Cs shall be drawn on such terms and conditions
as are acceptable to Bank. The aggregate amount available to be drawn under all
outstanding L/Cs and the aggregate amount of unpaid reimbursement obligations
under drawn L/Cs shall not exceed TWO MILLION DOLLARS ($2,000,000) and shall
reduce, dollar for dollar, the maximum amount available under the Revolving
Loan. No standby L/C shall have an expiry date more than twelve (12) months from
its date of issuance and each L/C shall be governed by the terms of (and
Borrower agrees to execute) Bank's standard form for standby L/C applications
and reimbursement agreements. No L/C shall expire after September 30, 2002.
Borrower shall pay to Bank an L/C commission equal to one and one half percent
(1.5%) per annum computed with respect to the face amount of each L/C..
1.1.2 The Term Loan. Solely to repay a portion of the
Revolving Loan for which advances were made for acquisition purposes (as advised
by Borrower to Bank in writing), Bank will loan to Borrower the sum outstanding
at the maturity of the Revolving Loan in one disbursement on or before September
30, 2002 (the "Term Loan"). In the event of a prepayment of principal and
payment of any resulting fees, any prepaid amounts shall be applied to the
scheduled principal payments in the reverse order of their maturity. The Term
Loan shall be evidenced by a promissory note (the "Term Note") in the form
attached as Exhibit 2 hereto.
1.2 Terminology.
As used herein the word "Loan" shall mean, collectively, all the
credit facilities described above.
As used herein the word "Note" shall mean, collectively, all the
promissory notes described above.
As used herein, the words "Loan Documents" shall mean all
documents executed in connection with this Agreement.
As used herein, the words "Acquisition Advance" shall mean all
advances made by Bank as permitted under Section 2.2.
1.3 Purpose of Loan. The proceeds of the Revolving Loan shall be used
for general working capital purposes and Acquisition Advances subject to the
criteria set forth in Subsection 2.2.
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1.4 Interest. The unpaid principal balance of the Revolving Loan
shall bear interest at the rate or rates provided in the Revolving Note and
selected by Borrower. The Revolving Loan may be prepaid in full or in part only
in accordance with the terms of the Revolving Note and any such prepayment shall
be subject to the prepayment fee provided for therein.
1.5 Unused Commitment Fee. On the last calendar day of the third
month following the execution of this Agreement and on the last calendar day of
each three-month period thereafter until September 30, 2002, or the earlier
termination of the Loan, Borrower shall pay to Bank a fee of one-eighth percent
(1/8%) per year on the average unused portion of the Loan for the preceding
quarter computed on the basis of actual days elapsed of a year of 360 days.
1.6 Balances. Borrower shall maintain its major depository accounts
with Bank until the Note and all sums payable pursuant to this Agreement have
been paid in full.
1.7 Disbursement. Upon execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorization executed
by Borrower.
1.8 Controlling Document. In the event of any inconsistency between
the terms of this Agreement and any Note or any of the other Loan Documents, the
terms of such Note or other Loan Documents will prevail over the terms of this
Agreement.
SECTION 2. CONDITIONS PRECEDENT
2.1 Conditions Precedent to All Advances. Bank shall not be
obligated to disburse all or any portion of the proceeds of the Loan unless at
or prior to the time for the making of such disbursement, the following
conditions have been fulfilled to Bank's satisfaction:
2.1.1 Borrower shall have performed and complied with all terms and
conditions required by this Agreement to be performed or
complied with by its prior to or at the date of the making of
such advance and shall have executed and delivered to Bank the
Note and other documents deemed necessary to Bank;
2.1.2 Borrower shall have provided Bank with certified copies of
resolutions duly adopted by the Board of Directors of Borrower
authorizing this Agreement and the Loan Documents (which
resolutions shall also designate the persons who are authorized
to act on Borrower's behalf in connection with this Agreement
and to do the things required of Borrower pursuant to this
Agreement);
2.1.3 At the time any advance is to made, there shall not exist any
event, condition or act which constitutes an event of default
under Section 6 hereof or any event, condition or act with
notice, lapse of time or both would constitute such event of
default, nor shall there be any such event, condition, or act
immediately after the making of the advance were it to be made.
2.2 Conditions Precedent to Certain Acquisition Advances. The
obligation of Bank to make any Acquisition Advance which would cause the
aggregate amount of all Acquisition Advances made by Bank to Borrower in any
given fiscal year of Borrower to exceed Five Million Dollars ($5,000,000) shall
be subject to the conditions precedent set forth in Section 2.1 and shall also
be subject to the following further conditions precedent in this Section 2.2:
2.2.1 Borrower shall have maintained an EBITDA margin (as described
in Section 4.8 of the Agreement) of not less than ten percent
(10%) of revenues for the two (2) calendar quarters most
recently ended.
2.2.2 Borrower shall have delivered to Bank copies of (a) the target
company's most recent reviewed or audited financial statements,
and (b) the target company's most recent interim financial
statements, and such financial statements shall reflect that
the target company has maintained a positive EBITDA for the
four (4) calendar quarters most recently ended;
2.2.3 The target company shall be in material compliance with all
requirements imposed on it by the Federal Department of
Education; and
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2.2.4 The total price to be paid by Borrower in connection with its
acquisition of the target company shall not exceed eight (8)
times the target company's EBITDA for the four (4) calendar
quarters most recently ended, unless Bank shall otherwise
consent in writing.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 Business Activity. The principal business of Borrower is the
ownership and operation of post-secondary education and vocational schools.
3.2 Affiliates and Subsidiaries. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling interest
or at least a 25% ownership interest) and their addresses, are as provided on a
schedule delivered to Bank on or before the date of this Agreement.
3.3 Authority to Borrow. The execution, delivery and performance of
this Agreement, the Note and all other agreements and instruments required by
Bank in connection with the Loan will not be in contravention of any of the
terms of any indenture, agreement or undertaking to which Borrower is a party or
by which it or any of its property is bound or affected.
3.4 Financial Statements. The financial statements of Borrower,
including both a balance sheet at December 31, 1999, together with supporting
schedules, and an income statement for the six (6) months ended December 31,
1999, have heretofore been furnished to Bank, and are true and complete and
fairly represent the financial condition of Borrower during the period covered
thereby. Since December 31, 1999, there has been no material adverse change in
the financial condition or operations of Borrower.
3.5 Title. Except for assets which may have been disposed of in the
ordinary course of business, Borrower has good and marketable title to, or has a
valid license or leasehold interest in, all of the property reflected in its
financial statements delivered to Bank and to all property acquired by Borrower
since the date of said financial statements, free and clear of all liens,
encumbrances, security interests and adverse claims except liens and
encumbrances described in the Company's filings with the Securities and Exchange
Commission (the "Company's SEC Filings), liens and encumbrances described in
Borrower's most recent financial statement, liens and encumbrances described in
a schedule delivered by Borrower to Bank at or prior to execution of this
Agreement and/or liens and encumbrances in favor of Bank.
3.6 Litigation. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably likely to
affect the financial condition, property or business of Borrower in a materially
adverse manner.
3.7 Default. Borrower is not now in default in the payment of any
of its material obligations, and there exists no event, condition or act which
constitutes an event of default under Section 6 hereof and no condition, event
or act which with notice or lapse of time, or both, would constitute an event of
default.
3.8 Organization. Borrower is duly organized and existing under the
laws of the state of its organization, and has the power and authority to carry
on the business in which it is engaged and/or proposes to engage.
3.9 Power. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and all of the other Loan
Documents.
3.10 Authorization. This Agreement and all things required by this
Agreement have been duly authorized by all requisite action of Borrower.
3.11 Qualification. Borrower is duly qualified and in good standing
in any jurisdiction where such qualification is required, except where the
failure to be so qualified would not have a material adverse effect on the
financial condition or results of operations of the Borrower.
3.12 Compliance with Laws. Borrower is not in violation with respect
to any applicable laws, rules, ordinances or regulations, except for any such
violations as would not materially affect the operations or financial condition
of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of Section
302 of ERISA, and to the best of Borrower's
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knowledge after due inquiry, no Reportable Event or Prohibited Transaction as
defined in ERISA has occurred with respect to any such plan.
3.14 Regulation U. No action has been taken or is currently planned
by Borrower, or any agent acting on its behalf, which would cause this Agreement
or the Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities and
Exchange Act of 1934, in each case as in effect now or as the same may hereafter
be in effect. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock as one of its important
activities and none of the proceeds of the Loan will be used directly or
indirectly for such purpose.
3.15 Continuing Representations. These representations shall be
considered to have been made again at and as of the date of each disbursement of
the Loan and shall be true and correct as of such date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any other
of the Loan Documents have been paid in full, unless Bank waives compliance in
writing, Borrower agrees that:
4.1 Use of Proceeds. Borrower will use the proceeds of the Loan
only as provided in subsection 1.3 above.
4.2 Payment of Obligations. Borrower will pay and discharge
promptly all taxes, assessments and other governmental charges and claims levied
or imposed upon it or its property, or any part thereof, provided, however, that
Borrower shall have the right in good faith to contest any such taxes,
assessments, charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
4.3 Maintenance of Existence. Borrower will maintain and preserve
its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times, visit and inspect any of the properties
of Borrower.
4.4 Records. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank to have reasonable access thereto, to
make examination and photocopies thereof, and to make audits during regular
business hours. Costs for such audits shall be paid by Borrower.
4.5 Information Furnished. Borrower will furnish to Bank:
(a) Within Forty-Five (45) days after the close of each fiscal
quarter, except for the final quarter of each fiscal year, its unaudited 10Q
report which includes but is not limited to the balance sheet as of the close of
such fiscal quarter, its unaudited income and expense statement with supportive
schedules and statement of retained earnings for that fiscal quarter, prepared
in accordance with generally accepted accounting principles;
(b) Within Ninety (90) days after the close of each fiscal
year, a copy of its 10K report of its statement of financial condition including
at least its balance sheet as of the close of such fiscal year, its income and
expense statement and retained earnings statement for such fiscal year, examined
and prepared on an audited basis by independent certified public accountants
selected by Borrower and reasonably satisfactory to Bank, in accordance with
generally accepted accounting principles applied on a basis consistent with that
of the previous year;
(c) Such other financial statements and information as Bank may
reasonably request from time to time;
(d) In connection with each financial statement provided
hereunder, a statement executed by the chief financial officer of Borrower,
certifying that no default has occurred and no event exists which with notice or
the lapse of time, or both, would result in a default hereunder;
(e) In connection with each fiscal year-end statement required
hereunder, any management letter of Borrower's certified public accountants;
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(f) Prompt written notice to Bank of all events of default
under any of the terms or provisions of this Agreement or of any other
agreement, contract, document or instrument entered, or to be entered into with
Bank; and of any litigation which, if decided adversely to Borrower, would have
a material adverse effect on Borrower's financial condition; and of any other
matter which has resulted in, or is likely to result in, a material adverse
change in its financial condition or operations; and
(g) Prompt written notice to Bank of any changes in Borrower's
officers and other senior management and prior written notice of any changes in
Borrower's name, location of Borrower's assets, principal place of business or
chief executive office.
4.6 Tangible Net Worth. Borrower will at all times maintain
Tangible Net Worth of not less than Twenty-Six Million Dollars ($26,000,000).
"Tangible Net Worth" shall mean net worth increased by indebtedness of Borrower
subordinated to Bank and decreased by patents, licenses, trademarks, trade
names, goodwill and other similar intangible assets, organizational expenses,
and monies due from affiliates (including officers, shareholders and directors).
4.7 Ratio of Funded Debt to EBITDA. Borrower will at all times
maintain a ratio of funded debt to EBITDA of not greater than 1.25:1.0. "EBITDA"
shall mean earnings before interest, taxes, depreciation, and amortization for
the four (4) most recent calendar quarters. "Funded Debt" shall mean any
indebtedness of a contractual nature or otherwise, including any loans, capital
leases and any amounts outstanding on the Revolving Loan, excluding accounts
payable or accrued liabilities in the ordinary course of business. Compliance of
this subsection shall be measured as of the end of each fiscal quarter.
4.8 EBITDA Margin. Borrower will maintain its EBITDA at a minimum
of Ten Percent (10%) of total revenues for any given fiscal quarter. Compliance
with this subsection shall be measured as of the end of Borrower's fiscal
quarter, for the quarter then ended.
4.9 EBITDA to Debt Service Ratio. Borrower will maintain a ratio of
EBITDA, less dividends, to Debt Service of not less than 1.50:1.0. "Debt
Service" shall mean the sum of that portion of term obligations (including
principal and interest) coming due during the twelve (12) months preceding the
date of calculation plus non-financed capital expenditures during the twelve
(12) months preceding the date of calculation. Compliance with this subsection
shall be measured as of the end of Borrower's fiscal quarter, for the quarter
then ended.
4.10 Insurance. Borrower will keep all of its insurable property,
real, personal or mixed, insured by companies and in amounts approved by Bank
against fire and such other risks, and in such amounts, as is customarily
obtained by companies conducting similar business with respect to like
properties. Borrower will furnish to Bank statements of its insurance coverage,
will promptly furnish other or additional insurance deemed necessary by and upon
request of Bank to the extent that such insurance may be available and hereby
assigns to Bank, as security for Borrower's obligations to Bank, the proceeds of
any such insurance. Prior to any disbursement of the Loan, Bank will be named
loss payee on all policies insuring collateral and such policies shall require
at least ten (10) days' written notice to Bank before any policy may be altered
or cancelled. Borrower will maintain adequate worker's compensation insurance
and adequate insurance against liability for damage to persons or property.
4.11 Additional Requirements. Borrower will promptly, upon demand by
Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other information
concerning its affairs as Bank may request from time to time.
4.12 Litigation and Attorneys' Fees. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting or compromising the Loan or in enforcing or exercising its
rights or remedies created by, connected with or provided for in this Agreement
or any of the Loan Documents, whether or not an arbitration, judicial action or
other proceeding is commenced. If such proceeding is commenced, only the
prevailing party shall be entitled to attorneys' fees and court costs.
4.13 Bank Expenses. Borrower will pay or reimburse Bank for all
reasonable costs, expenses and fees incurred by Bank in preparing and
documenting this Agreement and the Loan, and all amendments and modifications
thereof, including but not limited to all filing and recording fees, costs of
appraisals, insurance and attorneys' fees, including the reasonable estimate of
the allocated costs and expenses of in-house legal counsel and legal staff.
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4.14 Reports Under Pension Plans. Borrower will furnish to Bank, as
soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined benefit
pension plans of Borrower described in Section 3 above has occurred, a statement
of an authorized officer of Borrower describing such event or condition and the
action, if any, which Borrower proposes to take with respect thereto.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 Encumbrances and Liens. Borrower will not create, assume or
suffer to exist any mortgage, pledge, security interest, encumbrance, or lien
(other than for taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real, personal or
mixed, now owned or hereafter acquired, or upon the income or profits thereof,
except to Bank and except for (a) any such mortgage, pledge, security interest,
encumbrance or lien which is in existence and to which the Borrower's property
is subject as of the date of this Agreement so long as the same is reflected on
Borrower's most recent financial statement delivered to Bank, the Company's SEC
Filings or a schedule delivered by Borrower to Bank at or prior to execution of
this Agreement; (b) minor encumbrances and easements on real property which do
not affect its market value, and (c) future purchase money security interests
encumbering only the real or personal property purchased; provided, however,
that all such permitted personal property liens shall not exceed, in the
aggregate, Six Hundred Fifty Thousand Dollars ($650,000) at any time and all
such permitted real property liens shall not exceed, in the aggregate, Three
Million Five Hundred Thousand Dollars ($3,500,000), at any time.
5.2 Borrowings. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
indebtedness, except to Bank or except to a financial institution at face value
for deposit or collection purposes only and without any fee other than fees
normally charged by the financial institution for deposit or collection
services, except that Borrower may sell, discount and otherwise transfer in the
ordinary course of business notes and other obligation evidencing student loans
made by Borrower or one or more of its affiliates. Except for purchase money
indebtedness permitted pursuant to Section 5.1 above, Borrower will not borrow
any money, become contingently liable to borrow money, nor enter any agreement
to directly or indirectly obtain borrowed money, except pursuant to agreements
made with Bank.
5.3 Sale of Assets, Liquidation or Merger. Borrower will neither
liquidate nor dissolve nor enter into any consolidation, merger, partnership or
other combination, nor convey, nor sell, nor lease all or the greater part of
its assets or business, nor purchase or lease all or the greater part of the
assets or business of another; provided, however, Borrower may acquire, merge or
consolidate with another corporation if (a) in the case of a merger or
consolidation, Borrower is the surviving corporation, (b) in the case of an
acquisition, merger or consolidation where the purchase price exceeds ten
million dollars ($10,000,000), Borrower shall have delivered to Bank copies of
pro forma financial statements which, on the basis of assumptions deemed
reasonable by Bank, project that Borrower and the target company, on a combined
basis after giving effect to the acquisition, will be in compliance with all
affirmative (including, without limitation, financial) and negative covenants
set forth in this Agreement and, (c) in all cases, the acquisition is not
contested and the target company is in the same business as Borrower;
5.4 Loans, Advances and Guaranties. Borrower will not, except in
the ordinary course of business as currently conducted and in connection with
the making of student loans, make any loans or advances, become a guarantor or
surety, pledge its credit or properties in any manner or extend credit, except
for amounts not to exceed two million dollars ($2,000,000) in the aggregate.
5.5 Investments. Borrower will not purchase the debt or equity of
another person or entity except for savings accounts and certificates of deposit
of Bank, direct U.S. Government obligations and commercial paper issued by
corporations with the top ratings of Moody's, Standard & Poor's or similarly
qualified rating agencies, provided all such permitted investments shall mature
within one year of purchase, and except as otherwise permitted by Sections 5.3
and 5.4.
5.6 Payment of Dividends. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or authorize
or make any other distribution with respect to any of its stock now or hereafter
outstanding.
5.7 Retirement of Stock. Borrower will not expend in excess ten
million dollars ($10,000,000) in connection with the acquisition or retirement
of any shares of its capital stock for value.
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5.8 Parent and Subsidiary Property. Borrower will not transfer any
property to any affiliate, except for value received in the normal course of
business as business would be conducted with an unrelated or unaffiliated
entity. In no event shall management fees or fees for services be paid by
Borrower to any such direct or indirect affiliate without Bank's prior written
approval.
5.9 Capital Expenditures. Borrower will not make capital
expenditures in excess of Twelve Million Dollars ($12,000,000) in any fiscal
year; and shall only make such expenditures as are necessary for Borrower (in
Borrower's reasonable discretion) in the conduct of its ordinary course of
business.
5.10 Lease Obligations. After the date of this Agreement, Borrower
will not incur any existing or new lease obligations as lessee which would
result in aggregate lease payments for any fiscal year exceeding Twenty Two
Million Dollars ($22,000,000). Each said lease shall be of equipment or real
property needed by Borrower (in Borrower's reasonable discretion) in the
ordinary course of its business.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default") shall
terminate any obligation on the part of Bank to make or continue the Loan and
automatically, unless otherwise provided under the Note, shall make all sums of
interest and principal and any other amounts owing under the Loan immediately
due and payable, without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or any other notices or demands:
6.1 Borrower shall fail to pay when due any principal payment, or
shall fail to pay within three (3) days of the date when due any interest,
reimbursement or other payment, required under the terms of the Note, this
Agreement, or any other Loan Documents; or
6.2 Any other default shall occur under the Note.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 Additional Remedies. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.2 Nonwaiver. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 Inurement. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assignees of
Borrower, and any assignment by Borrower without Bank's consent shall be null
and void.
7.4 Applicable Law. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 Severability. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective. In the event of any conflict between the
provisions of this Agreement and the provisions of any note or reimbursement
agreement evidencing any indebtedness hereunder, the provisions of such note or
reimbursement agreement shall prevail.
7.6 Integration Clause. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower regarding the Loan and all prior communications verbal
or written between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 Construction. The section and subsection headings herein are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 Amendments. This Agreement may be amended only in writing
signed by all parties hereto.
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7.9 Counterparts. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original, but
when together shall be one and the same instrument.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signatures at
the end of this Agreement and shall be considered to have been validly given:
(a) upon delivery, if delivered personally; (b) upon receipt, if mailed, first
class postage prepaid, with the United States Postal Service; (c) on the next
business day, if sent by overnight courier service of recognized standing; and
(d) upon telephoned confirmation of receipt, if telecopied.
8.2 The addresses to which notices or demands are to be given may be
changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. CORINTHIAN COLLEGES, INC.
By: /s/ Kim Ha By: /s/ Nolan Miura
------------------------------- -------------------------------
Title: Vice President Title: Vice President
--------------------------- ----------------------------
By:________________________________ By:________________________________
Title:_____________________________ Title:_____________________________
Address: 500 S. Main Street, Suite 200, Address: 6 Hutton Centre, Suite
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Orange, Ca. 92868 400, Sante Ana 92207
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Attention: Stephen W. Dunne VP or Kim Ha VP Attention:
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Telecopier: (714)-565-5770 Telecopier: (714) 427-3013
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Telephone: (714) 565-5585/(714)565-5724 Telephone: (714) 427-3000
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EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of March 8, 2000 (this
"Agreement"), is entered into by and among Corinthian Schools, Inc., a Delaware
corporation ("Buyer"), Cuff & Dean Incorporated (d/b/a Georgia Medical
Institute), a Georgia corporation ("Seller"), and Dominic J. Dean and Arthur
Cuff ("Owners").
BACKGROUND
A. Owners are the sole stockholders of Seller, which owns, operates
and administers those certain proprietary, post-secondary, vocational training
schools known as Georgia Medical Institute (collectively, the "Schools," and
individually, a "School"), located at (i) 41 Marietta Street, N.W. Atlanta,
Georgia, (ii) Building 500, Suite 202 of the American Business Center, 1395
South Marietta Parkway, Marietta, Georgia, and (iii) 6431 Tara Boulevard,
Jonesboro, Georgia.
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(b)
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(such mortgages, pledges, liens, etc., as described on Schedule 5.8(b), the
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"Permitted Exceptions"), and except for the Excluded Assets (as defined in
Section 1.2 hereof):
1.1.1 Accounts Receivable. All of Seller's accounts receivable,
notes receivable and other receivables (and causes of action related to any of
the foregoing) ("Accounts Receivable");
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1.1.2 Inventory. All of Seller's inventory, including without
limitation, textbooks, course materials and supplies;
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, correspondence, employment records, placement records, marketing
materials and copies of all documents and other information and data filed by
Seller with any state, federal or local government authority or any guaranty or
accrediting agency, whether on computer disk, in paper form or otherwise;
1.1.5 Contracts and Leases. All of the rights of Seller under
contracts and leases (the "Assumed Contracts") 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 Material 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 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 Lead Bank. Copies of all information in existence in
Seller's lead bank;
1.1.12 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
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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
1.1.13 Other Assets. All other assets and property owned by
Seller and used in the business of the Schools (other than the Excluded Assets),
including, without limitation, promotional and marketing materials.
1.2 Excluded Assets. The Excluded Assets shall not be conveyed
hereunder. The "Excluded Assets" means:
1.2.1 Cash. All of Seller's cash, cash equivalents,
certificates of deposit and marketable securities on hand at the Closing and
Seller's bank accounts relating thereto;
1.2.2 Nontransferable Rights. Any license, permit, contract
and governmental authorization or accreditation that is not transferable; and
1.2.3 Other Assets. Such other assets as are identified on
Schedule 1.2.3 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 $6,992,500.00, payable as follows: At the Closing, Buyer
shall pay to Seller ninety percent (90%) of the cash consideration portion of
the Purchase Price, by check or wire transfer (the "Closing Payment"). Buyer
shall pay the balance of the cash consideration portion of the purchase price to
Seller (or, if so instructed by Seller, directly to the Owners) (the "Deferred
Payment"), subject to Buyer's right of set-off as set forth in Section 9.14, on
or after the date which is 18 months after the Closing Date (the "Deferred
Payment Date"), with no interest accruing on the Deferred Payment between the
date of Closing and the Deferred Payment Date . Buyer shall be entitled to
collect damages for breaches of Seller's and the Owners' indemnification and
other obligations as set forth in this Agreement by set-off against the Deferred
Payment. Any portion of the Deferred Payment which is held by Buyer after the
Deferred Payment Date in respect of a disputed claim for indemnification against
Seller and/or the Owners which is ultimately resolved in favor of Seller and/or
the Owners shall bear interest at the rate of ten percent (10%) per annum from
the time of the Deferred Payment Date until such amount is actually paid to the
Seller and/or Owners. Any portion of the Deferred Payment which is to be paid
directly to the Owners shall be paid fifty-one percent (51%) to Dominic Dean and
forty-nine percent (49%) to Arthur Cuff.
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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 all of the liabilities (the "Assumed Liabilities") of the
Seller and the Schools (including all post-Closing duties of Seller under the
Assumed Contracts) other than the Excluded Liabilities (as defined in Section
2.4 hereof).
2.4 Excluded Liabilities. Buyer shall not assume, or otherwise be
responsible for, any liabilities or obligations (whether actual or contingent,
matured or unmatured, liquidated or unliquidated, or known or unknown) of
Seller, any other owner or operator of the Schools prior to the Closing Date, or
any affiliate of any of the foregoing, which consist of, relate to, are
connected with, are based upon or arise out of the following: (i) regulatory
liabilities imposed by the U.S. Department of Education (the "DOE") and/or the
applicable state regulatory agencies with respect to the Schools for periods
prior to the Closing Date, (ii) subject to section 7.7, liabilities relating to
employees of the Schools for periods prior to the Closing Date, (iii)
liabilities incurred on or before the Closing Date that are set forth on
Schedule 2.4, (iv) liabilities and costs (including those incurred post-Closing)
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associated with or caused by a determination by the DOE that the 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, (v) Tax liabilities of Seller, (vi)
liabilities with respect to the matters addressed in Section 5.16, (vii)
liabilities with respect to the claims referenced on Schedule 5.14 hereto, and
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(viii) any bank debt and other liabilities required to be shown as long term
liabilities on a balance sheet of Seller prepared in accordance with GAAP (as
defined herein) (except to the extent that Leases of the Facilities and the
equipment leases which are listed on an attachment to Schedule 5.8(b) are
required to be shown as long term liabilities, it being expressly agreed that
Leases of the Facilities and the equipment leases listed on the attachment to
Schedule 5.8(b) are being assumed by Buyer at the Closing) (collectively, the
"Excluded Liabilities").
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 the completion
by Buyer of the Post-Closing Audit
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(as defined below), by check or wire transfer of immediately available funds, an
amount of cash which equals the amount by which such Working Capital is less
than $1.00. If the Purchased Working Capital exceeds $1.00, then Buyer shall pay
to Seller within ten (10) business days after the completion of the Post-Closing
Audit, by check or wire transfer of immediately available funds, an amount of
cash which equals the amount by which such Working Capital exceeds $1.00. The
term "Purchased Working Capital" shall mean all current assets purchased by
Buyer hereunder (e.g. receivables and inventory) minus the sum of (A) all
assumed current liabilities (e.g. current payables) as of the Closing Date, and
(B) fifty percent (50%) of the value of the accrued vacation liability
(determined in accordance with Buyer's applicable practices as have been
explained to Seller) attributable to Seller's employees who are retained by
Buyer after the Closing, as if such employees had been employed by Buyer from
January 1, 2000 through the Closing Date.
2.7. Post-Closing Audit. On the Closing Date, Seller shall deliver to
Buyer true and correct copies of all financial books and records of Seller
necessary to prepare a balance sheet of Seller as of the Closing Date. Within
thirty (30) days after the Closing, Buyer shall prepare, and have audited, a
balance sheet dated as of the close of business on the Closing Date (the
"Closing Balance Sheet") on which shall be shown (A) the purchased current
assets and the assumed current liabilities of the Seller as of the Closing Date
(such amount shall not include cash of the Seller which is not being purchased
by Buyer) and (B) the figure described in Clause (B) of Section 2.6. The Closing
Balance Sheet shall be prepared in accordance with Generally Accepted Accounting
Principles ("GAAP"), applied on a basis consistent with Seller's past practices,
and audited by Almich & Associates in accordance with Generally Accepted
Government Auditing Standards ("GAGAS"); provided, however, that the calculation
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of reserves for unearned tuition shall be consistent solely with Seller's
practice for the fiscal year ended December 31, 1998, and not with Seller's
calculation or practice in any other year. The amount of Purchased Working
Capital for all purposes of this Agreement shall be as calculated from such
Closing Balance Sheet.
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 Seller at the address for Seller set forth in Section 9.2. 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 11:59 p.m. on the Closing
Date.
3.2 Deliveries by Seller at Closing. At the Closing, Seller shall
deliver or cause to be delivered to Buyer the following:
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(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 Bill of Sale substantially in the form
of Exhibit B hereto (the "Bill of Sale") and such other instruments of
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conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary to vest in Buyer title to the Purchased Assets;
(3) a Duly executed 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 as to the representations, warranties and
covenants of Seller made herein as provided in Sections 8.1(1), 8.1(2) and
8.1(3);
(5) Duly executed estoppel certificates and consents to
assignment of lease (executed by the landlords of the Facilities (as
defined below));
(6) Duly executed Assignments and Assumption of Lease for
each of the Facilities in form and substance reasonably satisfactory to
counsel for Buyer and Seller (the "Lease Assignment");
(7) Non-Competition Agreements in substantially the form
attached hereto as Exhibit C (the "Non-Competition Agreements"), duly
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executed by each of the Owners;
(8) Consents to assignment of the Material Assumed
Contracts deemed reasonably necessary by counsel to Buyer; and
(9) Any other documents reasonably necessary to effectuate
the transactions contemplated hereby.
Notwithstanding the foregoing, Seller's failure to deliver any of the items
described in clauses (4), (5), (6) or (8) shall not constitute a breach of this
Agreement (but shall excuse Buyer from its obligation to purchase the Purchased
Assets).
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 to Seller;
(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;
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(3) Duly executed Assignment and Assumption Agreement;
(4) Duly executed Lease Assignments for each of the
Facilities; and
(5) Duly executed Non-Competition Agreements for each of
the Owners; and
(6) Any other documents reasonably necessary to effectuate
the transactions contemplated hereby.
ARTICLE IV
TERMINATION
4.1 Termination. This Agreement may be terminated only as follows
and in each case only by written notice:
(1) At any time by mutual written consent of Seller and
Buyer;
(2) Prior to the Closing, by Seller on the one hand or
Buyer on the other, if the other party shall be in breach of any covenant,
undertaking or representation contained herein in any material respect and
such breach has not been cured within ten (10) business days after the
giving of written notice to the breaching party of such breach;
(3) Prior to the Closing, by Buyer if the DOE, the
Nonpublic Post-Secondary Education Commission ("NPEC") of the State of
Georgia, the State of Georgia or any of its agencies, any guaranty agency
or any accreditation agency determines that the Schools or any of their
respective programs will not be certified as eligible for Title IV funds
(other than programs not eligible to receive Title IV funds on the date
hereof);
(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 at any time, in a timely matter, or without being
subject to material adverse conditions; or
(5) If the Closing has not occurred before the sixtieth
(60/th/) day following execution hereof by the last-signing party, 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
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forthwith terminate upon notice thereof duly given in accordance with the
provisions hereof, and there shall be no liability of any nature on the part of
either Buyer or Seller (or their respective officers or directors) to the other,
except for liabilities arising from a breach of this Agreement prior to such
termination; provided, however, that this Section 4.2 in no way limits the
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obligations of the parties set forth in Sections 9.12 (Indemnification by Seller
and Owner) and 9.13 (Indemnification by Buyer) hereof, or in the last sentences
of Sections 5.20 and 6.4, all of which obligations shall survive the
termination.
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 assume the Assumed Liabilities, Seller and
Owners, jointly and severally, hereby make the following representations and
warranties, subject to such qualifications, if any, as are set forth, described
or referred to in Seller's Schedule of Exceptions attached hereto. Seller's
Schedule of Exceptions is numbered to correspond to the sections of Article V of
this Agreement. Notwithstanding any cross-references between any section of
this Agreement and any part of Seller's Schedule of Exceptions, and vice versa,
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any matter which is disclosed in any particular schedule or section of the
Seller's Schedule of Exceptions shall be deemed to be disclosed in all schedules
and sections thereof, and to qualify all of the representations and warranties
of Seller and the Owners contained in this Agreement; provided, however, that in
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cases where disclosures are not explicitly cross-referenced, (a) the cross-
applicability of the contents of any given schedule to another schedule must be
reasonably apparent from the disclosure set forth in the first schedule and (b)
the schedule must, when cross-applied, reasonably apprise the reader of the
nature of the item disclosed.
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
Georgia, 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 an 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(b). All corporate and other proceedings required to be taken by or
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on the part of Seller, including all action required to be taken by the
directors or stockholders of Seller, to authorize Seller to enter into and carry
out this Agreement and the related documents contemplated herein, have been duly
and properly taken. This Agreement has been, and each of
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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) 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 material instrument, license,
agreement or commitment to which Seller is a party or by which any of its assets
or properties is bound, including the Material Assumed Contracts (as defined in
Section 5.9 hereof); (c) constitute a violation of any order, judgment or decree
to which Seller is a party or by which any of its assets or properties is bound;
or (d) require any approval of, or filing or registration with, any
governmental entity or regulatory authority other than those set forth or
described on Schedule 5.4 attached hereto 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 and Seller has not received notice of
any such violation. Seller currently 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
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hereto is a true, 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
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no notice that any of the Licenses and Permits will not be renewed and to the
best of Seller's knowledge, there is no basis for nonrenewal. The Schools are
accredited as set forth on Schedule 5.5(b) attached hereto, are certified by the
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DOE as an 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 the Schools 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
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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. Except as disclosed on Schedule 5.5(d), each and every course offering
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and program offered or taught at any of the Schools is currently certified as
eligible to receive Title IV funds.
5.6 Recruitment; Admissions Procedures; Attendance; Reports. Schedule
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5.6(a) attached hereto is a complete list of all policy manuals and other
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statements of procedures or instruction relating to recruitment of students for
the 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"). Seller has made available (and, in the case of materials
specifically requested by Buyer, delivered) to Buyer true, correct and complete
copies of all Policy 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 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
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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
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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 1998. Such schedule is
correct and accurate in all respects for such periods.
5.8 Title to and Condition of the Purchased Assets.
5.8.1 Leased Facilities. The leased facilities described on
Schedule 5.8(a) (the "Facilities") constitute the only real property used in
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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. 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. 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, options, rights, and restrictions, other than as set forth on
Schedule 5.8(b). All leases for tangible personal property used by Seller in
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connection with the operation of the Schools are valid and in full force and
effect and are enforceable in accordance with their 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). Neither Seller nor, to the best of Seller's
knowledge, any of the other parties thereto is in default under any such lease,
and, to the best of Seller's knowledge, 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, useable in the ordinary course of business
consistent with past practice and are sufficient and adequate for all current
operations. Seller has not received notice of any violation of or default under
any law, ordinance, order, regulation or requirement relating to any of the
Purchased Assets which remains uncured or has not been resolved.
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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 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 Owners' past and current
use of any part of the Curriculum does not infringe upon or violate any such
right. 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 Material Assumed Contracts. Schedule 5.9 attached hereto lists
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each assumed contract of Seller (the "Material 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 Material Assumed Contract is
valid and existing. Seller has duly performed all its obligations under the
Material 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 breach or default by Seller or any other party or obligor with
respect thereto has occurred. True and correct copies of the Material Assumed
Contracts, including all amendments and supplements thereto, have been delivered
to Buyer or are attached to Schedule 5.9. 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.
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").
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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
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registrations of each Tradename as a trademark, servicemark or assumed name.
Seller has not licensed any other Person to use any Tradename. Seller has not
been sued or threatened with suit for infringement, violation or breach with
respect to any Tradename, and no basis exists for any such suit. Except as
disclosed on Schedule 5.10, Seller is not on notice of any infringement,
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violation or breach of the Tradename by any other Person. Seller has the right
to use and license, free and clear of any claims or rights of any third party,
all trade secrets, customer lists, know-how, curricula and any other
confidential information required for or used in the operation of the 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: audited Balance
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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 (collectively, the "Financial Statements"). The basis of presentation of
the Financial Statements of the Seller is disclosed in the respective Opinions
thereon, Notes thereto and/or on Schedule 5.11(b) attached hereto. Except as
----------------
disclosed in the respective Opinions thereon, Notes thereto and/or on Schedule
--------
5.11(b), the balance sheets included in the Financial Statements present fairly
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in accordance with GAAP the assets and liabilities of Seller 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 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 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, correct
and complete, fairly reflecting the income, expenses, assets and liabilities of
the Seller. On the date hereof, except for liabilities, and changes in amounts
of liabilities, incurred in the ordinary course of business (none of which would
cause a material adverse change in the financial condition of the Seller),
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,
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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:
(1) those set forth or reserved against in the balance
sheet of Seller as of December 31, 1999, to the extent set forth, reserved
against or disclosed;
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(2) those incurred since December 31, 1999, 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 $200,000; and
(3) those described in the Schedules attached hereto.
To the best knowledge of Owners, 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 or which are not otherwise disclosed in this Agreement
or any Schedule hereto.
5.12 Receivables. The Accounts Receivable, except to the extent of
allowances and/or reserves for cancellations and doubtful accounts determined in
accordance with Seller's past practice applied in preparing 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, to the best of Seller's
knowledge, can reasonably be expected to 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 trade
discounts or credits of a type not reflected in the Financial Statements (other
than tuition refund policies administered in accordance with all applicable
legal requirements and the applicable Policy Guidelines).
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 reflected on the Financial
Statements as "inventories." Such supplies are reflected at cost (subject to
the following sentence), are usable in the ordinary and regular course of
business, are fit and sufficient for the purpose for which they were purchased,
and, at the date of this Agreement, are in customary amounts appropriate to
Seller's operations of the Schools. All excess or obsolete items have been
written down to net realizable value or written off.
5.14 Litigation. Except as set forth in Schedule 5.14 attached
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hereto, (i) there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of Seller's knowledge, threatened against or
affecting the 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, Owners, nor the Schools is the subject of any
governmental investigations or inquiries (including inquiries as to the
qualification to hold or receive any of the Licenses and Permits with respect to
the Schools) and (iii) there is no basis for any of the foregoing.
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5.15 Insurance. Schedule 5.15 attached hereto sets forth the
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insurance coverages maintained by Seller on the Facilities, the Purchased Assets
and the operations of the 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. 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,
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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. 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 an 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. To the best of Seller's knowledge, the Facilities
do not contain asbestos or polychlorinated biphenyls. Seller acknowledges that
Buyer is not assuming any of Seller's liabilities with respect to the matters
addressed in this Section 5.16.
5.17 Employee Benefit Plans. Schedule 5.17 attached hereto sets
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forth a complete accurate and detailed description of all of Seller's employee
welfare and benefit plans ("Plans"). Seller 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
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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").
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; to the best of Seller's knowledge, 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 has
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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 has
paid all Taxes shown to be due and payable on such returns to the extent that
the same have become due and payable on or before the Closing. Seller is not a
party to, nor expected to become a party to, any pending or, to the best of
Seller's knowledge, 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 Parchman, Vaughan &
Company, L.L.C. ("PVC"), 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 use of the services of PVC or any other finder or broker.
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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:
(1) any sale, lease, transfer, abandonment or other
disposition of any material 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), except in the ordinary course of
business;
(2) (i) any approval or action to put into effect any
increase in any compensation or benefits payable to any employee, agent or
officer of Seller employed or providing services in connection with the
operation of the 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 material adverse change in the financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves
or operations of the Schools;
(4) any material damage, destruction or loss to the assets,
business or operations of the Schools, whether or not covered by insurance;
(5) any material change in the business policies or
practices of the Schools or a material 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
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Assumed Liabilities, the representations and warranties of Seller contained in
this Agreement and/or the operation of the Schools have been made available
(and, in the case of items specifically requested by Buyer, delivered) to Buyer.
5.23 Program Revenues. For each of Seller's fiscal years ending on
December 31, 1995, 1996 and 1997 none of the Schools have received greater than
eighty-five percent (85%), and for each of Seller's fiscal years ending on
December 31, 1998 and 1999 no 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 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 Seller's percentage of revenue from such federal funding sources.
5.24 Accrediting Body and Governmental Approvals. To the best of
Seller's knowledge, 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 whose authorization, consent or similar approval is required
for the consummation of the transactions contemplated by this Agreement, to
refuse to deliver such authorization, consent or similar approval.
5.25 Capitalization and Voting Rights. The authorized capital of the
Seller consists of 1,000 shares of common stock, of which 750 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
collectively 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; Arthur Cuff and Dominic Dean own 343 and 357 shares,
respectively, of the common stock of Seller. 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. There is no fact which Seller has not disclosed to
Buyer in writing and of which any of Seller or Owner is aware which has had a
material adverse effect upon the existing financial condition, operating
results, assets, employee relations, accreditation, reputation or business of
the Schools.
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 makes the following representations and
warranties, subject to such qualifications, if any, as are set forth, described
or referred to in Buyer's Schedule of Exceptions attached hereto. Buyer's
Schedule of Exceptions is numbered to correspond to the sections of Article VI
of this Agreement. Notwithstanding any cross-references between any section of
this Agreement and any part of Buyer's Schedule of Exceptions, and vice versa,
----------
any
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matter which is disclosed in any particular schedule or section of the Buyer's
Schedule of Exceptions shall be deemed to be disclosed in all schedules and
sections thereof, and to qualify all of the representations and warranties of
Buyer contained in this Agreement; provided, however, that in cases where
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disclosures are not explicitly cross-referenced, (a) the cross-applicability of
the contents of any given schedule to another schedule must be reasonably
apparent from the disclosure set forth in the first schedule and (b) the
schedule must, when cross-applied, reasonably apprise the reader of the nature
of the item disclosed.
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.
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 duly executed and delivered by Buyer and constitutes
valid and binding obligations of Buyer, enforceable against Buyer, in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
6.3 No Conflicts. 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 material 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 material breach of any provision of the Restated
Certificate of Incorporation or bylaws of Buyer, any material instrument,
license, agreement or commitment to which Buyer is a party or by which any of
its assets or properties is bound; (c) constitute a material 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 material 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 or will be
entitled to any broker's or finder's fee or any similar commission or fee in
connection with any of the transactions contemplated by this Agreement. Buyer
agrees to defend, indemnify and hold harmless Seller and Owners and their
Affiliates from and against any and all claims made against Seller and/or Owners
which arise in connection with Buyer's use of the services of any finder or
broker.
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ARTICLE VII
COVENANTS
7.1 Covenants of Seller and Owners Prior to the Closing. Seller and
Owner covenant and agree 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 and Owner (i) shall use their 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
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 capital expenditure in excess of $5,000 without Buyer's prior written
consent, (v) shall not engage in any sale of its Accounts Receivable, (vi) shall
promptly notify Buyer (A) of any notice from any governmental or regulatory
agency or authority, (B) of any fact or circumstance known to Seller which would
make any representation or warranty set forth herein untrue or inaccurate as of
the Closing Date, or (C) if Seller gains knowledge of 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 Owner will not directly or indirectly solicit,
respond to or negotiate with or release any information relative to 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 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 and (ii) shall not
interfere with the performance by Seller of its obligations under this
Agreement.
7.3 Closing and Post-Closing Covenants.
7.3.1 Further Assurances. From time to time after the Closing,
(i) Seller will use reasonable efforts for as long as it continues its corporate
existence to execute and deliver such instruments of conveyance, sale or
assignment as Buyer may reasonably request, to more effectively vest, confirm or
evidence Buyer's title to or rights in any of the Purchased Assets and to
otherwise carry out the purpose and intent of this Agreement, and (ii) Buyer
will execute and deliver such instruments as Seller may reasonably request to
more effectively assure the assignment to and assumption by Buyer of the
obligations and liabilities of Seller to be assumed by Buyer pursuant to this
Agreement and to otherwise carry out the purpose and intent of this Agreement.
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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.
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, without
cost to the Requesting Party (other than payment of out-of-pocket costs not
including personnel costs) and as reasonably required by the Requesting Party in
connection with any claim, action, litigation or other proceeding involving
Seller, Buyer or the Schools. Each party shall use its best efforts to cause
such employees to cooperate with and assist the Requesting Party in its
prosecution or defense of such claims, actions, 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.
7.3.4 Certification. Prior to and after the Closing, 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 best 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 Schools shall cooperate with Buyer to file a
materially complete application for recertification and provisional extension of
certificate (the "Application") for the Schools 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 Georgia; (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 non-degree programs offered by
the Schools (other than programs that are not eligible to receive Title IV funds
as of the date hereof); (iii) audited financial statements of the Schools' two
most recently completed fiscal years that are prepared in accordance with GAAP
published by the Financial Accounting Standards Board and audited in accordance
with GAGAS published by the Governmental Accounting Standards Board; 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 file the following 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 Schools, as of the date of the Closing, that is
prepared in accordance with GAAP and audited in accordance with GAGAS; (ii)
approval of the change of ownership from the State of Georgia; (iii) approval of
the change of ownership from the Schools' accrediting agency; and (iv) if
required, a default management plan. 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. 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.
7.3.5 Satisfaction and Payment of the Excluded Liabilities.
Seller and Owners shall pay and satisfy, or cause to be paid and satisfied, all
debts of Seller incurred through the Closing Date relating to the Schools which
constitute the Excluded Liabilities.
7.4 Excise and Property Taxes. Seller shall pay all Taxes arising
out of the transfer of the Purchased Assets. 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 earlier of the Closing Date or
termination of this Agreement, 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.
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, 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
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Party or the Schools and (iii) the Requesting Party's preparation of its
financial statements and Tax returns. In addition, the Requesting Party, at its
expense, may make copies of any such records as may be necessary or appropriate
for the Requesting Party's use. Each party shall maintain all such records in
accordance with, and subject to all restrictions imposed by, all laws, rules and
regulations. Each party shall not destroy or otherwise dispose of any of such
records without prior notice to the other party, which party shall have the
option, at such party's expense, to take possession of any such records which
the other party elects to destroy or otherwise dispose of. Any such access shall
take place only during normal business hours in such a manner as not to
interfere unreasonably with the operation of the business of the other party.
7.7 Employment Matters.
7.7.1 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. Buyer may, at its option, offer employment to any such
current or former employees of Seller on terms and conditions as may be mutually
agreed upon by Buyer and such employees; provided however, that the group of
----------------
Persons employed by Seller as of the Closing Date to whom Buyer does not offer
employment (on terms reasonably consistent with such Persons' prior employment
with Seller) will not exceed thirty-five (35) Persons. 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. Buyer agrees that, for purposes of Buyer's employee benefits and other
employment programs (excluding bonuses to managers), the pre-Closing service to
Seller by each Person who accepts such offer shall be considered past service to
Buyer. Buyer shall use its reasonable best efforts to provide to Seller, at
least ten (10) days prior to the Closing Date, a list of all employees of Seller
to whom Buyer has offered, or expects to offer, employment after the Closing
Date.
7.7.2 Seller shall be responsible for and shall pay on the
Closing Date all of its obligations for compensation, wages and other employee
benefits accrued as of the Closing Date; provided, however, that Buyer shall
-----------------
assume and be responsible for the administration of all COBRA responsibilities
of Seller with respect to Persons who were employed by Seller on the Closing
Date (regardless of whether such Persons are offered or accept employment by
Buyer). Buyer agrees to give credit to, and accrue vacation benefits for, the
employees of Seller on the Closing Date who are retained by Buyer after the
Closing, as though such Persons had been employed by Buyer from January 1, 2000
through the Closing Date. Buyer further agrees to permit the former employees of
Seller who are retained by Buyer on the Closing Date to take approved vacation
days which are in excess of their accrued vacation days through the end of
calendar year 2000 (up to a maximum of seven (7) days in excess of each such
former employee's actual accrued vacation). All vacation days taken by such
employees starting on January 1, 2001 must be taken only from accrued but unused
vacation days.
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7.7.3 For each employee of Seller who is not offered employment
by Buyer immediately after the Closing Date, Seller expects to pay a cash
severance benefit to such employee equal to one week's salary for each year of
service the employee had with the Seller (the "Severance Benefit"). Seller shall
not pay a Severance Benefit to any former employee of Seller who is offered
employment by Buyer immediately after the Closing (regardless of whether such
employee accepts Buyer's offer of employment). For each Person employed by
Seller as of the Closing Date to whom Buyer offers employment for an expected
term of less than three (3) months after the Closing Date (such expected term to
be communicated by Buyer to Seller prior to the Closing) (each a "Transition
Employee"), Buyer will offer to pay a stay bonus (the "Stay Bonus") equal to the
amount of the Severance Benefit such Transition Employee would have received had
such Transition Employee not been offered employment with Buyer. Buyer shall
only be obligated to pay a Stay Bonus to each such Transition Employee who
continues his or her employment with Buyer through the period agreed to by Buyer
and such Transition Employee.
7.7.4 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 7.7.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to complete the purchase of Purchased Assets as provided for herein is
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Buyer in
writing.
(1) All representations and warranties of Seller contained
in this Agreement or in any certificate or other document delivered to
Buyer pursuant hereto shall be complete, true and correct in all material
respects as of the Closing Date 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;
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(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, shall be delivered by
Seller and shall be in form and substance reasonably 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 registrations,
licenses, permits and approvals required by any governmental entity or
agency or other regulatory body to operate the Schools in the State of
Georgia and all local jurisdictions contained therein;
(7) The Schools shall have received all required
accreditation approvals;
(8) 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
(9) Buyer shall have received, from the landlords of the
Facilities, executed estoppel certificates and executed landlord consents
to assignment of lease.
8.2 Conditions Precedent to Obligations of Seller. The obligation of
Seller to complete the sale of Purchased Assets as provided for herein are
subject to the fulfillment or satisfaction on or before the Closing Date of each
of the conditions set forth below, any of which may be waived by Seller in
writing.
(1) All representations and warranties of Buyer contained
in this Agreement or in any certificate or other document delivered to
Seller pursuant hereto shall be complete, true and correct in all material
respects as of the Closing Date (except to the extent such representations
and warranties speak as of a particular date), and Seller shall have
received a certificate signed by 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;
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(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, shall be delivered by Buyer and
shall be in form and substance reasonably satisfactory to Seller and its
counsel;
(4) No law or order shall have been enacted, entered,
issued, promulgated or entered by any governmental entity which prohibits
or restricts the transactions contemplated hereby, and there shall not have
been threatened, nor shall there be pending, any action or proceeding by or
before any court or governmental agency or other regulatory or
administrative agency or commission, challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions; and
(5) Seller and Buyer shall have obtained 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 Georgia and all local jurisdictions contained therein.
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, except that Buyer may assign its right hereunder to an
Affiliate. 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
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Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile: (949) 823-6994
if to Seller or Owners, at:
Cuff & Dean Incorporated
41 Marietta Street, Suite 1000
Atlanta, Georgia 30303
Attention: Dominic Dean
with each such notice to Seller or Owners, a copy to:
Holt Ney Zatcoff & Wasserman, LLP
100 Galleria Parkway, Suite 600
Atlanta, Georgia 30339-5511
Attention: Michael G. Wasserman
or at such other place as the party to whom such notice of communication is to
be addressed may have designated to the other parties by notice conforming to
this Section 9.2. Notices shall be deemed effective and received (i) on the
actual receipt in the case of hand delivery, (ii) on the next business day after
deposit in the case of notices by nationally recognized overnight courier
services, or (iii) on the third business day after the date of mailing in the
manner set forth herein. As used herein, notice to a party shall include
concurrent notice to that party's counsel as set forth herein.
9.3 Entire Agreement. This Agreement and the documents referred to
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations,
representations, warranties and discussions of the parties, whether oral or
written; and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
9.4 Nature and Survival of Representations. The representations,
warranties, covenants and agreements of Buyer, Seller and Owner contained in
this Agreement, and all statements contained in this Agreement or any Exhibit or
Schedule hereto or any certificate or financial statement delivered pursuant to
this Agreement, shall be deemed to constitute representations, warranties,
covenants and agreements of the respective party delivering the same. All such
representations, warranties, covenants and agreements shall survive the Closing
for a period of eighteen (18) months.
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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 a Material 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. In the event of a casualty or condemnation in respect of less than a
Material Portion of the Purchased Assets prior to the Closing, (A) Buyer shall
accept the insurance proceeds in respect of such casualty or condemnation, (B)
Seller and the Owners shall reimburse and indemnify Buyer for and against any
and all losses, costs or damages incurred by Buyer in respect of such immaterial
casualty or condemnation to the extent not covered by insurance, and (C) the
parties shall 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. The term
condemnation or casualty to a "Material Portion of the Purchased Assets," for
purposes of this Section 9.5 only, shall mean a condemnation or casualty equal
to or greater than $100,000.00.
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 Owners. Seller and Owners,
jointly and severally, hereby agree to indemnify, defend and hold harmless Buyer
and its Affiliates and their respective officers, directors, shareholders,
employees, agents, successors and assigns from and
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against any and all claims, liabilities, obligations, losses, costs, expenses
(including, without limitation, interest, penalties and reasonable attorneys'
fees), fines, or damages of any kind or nature (collectively "Losses"), as a
result of, or based upon or arising out of:
(1) any breach of, or any inaccuracy or
misrepresentation in, any of the representations or warranties made by
Seller or Owner in this Agreement or any other agreement, statement or
certificate delivered pursuant hereto;
(2) any breach of or violation by Seller or Owner of
any of the covenants made by Seller and/or Owner in this Agreement or any
other agreement, statement or certificate delivered pursuant hereto;
(3) all Losses arising out of or resulting from any
claim related to or arising out of Seller's operation of the Schools prior
to the Closing Date that are asserted with respect to any liabilities that
are not Assumed Liabilities;
(4) all Losses arising out of or resulting from the
Excluded Liabilities;
(5) any Losses arising out of or resulting from the
matters disclosed in item "D" of Seller's Schedule of Exceptions or on
Schedule 5.5, Schedule 5.14 and Schedule 5.19; and
-------- --- ------------- -------------
(6) 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,
defend and hold harmless Seller, Owners, their Affiliates, and their respective
officers, directors, shareholders, employees, agents, successors and assigns
from and against any and all Losses (as such term is defined in Section 9.12,
supra) , 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
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 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
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(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; Right to Set-Off. (a)
The provisions of this Section 9.14 shall govern any claim for 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 shall not assume the
defense of any such claim by a third party or litigation resulting therefrom,
the Indemnitee may defend against such claim or litigation in such manner as it
deems appropriate, and the Indemnitee may settle such claim or litigation on
such terms as it may deem appropriate and the Indemnitor shall promptly
reimburse the Indemnitee for the amount of such settlement and for all Losses
incurred by the Indemnitee in connection with the defense against or settlement
of such claim or litigation.
(b) 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 (including, without limitation, any amounts owing as part of the Deferred
Payment), whether under this Agreement or otherwise, against any and all of the
obligations of Seller and/or Owners to Buyer
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hereunder, including without limitation Seller's and Owners' obligations
pursuant to Section 9.12 hereof and this Section 9.14.
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 will be honored. If the matter has not been resolved within 45 days of the
disputing party's notice, or if the parties fail to meet within 10 days, either
party may initiate arbitration of the controversy or claim as provided
hereinafter. All negotiations pursuant to this clause are confidential and shall
be treated as compromise and settlement negotiations for purposes of 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 End Dispute-Judicial Arbitration
and Mediation Services (JAMS) rules for arbitration of business disputes by a
sole arbitrator who shall be a former superior court or appellate court judge or
justice with significant experience in resolving business disputes. If
available, the arbitrator should have familiarity or experience in Title IV
funding matters. The arbitration shall be governed by the 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. The
arbitrator may award equitable relief in those circumstances where monetary
damages would be inadequate. The arbitrator shall be required to follow the
applicable law as set forth in the governing law section of this Agreement.
9.15.3 Satisfaction of Damages. In the event that an
arbitrator awards damages to Buyer hereunder, or Seller admits in writing
liability for damages hereunder, and if there is then outstanding any amount
owed by Buyer to Seller hereunder (whether as part of the Deferred Payment or
otherwise), then the amount of such damages shall first be satisfied by offset
against such outstanding amounts.
31
<PAGE>
9.16 Third Party Beneficiaries. Except for Gaylinda Lippman's rights
under Sections 9.21 and 9.22, 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.
9.18 Limitation of Liability. Seller and the Owners shall not be
liable to Buyer under Subsection 9.12(1) unless and until the aggregate of
Buyer's Losses thereunder shall equal or exceed one hundred thousand dollars
($100,000.00) (the "Threshold"); if Buyer's Losses under Section 9.12(1) exceed
the Threshold, Seller and the Owners shall jointly and severally indemnify Buyer
for all such Losses without regard to the Threshold. In no event shall Sellers'
and the Owners' aggregate liability to Buyer hereunder exceed $5,000,000.00
(including, without limitation, Seller's and Owners' liability for matters
indemnified under Subsection 9.12). The limitations set forth in this Section
9.18 shall not apply to Losses of Buyer arising out of (i) fraud, or (ii) the
breach of any representation or warranty contained herein if such representation
or warranty was made with (x) actual knowledge that it contained an untrue
statement of fact or (y) an intention to mislead by omitting to state a fact
necessary to make the other statement of facts contained therein not misleading.
9.20 Knowledge of Seller. For all purposes hereof, the term
"knowledge of Seller," or similar such terms, shall mean what is actually known
by either Owner, and only what is actually known by either Owner.
9.21 Tuition Relief. For each of the one-year periods commencing on
the Closing Date, and each of the first, second, third, and fourth anniversaries
thereof, Gaylinda Lippman shall be entitled to designate one individual and one
education program presented by Buyer during such period, and Buyer shall not
charge tuition to such person for such program; provided, however, that Buyer
-----------------
shall be obligated to perform under this Section 9.21 only if and to the extent
-------------------------
that: (i) such performance is consistent with all applicable laws, regulations
- -----
and accrediting agency rules, and (ii) Buyer has available space for such
student in the selected program.
9.22 Limited Employment. For each of the one year periods (an
"Applicable Period") commencing on the Closing Date and each of the first,
second, third, and fourth anniversaries thereof, each of Arthur Cuff, Dominic
Dean and Gaylinda Lippman (each an "Applicable Person") shall, at his or her
request, be employed by Buyer to provide limited consulting services to Buyer
for compensation equal to one dollar ($1.00), which employment shall entitle him
or her to inclusion in Buyer's health care employee benefits program (the
"Benefits Program"); provided, however, that Buyer shall be obligated to perform
-----------------
under this Section 9.22 as respects an Applicable Person and an Applicable
Period only if (A) such Applicable Person has paid Buyer beforehand for Buyer's
expected contribution to such Benefits Program, and (B) if and to the extent
that such performance is consistent with all applicable law
32
<PAGE>
and all agreements between Buyer and any third party with whom Buyer contracts
to provide the Benefits Program.
9.23 References to Schools. When obvious from the context,
references to the "Schools" are to be considered references to the Seller.
9.24 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]
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of this 8th day of March, 2000.
"BUYER"
CORINTHIAN SCHOOLS, INC.,
a Delaware corporation
By: Frank J. McCord
-----------------------
Name: FRANK J. MCCORD
---------------------
Title: VICE PRESIDENT
--------------------
"SELLER"
CUFF & DEAN INCORPORATED,
a Georgia corporation
By: /s/ Dominic J. Dean
-----------------------
Name: Dominic J. Dean
---------------------
Title: President
--------------------
"OWNERS"
/s/ Dominic J. Dean
--------------------------
Dominic J. Dean
/s/ Arthur Cuff
--------------------------
Arthur Cuff
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, INCOME STATEMENTS AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 18,084
<SECURITIES> 16,551
<RECEIVABLES> 20,049
<ALLOWANCES> 4,778
<INVENTORY> 0
<CURRENT-ASSETS> 53,370
<PP&E> 19,745
<DEPRECIATION> 7,549
<TOTAL-ASSETS> 89,381
<CURRENT-LIABILITIES> 21,029
<BONDS> 3,431
0
0
<COMMON> 1
<OTHER-SE> 64,426
<TOTAL-LIABILITY-AND-EQUITY> 89,381
<SALES> 0
<TOTAL-REVENUES> 124,701
<CGS> 0
<TOTAL-COSTS> 107,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,653
<INTEREST-EXPENSE> (1,160)
<INCOME-PRETAX> 18,650
<INCOME-TAX> 7,759
<INCOME-CONTINUING> 10,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,891
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.05
</TABLE>
