As filed with the Securities and Exchange Commission on January 19, 1996
REGISTRATION NO. 33-64153
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
WHITMAN MEDICAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW JERSEY 8299 22-2246554
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
485 BUILDING E, U.S. HIGHWAY ONE SOUTH
ISELIN, NEW JERSEY 08830-3005
(908) 636-3640
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
RANDY S. PROTO
485 BUILDING E, U.S. HIGHWAY ONE SOUTH
ISELIN, NEW JERSEY 08830-3005
(908) 636-3640
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
Copies to:
NORMAN A. PALERMO, ESQ. WILLIAM P. OBERDORF, ESQ.
NORMAN A. PALERMO, P.C. ROBINSON, ST. JOHN & WAYNE
102 EAST PIKES PEAK AVENUE TWO PENN PLAZA EAST
COLORADO SPRINGS, CO 80903 NEWARK, NEW JERSEY 07105
TELEPHONE: (719) 471-7700 TELEPHONE: (201) 491-3300
-----------------------
Approximate date of commencement proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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CROSS-REFERENCE SHEET
Showing location in Prospectus of information
required by the items of Part I of Form S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTIONS HEADING OR LOCATION IN PROSPECTUS
--------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Facing Page; Cross Reference Sheet; Outside Front Cover Page
Cover Page of Prospectus.............................. of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus ........................................ Inside Front and Outside Back Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information..................................... Summary; Risk Factors; Summary Financial Information
4. Terms of the Transaction.............................. Summary; The Special Meetings; The Merger; The Merger
Agreement; Comparison of Rights of Stockholders
5. Pro Forma Financial Information....................... Summary; Pro Forma Combined Financial Information
6. Material Contacts With the Company Being
Acquired.............................................. The Merger; Certain Relationships and Related Transactions
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters......... *
8. Interests of Named Experts and Counsel................ Experts; Legal Matters
9. Disclosure of Commission Position on Indemnification
For Securities Act Liabilities........................ *
10. Information With Respect to S-3 Registrants.......... *
11. Incorporation of Certain Information by
Reference............................................ *
12. Information With Respect to S-2 or S-3
Registrants........................................... Summary; Incorporation of Certain Documents by Reference;
Information Concerning Whitman; Whitman Medical Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations; Capitalization of Whitman;
Description of Whitman Common Stock; Executive Officers and
Directors of Whitman; Security Ownership of Certain Beneficial
Owners and Management; Consolidated Financial Statements
13. Incorporation of Certain Information by
Reference............................................. Incorporation of Certain Documents by Reference
14. Information With Respect to Registrants Other Than S-2
or S-3 Registrants.................................... *
15. Information With Respect to S-3 Companies............. *
16. Information With Respect to S-2 or S-3 Companies...... *
17. Information With Respect to Companies Other Than S-2
or S-3 Companies...................................... Summary; Information Concerning MDJB; M.D.J.B., Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations; Security Ownership of Certain
Beneficial Owners and Management; Consolidated Financial
Statements
18. Information if Proxies, Consents or Authorizations Are
to be Solicited........................................ The Special Meetings
19. Information if Proxies, Consents or Authorizations Are
Note to be Solicited in an Exchange Offer............. *
</TABLE>
- --------------------------------
*Not Applicable
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Whitman Medical Corp.
485 Building E, U.S. Highway One South
Suite 100
Iselin, New Jersey 08830
January __, 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of the
Stockholders of Whitman Medical Corp. ("Whitman") to be held at 10:00 a.m.,
Eastern Standard Time, on February 27, 1996, at the offices of Ernst & Young
LLP, 99 Wood Avenue South, Iselin, New Jersey 08830. At such meeting, pursuant
to the rules of the American Stock Exchange, Whitman stockholders will be asked
to consider and approve the Merger Agreement between Whitman Medical Acquisition
Corporation ("Acquisition") and M.D.J.B., Inc. ("MDJB") providing for the merger
of MDJB with and into Acquisition (the "Merger"), as described in the attached
Proxy Statement - Prospectus. As a result of the Merger, and subject to the
approval of the Merger by the stockholders of MDJB as described in the attached
Proxy Statement-Prospectus, MDJB would merge with and into Acquisition, whereby
MDJB would cease to exist and each MDJB shareholder would receive Whitman common
stock as consideration for his or her MDJB stock. The Merger Agreement provides
that each share of MDJB common stock would be converted into the right to
receive the quotient of (i) 1,250,000 shares of Whitman common stock, divided by
(ii) the total number of MDJB shares outstanding at the time the merger shall
become effective. Cash will be paid in lieu of any fractional shares. Dissenting
stockholders of MDJB are granted appraisal rights under the Colorado Business
Corporation Act if such dissenting stockholders follow the requirements of the
statute, as more fully set forth in the Merger Agreement and in the Proxy
Statement-Prospectus.
Your Board of Directors has determined, after due deliberation and
discussion, that the consideration to be given to the MDJB stockholders in the
Merger is fair, from a financial point of view, to the Whitman stockholders.
The Board of Directors, by unanimous vote, has approved the terms of the
Merger Agreement, and recommends that Whitman stockholders vote FOR the
proposal to approve the Merger.
Approval of the Merger requires the approval of a majority of the
votes cast by Whitman stockholders. Directors and certain executive officers,
now holding beneficial ownership of approximately 38% of the outstanding
Whitman common stock in the aggregate, have indicated that they will vote
their shares of Whitman common stock in favor of approval of the Merger at the
Special Meeting of Stockholders. Consummation of the Merger is subject to
satisfaction of certain other conditions, including a condition subsequent to
the Merger, which shall require that the 1,250,000 shares of Whitman common
stock to be issued in connection with the Merger be held in escrow by Whitman
until such condition subsequent is satisfied. If the condition subsequent to
the Merger is not satisfied in accordance with the terms of the Merger
Agreement, Whitman may rescind the Merger transaction. For more details with
respect to all of the foregoing, each stockholder is urged to read the Proxy
Statement-Prospectus accompanying this letter.
At the meeting you will also be asked to consider and approve an
amendment to Whitman's Certificate of Incorporation to change the name of
Whitman Medical Corp. to Whitman Education Group, Inc. so as to better reflect
the scope of the business of Whitman following the recent acquisition of
Sanford Brown College and the proposed acquisition of MDJB pursuant to the
Merger.
182426-1
<PAGE>
The Notice of Meeting and the Proxy Statement-Prospectus describing the
Merger and the amendment to Whitman's Certificate of Incorporation in greater
detail are attached hereto. Whether or not you plan to attend, it is important
that your votes of Whitman common stock are represented at the Special Meeting
of Stockholders. Please give this information your careful consideration and
complete, date, sign and return promptly your proxy card in the enclosed
envelope. You may attend the meeting and vote your shares in person if you
wish, even though you have previously returned your proxy.
Sincerely,
Randy S. Proto
President
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<PAGE>
M.D.J.B., Inc.
4435 N. Chestnut Street
Colorado Springs, Colorado 80907
January __, 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders of M.D.J.B., Inc. ("MDJB") to be held at 10:00 a.m., Mountain
Standard Time, on February 24, 1996, at 4435 N. Chestnut Street, Room
250, Colorado Springs, Colorado 80907. At such meeting, you will be asked to
consider and approve the merger of MDJB into Whitman Medical Acquisition
Corporation ("Acquisition"), a Delaware corporation and wholly-owned
subsidiary of Whitman Medical Corp. ("Whitman"), formed for the purpose
effecting the merger (the "Merger"). Following the Merger, the separate
existence of MDJB shall cease and MDJB shall be merged with and into
Acquisition, which shall continue its corporate existence under the laws of
the State of Delaware under a name then selected by Whitman.
As a result of the Merger, and subject to the procedures described
in the attached Proxy Statement- Prospectus, each of the outstanding shares of
MDJB common stock shall be converted into the right to receive the quotient of
(i) 1,250,000 shares of Whitman common stock, divided by (ii) the total number
of MDJB shares outstanding at the time the Merger shall become effective.
Your Board of Directors has determined, after due deliberation and
discussion, that the Merger is in the best interest of the stockholders of
MDJB and that the consideration to be given to the MDJB stockholders in the
Merger is fair, from a financial point of view. The Board of Directors, by
unanimous vote, has approved the terms of the merger agreement, and recommends
that MDJB stockholders vote FOR the proposal to approve the Merger.
Approval of the Merger requires the approval of a majority of the
votes cast by MDJB stockholders. Directors and certain executive officers,
holding approximately 66% of the outstanding MDJB common stock in the
aggregate, have agreed that they will vote their shares of MDJB common stock
in favor of approval of the Merger at the Special Meeting of Stockholders.
Consummation of the Merger is subject to satisfaction of certain other
conditions, including a condition subsequent to the Merger, which shall cause
the 1,250,000 shares of Whitman common stock to be issued in connection with
the Merger, to be held in escrow by Whitman until such condition subsequent is
satisfied. If the condition subsequent to the Merger is not satisfied in
accordance with the terms of the Merger Agreement, Whitman may rescind the
Merger transaction. For more details with respect to all of the foregoing,
each Stockholder is urged to read the Proxy Statement-Prospectus accompanying
this letter.
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<PAGE>
The Notice of Meeting and the Proxy Statement-Prospectus describing
the Merger in greater detail are attached hereto. Whether or not you plan to
attend, it is important that your votes of MDJB common stock are represented
at the Special Meeting of Stockholders. Please give this information your
careful consideration and complete, date, sign and return promptly your proxy
card in the enclosed envelope. You may attend the meeting and vote your shares
in person if you wish, even though you have previously returned your proxy.
Sincerely,
David D. O'Donnell
President and Chairman of the Board
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<PAGE>
Whitman Medical Corp.
485 Building E, U.S. Highway One South
Suite 100
Iselin, New Jersey 08830
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held February 27, 1996
TO THE STOCKHOLDERS OF WHITMAN MEDICAL CORP.
NOTICE IS HEREBY GIVEN that a special meeting of the holders of
common stock ("Special Meeting") of Whitman Medical Corp. ("Whitman"), a New
Jersey corporation, will be held at 10:00 a.m. Eastern Standard Time on Tuesday,
February 27, 1996 at the offices of Ernst & Young LLP, 99 Wood Avenue South,
Iselin, New Jersey 08830 for the purpose of considering and voting upon:
1. The approval and adoption of the Agreement and Plan of Merger
("Merger Agreement"), dated as of September 12, 1995, between and among
Whitman, Whitman Medical Acquisition Corporation ("Acquisition") and MDJB,
Inc. ("MDJB"), including the merger (the "Merger") of MDJB with and into
Acquisition, and all the other transactions contemplated thereby;
2. The approval and adoption of an amendment to the Certificate of
Incorporation of Whitman (the "Charter") to change the name of Whitman from
Whitman Medical Corp. to Whitman Education Group, Inc.; and
3. Such other matters as may properly come before the Special
Meeting.
Only Stockholders of record at the close of business on January 10, 1996
are entitled to notice of and to vote at the Special Meeting or any
adjournment thereof. Your attention is directed to the accompanying Proxy
Statement-Prospectus for greater detail concerning the proposals described
above.
Whether or not you plan to attend the meeting, please complete,
date, sign and return promptly your proxy card in the enclosed envelope. If
you attend the meeting, you may revoke your proxy and vote in person if you
wish.
The Whitman Board of Directors unanimously recommends that
stockholders vote for the proposals to approve and adopt the Merger Agreement
and to amend the Charter of Whitman to change its name. Management has no
present intention to bring any other business before the Whitman stockholders
at the Special Meeting.
The transactions contemplated by the Merger do not require that any
Whitman stockholder send in his Whitman stock certificates for surrender and
exchange.
By Order of the Board of Directors
January __, 1996 Joseph Lichtenstein, Secretary
Iselin, New Jersey
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<PAGE>
M.D.J.B., Inc.
4435 N.Chestnut Street
Colorado Springs, Colorado 80907
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held February 24, 1996
TO THE STOCKHOLDERS OF MDJB, INC.
NOTICE IS HEREBY GIVEN that a special meeting of holders of common
stock ("Special Meeting") of M.D.J.B., Inc. ("MDJB"), a Colorado corporation,
will be held at 10:00 a.m., Mountain Standard Time, on Saturday, February 24,
1996, at 4435 N. Chestnut Street, Room 250, Colorado Springs, Colorado 80907,
for the purpose of considering and voting upon:
1. The approval and adoption of the Agreement and Plan of
Merger ("Merger Agreement"), dated as September 12, 1995,
between and among Whitman Medical Corp. ("Whitman"), Whitman
Medical Acquisition Corporation ("Acquisition") and MDJB
including the merger (the "Merger") of MDJB with and into
Acquisition, and the transactions contemplated thereby; and
2. Such other matters as may properly come before the Special Meeting.
Only stockholders of record at the close of business on January 10, 1996
are entitled to notice of and to vote at the meeting or any adjournment
thereof. Your attention is directed to the accompanying Proxy Statement-
Prospectus for greater detail concerning the Merger.
Whether or not you plan to attend the meeting, please complete, date,
sign and return promptly your proxy card in the enclosed envelope. If you
attend the meeting, you may revoke your proxy and vote in person if you wish.
The MDJB Board of Directors unanimously recommends that stockholders vote
for the proposal to approve and adopt the Merger Agreement. Management has no
present intention to bring any other business before the MDJB stockholders at
the Special Meeting.
Please do not send in your MDJB stock certificates at this time. If the
Merger is consummated, you will receive transmittal instructions for the
surrender and exchange of your MDJB stock certificates from the exchange agent
shortly after the Special Meeting.
By Order of the Board of Directors
William E. Ayen, Secretary
January __, 1996
Colorado Springs, Colorado
182426-1
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 19, 1996
M.D.J.B., INC.
PROXY STATEMENT
For a Special Meeting of Stockholders
to be held on February 24, 1996
WHITMAN MEDICAL CORP.
PROXY STATEMENT-PROSPECTUS
For a Special Meeting of Stockholders
to be held on February 27, 1996
This Proxy Statement-Prospectus ("Proxy Statement-Prospectus") is being
furnished to the stockholders of MDJB, Inc. ("MDJB") in connection with the
olicitation of proxies by the MDJB Board of Directors (the "MDJB Board") for
use at a special meeting of holders of MDJB common stock to be held at 4435 N.
Chestnut Street, Room 250, Colorado Springs, Colorado 80907 on Saturday,
February 24, 1996, at 10:00 a.m., Mountain Standard Time, and at any adjournment
or postponement thereof (the "MDJB Special Meeting").
At the MDJB Special Meeting, the stockholders of record of MDJB common
stock, no par value per share ("MDJB Stock"), as of the close of business on
January 10, 1996 (the "MDJB Stockholders") will consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated as of
September 12, 1995 between and among Whitman Medical Corp. ("Whitman"),
Whitman Medical Acquisition Corporation ("Acquisition") and MDJB (the "Merger
Agreement"), including, but not limited to, the merger of MDJB with and into
Acquisition, with Acquisition thereafter continuing its corporate existence
under the laws of the State of Delaware under a name selected by Whitman
following the Merger. These and the other transactions set forth in the Merger
Agreement are more fully described herein. A copy of the Merger Agreement is
attached to this Proxy Statement-Prospectus as Annex A. Pursuant to the Merger
Agreement, and subject to the provisions set forth therein, each of the
outstanding shares of MDJB Stock shall be converted into the right to receive
the quotient of (i) 1,250,000 shares of Whitman common stock, no par value
("Whitman Stock"), divided by (ii) the total number of shares of MDJB Stock
outstanding at the time the Merger shall become effective (the "Effective
Time"). Cash will be paid in lieu of any fractional shares. It is expected
that the Effective Time shall occur, and the Merger shall close, as soon as
practicable after the Special Meetings of the MDJB Stockholders and the
stockholders of Whitman as hereinafter described.
This Proxy Statement-Prospectus is also being furnished to the
stockholders of Whitman in connection with the solicitation of proxies by the
Whitman Board of Directors (the "Whitman Board") for use at a special meeting
of holders of Whitman Stock (the "Whitman Stockholders"), to be held at the
offices of Ernst & Young LLP, 99 Wood Avenue South, Iselin, New Jersey 08830
on Tuesday, February 27, 1996, at 10:00 a.m., Eastern Standard Time, and at any
adjournment or postponement thereof (the "Whitman Special Meeting"). The closing
of the Merger is subject, however, to the satisfaction of a certain conditions,
including a condition subsequent, described more fully herein and in the
Merger Agreement, which shall cause the consideration to be paid to MDJB
Stockholders in connection with the Merger (the "Merger Consideration") to be
held in escrow by Whitman until the condition subsequent is satisfied. If this
condition subsequent is not satisfied, Whitman shall have the right to rescind
the Merger transaction. Both the MDJB Stockholders and the Whitman
Stockholders are urged to read this Proxy Statement-Prospectus in full to
become familiar with the terms of the Merger Agreement, and the possibility
that the Merger transaction contemplated thereby may, under certain
circumstances, be rescinded.
This Proxy Statement-Prospectus also serves as a Prospectus of Whitman
under the Securities Act of 1933, as amended (the "Securities Act") for the
issuance of 1,250,000 shares of Whitman Stock in the Merger
182426-1
<PAGE>
(representing approximately 28.4% of the currently outstanding shares of
Whitman Stock). On December 26, 1995, the closing sale price of Whitman Stock
as reported by the American Stock Exchange ("AMEX") was $7.00 per share. There
is presently no trading market for the MDJB Stock. This Proxy
Statement-Prospectus and the accompanying Notices of Special Meetings and
appropriate proxy cards for each corporation are first being mailed to MDJB
Stockholders and Whitman Stockholders, respectively, on or about January __,
1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT-PROSPECTUS.
THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS OF EACH CORPORATION
ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT-
PROSPECTUS IN ITS ENTIRETY.
SEE "RISK FACTORS" ON PAGE 19 OF THIS PROXY STATEMENT-PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED PRIOR TO AN
INVESTMENT IN WHITMAN COMMON STOCK.
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement-Prospectus is ________ __, 1996.
182426-1
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<PAGE>
NO PERSON IS AUTHORIZED BY WHITMAN OR MDJB TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION, OTHER THAN ANY INFORMATION OR REPRESENTATION
CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS, IN CONNECTION WITH THE OFFERING
AND THE SOLICITATION MADE BY THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE ANY SECURITIES, IN ANY JURISDICTION IN WHICH A SOLICITATION OR
OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF WHITMAN OR
MDJB SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Under the rules and regulations of the Securities and Exchange Commission
(the "SEC"), the solicitation of MDJB Stockholders to approve the Merger
Agreement constitutes an offering of Whitman Stock to be issued in conjunction
with the Merger. Accordingly, Whitman has filed with the SEC a Registration
Statement on Form S-4 (together with any amendments thereto, the "Registration
Statement") under the Securities Act with respect to such offering. This Proxy
Statement-Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto, certain portions of which
have been omitted as permitted by the rules and regulations of the SEC. Copies
of the Registration Statement are available from the SEC, upon payment of
prescribed rates. Statements contained in this Proxy Statement-Prospectus or
in any document incorporated by reference in this Proxy Statement-Prospectus
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
Whitman is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, proxy statements, reports and other information are filed with
the SEC by Whitman. Material filed by Whitman can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices in
Chicago (500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511)
and in New York (Seven World Trade Center, 13th Floor, New York, New York
10048), and copies of such material can be obtained by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Whitman incorporates herein by reference (a) Whitman's Annual Report on
Form 10-K for the year ended March 31, 1995, as amended on Form 10-K/A as filed
with the Commission on January 19, 1996, File No. 1-13722 (b) Whitman's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 as
amended on Form 10-Q/A as filed with the Commission on January 19, 1996, File
No. 1-13722 (c) Whitman's Current Report on Form 8-K dated September 12, 1995,
File No. 1-13722, (d) Whitman's Current Report on Form 8-K dated December 21,
1994, as amended on Form 8 as filed with the Commission on February 27, 1995,
and as further amended on Form 8-K/A-1 as filed with the Commission on January
19, 1996, File No. 1-13722, and (e) the description of
182426-1
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<PAGE>
Whitman's Stock contained in Whitman's Registration Statement on Form 8-A
dated April 10, 1995. See "DESCRIPTION OF WHITMAN COMMON STOCK."
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT-PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE
(EXCLUDING EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
THEREIN BY REFERENCE). REQUESTS SHOULD BE DIRECTED TO JOSEPH LICHTENSTEIN,
SECRETARY, WHITMAN MEDICAL CORP., 485 BUILDING E, U.S. HIGHWAY ONE SOUTH,
ISELIN, NEW JERSEY 08830 (TELEPHONE (908) 636-3640). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING TO WHICH THIS
PROXY STATEMENT-PROSPECTUS RELATES, ANY SUCH REQUEST SHOULD BE MADE BY
FEBRUARY 20, 1996.
All reports and definitive proxy or information statements filed by
Whitman pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement-Prospectus and prior to the
termination of the offering of the Whitman Stock to which this Proxy
Statement-Prospectus relates shall be deemed to be incorporated by reference
into this Proxy Statement-Prospectus from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Proxy Statement-Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement-Prospectus.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS RELATING TO
WHITMAN HAS BEEN SUPPLIED BY WHITMAN, AND ALL INFORMATION RELATING TO MDJB HAS
BEEN SUPPLIED BY MDJB. NEITHER WHITMAN NOR MDJB WARRANTS THE ACCURACY OR
COMPLETENESS OF INFORMATION RELATING TO THE OTHER PARTY.
182426-1
4
<PAGE>
TABLE OF CONTENTS
SUMMARY.................................................................. 7
RISK FACTORS............................................................. 19
WHITMAN MEDICAL CORP..................................................... 23
M.D.J.B., INC............................................................ 24
THE SPECIAL MEETINGS..................................................... 24
THE PROPOSED TRANSACTIONS
Amendment to Whitman's Charter.................................... 28
The Merger........................................................ 28
THE MERGER AGREEMENT..................................................... 40
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION....................... 53
INFORMATION CONCERNING WHITMAN........................................... 58
WHITMAN MEDICAL CORP SELECTED HISTORICAL CONSOLIDATED FINANCIAL
DATA.......................................................... 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .................................... 67
Executive Officers and Directors of Whitman....................... 75
Security Ownership of Certain Beneficial Owners and Management.... 78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 81
INFORMATION CONCERNING MDJB.............................................. 82
M.D.J.B., INC SELECTED CONSOLIDATED FINANCIAL DATA................ 89
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPEATIONS...................................... 90
Security Ownership of Certain Beneficial Owners and Management.... 95
CAPITALIZATION OF WHITMAN................................................ 96
DESCRIPTION OF WHITMAN COMMON STOCK...................................... 97
COMPARISON OF RIGHTS OF STOCKHOLDERS OF WHITMAN AND MDJB................. 98
OTHER MATTERS............................................................ 105
STOCKHOLDER PROPOSALS.................................................... 105
EXPERTS.................................................................. 105
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LEGAL MATTERS............................................................ 105
OTHER BUSINESS AT THE SPECIAL MEETINGS................................... 105
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................... F-1
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<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement-Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained
elsewhere in this Proxy Statement-Prospectus, in the attached Annexes and in
the documents incorporated herein by reference. Stockholders are urged to read
carefully this Proxy Statement-Prospectus and the attached Annexes in their
entirety.
RISK FACTORS
The decision to vote for or against the adoption of the Merger Agreement
should be made only after consideration of a number of factors relating to
Whitman and MDJB. See "Risk Factors."
THE PARTIES
Whitman is engaged in the operation of 20 proprietary career-oriented
degree and non-degree granting post secondary schools. Through its
wholly-owned subsidiary, Ultrasound Technical Services, Inc., Whitman owns and
operates the Ultrasound Diagnostic School ("UDS"), believed by Whitman
management to be the largest school in the United States for the training of
sonographers for the field of medical diagnostic ultrasound. Through its
wholly-owned subsidiary, Sanford Brown College, Inc., the Company owns and
operates Sanford-Brown College, a post-secondary school which offers health
care and business degree and non-degree programs. Through April 30, 1995,
Whitman Stock was traded over-the-counter. Commencing May 1, 1995, Whitman
Stock began trading on the American Stock Exchange ("AMEX") (symbol: "WIX").
Whitman is headquartered at 485 Building E, U.S. Highway One South, Iselin,
New Jersey 08830 (telephone: 908-636-3640).
MDJB is the sole shareholder of Colorado Technical University, Inc.,
which operates Colorado Tech as a for-profit, private educational institution
offering college degree programs in engineering, computer science and
management. MDJB is headquartered on the campus of Colorado Tech, 4435 N.
Chestnut Street, Colorado Springs, Colorado 80907 (telephone 719-598-0200).
THE SPECIAL MEETINGS AND VOTES REQUIRED
The Special Meeting (including any adjournments or postponements thereof)
for Whitman Stockholders (the "Whitman Special Meeting") will be held for
Whitman Stockholders on February 27, 1996 at the offices of Ernst & Young LLP,
99 Wood Avenue South, Iselin, New Jersey 08830. Only holders of record of
Whitman Stock at the close of business on January 10, 1996 (the "Whitman Record
Date") will be entitled to notice of, and to vote at, the Whitman Special
Meeting. At the Whitman Special Meeting, Whitman Stockholders will be asked to
consider and vote on (i) the approval and adoption of the Merger Agreement and
the transactions contemplated thereby, (ii) the approval and adoption of an
amendment to Whitman's Certificate of Incorporation (the "Charter") to change
the name of Whitman to Whitman Education Group, Inc., and (iii) such other
matters as may properly come before the Whitman Special Meeting.
The Special Meeting (including any adjournments or postponements thereof)
for MDJB Stockholders (the "MDJB Special Meeting") will be held for MDJB
Stockholders on February 24, 1996 at 4435 N. Chestnut Street, Room 250,
Colorado Springs, Colorado 80907. Only holders of MDJB Stock at the close of
business on January 10, 1996 (the "MDJB Record Date") will be entitled to notice
of, and to vote at, the MDJB Special Meeting. At the MDJB Special Meeting,
MDJB Stockholders will be asked to consider and to vote on (i) the approval
and adoption of the Merger Agreement and the transactions contemplated
thereby, and (ii) such other matters as any properly come before the MDJB
Special Meeting.
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<PAGE>
The affirmative vote of the holders of a majority of the votes cast by
the Whitman Stockholders and the MDJB Stockholders, respectively, are required
for approval of the Merger Agreement. The consideration and vote by the
Whitman Stockholders and MDJB Stockholders, respectively, on the proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby is referred to herein as the "approval of the Merger." The approval of
the Merger by the Whitman Stockholders and the MDJB Stockholders,
respectively, will constitute approval and adoption of the Merger Agreement
and each of the transactions contemplated by the Merger Agreement, as more
fully described herein. Following the Merger, MDJB will cease to exist as a
separate corporate entity.
The affirmative vote of the holders of a majority of the votes cast by
the Whitman Stockholders is required to approve the amendment to Whitman's
Charter to change its name to Whitman Education Group, Inc.
As of the Record Date, there were 4,395,762 shares of Whitman Stock
outstanding, of which 1,587,197 shares, or approximately 36%, were
beneficially owned by directors and executive officers of Whitman and their
respective affiliates, all of whom have indicated that they will vote their
shares Whitman Stock for the approval of the Merger.
As of the Record Date, there were 1,074,847 shares of MDJB Stock
outstanding, of which 788,084 shares or approximately 73% were beneficially
owned by directors and executive officers of MDJB and their respective
affiliates. Each of David D. O'Donnell, President of MDJB, and the Marilyn O.
Sullivan Family Trust (collectively, the "Controlling Stockholders"), who own
in the aggregate 709,000 shares (approximately 66%) of the outstanding MDJB
Stock, have entered into stockholder agreements with Whitman pursuant to which
they are required to vote the shares of MDJB Stock held by them for the
approval of the Merger (the "Stockholder Agreements").
A shareholder of either Whitman or MDJB, respectively, may revoke a
proxy at any time before it is voted by the filing of an instrument revoking
the proxy or of a duly executed proxy bearing a later date with the Secretary
of the respective corporation prior to or at the respective corporation's
Special Meeting, or by attending the respective Special Meeting and voting in
person. Attendance at either Special Meeting will not by itself constitute
revocation of a proxy.
THE MERGER
General. The Merger Agreement provides that MDJB will merge into
Acquisition, with Acquisition being the surviving entity. See "THE MERGER" --
Background of the Merger" and the Annex A for a copy of the Merger Agreement.
Merger Consideration -- Whitman Stock. The Merger Agreement provides
that, at the effective time of the Merger (the "Effective Time") and subject
to the condition subsequent set forth therein, each share of MDJB Stock will
be converted into the right to receive the quotient of (i) 1,250,000 shares of
Whitman Stock divided by (ii) the total number of MDJB Stock outstanding at
the Effective Time. See "THE MERGER - Merger Consideration."
No fractional shares of Whitman Stock will be issued to MDJB
Stockholders upon surrender of their certificates representing MDJB Stock in
connection with the Merger. In lieu thereof, MDJB Stockholders will be
entitled to a cash payment for fractional shares (hereinafter the 1,250,000
shares of Whitman Stock and cash payments for fractional shares of Whitman
Stock shall be referred to as the "Merger Consideration").
Exchange Procedures. Shortly after each of the MDJB Special Meeting and
the Whitman Special Meeting, Continental Stock Transfer and Trust Company,
Whitman's tranfer agent (the "Exchange Agent") will send to each MDJB
Stockholder who is a shareholder of record as of five business days prior to
the MDJB Special Meeting date,
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<PAGE>
the forms necessary for the exchange of MDJB Stock for Whitman Stock, in
accordance with the allocation of the Merger Consideration set forth in the
Merger Agreement. By complying with the instructions set forth on such forms
and annexing their MDJB Stock thereto and returning the entire package to the
Exchange Agent, the MDJB Stockholder will have fulfilled his or her
obligations to receive the appropriate number of shares of Whitman Stock from
the Exchange Agent. In accordance with the terms of the Merger Agreement, the
Whitman Stock to be delivered to each of the MDJB Stockholders, will be held
in escrow by Whitman pending the satisfaction of the condition subsequent to
the Merger. SEE "THE MERGER-Whitman's Right of Rescission."
Recommendation of the MDJB Board. In approving the Merger Agreement,
MDJB's Board considered a number of factors, including but not limited to, the
terms and conditions of the Merger Agreement, the historical and prospective
business of each of Whitman and MDJB, and presentations from and a review of
the terms of the Merger Agreement with MDJB's executive officers and counsel
for MDJB. During this period, the MDJB Board considered the premium to be paid
for each share of MDJB Stock as compared to the most recent valuation of the
MDJB Stock performed in March 1995, the ramifications of a proposed business
combination with Whitman, the financial conditions, results of operations,
business prospects (including financial prospects) and strategic objectives of
MDJB, as well as the risks involved in achieving those prospects and
objectives in view of current industry, economic and market conditions, the
experience and qualifications of Whitman's management, and the absence of
negative tax consequences to MDJB Stockholders in structuring the Merger as an
exchange of MDJB Stock for Whitman Stock. In view of the various factors
considered by MDJB's Board, the Board did not deem it practicable to assign
relative weights to the various factors considered. Nor did the MDJB Board
feel it necessary to seek the advice of any outside financial consultants, at
minimum fees far in excess of what the MDJB Board believed that MDJB
Stockholders would deem prudent to pay. The MDJB Board did not believe that
such additional expense was warranted, merely to have such outside consultants
confirm the fairness, from a financial point of view, of the Merger to MDJB
Stockholders, when such conclusion was already obvious as a result of the
analysis of the MDJB Board and MDJB's executive officers. The MDJB Board has
unanimously approved the proposed Merger and recommends to the MDJB
Stockholders that they vote FOR the Merger at the MDJB Special Meeting, either
by proxy or in person. See "THE MERGER - Recommendations of the Board of
Directors and Reasons for MERGER" and "-Conflicts of Interest."
Conditions to the Merger; Condition Subsequent to the Merger. The
obligations of Whitman and MDJB to consummate the transactions contemplated by
the Merger Agreement are subject to various conditions, including, but not
limited to, obtaining approval from a majority of the Stockholders at each of
the MDJB and Whitman Special Meetings, obtaining all necessary regulatory
approvals, including, but not limited to, the approval of the SEC of the Form
S-4 Registration Statement of which this Proxy Statement-Prospectus forms a
part (the "Registration Statement"), and the approval of the AMEX for the
additional listing of up to 1,250,000 shares of Whitman Stock to be issued in
connection with the Merger. In addition to customary conditions precedent to
closing, such as the absence of any breach of a representation or warranty
made by any party to the Merger Agreement, and the satisfaction of all
customary conditions precedent to the closing of the Merger relating to the
operation of MDJB following the execution of the Merger Agreement, it will be
a condition to the obligations of Whitman to consummate the Merger that, as of
the Effective Time, holders of no more than three percent (3%) of the MDJB
Stock shall have filed a notice of an intention to dissent and seek appraisal
rights under the Colorado Business Corporation Act ("CBCA"), that Whitman will
have received a letter from its independent auditors concurring with Whitman
management's conclusion as to the appropriateness of pooling of interest
accounting treatment for the Merger, that MDJB shall be in compliance with
certain regulations promulgated under the Higher Education Act of 1965, as
amended (the "HEA") and that David D. O'Donnell shall execute an employment
agreement with Acquisition in the form attached to the Merger Agreement. See
"THE MERGER AGREEMENT- Conditions to Whitman's and Acquisition's Obligations."
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The regulations promulgated under the HEA provide that the consummation
of the Merger will result in a change of control of Colorado Tech and, as a
consequence, the loss of Colorado Tech's certification to participate in
funding under Title IV of the HEA ("Title IV Programs"). Representatives of
each of Whitman and MDJB will submit the requisite applications and supporting
documents necessary to obtain certification of Acquisition for participation
in Title IV Programs as soon as practicable following the Merger (the
"Condition Subsequent"). The Merger Agreement provides that if the United
States Department of Education (the "ED"), has advised Whitman or Acquisition
in writing within a period of 120 days following the closing of the Merger
(which may be extended unilaterally by Whitman or Acquisition for an
additional period of up to 120 days) that it does not intend to certify,
whether absolutely or provisionally (the "Certification"), Acquisition for
participation in Title IV Programs, and after diligently pursuing an appeal of
such decision for an additional 30 days, Whitman has been unsuccessful in
securing the Certification, whether absolutely or provisionally, of
Acquisition for participation in Title IV Programs, Whitman shall rescind the
Merger by giving written notice thereof to each of the MDJB Stockholders (the
"Rescission Right"). Within ten (10) days of the date of Whitman's Rescission
Right notice, Whitman shall, among other things, (i) deliver to the former
MDJB Stockholders all of the outstanding capital stock of Acquisition so that
each MDJB Stockholder receives such number of shares of Acquisition capital
stock as equal his or her percentage in MDJB immediately prior to the Merger
and (ii) cancel each share of Whitman Stock comprising a portion of the Merger
Consideration then held in escrow by Whitman or the Exchange Agent. After
giving effect to the exercise of the Rescission Right, Acquisition will be a
corporation having identity of share ownership (both as to individual
shareholders and as to ownership percentage) as that of MDJB preceding the
Merger. "THE MERGER AGREEMENT-- Whitman's Right of Rescission."
ED Certification Period and Post-Rescission Period. The Merger
Agreement provides that during the ED Certification Period, Whitman will
provide Acquisition with advances of up to the amount of the funding Colorado
Tech would have received under Title IV Programs in the absence of Colorado
Tech's termination from eligibility for funding under Title IV Programs as a
result of the Merger (the "Advances"). In the event the Condition Subsequent
is not satisfied, Whitman will continue to provide the Advances (on terms
substantially similar to that provided by Whitman during the ED Certification
Period) for a period of 120 days following the date of Whitman's notice of
exercise of the Rescission Right (the "Post-Rescission Funding Period"). All
Advances made by Whitman during the ED Certification Period and the
Post-Rescission Funding Period shall be repaid from accounts receivable of
Acquisition or Colorado Tech received by virtue of Title IV Program funding
that would have been collected by Colorado Tech in the absence of the change
of control resulting from the Merger and that are collected following
Whitman's exercise of the Rescission Right, with any remaining balance of the
Advances payable over a three (3) year term. See "THE MERGER -- Whitman's
Right of Rescission," and "THE MERGER AGREEMENT -- Condition Subsequent to
Obligations of Whitman and Acquisition."
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time by the Board of Directors of either MDJB or Acquisition
if the closing date shall not have taken place prior to March 29, 1996; by
the Board of Directors of Acquisition or MDJB at any time prior to the closing
date if (i) a material condition to such party's performance under the Merger
Agreement or a covenant of the other party shall not be fulfilled prior to the
closing date or on such other date for the fulfillment of such covenant or
condition, (ii) a material breach of the Merger Agreement shall be made by the
other party, or (iii) certain events having a material adverse effect shall
have occurred to any of the parties. Additionally, Acquisition may terminate
the Merger Agreement if on the basis of a meeting with officials from ED,
Acquisition reasonably believes that, upon the closing of the Merger, Colorado
Tech will not be certified for participation in Title IV Programs. See "THE
MERGER -- Termination."
Conflicts of Interests. It is condition precedent to the Merger
Agreement that David O'Donnell, President of MDJB, execute the form of
employment agreement appended to the Merger Agreement (the "Employment
Agreement"). The Employment Agreement provides for Mr. O'Donnell to serve as
President of Acquisition and has a three year term. Mr. O'Donnell will be
compensated at the annual rate of $145,000 for his services as
182426-1
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President of Acquisition, subject to annual review. The Employment Agreement
also provides for the grant by Whitman of a stock option under Whitman's
Incentive Stock Option Plan to purchase 75,000 shares of Whitman Stock. The
Option has a term of 10 years and provides for vesting in full at the
expiration of three years from the date of grant, subject to earlier vesting
if Mr. O'Donnell is terminated without cause by Acquisition. The Employment
Agreement further provides that Mr. O'Donnell is eligible for an annual bonus
of up to 50% of his base salary as determined by the board of directors of
Acquisition based on the satisfaction of a performance plan agreed upon by
Acquisition and Mr. O'Donnell for the preceding year. The Employment Agreement
also contains customary confidentiality, non-compete and indemnification
provisions. See "THE MERGER-Conflicts of Interest."
Appraisal Rights. Subject to compliance with procedures set forth in
Article 113 of the CBCA, the full text of which is attached as Annex B, MDJB
Stockholders are entitled to appraisal rights in connection with the Merger.
Any notice of intention to demand an appraisal must be made and delivered in
writing to Whitman by the record holder prior to the vote on the Merger by
MDJB Stockholders at the MDJB Special Meeting. Failure to take any of these
steps required under Article 113 of the CBCA on a timely basis may result in a
loss of appraisal rights. See "THE MERGER-Appraisal Rights."
Summary of Income Tax Consequences. Under current federal income tax
law and regulations, it is expected that the Merger should be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), that
Whitman and MDJB will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, and that no gain or loss should be
recognized by MDJB Stockholders to the extent they receive Whitman Stock
solely in exchange for MDJB Stock, except for cash received (and taxed as
capital gain or loss) in lieu of a fractional share interest in Whitman Stock.
If a MDJB Stockholder receives cash in the Merger because the MDJB Stockholder
exercised and perfected appraisal rights under Colorado law, gain or loss will
be recognized by the Stockholder to the extent of the difference between the
amount of cash received and the adjusted tax basis of the MDJB Stockholder in
the MDJB Stock surrendered in the transaction. Unless dividend treatment
applies, gain or loss will be a capital gain or loss if the shares of MDJB
Stock are held as a capital asset. No gain or loss will be recognized by
Whitman, Acquisition or MDJB in the Merger. For a more complete description of
federal income tax consequences of the Merger, see "THE MERGER -- Certain
Federal Income Tax Consequences."
Because of the complexity of the tax laws and the individual nature of
the tax consequences of the Merger to each MDJB Stockholder, each stockholder
should consult a tax advisor concerning the applicable federal, state, local
and foreign tax consequences of the Merger.
Accounting Treatment. The Merger of Acquisition and MDJB is intended to
be accounted for as a pooling of interest. See "THE MERGER-Accounting
Treatment" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
AMEX Listing. Since acceptance of the Whitman Stock comprising the
Merger Consideration for listing on the AMEX is a condition to the Merger, a
listing application will be made to AMEX. Approval of such application will be
subject to AMEX listing requirements and compliance with applicable securities
laws. See "THE MERGER-AMEX Listing."
THE WHITMAN CHARTER AMENDMENT
On November 8, 1995, the Board of Directors of Whitman unanimously
approved and recommended that Whitman Stockholders consider and approve an
amendment to Article 1 of Whitman's Certificate of Incorporation (the
"Charter") to change the name of Whitman from Whitman Medical Corp. to
"Whitman Education Group, Inc."
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The Board of Directors believes that the change in Whitman's corporate name
will better reflect the scope of Whitman's business and still allow the
general public to continue to distinctively identify Whitman.
The Board of Directors recommends a vote "FOR" the proposal to change
the name of Whitman. The affirmative vote of a majority of the outstanding
shares of Whitman Stock entitled to vote at the Whitman Special Meeting will
be necessary for approval of the Charter amendment.
MARKET PRICE DATA
Through April 30, 1995, Whitman Stock was traded in the over-counter
market on the National Association of Securities Dealers Automated Quotation
("NASDAQ") System under the symbol "WHIT." Commencing May 1, 1995, Whitman
Stock ceased trading on the NASDAQ System and commenced trading on the AMEX
under the symbol "WIX".
The Following table indicates the high and low bid and asked prices for
Whitman Stock for each quarter in the fiscal year ended March 31, 1994 and
1995 and for the month ended April 30, 1995 on the NASDAQ System based upon
information supplied by the National Quotation Bureau, Inc. (all quotations
represent inter-dealer prices, without retail mark-up, mark-down or
commissions, and do not necessarily represent actual transactions).
<TABLE>
<CAPTION>
BID ASKED
--- -----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal 1994
-----------
First Quarter 14 7-1/4 15 7-3/4
Second Quarter 14 9-1/4 15 9-3/4
Third Quarter 12-1/2 7-1/2 13 8-1/4
Fourth Quarter 7-3/4 5-3/4 8-1/2 6-1/4
Fiscal 1995
-----------
First Quarter 8 5 8-1/2 6
Second Quarter 5-1/2 3-1/2 6 3-5/8
Third Quarter 7-3/8 3-3/4 7-5/8 3-7/8
Fourth Quarter 8-3/4 6-1/4 9-1/4 6-3/4
Fiscal 1996
-----------
First Quarter 6-1/2 5-1/2 7 6-1/4
(through April 30)
</TABLE>
The following table indicates the high, low and closing price of
Whitman Stock on a quarterly basis for the fiscal year ending March 31, 1996
following the commencement of Whitman's listing on the AMEX on May 1, 1995,
based upon information supplied by the AMEX.
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Fiscal 1996 High Low Closing
----------- ---- --- -------
First Quarter 6-3/4 5-1/2 6-1/4
(May 1 through June 30)
Second Quarter 8-15/16 4-15/16 7-1/4
Third Quarter 7-3/8 5-1/4 7-1/8
The last sales price per share of Whitman Stock, as reported by the
Wall Street Journal on September 12, 1995, the last full trading day before
the public announcement by Whitman that the parties had executed the Merger
Agreement was $7.62; and on December 26, 1995, the latest practicable trading
date before the printing of this Proxy Statement-Prospectus was $7.00.
Holders
- -------
Whitman had 192 shareholders of record as of December 15, 1995.
Dividends
- ---------
Whitman has not paid dividends on its Common Stock and does not
contemplate paying dividends in the foreseeable future.
MDJB STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
WHITMAN STOCK IN CONNECTION WITH THE VOTING OF THEIR SHARES.
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth (i) consolidated historical summary
financial data for the periods and as of the dates indicated for Whitman and
its consolidated subsidiaries and for MDJB and its consolidated subsidiary and
(ii) pro forma combined summary financial data for the periods and as of the
date indicated, giving effect to the Merger as if it had been consummated at
the beginning of the periods presented, for income statement purposes and as
of March 31, 1995 and September 30, 1995, for balance sheet information and
assuming the acquisition of Sanford- Brown College by Whitman also had
occurred on April 1, 1994 for the year ended March 31, 1995. The unaudited pro
forma combined summary financial data gives effect to the Merger of
Acquisition and MDJB on a pooling of interest basis.
The following information should be read in conjunction with and is
qualified in its entirety by the Whitman and MDJB Consolidated Financial
Statements and related notes thereto included elsewhere in this Proxy
Statement-Prospectus, the financial statements and related notes thereto of
Sanford-Brown College incorporated by reference in this Proxy
Statement-Prospectus, and the pro forma combined financial statements and
accompanying discussion and notes set forth under "PRO FORMA COMBINED
FINANCIAL INFORMATION." The Pro Forma Combined Summary Financial Data is
intended for information purposes and is not necessarily indicative of the
future financial position or future results of operations of the combined
company or of the financial position or the result of operations of the
combined company that would have actually occurred had the Merger been in
effect as of the date or for the periods presented.
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<TABLE>
<CAPTION>
WHITMAN CONSOLIDATED HISTORICAL SUMMARY FINANCIAL DATA
Years Ended March 31 Six Months Ended
-------------------- September 30,
--------
1991 1992 1993 1994 1995 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA: (In thousands, except for per share data) (Unaudited)
Total Revenues $3,370 $3,852 $4,268 $6,158 $11,759 $3,501 $13,410
Net Income (loss) from
continuing operations 354 259 (115) 214 (355) (79) (1,403)
Net Income (loss) from
continuing operations per
common and common
equivalent share: .30 .22 (.03) .06 (.10)(1) (.02) (.36)
BALANCE SHEET DATA:
Working Capital (Deficiency) (2) 910 1,181 2,655 3,046 5,100 2,808 (4,653)
Total Assets 3,868 4,000 7,936 9,225 27,367 11,044 25,207
Long-Term Obligations 45 82 392 484 9,244 1,412 2,167
Stockholders' Equity 1,636 1,907 4,403 4,903 6,226 4,659 4,997
</TABLE>
- ---------------------------------
(1) The 501,806 shares issued in connection with the Sanford Brown College
acquisition that remain in escrow to be disbursed to the seller or
returned to Whitman upon the occurrence or failure to occur of certain
events relating to the regulation of Sanford Brown College are not
considered outstanding for purposes of computing the net loss for
fiscal 1995 as their effect is anti-dilutive.
(2) Working Capital (Deficiency) includes, as a current liability, deferred
tuition revenue of $1,913,634, $1,794,515, $2,698,620, $3,348,629 and
$9,910,213 as of March 31, 1991, 1992, 1993, 1994 and 1995, respectively,
and $4,292,978 and $8,451,675 as of September 30, 1994 and 1995,
respectively.
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<PAGE>
<TABLE>
<CAPTION>
MDJB CONSOLIDATED HISTORICAL SUMMARY FINANCIAL DATA
Nine Months
Year Ended December 31 Ended September 30,
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Total Revenues $5,216 $5,695 $6,513 $7,063 $7,868 $5,667 $6,421
Net Income from
continuing operations 26 124 333 139 208 173 218
BALANCE SHEET DATA:
Working Capital (Deficiency)(1) (1,314) (1,185) (957) (588) (493) (574) 208
Total Assets 2,773 2,656 3,679 3,742 4,128 4,038 4,563
Long-Term Obligations 132 34 185 215 223 177 1,057
Stockholders' Equity 187 306 473 815 924 891 862
</TABLE>
(1) Working Capital (Deficiency) includes, as a current liability, deferred
tuition and fees of $1,221,765, $1,175,123, $1,492,861 $1,531,375 and
$1,653,993 as of December 31, 1990, 1991, 1992, 1993 and 1994,
respectively, and $1,885,268 and $1,906,349 as of September 30, 1994
and 1995, respectively.
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<PAGE>
PRO FORMA COMBINED SUMMARY FINANCIAL DATA REFLECTING THE PROPOSED MERGER
Year Ended Six Months Ended
March 31, 1995 September 30, 1995(1)
(unaudited) (unaudited)
CONSOLIDATED OPERATING DATA (in thousands, except for per share data)
Total Revenues $30,400 $17,758
Net Income (loss) from
continuing operations 324 (1,035)
Net Income (loss) from continuing
operations per common and
common equivalent share .06 (.20)
BALANCE SHEET DATA:
Working Capital (Deficiency) - (5,347)
Total Assets - 28,854
Long-Term Obligations - 2,380
Stockholders' Equity - 5,783
(1) Includes the operating results of Sanford Brown College as if the
acquisition had occurred on April 1, 1994.
The following tables set forth certain historical per share data of
Whitman and MDJB and combined per share data on an unaudited pro forma basis
after giving effect to the Merger on a pooling-of-interest basis assuming that
each share of MDJB Stock is converted into the right to receive the quotient
of (i) 1,250,000 shares of Whitman Stock, divided by (ii) the total number of
shares of MDJB Stock outstanding at the Effective Time. The pro forma data is
presented for illustrative purposes only and are not necessarily indicative of
the financial position or operating results that would have occurred or that
will occur upon consummation of the Merger. The following information should
be read in conjunction with and is qualified in its entirety by the Whitman
and MDJB Consolidated Financial Statements and related notes thereto included
elsewhere in this Proxy Statement-Prospectus and the pro forma combined
financial statements and accompanying discussion and notes set forth under the
caption "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
182426-1
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<PAGE>
<TABLE>
<CAPTION>
Unaudited Six
Months Ended
Years Ended March 31, September 30, 1995
--------------------- --------------
HISTORICAL-WHITMAN 1993 1994 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) per share $(.08) $.06 $(.10) $(.36)
Book Value per share (1) 1.38 1.49 1.64 1.32
Cash dividends declared
per share (2) -- -- -- --
------------------- ------------------ -------------------- -----------
</TABLE>
<TABLE>
<CAPTION>
Unaudited Nine Months
Years Ended December 31, Ended September 30,
------------------------ -------------------
HISTORICAL-MDJB 1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) per share $(.05) $.12 $ .18 $ .13
Book Value per share (1) .43 .68 .79 .80
Cash dividends declared
per share (2) -- -- -- --
------------------- ------------------ -------------------- -----------
</TABLE>
<TABLE>
<CAPTION>
Unaudited Six
Months Ended
Years Ended March 31, September 30,
--------------------- -------------
(unaudited)
PRO FORMA COMBINED 1993 1994 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Pro forma net income (loss) per
Whitman share $.05 $.07 $.06 $(.20)
Pro forma net income (loss) per
MDJB share (3) .06 .08 .07 (.24)
</TABLE>
<TABLE>
<CAPTION>
Unaudited Six Months
Years Ended March 31, Ended September 30, 1995
--------------------- -------------------
(unaudited)
PRO FORMA COMBINED 1993 1994 1995
---- ---- ----
<S> <C> <C> <C> <C>
DIVIDEND` DECLARED PER
SHARE (2):
Pro Forma combined
dividends per share
declared per Whitman
share $ -- $ -- $ -- $ --
----------------- ----------------- ----------------- ---------
</TABLE>
182426-1
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Pro Forma combined
dividends declared per
MDJB Share (3) -- -- -- --
------------------- ------------------ -------------------- -----------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED BOOK VALUE PER March 31, 1995 Unaudited
SHARE (4): -------------- September 30, 1995
-------------
(unaudited)
<S> <C> <C>
Pro Forma book value per Whitman Share $1.42 $1.12
Pro Forma combined book value per MDJB 1.65 1.30
Share (3)
</TABLE>
- ---------
(1) The historical book value per share is computed by dividing
shareholders' equity by the number of shares of Common Stock
outstanding (net of treasury shares) at the end of each period.
(2) Neither Whitman nor MDJB has ever paid dividends on their respective
common stock, and Whitman has no plans to do so in the immediate
future.
(3) The MDJB equivalent pro forma per share amounts are calculated by
multiplying combined pro forma per share amounts by the estimated
number (1.16 shares) of Whitman Stock for each share of MDJB Stock.
(4) The pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number of shares of Common
Stock outstanding at the end of each period.
182426-1
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<PAGE>
RISK FACTORS
The Stockholders of each of MDJB and Whitman should carefully
consider the following in deciding whether or not to vote in favor of the
Merger.
RECENT LOSSES; ADDITIONAL CAPITAL REQUIREMENTS. Whitman reported a
net loss of $354,979 on revenues of $11,759,258 for the fiscal year ended
March 31, 1995, as compared to net income of $213,561 on revenues of
$6,158,203 for the fiscal year ended March 31, 1994. For the six months
ended September 30, 1995, Whitman reported a net loss of $1,403,129 on revenues
of $13,410,119, as compared to a net loss of $78,534 on revenues of $3,501,242
for the comparable period in 1994. Management attributes such losses to
increased costs associated with the current expansion of the UDS teaching
facilities to increase the number of career programs offered, an increase in
the number of its full-time employees and the acquisition of laboratory and
computer equipment and furniture. (See "WHITMAN MEDICAL CORP. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-Comparison of Operations for the Six Months Ended September 30, 1995
and 1994" and-"Comparison of Results of Operations of Fiscal Years 1995 and
1994"). It is anticipated that the expenditures associated with the planned
expansion of the UDS teaching facilities will cause Whitman to incur operating
losses until such time, if any, as Whitman generates sufficient additional
revenues from operations. In addition, Whitman has a working capital facility
in the amount of $2,500,000 (of which $1,250,000 was available for use at
November 30, 1995) and a $6,000,000 term loan, each of which mature on April
16, 1996. While Whitman management believes that the cash flow from operations
will be sufficient to pay the balance on the $2,500,000 working capital
facility, Whitman does not expect to have sufficient positive cash flow by
April 16, 1996 to repay the $6,000,000 term loan facility. Although Whitman
has been successful to date in funding its cash flow deficiencies through
private offerings of its securities and bank financing, no assurance can be
given that Whitman will be successful in completing future offerings of its
securities or in obtaining replacement bank financing. Whitman is currently
in discussions with its bank to extend the term of each of the working capital
and term loan facilities. No assurance can be given, however, that such an
extension will be available, or, if available, on terms acceptable to Whitman.
If additional funds are not available from operations or alternatives sources of
financing to refinance Whitman's $6,000,000 term loan and to fund cash flow
deficiencies, following the repayment of the working capital facility Whitman's
business would be materially adversely affected. Moreover, pursuant to the
Merger Agreement with MDJB, Whitman has agreed to provide to Colorado Tech
certain advances up to the amount of funding that Colorado Tech would have
received under Title IV Programs in the absence of Colorado Tech's termination
from eligibility for funding under such programs as a result of the Merger.
Whitman's obligation to provide such advances will continue for an additional
period of 120 days in the event Whitman rescinds the Merger. In the event the
Company is successful in refinancing or extending the term of its existing
working capital and term loan facilities, management believes it will have
sufficient resources available to satisfy its obligations to make advances to
Colorado Tech as provided in the Merger Agreement. If, however, the working
capital and term loan facilities are not refinanced or extended, or alternative
sources of financing are unavailable, Whitman will be unavailable to satisfy
its obligations in this regard. The failure of Whitman to provide such advances
to Colorado Tech will have a material adverse effect on the Company.
FEDERAL AND STATE REGULATION. Colorado Tech and each school operated
by Whitman is subject to regulation (i) by the state in which it operates,
(ii) by accrediting associations and (iii) because it is eligible to
participate in Federal financial aid programs, by the United States Department
of Education ("ED").
Accreditation. Whitman's schools and Colorado Tech are accredited by
accrediting associations recognized by ED. Accreditation serves as the basis
for: (1) the recognition and acceptance by employers, other higher education
institutions and governmental entities of degrees and credits earned by
students; (2) one of the qualifications to participate in Title IV Programs
and (3) the qualification for authorization to operate in certain
182426-1
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<PAGE>
states. The withdrawal of accreditation from Whitman's schools or Colorado
Tech would have a material adverse effect on Whitman and Colorado Tech.
State Authorization. Whitman is required to have authorization to
operate in each state where it physically provide educational programs.
Colorado Tech is required to have authorization from the State of Colorado.
Certain states accept accreditation as evidence of meeting minimum state
standards for authorization. Other states require separate evaluations for
authorization. Depending on the state, the addition of a program not offered
previously or the addition of a new location must be included in the
institution's accreditation and/or be approved by the appropriate state
authorization agency. Whitman's schools and Colorado Tech are currently
authorized to operate in all states in which they have physical locations. If
Whitman or Colorado Tech is unable to maintain authorization to operate in
existing states, it may have a material adverse effect on Whitman and
Acquisition.
FEDERAL FINANCIAL AID PROGRAMS. Whitman derives a majority of its
revenue and Colorado Tech derives a significant portion of its revenue from
students who participate in Federal financial aid programs Title IV Programs
under of the HEA, and the regulations promulgated thereunder by ED (the
"Regulations"). In order to participate in Title IV Programs, Whitman and
Colorado Tech must comply with complex standards set forth in the HEA and the
Regulations. In 1992, in reauthorizing the HEA, Congress imposed more
stringent standards upon proprietary institutions participating in Title IV
Programs. The new standards placed proprietary institutions under increased
regulatory scrutiny. The loss by Whitman or Colorado Tech of its eligibility
to participate in Title IV Programs would have a material adverse effect on
such entities.
State Postsecondary Review Equity. The HEA requires each state to
establish a State Postsecondary Review Entity ("SPRE") to review institutions
within its state to determine continued eligibility to participate in the
Title IV Programs. SPRE reviews will be mandatory for institutions meeting
specific criteria. At present, UDS and SBC operate schools in 11 states. Each
state is required to submit its review standards to ED for approval. The
review standards promulgated by a state could adversely affect the eligibility
of Whitman's schools in that state to participate in the Title IV Programs.
The 85/15 Rule. The HEA requires that an annual comparison be made
for each proprietary school of the percentage of its Title IV Program receipts
to its total receipts from Title IV eligible programs. Under the 85/15 Rule, a
proprietary school will be ineligible to participate in Title IV Programs if,
on a cash basis of accounting, more than 85% of its revenues from Title IV
eligible programs for the prior fiscal year were derived from Title IV Program
funds. Although Whitman and Colorado Tech believe that each of their schools
is in compliance with the 85/15 Rule, there could be no assurance that such
compliance will continue in the future.
Student Loan Defaults. If a school's cohort default rate (the rate at
which its student borrowers entering repayment in one federal fiscal year
default on repayment of student loans obtained under the Federal Family
Education Loan Programs ("FFELP") before the end of the following fiscal year)
exceeds 25% in all of its three most recent federal fiscal years it becomes
ineligible to participate in the FFELP programs. An institution's cohort
default rate is published annually by ED. The most recent cohort year
published was 1992. A school may appeal its published rate and/or its loss of
eligibility. Each of Colorado Tech's and UDS' default rates are well below the
25% ceiling, but SBC's 1992 rate exceeded 25% and it is expected that SBC's
1993 default rate will exceed the 25% ceiling. Stringent measures have been
implemented by SBC to reduce its default rate. Whitman does not anticipate
that SBC will lose FFELP eligibility, however, ED may place restrictions on
SBC until the rate has been reduced below the 25% ceiling. If SBC does lose
FFELP eligibility, it would have a material adverse affect on Whitman.
Standards of Financial Responsibility. Under the Regulations, each
eligible institution must satisfy certain standards of financial
responsibility to continue to participate in Title IV Programs. A failure to
satisfy the standards
182426-1
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<PAGE>
could result in restrictions being place on an institution's participation in
Title IV Programs or a termination of its eligibility to participate in Title
IV Programs. For purposes of these standards, at present SBC is evaluated as a
distinct entity, while UDS is evaluated on the basis of the financial
performance of Whitman as a whole. The three principal standards are the acid
test ratio, profitability and tangible net worth.
Acid Test Ratio. At the end of the fiscal year, a proprietary
institution must maintain a ratio of at least 1 to 1 of cash, cash
equivalents, restricted cash and current accounts receivable to total current
liabilities. At March 31, 1995, Whitman acid test ratio was 1.36 to 1.00 and
SBC's acid test ratio was 1.21 to 1.00. There can be no assurance that the
minimum acid test ratios will be met in the future.
At December 31, 1994, Colorado Tech's acid test ratio was determined
by ED to be less than 1.00 to 1.00. As a result of such determination, ED has
requested that Colorado Tech open for the benefit of ED an irrevocable letter
of credit to ED in the amount of $1,330,000 (representing not less than
one-half of the annual funding received by Colorado Tech under Title IV
Programs) in order to continue participating in Title IV Programs. Colorado Tech
appealed the requirement to open a letter of credit by requesting an extension
of time in order for ED to utilize Colorado Tech's December 31, 1995 financial
statements in the calculation of the acid test ratio. The extension was granted
by ED. At September 30, 1995 and at December 31, 1995, Colorado Tech met the
1.00 to 1.00 acid test ratio requirement. There can be no assurance that the
minimum acid test ratios will be met in the future.
Profitability. An eligible institution may not have operating losses
in either or both of its two most recent fiscal years that, in sum, result in
a decrease in its tangible net worth in excess of 10% of the institution's
tangible net worth at the beginning of the two year period. Each of Colorado
Tech and SBC operated profitably in fiscal 1995. Although Whitman had an
operating loss for fiscal 1995, the sum of its operating results in the 1994
and 1995 fiscal years did not result in a decrease of its tangible net worth
in excess of 10%. Should Whitman experience an operating loss for fiscal 1996,
the UDS schools will likely fail to meet the profitability standard which
could have a material adverse effect on Whitman.
Tangible Net Worth. An eligible institution is required to have a
positive tangible net worth at the completion of its fiscal year. At December
31, 1994, Colorado Tech had a positive net worth. At March 31, 1995 SBC and
Whitman each had a positive net worth. There can be no assurance that Colorado
Tech, SBC or Whitman will continue to maintain a positive tangible net worth,
which could have a material adverse effect on Whitman.
LOSS OF COLORADO TECH'S ELIGIBILITY TO PARTICIPATE IN TITLE IV
PROGRAMS; WHITMAN'S RIGHT TO RESCIND THE MERGER. The regulations promulgated
under HEA provide that the consummation of the Merger will result in a change
of control of Colorado Tech and, as a consequence, the loss of Colorado Tech's
certification to participate in funding under Title IV Programs. Following the
Merger, Acquisition will be required to submit the requisite applications and
supporting documents necessary to obtain certification by ED for participation
in Title IV Programs. The submission and review of an application to
participate in Title IV Programs in anticipation of the Merger is not
permitted under the Regulations. Moreover, the certification review process
can take between 60 and 180 days to complete. No assurance can be given that
Acquisition will receive certification. The refusal by ED to grant Acquisition
certification to participate in Title IV Programs following the Merger would
have a material adverse affect on the business and financial condition of
Acquisition.
The Merger Agreement provides that Whitman has the right to rescind
the Merger in the event Acquisition is not certified for participation in
Title IV Programs within a period of 120 days (subject to extension for an
additional 120 days at the election of Whitman or Acquisition) following the
Merger. In the event Acquisition is
182426-1
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<PAGE>
not certified for Title IV Program participation within such time, Whitman may
exercise its right of rescission by written notice to the MDJB Stockholders
and, among other things, each MDJB Stockholder shall receive such number of
shares of Acquisition capital stock as equals his or her percentage in MDJB
immediately prior to the Merger and each share of Whitman Stock comprising the
Merger Consideration then held in escrow by Whitman will be canceled. The
rescission of the Merger and the transfer of all of the capital stock of
Acquisition to the MDJB Stockholders will constitute a change of control under
the ED Regulations requiring that Acquisition again apply for recertification
for participation in Title IV Programs. As a result, Colorado Tech will be
ineligible for participation in Title IV Program funding during the period in
which Whitman seeks to obtain certification for Acquisition and, in the event
Whitman's Rescission Right is exercised, during the period in which
Acquisition seeks recertification following the rescission of the Merger.
Colorado Tech's suspension from eligibility for Title IV Program funding could
range from 3 to 9 months and no assurance can be given that Colorado Tech will
be recertified following the rescission of the Merger. Although Whitman has
agreed in the Merger Agreement to provide certain working capital advances to
Colorado Tech for a period of 120 days following the exercise of its
Rescission Right in amounts approximately equal to the Title IV Program
funding that Colorado Tech would have received absent the Merger, the
interruption and potential loss of Title IV Program funding for Colorado Tech
could have a material adverse affect on its business operations. See "Recent
Losses; Additional Capital Requirements;" "THE MERGER-Whitman's Right of
Rescission," and "THE MERGER AGREEMENT-Condition Subsequent to the Merger."
RELIANCE ON CURRENT MANAGEMENT AND PERSONNEL. Each of Whitman's and
Colorado Tech's success is dependent on its ability to recruit and retain
qualified management and educational personnel. Although each of Whitman and
Colorado Tech has been successful to date in attracting and retaining skilled
management and educational personnel, there can be no assurance that Whitman
and Colorado Tech will be able to attract and retain such personnel on
acceptable terms in the future.
COMPETITION. In almost all the geographic areas in which UDS teaching
facilities are located, hospitals and community colleges operate programs to
train medical sonographers. In addition, both proprietary schools and
community colleges offer Medical Assisting programs and Cardiovascular
Technology programs similar to that offered by UDS. Moreover, in each of the
areas in which SBC and Colorado Tech operate, there are many competitors which
provide comparative educational degrees and curriculum. See "INFORMATION
CONCERNING WHITMAN-Competition," and "INFORMATION CONCERNING
MDJB-Competition."
DIVIDEND POLICY. Whitman has not paid dividends on its Common Stock
since its inception and, by reason of its present financial condition and its
projected financial needs, it does not contemplate paying dividends in the
foreseeable future on its Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of Whitman Stock in the public
market by current shareholders or Whitman could adversely affect the market
price of the Whitman Stock. Whitman has filed a registration statement on Form
S-3 with the SEC to register 609,038 shares of Whitman Stock originally issued
in a private offering made by Whitman in connection with its acquisition of
SBC. Whitman cannot predict the effect, if any, that market sales of the
Whitman Stock subject to such registration statement or the availability of
such Whitman Stock will have on the market price for Whitman Stock. However,
sales by the selling security holder under such registration statement,
existing shareholders and Whitman of substantial amounts of Whitman Stock in
the public market could adversely affect the prevailing market prices for
Whitman Stock.
182426-1
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<PAGE>
WHITMAN MEDICAL CORP.
Whitman is engaged in the operation of 20 proprietary career-oriented degree
and non-degree granting post-secondary schools. Through its wholly- owned
subsidiary, Ultrasound Technical Services, Inc., Whitman owns and operates the
Ultrasound Diagnostic School, believed by management to be the largest school
in the United States for the training of sonographers for the field of medical
diagnostic ultrasound. Through its wholly-owned subsidiary, Sanford Brown
College, Inc., Whitman owns and operates Sanford-Brown College, a
post-secondary school which offers healthcare and business degree and
non-degree programs.
Ultrasound Diagnostic School
The Ultrasound Diagnostic School ("UDS") teaches more students to be
ultrasound technologists for the field of medical ultrasound than any other
school in the United States. Medical ultrasound employs harmless high
frequency sound waves to form a picture of the internal organs of the body.
Diagnostic medical ultrasound is employed in various medical specialties,
including obstetrics, gynecology, cardiology, internal medicine, oncology and
ophthalmology.
At December 1, 1995, UDS consisted of fifteen teaching facilities:
three in New York State, three in Florida, two in the Commonwealth of
Pennsylvania, two in Texas and one each in the states of Georgia, Maryland,
Massachusetts, New Jersey and Ohio. Of the fifteen facilities, four began
operations in fiscal 1993 and one in fiscal 1994. The fifteen facilities are
organized into four main campuses -- Carle Place, N.Y., Elmsford, N.Y., New
York, N.Y. and Iselin, N.J.
Sanford-Brown College
On December 21, 1994, a wholly owned subsidiary of Whitman acquired
Sanford-Brown College ("SBC"). See "INFORMATION CONCERNING WHITMAN --
Acquisition of Sanford-Brown College." Founded shortly after the Civil War,
SBC operates four schools in Missouri and one in Illinois organized into two
main campuses -- Des Peres, Missouri and Granite City, Illinois. SBC offers
the following programs: physical therapy assistant, occupational therapy
assistant, associate degree nursing, licensed practical nursing, medical
administrative assistant, accounting, secretarial, data processing, travel and
hospitality and paralegal.
SBC is accredited by the Accrediting Commission for Independent
Colleges and Schools, and is a candidate for accreditation by the North
Central Association ("NCA"). The NCA candidacy status allows SBC to issue
accredited associate's degrees, giving a student the ability to transfer
credits earned at SBC toward a baccalaureate degree at many four year
colleges. SBC is one of two proprietary schools in Missouri that have been
approved for NCA candidacy.
Acquisition
Acquisition is a Delaware corporation wholly-owned by Whitman and
formed for the specific purpose of effecting the Merger. Acquisition has no
business operations or assets and will remain inactive prior to the Merger.
For additional information relating to Whitman and the combined
company that would result from the Merger of Acquisition and MDJB, see "THE
MERGER", "PRO FORMA COMBINED FINANCIAL INFORMATION," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "INFORMATION CONCERNING WHITMAN."
182426-1
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<PAGE>
M.D.J.B., INC.
MDJB is the owner of Colorado Technical University, Inc. popularly
known as "Colorado Tech." Colorado Tech is a regionally accredited degree
granting institution with approximately 1600 students enrolled primarily in
computer science, engineering and management programs. Colorado Tech confers
degrees at the associate's, bachelor's, master's and doctoral levels. The
average Colorado Tech student is not a recent high-school graduate, but rather
someone who has already been established in a career field and seeks to
upgrade his or her position. Classes are structured to provide full evening
and weekend schedules available to working students.
Located in a central campus in Colorado Springs, Colorado where the
classrooms, labs, bookstore and financial departments are located, Colorado
Tech provides its students an on-campus Resource Center that features
extensive study, tutorial training and research equipment designed to support
the academic needs of both students and faculty. Traditional resources are
enhanced by access to over 150 computer software programs, CD-ROM databases,
an on-line information system and an audio/visual center. See "INFORMATION
CONCERNING MDJB -- Colorado Technical University."
MDJB also owns Concept Communications ("Concept"), an advertising
agency which provides services to Colorado Tech and other clients not
affiliated with MDJB. Concept offers a variety of services in all aspects of
marketing and communications, from print and broadcast advertising production
and placement to proposal packaging and documentation support. See
"INFORMATION CONCERNING MDJB -- Concept Communications."
For additional information relating to MDJB and the combined company
that would result from the Merger, see "THE MERGER," "PRO FORMA COMBINED
FINANCIAL INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"INFORMATION CONCERNING MDJB."
THE SPECIAL MEETINGS
GENERAL
This Proxy Statement-Prospectus is being furnished to MDJB
Stockholders in connection with the solicitation of proxies by the MDJB Board
for use at the MDJB Special Meeting to vote on the Merger and to transact such
other business as may properly come before the MDJB Special Meeting or any
adjournments or postponements thereof. Each copy of this Proxy
Statement-Prospectus mailed to MDJB Stockholders is accompanied by a form of
proxy for use at the Special Meeting.
This Proxy Statement-Prospectus is also furnished by Whitman to
Whitman Stockholders in connection with the solicitation of proxies by the
Whitman Board for use at the Whitman Special Meeting to vote on the Merger,
the amendment to the Charter and to transact such other business as may
properly come before the Whitman Special Meeting or any adjournments or
postponements thereof. Each copy of this Proxy Statement-Prospectus mailed to
Whitman Stockholders is accompanied by a form of proxy for use at the Special
Meeting.
This Proxy Statement-Prospectus is also furnished by Whitman to MDJB
Stockholders as a prospectus in connection with the shares of Whitman Stock to
be issued upon consummation of the Merger.
DATE, PLACE AND TIME OF MDJB SPECIAL MEETING
The Special Meeting for MDJB Stockholders will be held at 10:00 a.m. on
Saturday, February 24, 1996 at 4435 N. Chestnut Street,
Room 250, Colorado Springs, Colorado 80907.
182426-1
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<PAGE>
APPROVAL OF MDJB STOCKHOLDERS
The MDJB Board has fixed January 10, 1996 as the Record Date for
the MDJB Special Meeting. Accordingly, only holders of record of MDJB Stock at
the close of business on that date will be entitled to notice of and to vote
at the Special Meeting. At the close of business on such date, there were
1,074,847 shares of MDJB Stock issued and outstanding.
Stockholders of record on the Record Date of the MDJB Special Meeting
are entitled to one vote per share on any matter that may properly come before
the MDJB Special Meeting. The presence, in person or by proxy, of the holders
of the shares entitled to carry a majority of the votes at the Special Meeting
is necessary to constitute a quorum. The affirmative vote of a majority of the
shares of MDJB Stock, in person or by proxy, at the MDJB Special Meeting is
required to authorize the adoption of the Merger Agreement.
As of December 1, 1995, the Controlling Stockholders of MDJB had the
right to vote an aggregate of 709,000 shares of MDJB Stock, representing
approximately 66% of the MDJB Stock then outstanding. The Controlling
Stockholders of MDJB are parties to a certain Stockholder Agreement with
Whitman pursuant to which each has agreed to vote his or her shares of MDJB
Stock in favor of the Merger Agreement. See "THE MERGER AGREEMENT --
Additional Agreements - Stockholder Agreement."
As of the Record Date, to the best knowledge of the executive
officers of Whitman, neither Whitman nor any of its directors or executive
officers owned any MDJB Stock.
VOTING AND REVOCATION OF PROXIES
Shares of MDJB Stock represented by a proxy properly signed and
received at or prior to the MDJB Special Meeting, unless subsequently revoked,
will be voted in accordance with the instructions thereon. IF A PROXY IS
SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE SHARES OF
MDJB STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE
THE MERGER. Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before the proxy is voted by the filing of
(i) an instrument revoking it or (ii) a duly executed proxy bearing a later
date, to the Secretary of MDJB prior to or at the MDJB Special Meeting, or by
voting in person at the MDJB Special Meeting. All written notices of
revocation and other communications with respect to revocation of MDJB proxies
should be addressed to: M.D.J.B., Inc., 4435 N. Chestnut Street, Colorado
Springs, Colorado 80907, Attention: Secretary. Attendance at the Special
Meeting will not in and of itself constitute a revocation of a proxy.
Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum, but as unvoted
for purposes of determining the approval of any matter submitted to a vote of
the stockholders. If a nominee indicates on its proxy that it does not have
discretionary authority to vote on a particular matter submitted to a vote of
stockholders as to certain shares, those shares will be counted for general
quorum purposes but will not be considered as present and entitled to vote
with respect to that matter.
The MDJB Board is not aware of any business to be acted upon at the
Special Meeting other than as described herein. If, however, other matters are
properly brought before the Special Meeting, including any adjournments or
postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their best judgment, except that properly
appointed proxies votes against the Merger will not be voted for any
adjournment or postponement. The grant of a proxy will also confer
discretionary authority on the persons named in the proxy to vote on the
matters incident to the conduct of the MDJB Special Meeting.
THE MDJB BOARD, BY UNANIMOUS VOTE OF ALL DIRECTORS, APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AS BEING IN THE BEST
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<PAGE>
INTERESTS OF MDJB AND ITS STOCKHOLDERS. THE MDJB BOARD UNANIMOUSLY RECOMMENDS
THAT MDJB STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
MDJB STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER IS APPROVED, A TRANSMITTAL FORM WITH INSTRUCTIONS WITH
RESPECT TO THE SURRENDER OF THE MDJB STOCK CERTIFICATES WILL BE MAILED TO EACH
STOCKHOLDER SHORTLY AFTER SUCH APPROVAL.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and
employees of MDJB, who will not be specifically compensated for such services,
may solicit proxies from MDJB Stockholders personally or by telephone or
telegram or other forms of communication. Brokerage house nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in doing so.
DATE, TIME AND PLACE OF WHITMAN SPECIAL MEETING
The Special Meeting for Whitman Stockholders will be held at 10:00
a.m. on Tuesday, February 27, 1995, at the offices of Ernst & Young LLP, 99 Wood
Avenue South, Iselin, New Jersey 08830.
APPROVAL OF WHITMAN STOCKHOLDERS
The Whitman Board has fixed January 10, 1996 as the Record Date
for the Whitman Special Meeting. Accordingly, only holders of record of
Whitman Stock at the close of business on that date will be entitled to notice
and to vote at the Whitman Special Meeting. At the close of business on such
date, there were 4,395,762 shares of Whitman Stock outstanding.
Stockholders of record on the Record Date of the Whitman Special
Meeting are entitled to one vote per share on any matter that may properly
come before the Whitman Special Meeting. The presence, in person or by proxy,
of the holders of shares entitled to cast a majority of the votes at the
Whitman Special Meeting is necessary to constitute a quorum. The affirmative
vote of a majority of the votes cast by holders of the shares of Whitman
Stock, in person or by proxy, at the Whitman Special Meeting is required to
(i) authorize the adoption of the Merger Agreement and (ii) authorize the
adoption of the amendment to the Charter to change the corporate name of
Whitman.
As of December 1, 1995, the directors and executive officers of
Whitman and their affiliates had the right to vote an aggregate of 1,587,197
Shares of Whitman Stock, representing approximately 36% of the Whitman Stock
issued and outstanding. The Directors and executive officers of Whitman have
indicated that they intend to vote their shares of Whitman Stock in favor of
each of the Merger Agreement and the amendment to the Charter.
As of the Record Date, to the best knowledge of the executive
officers of MDJB, neither MDJB nor any of its directors or executive officers
owned any Whitman Stock.
VOTING AND REVOCATION OF PROXIES
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Shares of Whitman Stock represented by a proxy properly signed and
received at or prior to the Whitman Special Meeting, unless subsequently
revoked, will be voted in accordance with the instructions thereon. IF A PROXY
IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE SHARES
OF WHITMAN STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR (I) THE PROPOSAL
TO APPROVE THE MERGER AND (II) THE PROPOSAL TO AMEND THE CHARTER TO CHANGE THE
CORPORATE NAME OF WHITMAN. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before the proxy is voted by
the filing of, (i) an instrument revoking it or (ii) a duly executed proxy
bearing a later date, with the Secretary of Whitman prior to or at the Whitman
Special Meeting. All written notices of revocation and other communications
with respect to revocation of Whitman proxies should be addressed to Whitman
Medical Corp., 485 Building E, U.S. Highway One South, Suite 100, Iselin, New
Jersey 08830, Attention: Secretary. Attendance at the Whitman Special Meeting
will not in and of itself constitute a revocation of a proxy.
Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum, but as unvoted
for purposes of determining the approval of any matter submitted to a vote of
the stockholders. If a broker or nominee indicates on its proxy that it does
not have discretionary authority to vote on a particular matter submitted to a
vote of the stockholders as to certain shares, those shares will be counted
for general quorum purposes but will not be considered as present and entitled
to vote with respect to that matter.
The Whitman Board is not aware of any business to be acted upon at
the Whitman Special Meeting other than as described herein. If, however, other
matters are properly brought before the Whitman Special Meeting, including any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon according to their best judgment,
except that properly appointed proxies voted against the Merger will not be
voted for any adjournment or postponement. The grant of a proxy will also
confer discretionary authority on the persons named in the proxy to vote on
the matters incident to the conduct of the Whitman Special Meeting.
THE WHITMAN BOARD, BY UNANIMOUS VOTE OF ALL THE DIRECTORS, APPROVED
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND THE
AMENDMENT TO THE CHARTER OF WHITMAN, EACH AS BEING IN THE BEST INTERESTS OF
WHITMAN AND ITS STOCKHOLDERS. THE WHITMAN BOARD UNANIMOUSLY RECOMMENDS THAT
WHITMAN STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF (I) THE MERGER
AGREEMENT AND (II) THE AMENDMENT TO WHITMAN'S CHARTER.
SINCE WHITMAN STOCKHOLDERS ARE NOT EXCHANGING THEIR SHARES AS PART OF
THE MERGER TRANSACTION WITH THOSE ISSUED BY MDJB OR ANY OTHER CORPORATION,
WHITMAN STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. ANY SUCH STOCK CERTIFICATES THAT ARE MISTAKENLY SENT WILL, TO THE BEST
ABILITY OF WHITMAN, BE RETURNED TO THEIR BENEFICIAL OWNERS, AS SOON AS
POSSIBLE FOLLOWING THE WHITMAN SPECIAL MEETING.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and
employees of Whitman, who will not be specifically compensated for such
services, may solicit proxies from Whitman Stockholders personally or by
telephone or telegram or other forms of communication. Brokerage house
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in doing so.
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THE PROPOSED TRANSACTIONS
WHITMAN
AMENDMENT TO WHITMAN'S CHARTER
On November 8, 1995, the Board of Directors of Whitman unanimously
approved and recommended that Whitman Stockholders consider and approve an
amendment to Article I of Whitman's Certificate of Incorporation (the
"Charter") to change the name of Whitman from Whitman Medical Corp. to Whitman
Education Group, Inc.
The Board of Directors believes that the change in the corporate name
of Whitman to "Whitman Education Group, Inc." will better reflect the scope of
the business of the Company in view of the recent acquisition of Sanford Brown
College and the proposed acquisition of Coloradao Tech, while still allowing the
general public to continue to distinctively identify Whitman. The Board of
Directors believes that it is appropriate to delete the word "Medical" from
Whitman's name because such reference implies an unnecessarily limited
description of Whitman's business. Retaining the name "Whitman" in the corporate
name was considered to be desirable in order to maintain the identity of the
Company to the general public. If the proposed amendment to Whitman's Charter is
approved by the stockholders and is not abandoned by the Board of Directors,
such amendment will become effective on the filing of a Certifcate of Amendment
to Whitman's Charter with the Secretary of State of the State of New Jersey.
The Board of Directors recommends a vote "FOR" the above proposal to
change the name of Whitman and to authorize the Board of Directors to abandon
such name change as the Board of Directors may determine without further
action by the stockholders. The affirmative vote of a majority of the
outstanding shares of Whitman Common Stock entitled to vote at the Whitman
Special Meeting will be necessary for approval. Unless otherwise instructed,
the Proxies will vote FOR approval of the amendment and the related
authorization to the Board of Directors. For purposes of counting votes in
this regard, abstentions will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum, but as
unvoted for purposes of determing the approval of this Proposal by the
shareholders. If a broker or nominee indicates that it does not have
discretionary authority to vote on this Proposal as to certain shares, those
shares will be counted for general quorum purposes but will not be considered
as present and entitled to vote with respect to this Proposal.
If the proposal is adopted, the Charter will be amended to delete
Article I in its entirety and replace same with the following:
"1. The name of the corporation is Whitman Education Group, Inc."
WHITMAN AND MDJB
THE MERGER
BACKGROUND OF THE MERGER
Whitman's management became aware of the existence of Colorado Tech in
February 1995, as a result of Whitman's hiring of an individual who had also
been interviewed by, and visited, Colorado Tech seeking employment. As a
result of his perception of the academic quality of Colorado Tech, this
individual recommended to Whitman's President that he contact an advisor to
Colorado Tech to determine if a strategic or other form of relationship
between the two companies might be effected.
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As a result of such a contact during February 1995, Whitman's and
Colorado Tech's Presidents first spoke on February 20, 1995. The discussion
centered around both company's historical and planned strategic objectives and
performance, and the possibility of various potential relationships between
the two companies, including the possibility of joint ventures, product
sharing, or merger. The discussions were broad based, general in nature, and
brief. It was agreed that the two companies would share general information
including financial statements, school catalogs, and promotional literature,
and that a subsequent meeting should take place. A confidentiality agreement
between Whitman and MDJB was signed on March 3, 1995.
On March 29, 1995, Whitman's President first visited Colorado Tech and
met its President. Based upon a review of the programs offered at Colorado
Tech, the quality of accreditations held, and in-depth discussions of Colorado
Tech's and Whitman's strategic plans, the two Presidents agreed to share
detailed strategic and operational information, and involve other management
of each company in evaluation of a possible merger of the two companies.
During April and May of 1995, Colorado Tech provided Whitman with
detailed data including five year strategic plans, detailed financial data,
and curriculum outline. Specifically, during this period, Colorado Tech shared
information which forcasted a significant increase in revenue and pre-tax
profits from fiscal 1994 to 1995, increasing enrollment in upper division
(i.e. Master's and Doctoral degree) programs, and market opportunity in
Colorado Springs and proximate markets for additional programs of Colorado
Tech's type and for the type of healthcare programs offered by certain Whitman
schools.
Based upon discussions conducted during this timeframe, and upon
information provided by Colorado Tech, Whitman management determined that a
merger of Colorado Tech into a Whitman subsidiary would be desirable.
Several discussions took place between Whitman's and Colorado Tech's
Presidents to begin to negotiate an exchange ratio, and transaction structure,
including a meeting on May 15, 1995 which included other members of Colorado
Tech and Whitman management. In these negotiations consideration was given to
the asset value, historical and future income potential of the companies, both
separately and combined, values of accreditation, strength of management, and
positioning of the companies.
On May 31, 1995, a meeting was held between Colorado Tech's President
and Chairman, David O'Donnell, and members of Whitman's Board and management
to attempt to agree upon an exchange ratio. Based upon the discussions,
analyses, information provided to date, and arms'-length negotiations between
the parties, it was agreed that the ratio would be 1.163 shares of Whitman
Common Stock for each share of MDJB Common Stock. The parties further agreed
to attempt to structure a letter of intent to memorialize the terms of a
proposed merger.
On June 8, 1995, MDJB, Inc., parent company of Colorado Tech, and
Whitman entered into a letter of intent to merge.
During July and August 1995, Whitman conducted further due diligence
investigation, including accounting due diligence. This investigation also
involved Whitman management and outside consultants, including professionals
highly experienced in matters surrounding Federal Financial Aid Programs, and
school operations. MDJB Inc., personnel also conducted a review of the
operations of Whitman and its schools. The results of this investigation being
satisfactory, both Boards unanimously approved the execution by their respective
companies of the Merger Agreement. The Whitman Board approval was given on
August 28, 1995 and the MDJB, Inc. and Colorado Tech Inc. board approval was
given on August 19, 1995.
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<PAGE>
On September 12, the Agreement and Plan of Merger was executed by
both companies. In addition stockholder agreements were executed by certain
shareholders of MDJB, Inc. who hold approximately 66% of MDJB, Inc. stock
providing, among other things, for such stockholders' agreement to vote their
shares in favor of the Merger.
RECOMMENDATION OF THE MDJB BOARD AND REASONS FOR THE MERGER
The amount and nature of the consideration payable under the Merger
Agreement were determined in direct arms'-length negotiations between Whitman
and MDJB. In approving the terms of the Merger Agreement, MDJB's Board, after
the disclosure of certain interests of MDJB management in the Merger (see"---
Conflicts of Interest"), considered a number of factors. The material factors
were as follows:
1. The terms and conditions of the transactions
contemplated by the Merger Agreement;
2. The historical and prospective business of each of
Whitman and MDJB, including, among other things, the current financial
condition, assets, liabilities, businesses, operations, prospects and various
financial ratios of each of Whitman and MDJB and the financial performance of
Whitman compared with that of other publicly traded companies in the same or
similar businesses (Whitman's wide range of post-secondary educational
institutions and its business operations and prospects and the fact that MDJB
Stockholders would receive Whitman Stock, pursuant to the formula set forth in
the Merger Agreement, was a factor the MDJB Board felt supported its
recommendation);
3. Presentations by the executive officers of MDJB and
its legal counsel on June 9, 1995 which included a discussion of the values
placed upon MDJB stock by two companies which had previously expressed an
interest in a stock exchange transaction;
4. The review and discussion of the terms and conditions
of the Merger Agreement with the
executive officers of MDJB and its legal counsel on August 19, 1995;
5. The interest shown by the stockholders of MDJB when
briefed by the executive officers of MDJB and its legal counsel as to the
terms of the proposed merger during August and October 1995;
6. A review and analysis of MDJB's operations and the
potential synergism between Whitman and MDJB;
7. The opportunity of MDJB Stockholders to own common
stock registered under the Securities Act and which has on active trading market
(the fact that the Merger would create liquidity for the MDJB Stockholders'
investment in MDJB in view of the AMEX listing of Whitman Stock, was a factor
that the Board felt that supported the Board's recommendation) .
8. The experience and qualifications of Whitman's
management; and
9. The favorable tax effects of the Merger on MDJB
Stockholders. See "Certain Federal Income Tax Considerations" (The MDJB Board
felt the transaction was structured in such a fashion that provided the most
advantageous tax treatment for MDJB Stockholders and such factor supported the
MDJB Board's recommendation).
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<PAGE>
In view of the various factors considered by the MDJB Board,
the Board did not deem it practicable to assign relative weights to the
various factors considered.
The Board did not seek a fairness opinion as it did not see
any need to incur the expense for such an opinion when the benefits of the
Merger to the stockholders of MDJB and to the future of Colorado Technical
University, Inc. were so manifestly clear. Specifically, each stockholder of
MDJB is to receive 1.163 shares of Whitman Stock in exchange for each share of
MDJB stock. The per share book value of MDJB was $.79 as of December 31, 1994
and had not appreciably changed, the value established under the formulas in
the Stock Redemption Agreement between MDJB and its stockholders was $1.81 as
of December 31, 1994, the value of MDJB Stock for redemption purposes (death
or disability) under the Redemption Agreement had been established by
agreement to be $4.00 per share and all recent stock purchases were for $3.00
per share. Whitman's publicly traded stock was priced at $6.00 per share and
even though the MDJB shareholders are subject to the risk of a decline in
price, they are also the beneficiaries of any increase in the price of
Whitman's shares. An examination of these factors and the material factors
enumerated above, led the Board to conclude that the Merger would be in the
best interest of the sharesholders of MDJB and such was confirmed informally
by the favorable reception of the shareholders when briefed as to the terms,
conditions and progress of the Merger.
THE MDJB BOARD UNANIMOUSLY RECOMMENDS THAT MDJB STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
RECOMMENDATION OF THE WHITMAN BOARD AND REASONS FOR THE MERGER.
The amount and nature of the consideration payable under the Merger
Agreement were determined in direct arms'-length negotiations between Whitman
and MDJB. Is approving the terms of the Merger Agreement, Whitman's Board
considered a number of factors. The material factors were as follows:
1. The terms and conditions of the transaction contemplated
by the Merger Agreement, including, without limitation, the ability
of Whitman to rescind the Merger in the event Certification of
Acquisition for Title IV Funding is not obtained from ED within
specified time frames;
2. The historical and prospective business of each of
Whitman and MDJB, including, amount other things, the current
financial condition, assets, liabilities, businesses, operations and
prospects of each of Whitman and MDJB and the financial performance
of MDJB compared with that of other publicly traded companies in the
same or similar businesses (MDJB's ability to confer degrees at the
associate, master and doctoral levels, including its attendant
accreditation, and its emphasis in computer science, engineering and
management programs was a factor the Whitman Board felt supported its
recommendation);
3. Presentations from and a review of the Merger Agreement
with the executive officers of Whitman and representatives of its
legal counsel on August 28, 1995;
4. A review and analysis of Whitman's operations and the
potential synergism between Whitman and MDJB;
5. The experience and qualifications of MDJB's management;
and
6. The results of the due diligence investigation of MDJB
and its operations.
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<PAGE>
In view of the various factors considered by the Whitman Board, the
Board did not deem it practicable to assign relative weights to the various
factors considered.
THE WHITMAN BOARD UNANIMOUSLY RECOMMENDS THAT WHITMAN STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
MERGER CONSIDERATION
The Merger Agreement provides that, at the Effective Time and subject
to the Condition Subsequent to the Merger (see "Whitman's Right of
Rescission"), each share of MDJB Stock will be converted into the right to
receive the quotient of (i) 1,250,000 shares of Whitman Stock, divided by (ii)
the total number of shares of MDJB Stock outstanding at the Effective Time.
No fractional shares of Whitman Stock will be issued to any MDJB
Stockholder upon surrender of their certificates representing MDJB Stock in
connection with the Merger. Each MDJB Stockholder who would otherwise have
been entitled to receive a fraction of a share of Whitman Stock shall receive,
in lieu thereof, cash without interest in an amount equal to such fraction of
a share of Whitman Stock multiplied by the closing price of the Whitman Stock
on the trading day immediately proceeding the closing date of the Merger as
reported by the AMEX. No MDJB Stockholder will be entitled to dividends,
voting rights or other rights as a stockholder in respect of any fractional
share.
The Merger Consideration was determined by arms' length negotiations
between MDJB and Whitman. In the negotiations, consideration was given to the
relative size of the companies, including assets, income and future earnings
potential, and the outstanding capital stock and trading price of Whitman
Stock. After giving consideration to these factors, valuations were determined
and agreed upon which resulted in an exchange ratio. Based on the then current
market price of Whitman Stock of $6.00 per share, it was agreed between the
parties that Whitman would issue 1,250,000 shares of Whitman Stock pursuant to
the Merger, which number of shares would not be subject to adjustment to
reflect any change in the market price of Whitman Stock. Based upon the
1,074,847 shares of MDJB Stock issued and outstanding as of the date of this
Proxy Statement-Prospectus, this results in an exchange ratio of approximately
1.163 shares of Whitman Stock to be issued per share of MDJB Stock to be
exchanged in the Merger.
The following table illustrates the approximate percentage of Whitman
and MDJB comprising Whitman assuming the Merger has been consummated (and
assuming that the MDJB Stockholders receive in the aggregate 1,250,000 shares
of Whitman Stock) and not considering the dilutive effect of outstanding
options and warrants of either Whitman or MDJB. Percentage relating to net
sales, net income and total assets have been computed from the unaudited pro
forma consolidated balance sheet at September 30, 1995 and the unaudited pro
forma consolidated statement of operations for the six month period ended
September 30, 1995, included elsewhere in this Proxy Statement-Prospectus.
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Shares held by
Former Stockholders Net Sales Net Income(loss) Total Assets
Whitman..... 75% 76% (136)% 87%
MDJB........ 25% 24% 36% 13%
---------- --------- --------- ----------
Total........ 100% 100% (100)% 100%
EFFECTIVE TIME
The Merger will become effective upon the filing of Certificates of
Merger with the Secretary of State of the State of Delaware and the Secretary
of State of Colorado or such later time as is specified in such certificates.
The filings with respect to the Merger will occur as soon as possible after
satisfaction (or waiver) of the conditions to Whitman's and MDJB's obligations
to effect the Merger. See "THE MERGER AGREEMENT -- Conditions to Consummation
of the Merger."
WHITMAN'S RIGHT OF RESCISSION
The regulations promulgated under the HEA provide that the consummation
of the Merger will result in a change of control of Colorado Tech and, as a
consequence, the loss of Colorado Tech's Certification to participate in
funding under Title IV Programs. In anticipation of the closing of the Merger,
representatives of each of Whitman and MDJB will have meetings with ED to
determine preliminarily whether ED will raise concerns or objections relating
to the Certification of Acquistion. Promptly following the consummation of the
Merger, Whitman will submit to ED the requisite applications and supporting
documents necessary to obtain Certification of Acquisition. The review by ED
of an application for Certification to participate in Title IV Programs in
anticipation of a change of control is not permitted under the regulations
promulgated under the HEA and may only be processed following the occurrence
of the change of control event. The refusal by ED to grant Certification to
Acquisition to participate in Title IV Programs following the Merger would
have a material adverse effect on the business and financial condition of
Acquisition. See "RISK FACTORS- Loss of Colorado Tech's Eligibility to
Participate in Title IV Programs; Whitman's Right to Rescind the Merger."
Recognizing the importance of Acquisition obtaining Certification
following the Merger, the Merger Agreement provides that Whitman shall rescind
the Merger in the event Acquisition is not granted, whether absolutely or
provisionally, Certification by ED within the ED Certification. In order to
allow for the exercise of the Rescission Right, the Merger Consideration shall
be held in escrow by Whitman during the ED Certification Period. If
Certification of Acquisition to participate in Title IV Programs is not
obtained within the ED Certification Period, and after the expiration of a
30-day appeal period, Whitman shall rescind the Merger by written notice to
the MDJB Stockholders. After giving effect to the exercise of the Rescission
Right, each MDJB Stockholder shall receive such number of shares of
Acquisition capital stock as equals his or her percentage in MDJB immediately
prior to the Merger and each share of Whitman Stock comprising the Merger
Consideration then held in escrow by Whitman shall be canceled. As a result,
Acquisition will be a corporation having identity of share ownership (both as
to individual shareholders and as to ownership percentage) as that of MDJB
preceding the Merger. In the event Acquisition is granted Certification within
the ED Certification Period, the Merger Consideration, exclusive of 87,500
shares of Whitman Stock (the "Escrow Portion"), shall be delivered to the MDJB
Stockholders based on their proportionate ownership of MDJB preceding the
Merger. See "THE MERGER AGREEMENT-Conditions Subsequent to Obligations of
Whitman and Acquisition," and "Indemnification-Escrow of Whitman Stock."
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<PAGE>
EXCHANGE PROCEDURES
Shortly after the two Special Meetings, the Exchange Agent will send
to each MDJB Stockholder who is a shareholder on the date which is five business
days prior to such date, a form of transmittal ("Transmittal Form") and other
appropriate and customary transmittal materials permitting each holder to
receive the product of (i) 1,250,000 shares of Whitman Stock multiplied by
(ii) the quotient of (a) the number of shares owned by such MDJB Stockholder,
divided by (b) the total number of MDJB Stock outstanding at the Effective Date.
Neither Whitman nor the Exchange Agent will be liable to any former
shareholder of MDJB for any Whitman Stock properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
Any shares of MDJB Stock with respect to which appraisal rights have
been properly perfected will be purchased in accordance with the procedures
described under - "Appraisal Rights" and under Section 7-113-101 et. seq. of
the CBCA attached as Annex B to this Proxy Statement-Prospectus.
TO MAKE AN EFFECTIVE EXCHANGE, A MDJB STOCKHOLDER MUST
SUBMIT A PROPERLY COMPLETED TRANSMITTAL FORM SO THAT IT IS ACTUALLY
RECEIVED BY THE EXCHANGE AGENT AT OR PRIOR TO THE EXCHANGE DEADLINE
(AS DEFINED BELOW) IN ACCORDANCE WITH THE INSTRUCTIONS OF THE
TRANSMITTAL FORM. A TRANSMITTAL FORM WILL BE PROPERLY COMPLETED
ONLY IF ACCOMPANIED BY CERTIFICATES REPRESENTING ALL MDJB STOCK
COVERED THEREBY. THE "EXCHANGE DEADLINE" IS 5:00 P.M., EASTERN
STANDARD TIME, ON THE TWENTIETH DAY FOLLOWING, BUT NOT INCLUDING,
THE DATE OF MAILING OF THE TRANSMITTAL FORM OR SUCH OTHER DATE UPON
WHICH WHITMAN AND MDJB MUTUALLY AGREE.
Whitman will cause the Exchange Agent to make available one or more
Transmittal Forms as may be reasonably requested by all persons who become
holders (or beneficial owners) of MDJB Stock between a date as of five
business days prior to the Mailing Date and the close of business day prior to
the Exchange Deadline.
MDJB STOCKHOLDERS SHOULD NOT FORWARD MDJB STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. MDJB STOCKHOLDERS
SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
AMERICAN STOCK EXCHANGE LISTING
It is a condition to each party's's obligation to consummate the Merger
that the shares of Whitman Stock to be issued to the holders of MDJB Stock in
the Merger be authorized for trading on the AMEX, subject to the official
notice of issuance. See "THE MERGER AGREEMENT -- Conditions to Consummation of
the Merger -- Conditions to Each Party's Obligations to Effect the Merger."
CONFLICTS OF INTEREST
The Merger Agreement provides for David D. O'Donnell, President of
MDJB, to become a party to the Employment Agreement attached as an exhibit to
the Merger Agreement. The Employment Agreement provides for Mr. O'Donnell to
serve as President of Acquisition and has a term of three years. Mr. O'Donnell
will be compensated at the annual rate of $145,000 for his services as
President of Acquisition, subject to annual review. The Employment Agreement
also provides for the grant by Whitman of a stock option under Whitman's
Incentive
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<PAGE>
Stock Option Plan to purchase 75,000 shares of Whitman Stock. The option has a
term of 10 years and provides for vesting in full at the expiration of three
years from the date of grant, subject to earlier vesting if Mr. O'Donnell is
terminated without cause by Acquisition. The Employment Agreement further
provides that Mr. O'Donnell is eligible for an annual bonus of up to 50% of
his base salary as determined by the Board of Directors of Acquisition based
on the satisfaction of a performance plan agreed upon by Acquisition and Mr.
O'Donnell for preceding year. The Employment Agreement also contains customary
confidentiality, non-compete and indemnification provisions.
ACCOUNTING TREATMENT
Whitman expects to account for the Merger of MDJB with and into
Acquisition as a pooling transaction in accordance with generally accepted
accounting principles. Under such method of accounting, Whitman and MDJB will
be deemed to have combined their existing voting common stock interests.
Accordingly, the historical amounts of the assets of Whitman and MDJB, and the
liabilities and stockholders' equity of each, as reported on their respective
consolidated balance sheets, will be combined and no goodwill will be recorded
as a result of the Merger. Under the pooling of interests method of
accounting, Whitman's historical financial statements will be restated to
combine the assets, liabilities, retained earnings and results of operations
of Whitman and MDJB, as reflected in their historical financial statements,
subject to appropriate adjustments, if any, to conform the accounting
principles of the respective companies. Expenses incurred to effect the Merger
will be charged against income by each party.
The obligations of Whitman to effect the Merger are conditioned upon
the receipt by Whitman of a letter from its independent auditors at closing
regarding that firm's concurrence with Whitman management's conclusions as to
the appropriateness of pooling of interest accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of material federal income tax
consequences of the Merger. This summary is not a complete description of all
of the consequences of the Merger and, in particular, does not address federal
income tax considerations that may affect the treatment of certain
shareholders, such as financial institutions, broker-dealers, life insurance
companies, tax-exempt organizations, investment companies, foreign taxpayers,
stockholders which, at the Effective Time of the Merger, already own some
Whitman Stock, individuals who acquired MDJB Stock pursuant to employee stock
options, and other special status taxpayers. Moreover, shareholders should be
aware that the federal income tax rate for individuals on long-term capital
gains may be significantly lower than the rate imposed on ordinary income or
short-term capital gains. Each stockholder's individual circumstances may
affect the tax consequences of the Merger to such shareholder. In addition, no
information is provided herein with respect to the tax consequences of the
Merger under applicable foreign, state or local laws. Consequently, each MDJB
Stockholder is advised to consult a tax advisor as to the specific tax
consequences of the Merger to that Stockholder.
General.
As a condition to the Merger, Robinson, St. John & Wayne, counsel to
Whitman ("Counsel") is required to render its opinion on the Closing Date to
the effect that the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, that
Whitman, Acquisition and MDJB will each be a party to that reorganization
within the meaning of Section 368(b) of the Code and that no gain or loss will
be recognized by the MDJB Stockholders to the extent they receive Whitman
Stock solely in exchange for their
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<PAGE>
MDJB Stock (except for cash received in lieu of fractional shares). Such
opinion will be based on the Code, its legislative history, existing and
proposed regulations thereunder, published rulings and court decisions, all as
in effect on the Closing Date and all of which are subject to change, which
change could be retroactive. In addition, such opinion will be based upon
certain customary representations being provided to Counsel as of the Closing
Date by Acquisition, MDJB and the Controlling Stockholders of MDJB. A ruling
from the Internal Revenue Service (the "IRS") concerning the tax consequences
of the Merger will not be requested. Based upon such opinion, the federal
income tax effects of the Merger will be as follows:
Tax Treatment to Whitman, Acquisition and MDJB. No gain or loss will be
recognized by Whitman, Acquisition or MDJB as a result of the Merger.
Receipt of Whitman Stock in Exchange for MDJB Stock. No gain or loss
will be recognized by a MDJB Stockholder who receives solely shares of Whitman
Stock (except for cash received in lieu of fractional shares, as discussed
below) in exchange for all of his or her MDJB Stock. The tax basis of the
shares of Whitman Stock received by a MDJB Stockholder in such exchange will
be equal (except for the basis attributable to any fractional shares of
Whitman Stock, as discussed below) to the basis of the MDJB Stock surrendered
in exchange therefor. The holding period of the Whitman Stock received will
include the holding period of the shares of MDJB Stock surrendered in exchange
therefor, provided that such shares were held as capital assets of the MDJB
Stockholder at the Effective Time of the Merger.
Cash in Lieu of Fractional Shares. A MDJB Stockholder who holds MDJB
Stock as a capital asset and who receives in the Merger, in exchange for such
stock, Whitman Stock and cash in lieu of a fractional share interest in
Whitman Stock will be treated as having received such fraction of a share of
Whitman Stock and then as having received cash in redemption by Whitman of the
fractional share interest. Under the IRS's present advance ruling position ,
since the cash is being distributed in lieu of fractional shares solely for
the purpose of saving Whitman the expense and inconvenience of issuing and
transferring fractional shares, and is not separately bargained-for
consideration, the cash received will be treated as having been received in
part or full payment in exchange for the fractional share of stock redeemed,
and as capital gain or loss, not as a dividend.
Exercise of Dissenters' Rights. The transaction will be a taxable event
for a MDJB Stockholder who perfects his appraisal rights under Colorado law
and receives solely cash in exchange for his shares. Such a stockholder would
generally recognize capital gain or loss, provided that the shares are held by
such stockholder as capital assets at the Effective Time of the Merger, equal
to the difference between the amount of cash received and the stockholder's
tax basis in the shares surrendered.
Information Reporting. Stockholders who receive Whitman Stock must also
comply with the information reporting requirements of the Treasury Regulations
under Section 368 of the Code. Appropriate documentation for the foregoing
purposes will be provided to stockholders with the Transmittal Form that will
be sent to them by the Exchange Agent.
The discussion set forth is included for general information purposes only. As
stated above, it does not address the state, local or foreign tax aspects of
the Merger. The above discussion is based on currently existing provisions of
the Code, existing and proposed Treasury regulations thereunder and current
administrative rulings and court decisions. All of the foregoing is subject to
change and any such could affect the continuing validity of this discussion.
APPRAISAL RIGHTS
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MDJB Stockholders are entitled to appraisals rights under Article 113
of the CBCA in connection with the Merger. The following provides a discussion
of the material provisions of the law in Colorado pertaining to appraisals
rights. Such discussion is not a complete statement of such law and is
qualified in its entirety by the full text of Article 113 which is presented
in its entirety as Annex B to this Proxy Statement-Prospectus.
All MDJB Stockholders who wish to exercise their appraisal rights with
respect to such shares must comply with the procedures of Article 113 of the
CBCA. If a MDJB Stockholder returns a signed proxy but does not specify a vote
against approval of the Merger or a direction to abstain, the proxy will be
voted for approval of the Merger, which will have the effect of waiving that
stockholder's appraisals rights.
One condition of the obligations of Whitman and Acquisition to complete
the Merger is that, as of the Effective Time, the holders of no more than
three percent (3%) of the shares of MDJB Stock shall have filed a notice of an
intention to dissent and seek appraisal rights under the CBCA.
ARTICLE 113. Pursuant to Article 113 of the Colorado Business
Corporation Act (the "CBCA"), MDJB Stockholders have the right to dissent from
the Merger and receive "Fair Value" for their shares. A dissenter is defined
in the CBCA as a stockholder who exercises the right to dissent according to
the statutory provisions of Article 113 ("Dissenter"). "Fair Value" with
respect to a Dissenter's shares, means the value of the shares immediately
before the Effective Time of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger, unless such exclusion would be
inequitable. Interest will accrue on the Fair Value from the Effective Time to
the date of payment at the average rate currently paid by MDJB on its
principal bank loan or, if none, at the legal rate as specified in Section
5-12-101, Colorado Revised Statutes.
MDJB Stockholders considering whether to assert Dissenters' rights
should note that the Fair Value of their shares as determined under the CBCA
could be more than, equal to, or less than the consideration they would
receive if they did not elect to assert Dissenters' rights.
To assert Dissenters' rights, a stockholders must comply with the
requirements of Article 113 of CBCA. Specifically a stockholder must: (i)
cause MDJB to receive, before the vote is taken on the Merger, written notice
of the stockholder's intention to demand payment for the stockholders' shares;
and (ii) not vote the shares in favor of the proposal, or execute any writing,
such as a proxy, consenting to the Merger. A stockholder who does not satisfy
these requirements will not be entitled to demand payment for the
stockholder's shares under Article 113 of the CBCA.
If the Merger is authorized at the MDJB Special Meeting, MDJB will give
a written Dissenters' notice (the "Dissenters' Notice") to all MDJB
Stockholders who complied with the requirements of Article 113 of the CBCA and
are entitled to demand payment for their shares. The Dissenters' Notice will
be given no later than 10 days after the Effective Time. The Dissenters'
Notice will: (i) state that the Merger was authorized and state the Effective
Time or proposed Effective Time of the Merger; (ii) state an address at which
MDJB will receive payment demands ("Payment Demands") and the address of a
place where certificates for certificated shares must be deposited; (iii)
inform holders of uncertificated shares to what extent transfer of the shares
will be restricted after the Payment Demand is made; (iv) supply a form for
demanding payment, which form will request a Dissenter to state an address to
which payment is to be made; (v) set the date by which MDJB must receive the
Payment Demand and certificates for certificated shares, which date will not
be less than 30 days after the date the Dissenters Notice is given; (vi) state
that when a record stockholder dissents with respect to the shares held by a
beneficial stockholder, such beneficial stockholder must certify to MDJB that
the beneficial stockholder, and the record stockholder or record stockholders
of all shares owned beneficially by the beneficial stockholder, have asserted,
or will timely assert, Dissenters' rights as to all such shares; and (vii) be
accompanied by a copy of Article 113 of the CBCA.
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A stockholder who is given a Dissenters' Notice and who wishes to
assert Dissenters' rights shall, in accordance with the terms of the
Dissenters' Notice: (i) cause MDJB to receive a Payment Demand, which may be
the payment demand form supplied with the Dissenters' Notice, duly completed,
and (ii) deposit the stockholder's certificates for shares. A stockholder who
demands payment for the stockholder's shares retains all rights of a
stockholder, except the right to transfer the Shares, until the Effective
Time, and will have only the right to receive payment for the shares after
such Effective Time. Except as described below, the Payment Demand and deposit
of certificates are irrevocable. A stockholder who does not make a Payment
Demand and deposit share certificates as required by the date or dates set in
the Dissenters' Notice will not be entitled to payment under Article 113 of
the CBCA.
A stockholder entitled to dissent and obtain payment of the Fair Value
of the stockholder's shares under Article 113 of the CBCA may not challenge
the contemplated Merger unless such transaction is unlawful or fraudulent with
respect to the stockholder or with respect to MDJB.
Upon the Effective Time, MDJB is required to pay each Dissenter who has
complied with Article 113, the amount MDJB estimates to be the Fair Value of
the Dissenter's shares, plus accrued interest. The payment shall be
accompanied by MDJB's Balance Sheet as of the end of its most recent fiscal
year, or if that is not available, MDJB's Balance Sheet as of the end of the
fiscal year ending not more than sixteen months before the date of payment, an
Income Statement for that year, and, if MDJB customarily provides such
statements to stockholders, a Statement of Changes in Stockholder's Equity for
that year and a Statement of Cash Flow for that year, which balance sheet and
statements shall have been audited if MDJB customarily provides audited
financial statements to stockholders, as well as the latest available
Financial Statements, if any, for the interim or full-year, which financial
statements need not be audited. Since all such financial information will be
set forth in this Proxy Statement - Prospectus, the mailing of this document
to such dissenting MDJB stockholder will satisfy the statutory requirements.
Also required are (i) a statement of MDJB's estimate of the Fair Value of the
shares (which information will also be a part of the financial information
concerning MDJB included in this Proxy Statement Prospectus); (ii) an
explanation on how the interest was calculated (the average rate currently
paid by MDJB on its principal bank loan or, if none, at the legal rate as
specified in Section. 5-12-101, Colorado Revised Statutes); (iii) a statement
of the Dissenter's right to demand payment under Section 7-113-209; and (iv) a
copy of Article 113 which is attached hereto as an Annex B to the Proxy
Statement - Prospectus.
If the Effective Time shall occur more than 60 days after the date set
by MDJB in the Dissenter's Notice which establishes the date by which MDJB
must receive the payment demand and certificates, MDJB is required to return
the deposited certificates and release the transfer restrictions imposed on
uncertificated shares. If the Effective Time occurs more than 60 days after
the date set by MDJB by which MDJB must receive the payment demand pursuant to
the Dissenter's Notice, then MDJB shall send a new Dissenter's Notice and the
procedures set forth above and described in Sections 7-113-204 to 7-113-209
shall again be applicable.
The MDJB Stockholders should be aware that if the Condition Subsequent
described in Section 7A.4. of the Merger Agreement is not satisfied within 60
days following the Effective Time, MDJB will not be sending out a new Notice
of Dissenter's Rights because the Merger will have been consummated even
though a failure to satisfy the Condition Subsequent could result in a
termination of the Merger. See "THE MERGER AGREEMENT Condition Subsequent to
Obligations of Whitman and Acquisition."
Pursuant to section 7-113-209, Colorado Revised Statutes, a Dissenter
who disagrees with MDJB's calculation of the Fair Value of the shares, or the
interest due, may give written notice to MDJB of the Dissenter's estimate of
the Fair Value of the Dissenter's shares and of the amount of interest due and
may demand payment of such estimate. Such written notice must be given within
30 days after MDJB made or offered payment for the
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Dissenter's shares. If MDJB rejects such written notice, and fails to make the
payment as demanded by the Dissenter, MDJB may, within 60 days after receiving
the payment demand, commence a proceeding in the District Court of El Paso
County, Colorado, to determine the Fair Value of the shares and accrued
interest. Section 7-113- 301, Colorado Revised Statutes discusses this
procedure and Section 7-113-302, Colorado Revised Statutes sets forth
provisions relating to the assessing of court costs and counsel fees.
All MDJB Stockholders are advised that all written notices regarding
Dissenter's rights or demands for payment should be sent or delivered to
M.D.J.B., Inc., 4435 North Chestnut Street, Colorado Springs, Colorado, 80907,
addressed to William E. Ayen, Corporate Secretary.
FAILURE TO FOLLOW THE STEPS REQUIRED BY ARTICLE 113 OF THE CBCA FOR
PERFECTING DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
The foregoing is a summary of the provisions of Article 113 of the CBCA
of the State of Colorado and is qualified in its entirety by reference to the
full extent of such Article, a copy of which is attached hereto as Annex B.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger Agreement,
which is attached as Annex A to this Proxy-Statement-Prospectus and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that following the approval of the
Merger by the Whitman Stockholders and the MDJB Stockholders, and upon the
satisfaction of other conditions to the Merger, MDJB will be merged with and
into Acquisition. The Merger will become effective upon the filings with the
Secretary of State of Colorado and the Secretary of State of Delaware of duly
executed Certificates of Merger or at such time thereafter as is provided in
the Certificates of Merger (the "Effective Time"). At the Effective Time, the
capital stock of MDJB will be transmitted to the Whitman Exchange Agent and
each share of MDJB Stock will ultimately be converted into the right to
receive, upon the satisfaction of the Condition Subsequent set forth in the
Merger Agreement, the quotient of (i) 1,250,000 shares of Whitman common stock,
divided by (ii) the total number of shares of MDJB shares outstanding at the
Effective Time. See "THE MERGER -- Merger Consideration," "-- Exchange of
Shares" and "Whitman's Right of Rescission."
REPRESENTATIONS AND WARRANTIES OF WHITMAN, ACQUISITION AND MDJB.
Representations and Warranties of Whitman and Acquisition. The Merger
Agreement contains representations and warranties delivered by Whitman and
Acquisition including (i) Whitman's and Acquisition's organization, good
standing and similar corporate matters; (ii) the execution, delivery and
enforceability of the Merger Agreement; (iii) the absence of any event of
breach, default, violation of law or imposition of any lien or encumbrance on
the property of each of Whitman and Acquisition as a result of the
consummation of the transactions contemplated by the Merger Agreement; (iv)
the material accuracy of all previous governmental filings made by Whitman
with the SEC, copies of which had been delivered to MDJB; (v) except as
disclosed, from March 31, 1995 to the date of the Merger Agreement, the
absence of changes or other events involving any prospective change in the
condition of Whitman and its subsidiaries which had constituted a material
adverse change; (vi) the adequacy of Whitman Stock reserved for the issuance
to MDJB shareholders, which shares will have been registered under the
Securities Act, as amended pursuant to this Proxy Statement-Prospectus; (vii)
the ownership of 100% of the outstanding capital stock of Acquisition by
Whitman, free and clear of all liens, claims and encumbrances; (viii) the
absence of any action or knowledge by Whitman and Acquisition of any fact or
circumstance that would prevent the Merger from qualifying as a tax-free
organization with the meaning of Section 368 of the Code; (ix) except as
disclosed, the absence of litigation, pending or, to the best knowledge of
Whitman, threatened against or affecting Whitman of its subsidiaries, or
involving any of their respective property or assets, pursuant to which an
adverse determination would have a material adverse effect; (x) the absence of
any untrue statement of a material fact and the failure to omit any material
fact necessary to make such information not misleading, with respect to the
Annual Reports on Form 10-K and the Quarterly Reports on Form 10-Q, previously
furnished by Whitman to MDJB pursuant to the Merger Agreement; (xi) the fact
that Whitman, Acquisition and their respective representatives have been given
full access to the data requested of MDJB, along with the opportunity to ask
questions relating to such relevant materials of MDJB; (xii) the fact that all
documents furnished to MDJB by Whitman or Acquisition have been true and
correct copies, with no amendments or modifications thereto except as a result
of the transactions contemplated by the Merger Agreement; and (xiii) the fact
that the representations and warranties made by each of Whitman and
Acquisition on the date of the Merger Agreement will remain correct, true and
complete as at the Effective Time, with the same force and effect as though
such representations and warranties had been made at the Closing Date,
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and that such representations and warranties would survive until the issuance
of the first independent audit report (following the completion of the Merger)
on the combined results of Acquisition and MDJB.
Representations and Warranties of MDJB and Colorado Tech. The Merger
Agreement contains representations and warranties by each MDJB and Colorado
Tech, on a joint and several basis, and by each of the MDJB Stockholders, on a
several basis, to Acquisition and Whitman including (for purposes of this
discussion MDJB and Colorado Tech are referred to collectively as "MDJB"): (i)
the structure, organization, standing and similar corporate matters of MDJB
and its subsidiaries; (ii) except as disclosed, the absence of preemptive
warrants or other rights granted or binding upon MDJB for the purchase of any
of its capital stock; except as disclosed, the immutability of the list of
Stockholders since the execution of the Merger Agreement; except as disclosed,
the absence of any Stockholder having been granted any options or other rights
to purchase shares of common stock from any other Stockholder; except as
disclosed, the absence of any voting trusts or other agreements or
understandings with respect to the voting of any shares of MDJB Common Stock;
and the absence of any ownership rights by MDJB, directly or indirectly, of
any outstanding stock or securities convertible into capital stock of any
other corporation or participating interest in any partnership, joint venture
or other business enterprise; (iii) MDJB's power and authority to own, lease
and operate its business as presently conducted and as proposed to be
conducted, and the qualification of MDJB as a foreign corporation in good
standing in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification; (iv) the Certificate of
Incorporation of MDJB and Colorado Tech, each certified by the Secretary of
State of Colorado, and by-laws of MDJB, certified by its corporate secretary,
are annexed to the Merger Agreement and are true, correct and complete; (v)
MDJB's authorization to enter into the Merger Agreement and its having the
full corporate power, authority and legal right to enter into the Merger
Agreement and to consummate the transactions contemplated thereby subject to
Shareholder approval; (vi) the material accuracy of information supplied by
MDJB in connection with the Registration Statement and this Proxy
Statement-Prospectus; (vii) except as disclosed, compliance with applicable
laws and the absence of any liens or encumbrances in favor of any third party
upon the properties or assets of MDJB; (viii) except as disclosed, the absence
of any condition or event which would constitute an event of default by MDJB
under any other instrument or agreement, whether written or oral, to which it
is a party or by which any of its properties or assets are bound; (ix) the
correctness of the audited, as well as unaudited financial statements of MDJB
in all material respects, in accordance with generally accepted accounting
principles, as well as the absence of any material liabilities of MDJB, fixed
or contingent, not otherwise reflected in the financial statements and for
which adequate reserves have been taken, except for those liabilities or
obligations incurred after August 1, 1995 in the ordinary course of business,
consistent with past practices; (x) the absence of any changes in MDJB since
December 31, 1994, except as disclosed, which might result in a material
adverse effect upon the business, prospects or operation of MDJB, and the
absence of any such occurrence before or after the Closing Date; (xi) the
compliance by MDJB of the covenants relating to the operation of MDJB's
business following the execution of the Merger Agreement; (xii) retirement and
other employee benefit plans and matters relating to the Employee Retirement
Income Security Act of 1974 ("ERISA"), amended; (xiii) the full disclosure by
MDJB to Acquisition concerning the information contained in the schedules to
the Merger Agreement and all other information furnished by MDJB at any time
prior to the Closing Date; (xiv) the filing of tax returns and the proper
payment of all non-disputed taxes, as well as the absence of any action by
MDJB which would prevent the transaction from being treated as a tax-free
reorganization under section 368 of the Code; (xv) the accounts receivable of
MDJB as reported on the financial statements represent bona fide claims,
subject to no defenses, setoffs or counter-claims, and that such accounts will
be fully collectible in the ordinary course of business, except to the extent
reserved in the financial statements, (xvi) the good operating condition of
the assets of all MDJB properties, ordinary wear and tear excepted; (xvii)
except as disclosed, the good title MDJB has to its properties and assets,
free liens and encumbrances, other than as specified; (xviii) the inventory of
MDJB as reported on the financial statements will consist solely of items of
quality and quantity useable or salable in the normal course of business;
(xix) prepaid items on the financial statements is a full and complete
presentation; (xx) except as disclosed, the enforceability of certain
intellectual
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property rights, including without limitation, the trade name "Colorado
Technical University"; (xxi) except as disclosed, an accurate listing of all
of MDJB's real property interests with no outstanding or holdover tenancies or
any easements or rights-of-way, other than as disclosed, affecting MDJB's
properties, and all applicable laws having been compiled with; (xxii) the
adequacy of utilities to the MDJB properties, with all charges paid in full;
(xxiii) the adequacy of MDJB's machinery and equipment for use in its
business, which such equipment in good operating condition, ordinary wear and
tear excepted; (xxiv) the title of all motor vehicles used by MDJB; (xxv) the
absence of any brokers or finders being employed by MDJB in connection with
the Merger and related transactions; (xxvi) except as disclosed, the absence
of any contractual obligations by MDJB in excess of $10,000, and the validity
of all such contractual agreements; (xxvii) the delivery to Acquisition of
copies of all such contractual relationships, together with all modifications
and amendments thereto, correctly and completely summarized in all material
respects; (xxviii) the sufficiency of MDJB's assets for the conduct of its
business;(xxix) except as disclosed, the absence of material or pending
litigation against MDJB or its subsidiaries; (xxx) the absence of actions or
conditions which would give rise to liabilities under federal, state and local
laws and regulations, and compliance with all laws regarding employment,
employment practices, employee safety, environmental protection, local zoning
and similar laws and regulations and absence of notice of noncompliance with
any of the foregoing; (xxxi) compliance with the requirements to receive
financial aid for students pursuant to Title IV Programs, and except as
disclosed, the agreements between MDJB and ED regarding such financial aid,
along with a cohort default rate, by percentage, for the years of 1991, 1992
and a pre-published rate for 1993; (xxxii) except as disclosed, all
accreditation and licensure necessary to operate educational institutions,
including State Authorization and accreditation by the NCA; (xxxiii) the
absence of actions or conditions which would give rise to liabilities under
environmental laws and regulations; (xxxiv) the maintenance of adequate
insurance, as set forth on a disclosure schedule, which insurance will remain
in full force and effect through the Closing Date and the consummation of the
transactions contemplated by the Merger Agreement; (xxxv) the possession by
MDJB of all necessary licenses, permits and approvals issued by any third
party, governmental or otherwise, necessary for the conduct of MDJB's
business, that all such approvals are in full force and effect and, except as
disclosed, no further approvals are necessary in connection with the execution
and performance of the Merger Agreement by MDJB; (xxxvi) except as disclosed,
the interest of certain affiliated persons in the business of MDJB or the
beneficial interest of certain affiliated persons in any contact or
arrangement to which MDJB is a party or is otherwise bound; (xxxvii) the good
and amicable relations MDJB has with its employees and the absence of any
reason to believe that any employees are considering collective
representation; (xxxviii) the accuracy of all documents furnished to
Acquisition by MDJB and, except as set forth in such documents, the absence of
any amendments or modifications thereto; (xxxix) the accessibility of MDJB and
its Shareholders to Acquisition, the answering of all questions and the
receipt of all SEC filings made by Whitman from its Form 10-Q for the quarter
ended June 30, 1994 through to the annual report on Form 10-K for the year
ended March 31, 1995; (xxxx) the representations and warranties made by MDJB
in the Merger Agreement are true, correct and complete as if they had been
made at the Effective Time, and shall survive Effective Time until the
issuance of the first independent audit report (following the completion of
the Merger) on the combined results of Acquisition and MDJB.
CONDITIONS TO OBLIGATIONS OF THE PARTIES
The obligations of Whitman, Acquisition and MDJB are subject to various
conditions, unless waived at or prior to the Effective Time, which include, in
addition to the Conditions Subsequent and customary closing conditions, the
following:
(i) The MDJB Stockholders shall have approved all matters relating to
the Merger required to be approved by such stockholders by the vote required
under the CBCA at the MDJB Special Meeting;
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(ii) The Whitman Stockholders shall have approved all matters relating
to the Merger required to be approved by such stockholders by the vote
required under the New Jersey Business Corporation Act ("NJBCA") at the
Whitman Special Meeting;
(iii) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order;
(iv) No party to the Merger Agreement shall be subject to any
injunction or restraining order preventing the consummation of the Merger nor
shall any proceeding by any Governmental Entity seeking the same be pending
nor shall the Merger be illegal under any applicable law;
(v) Whitman and Acquisition shall have received all state securities
and "blue sky" permits and other authorizations necessary to consummate the
transactions contemplated by the Merger Agreement; and
(vi) The shares of Whitman Stock which shall be issued to holders of
MDJB Stock shall have been authorized for trading on the AMEX, subject to
official notice of issuance.
CONDITIONS TO WHITMAN'S AND ACQUISITION'S OBLIGATIONS
The obligations of Whitman and Acquisition to effect the Merger are
subject to the fulfillment or waiver at or prior to the Closing Date of each
of the following additional conditions:
(i) At the Closing Date, the representations and warranties of MDJB and
Colorado Tech set forth in the Merger Agreement will be true, correct and
complete in all material respects, except as otherwise permitted by the terms
of the Merger Agreement;
(ii) Each of MDJB and Colorado Tech shall have performed their
respective obligations in all material respects on or before the Closing Date,
and at the Closing Date;
(iii) All action required to be taken by each of MDJB and Colorado Tech
to authorize the execution, delivery and performance of the Merger Agreement
by each of MDJB and Colorado Tech and the consummation of all the transactions
contemplated by the Merger Agreement shall have been duly and validly taken by
the Board of Directors of each such entity;
(iv) Acquisition shall have received certain legal opinions from counsel
to MDJB and Colorado Tech;
(v) From the date of the Merger Agreement to the Closing Date, there
shall have been no material adverse change in the financial condition, assets,
businesses or results of operations as to either of MDJB or Colorado Tech;
(vi) All consents or waivers (other than of government entities) which
are necessary to permit the succession of Acquisition either by the terms
thereof or as a matter of law shall have been obtained;
(vii) MDJB and Colorado Tech shall furnish Acquisition with such
certificates of officers to evidence compliance with all of their respective
obligations under the Merger Agreement and to certify that the proper
corporate formalities of the creation of the two entities have been observed
in accordance with the CBCA;
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(viii) David D. O'Donnell, President of MDJB and Colorado Tech, shall
have entered into the Employment Agreement with Acquisition or an affiliate on
or before the Closing Date in substantially the form appended to the Merger
Agreement;
(ix) Acquisition shall have received audited financial statements with
respect to MDJB as of and for the year ended December 31, 1994, and unaudited
financial statements for the period ending with the most recently completed
calendar month preceding the Closing Date;
(x) During the course of Acquisition's review of the records of MDJB
and Colorado Tech, as provided by the Merger Agreement, there shall not have
developed or occurred anything which might indicate that an event has taken
place since the date of the execution of the Merger Agreement which might be
considered to have a Material Adverse Effect upon MDJB;
(xi) MDJB shall have delivered Assignment, Assumption and consent
agreements with respect to each facility, duly executed by the landlord
providing for terms no less affordable than those contained in the existing
MDJB or Colorado Tech leases;
(xii) MDJB shall demonstrate that, as of December 31, 1994 and June 30,
1995 its net equity is $924,492 and $1,011,849, respectively, and that there
has been no material decrease in such net equity between June 30, 1995 and the
Closing Date;
(xiii) At the Closing, MDJB shall demonstrate, represent and warrant
that (a) MDJB meets or exceeds, or is not required to maintain, an acid test
of 1 to 1 as required by and determined in accordance with 34 C.F R. 668.15
and (b) MDJB has a positive Tangible Net Equity as required by and determined
in accordance with 34 C.F.R.
668.15;
(xiv) Holders of no more than 3% of the MDJB Stock shall have exercised
dissenters' rights under the CBCA prior to the Closing Date;
(xv) Ernst &Young LLP shall have provided a letter to Whitman regarding
that firm's concurrence with Whitman management's conclusions as to the
appropriateness of pooling of interest accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Merger Agreement;
(xvi) Each of the MDJB Stockholders owning ten (10%) percent or more of
the MDJB Common Stock shall have executed and delivered to Whitman the Tax
Representation Letter in the form attached to the Merger Agreement; and
(xvii) Each officer, director and shareholder owning beneficially 10%
or more of the MDJB Stock shall have executed and delivered to Whitman the
Affiliate Letter Agreement in the form attached to the Merger Agreement.
CONDITIONS TO MDJB'S OBLIGATIONS
The obligations of MDJB to effect the Merger are subject to the
fulfillment or waiver prior to the Closing Date of the following additional
conditions:
(i) At the Closing Date, the representations and warranties of Whitman
and Acquisition will be true and correct in all material respects, except to
the extent affected by the transactions contemplated hereby;
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(ii) Each of Whitman and Acquisition shall have performed, in all
material respects, on or before the Closing Date, all of their respective
obligations pursuant to the terms of this Agreement;
(iii) All action required to be taken by each of Whitman and
Acquisition to authorize the execution, delivery and performance of the Merger
Agreement by each of them and the consummation of the transactions
contemplated by the Merger Agreement shall have been duly and validly taken by
the Board of Directors and stockholders of each such entity;
(iv) MDJB shall have received certain legal opinions from counsel to
Acquisition and Whitman;
(v) From the date of the Merger Agreement to the Closing Date, there
shall have been no material adverse change in the condition, financial or
otherwise, of Acquisition;
(vi) David D. O'Donnell shall have been entered in the Employment
Agreement with Acquisition or an affiliate on or before the Closing Date in
substantially the form appended to the Merger Agreement;
(vii) Acquisition and Whitman shall have furnished MDJB with such
certificates of the officers to evidence compliance with all of their
respective obligations under the Merger Agreement and to certify that the
proper corporate formalities have been observed, and that the transfer and
recording taxes and charges arising from the transactions contemplated by the
Merger Agreement have been paid;
(viii) A certificate executed by Acquisition's and Whitman's officers
certifying as of the Closing Date that the certificates delivered to MDJB
pursuant to this section of the Merger Agreement are true and correct in all
material respects; and
(ix) There shall not have come to the attention of MDJB any material
information (a) not previously disclosed to MDJB despite the inquiry of
Acquisition and Whitman by MDJB; or (b) indicating the occurrence of events
since the date of the Merger Agreement that is likely to have a Material
Adverse Effect.
CONDITION SUBSEQUENT TO OBLIGATIONS OF WHITMAN AND ACQUISITION
If within 120 calendar days after the closing date of the Merger ("ED
Certification Period"), the ED has advised Whitman or Acquisition in writing
that it does not intend to certify, whether absolutely or provisionally (the
"Certification"), Acquisition for participation in Title IV Programs, and
after diligently pursuing an appeal of such decision for an additional 30
days, Whitman has been unsuccessful in securing the Certification, whether
absolutely or provisionally, Whitman shall rescind the Merger by giving
written notice thereof to each of the MDJB Stockholders (the "Recission
Right"). Within ten (10) days of the date of Whitman's Recision Right notice,
Whitman shall (i) deliver to the former MDJB Stockholders all of the
outstanding capital stock (including the corporate minute book, resolutions
and related corporate documents) of Acquisition so that each MDJB Stockholder
receives such number of shares of Acquisition capital stock as equals his or
her percentage in MDJB immediately prior to the Merger, (ii) cancel each share
of Whitman Stock comprising the Merger Consideration then held in escrow by
Whitman or the Exchange Agent (iii) transfer the aggregate fractional share
consideration comprising a portion of the Merger Consideration to a general
operating account of Whitman for its benefit and (iv) deliver the resignation
of any officers and directors of Acquisition appointed by Whitman before or
after the Merger. Upon satisfaction of Whitman's obligations in connection
with the exercise of the Recission Right, the Merger of Acquisition and MDJB
shall be deemed rescinded. After giving effect to the exercise of the
Recission Right, Acquisition will be a corporation having identity of share
ownership (both as to individual shareholders and as to ownership percentage)
as that of MDJB preceding the Merger. Whitman shall neither be a shareholder
of
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Acquisition following the exercise of the Recission Right, nor will any
officer or director of Whitman have a similar position in Acquisition
following the Rescission of the Merger.
Notwithstanding Whitman's Recission Right described above, upon the
closing of the merger transaction in accordance with the terms of the Merger
Agreement, the merger of MDJB with and into Acquisition will be deemed legally
consummated and the seperate corporate existence of MDJB shall cease at such
time. While Whitman may deliver all of the shares of Acquisition to the former
shareholders of MDJB if Certification from ED is not obtained within the ED
Certification Period, such right will not impair the merger of Acquisition and
MDJB as the legal requirements for the completion of the Merger will have been
consummated. Accordingly, although the Whitman stock to be issued pursuant to
the Merger will be held in escrow pending ED Certification, the shareholders of
MDJB shall be deemed the record owner of the Whitman Common Stock at the time of
the closing of the Merger and shall have voting and dividend rights with regard
to such shares.
In the event the Condition Subsequent is satisfied and Acquisition
receives the Certification from ED to participate in Title IV Program funding,
the Merger Consideration less the Escrow Portion shall be delivered to the
MDJB Stockholders in proportion to their relative ownership interests in MDJB
preceding the Merger.
CONDUCT OF MDJB'S BUSINESS PRIOR TO THE MERGER
MDJB (including Colorado Tech unless the context clearly provides
otherwise), covenants that, prior to the Closing Date, it will afford free
access to the representatives of Acquisition to all of the assets, properties,
Books and Records and employees in order to afford Acquisition as full an
opportunity of review and investigation by Acquisition as it shall desire to
make of MDJB, and MDJB shall cause to be furnished to representatives of
Acquisition such reasonable financial and operating data and other information
about MDJB's business properties and assets which any of Acquisition's
representatives shall give reasonable advance notice of wanting to see, visit
or meet in connection with an analysis of MDJB's business. Neither party will
disclose or use any information learned or exchanged among MDJB, Acquisition
and Whitman prior to the Merger, and if the Merger is not consummated, at all
times hereafter, with respect to the confidential information of each party.
Such obligation of confidentiality shall not extend to any information which
is shown to have been previously known by MDJB, Whitman or Acquisition, as the
case may be, or generally known in the same trade or business as MDJB, Whitman
or Acquisition or made public by a third party.
From the date of the Merger Agreement to the Closing Date, MDJB has
covenanted to take all necessary action so that (i) MDJB shall keep its
business and organization intact, shall continue to conduct its business in
the ordinary course, and shall use its good faith efforts to keep available
the services of its directors, officers, employees and agents and to maintain
the goodwill and reputation associated with the business; (ii) MDJB shall not
make any changes in its Certificate of Incorporation or by-laws; (iii) MDJB
shall exercise its good faith efforts to maintain all of its properties and
assets that are material to the operation of the business in good operating
condition, ordinary wear and tear excepted; (iv) MDJB shall not purchase,
sell, lease or dispose of or enter into any contract for the purchase, sale,
lease or disposition of or subject to lien or any encumbrance properties or
assets other than in the ordinary course of business consistent with past
practices and the representations and warranties set forth in the Merger
Agreement and not in breach of any of the covenants set forth in the Merger
Agreement (v) MDJB shall not, other than in the ordinary course of its
business consistent with past practices, grant any salary increases to, or
increase the draw of, any of its officers or directors or enter into any new,
or amend or alter any existing bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, stock option, group
insurance death benefit or other fringe benefit plan, trust agreement or
similar arrangement, any employee agreement with any officer or any consulting
agreement; (vi) MDJB shall not incur any bank indebtedness or make any
borrowing, or issue any commercial paper other than in the ordinary course of
business consistent with past practices; (vii) MDJB shall not satisfy any
obligation, fixed or contingent, or satisfy or discharge any lien,
encumbrance, claim or liability asserted against it or any of its properties,
except for current liabilities included in the financial statements and
incurred between the date of the Merger Agreement and the Closing Date except
in the ordinary course of business consistent with past practices and with its
representations and warranties contained in the Merger Agreement; (viii) MDJB
shall not enter into any leases of real property of equipment and machinery
other than in the ordinary course of business consistent with past practices
and except for an additional 3,700 square feet of leased space; (ix) except
without first having obtained the written consent of Acquisition, MDJB shall
not enter into any contract, commitment or agreement, including without
limiting the generality of the foregoing, any contract for the purchase of
materials or supplies, if such contract exceeds $50,000 individually and is
outside the ordinary course of business of MDJB, except for the acquisition
and installation of its planned Student Information System, or any contract,
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agreement or commitment with any person listed as an employee, officer,
director or affiliate of MDJB, any affiliate of such person, or any such
agreement in which any Stockholder of MDJB has a beneficial interest; (x) MDJB
shall not, other than in the ordinary course of its business consistent with
past practices, further encumber or permit to be further encumbered any of its
properties or assets; (xi) except as otherwise set forth in schedule to the
Merger Agreement, neither MDJB nor any subsidiary shall grant, sell, redeem,
combine, change or purchase any shares, notes or other securities or make any
commitments to do so; (xii) MDJB shall not effect any subdivision of its
outstanding capital stock, purchase or, except as otherwise set forth in a
schedule to the Merger Agreement, redeem any capital stock, or declare, make
or pay any dividend, distribution or payment in respect of its capital stock;
(xiii) MDJB shall not, other than in the ordinary course of its business
consistent with past practices, grant or issue any options, warrants, or other
rights to acquire any capital stock or other of its equity securities, whether
by conversion or otherwise, or make any commitment to do so; (xiv) MDJB shall
not, other than in the ordinary course of its business consistent with past
practices, curtail purchases or accelerate shipments beyond customer
requirements, or modify, amend, cancel or terminate any existing contracts or
agreements; and (xv) MDJB shall maintain in full force and effect each of the
policies of insurance listed on a schedule to the Merger Agreement.
CERTAIN COVENANTS OF THE PARTIES PRIOR TO THE CLOSING DATE
Article 7 of the Merger Agreement provides certain covenants to which
MDJB (including Colorado Tech, unless the context clearly provides otherwise)
shall be subject between the execution of the Merger Agreement and the Closing
Date including: (i) MDJB shall furnish Acquisition, upon request, with all
information concerning MDJB reasonably required for inclusion in a
Registration Statement or any application made by Acquisition to the SEC or
any governmental body in connection with the transactions contemplated by the
Merger, including, without limitation, the consolidated financial statements
of MDJB, including the required accountant's reports and consents, necessary
for the preparation of the Registration Statement; (ii) Within 30 days after
the end of each month after the date of the Merger Agreement, MDJB shall
deliver to Acquisition unaudited balance sheets of MDJB as at the end of the
month and as at the end of the comparative month for the preceding year,
together with the related unaudited statements of income for the month then
ended (including stockholders' equity and cash flows on a quarterly basis);
(iii) Acquisition and MDJB shall consult with each other with respect to any
public announcement or statement to their employees generally concerning or
relating to the Merger. Prior to the Closing Date neither Acquisition or MDJB
shall make any announcement to the public without the prior written consent of
the other, except for announcements which Acquisition believes on the written
advice of its counsel to be required by applicable securities laws or stock
exchange rules; (iv) each party will give prompt notice to the other of the
occurrence or the failure of any event to occur that results in a breach of
any representation by the other party or a failure by the other party to
comply with any covenant or condition contained in the Merger Agreement; (v)
MDJB shall promptly notify Whitman and Acquisition of (a) any material change
in its condition, (b) any complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any
Governmental Entity (as defined therein), (c) the institution or the threat of
material litigation involving MDJB or any Subsidiary or (d) any event or
condition that might reasonably be expected to cause any of its
representations, warranties or covenants contained in the Merger Agreements
not to be true and correct in all material respects as of the Effective Time;
(vi) Whitman, Acquisition and MDJB (a) will take all reasonable action
necessary as of the Closing Date to render accurate their representations and
warranties as set forth in the Merger Agreement,(b) will refrain from taking
any action which would render any such representation and warranty inaccurate
in any material respect as of such time, and (c) will use their good faith
efforts to perform or cause to be satisfied each covenant or condition to be
performed or satisfied by them; and (vii) Neither MDJB nor the MDJB
Stockholders will furnish information to, initiate or participate in
negotiations with, third parties relating to, or otherwise cause to seek to
cause or permit to occur any merger, sale or other disposition of any
substantial part of the assets or stock of MDJB.
MISCELLANEOUS AGREEMENTS AND CONSENTS
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Additional Covenants of Whitman, Acquisition and MDJB. Subject to
the terms of the Merger Agreement, each of the parties agrees to use its best
efforts to effect all things necessary, proper or advisable under applicable
laws and regulations to consummate the transactions contemplated by the Merger
Agreement as expeditiously as reasonably practicable, including the use of
their respective best efforts to lift or rescind any injunction or restraining
order adversely affecting the ability of the parties to consummate the
transactions contemplated by the Merger Agreement and to cause any conditions
to the Closing to be satisfied. All the parties shall use their best efforts
to obtain any necessary consents from relevant third parties and Governmental
Entities desirable for the consummation of the transactions contemplated by
the Merger Agreement. If, after the Effective Time, any further action is
necessary or desirable to carry out the purposes of the Merger Agreement, the
proper officers and directors of Whitman shall be deemed to have been granted
the authority by MDJB to take whatever action is necessary or desirable. The
parties shall exchange such certifications and opinions as their respective
officers and counsel shall reasonably request under the circumstances.
Notice of Breach. Whitman shall promptly notify MDJB of (i) any
material change in its condition; (ii) any complaints, investigations or
hearings, or threats relating thereto, from any Governmental Entity; (iii) any
institution or threat of material litigation involving Whitman or any
Subsidiary; or (iv) any event or condition that might reasonably cause any of
its representations, warranties or covenants not to be true in all material
respects as of the Effective Time. From the date of the Merger Agreement
continuing to the earlier to occur of (i) the Effective Time or (ii) the
termination of the Merger Agreement, Whitman shall provide MDJB a copy of its
quarterly report on Form 10-Q as filed with the SEC promptly upon its filing.
Stockholder Agreements. Whitman has entered into Stockholder Agreements
with each of David D. O'Donnell and the Marilyn O. Sullivan Family Trust (the
"Controlling Stockholders"). Each Stockholder Agreement, among other things,
and subject to certain terms and conditions, requires (i) the Controlling
Stockholder to vote in the manner most favorable to the consummation of the
Merger; (ii) the Controlling Stockholder, at Whitman's option, to grant an
irrevocable proxy to Whitman for the purpose of allowing Whitman to vote the
shares of MDJB Stock in a manner most favorable to the consummation of the
Merger; (iii) the Controlling Stockholder to remit to Whitman all of the net
proceeds received by the Controlling Stockholder on each share of MDJB Stock
in excess of $6.00 per share (a) tendered or sold by the Controlling
Stockholder to the entity or other person triggering the occurrence of an
Acquisition Event (such "Acquisition Event" being the earliest to occur of (1)
an entity or other person commencing or consummating a tender offer or who
otherwise acquired beneficial ownership of 20% of the outstanding shares of
MDJB Stock, or (2) MDJB authorizing, recommending, proposing or publicly
announcing an intention to authorize, enter into, recommend or propose, an
agreement with any entity or other person to (A) effect a merger,
consolidation or similar transaction involving MDJB, (B) sell, lease or
otherwise dispose of assets of MDJB or its subsidiaries representing 15% or
more of the consolidated assets of MDJB and its subsidiaries, or (C) issue,
sell or otherwise dispose of securities representing 20% or more of the voting
power of MDJB or any of its subsidiaries) that occurs within 6 months from the
date of the Stockholder Agreement, or (b) otherwise sold by the Controlling
Stockholder within 6 months of such Acquisition Event; and (iv) the
Controlling Stockholder, upon the occurrence of an Acquisition Event, to sell
the MDJB Stock, at Whitman's option, to Whitman for cash at $6.00 per share.
Pursuant to each Stockholder Agreement, the Controlling Stockholder may
not, nor shall he or it permit any of his or its affiliates, nor authorize or
permit any of its officers, directors, partners or employees or any investment
banker, financial advisor, attorney, accountant or other representative or
agent retained by him or it or any of his or its affiliates, to, directly or
indirectly, solicit, initiate, or encourage, or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably expect to lead to, an Acquisition Event or the sale or other
disposition of any of the MDJB Stock held by such Controlling Stockholder, or
agree to or endorse any Acquisition Event or the sale or other disposition of
any of the MDJB Stock held by such Controlling
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Stockholder, or participate in any discussions or negotiations, or provide
third parties with any information, relating to any such inquiry or proposal.
For any violations of a Stockholder Agreement, Whitman shall have the
option of (i) electing to receive a payment of $6.00 per share of MDJB Stock
covered by the Stockholder Agreement as liquidated damages, or (ii) seeking
equitable relief in any court of competent jurisdiction to require at the
Controlling Stockholder comply with the terms of the Stockholder Agreement.
Affiliate Letter Agreements. At least 40 days prior to the Closing
Date, MDJB shall deliver to Whitman and Acquisition an identification letter
as to all persons who are, at the time the Merger Agreement is submitted for
approval to the MDJB Stockholders, "Affiliates" of MDJB for purposes of Rule
145 under the Securities Act. MDJB shall use all reasonable efforts to cause
each person so named to deliver to the other parties prior to the Closing Date
a written "Affiliates" agreement, in customary form, providing that such
person shall dispose of the Whitman Stock to be received by such person only
in accordance with applicable law and, in addition, in such agreement, such
Affiliate shall represent that they have no plans to dispose of any such
shares of Whitman Stock.
COVENANTS OF WHITMAN AND ACQUISITION PENDING EXPIRATION OF
THE CONDITION SUBSEQUENT
From the closing of the Merger until the satisfaction of the Condition
Subsequent or the exercise of Whitman's Rescission Right, unless otherwise
agreed in writing by a majority in interest of the MDJB Stockholders, Whitman
and Acquisition shall not hypothecate or transfer any of the MDJB assets
(including Colorado Tech) other than in the ordinary course of business, shall
conduct the MDJB businesses consistent with past practices, shall use its best
efforts to continue the present services of MDJB's and Colorado Tech's
employees (including all efforts to maintain existing employee benefit and
401(k) plans), preserve the goodwill of the suppliers, students and others
with whom MDJB and Colorado Tech have a business relationship, shall take no
action which prevents the continued operation of Colorado Tech, shall pay all
necessary taxes on the assets of MDJB and Colorado Tech prior to delinquency
and shall not waive or permit the loss of any substantial right. Until the
satisfaction of the Condition Subsequent, or Whitman's exercise of the
Rescission Right, Acquisition shall maintain sufficient equity capital as
shall be acceptable to the ED and any other relevant agencies, so as to
provide reasonable assurances that Acquisition shall be financially capable of
obtaining the necessary accreditations and certifications. During such interim
period, Whitman and Acquisition shall administer and operate Colorado Tech in
accordance with all permits, accreditations, authorizations and agreements
issued by or entered into with any federal, state or local governmental or
quasi-governmental agency, in order to vest Acquisition with the right and
authority to administer and operate Colorado Tech in accordance with all
permits, accreditations, authorizations and agreement issued by or entered
into with any federal, state or local governmental or quasi-governmental
agency, or accrediting agency in any way regulating the operation of Colorado
Tech. In addition, Whitman and Acquisition are required to work in good faith
to obtain any and all approvals from the ED, any state educational regulatory
authority and any other governmental or accrediting agency that may be
necessary or appropriate to vest in Acquisition the right and authority to
administer and operate Colorado Tech and to certify Acquisition for
participation in Title IV Programs.
During the ED Certification Period, Whitman will provide Acquisition
with advances up to the amount of the funding that Colorado Tech would have
received under Title IV Programs in the absence of Colorado Tech's termination
from eligibility for funding as a result of the Merger (the "Advances").
Whitman will continue to provide the Advances for a period of 120 days
following the date of the Rescission Right, if exercised (the "Post-
Rescission Funding Period"). Following the Post-Rescission Funding Period, all
advances made by Whitman will be repaid by Acquisition from all accounts
receivable of Acquisition or Colorado Tech received through Title IV Program
funding that would have been received by Colorado Tech in the absence of the
change of change control resulting from the Merger and that are collected
following Whitman's exercise of the Rescission Right. The balance
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of unpaid Advances shall be converted to a term loan payable over three years
in equal monthly installments bearing interest at a fixed rate equal to the
prime rate of Citibank, N.A. in effect as of the date of the Rescission Right
notice to MDJB Stockholders.
INDEMNIFICATION
Indemnification of Acquisition and Whitman
The Merger Agreement provides that until the issuance of the first
independent audit report on the combined results of Acquisition and MDJB
following the Merger, the MDJB Stockholders shall, on a several basis and
subject to the limitation described under the caption "Escrow of Whitman
Stock," indemnify and hold harmless Acquisition and Whitman in respect of each
and all of the following:
(i) Any and all damage or deficiency resulting from any
misrepresentation, breach or warranty, non-fulfillment of any agreement or
obligation on the part of MDJB or Colorado Tech contained in the Merger
Agreement (or any of the exhibits and schedules thereto) and from any
misrepresentation in or omission from any certificate, exhibit, schedule,
instrument, or other information furnished to Acquisition or Whitman by MDJB,
Colorado Tech or by any of their respective officers; and
(ii) All demands, assessments, judgments, costs and legal and other
expenses, including, without limitation, reasonable attorneys' fees, arising
from or in connection with any action, suit, proceeding or settlement or claim
incident to the immediately preceding subparagraph herein or involving a
third-party action against Whitman or Acquisition.
The MDJB Stockholders shall have no liability with respect to the
indemnification obligations described herein unless all such aggregate losses,
costs, damages and expenses actually paid or suffered by Acquisition or
Whitman as a result of the foregoing exceeds $25,000 (the "Deductible"), in
which case the MDJB Stockholders will be liable for such aggregate losses,
costs, damages and expenses to the extent they exceed the Deductible, but in
no event to exceed the Escrow Portion.
Escrow of Whitman Stock
The Merger Agreement provides that Whitman shall escrow 87,500 shares
of Whitman Stock from the Merger Consideration to be held in escrow for
indemnification purposes, in accordance with the MDJB Stockholders' indemnity
obligations under the Merger Agreement (the "Escrow Portion"). Whitman shall
release to each MDJB Stockholder his or her allocable share of the Escrow
Portion, if any, after giving effect to Whitman's exercise of its set-off
rights against the Escrow Portion relating to the MDJB Stockholders'
indemnification obligations, upon the later to occur of (a) the satisfaction
of the Condition Subsequent and (b) the issuance of the first independent
audit report (following the completion of the Merger) on the combined results
of Acquisition and MDJB (the "Escrow Release Date"); provided, however, that
notwithstanding the foregoing, in no event shall the Escrow Portion be
released following the exercise of Whitman's Rescission Right. (See "The
MERGER AGREEMENT -- Condition Subsequent to Obligations of Whitman and
Acquisition" and "-- Representations and Warranties of MDJB and Colorado
Tech.") Any claim by Whitman or Acquisition for indemnification in excess of
the Deductible shall be satisfied from the Escrow Portion allocated to each
MDJB Stockholder on a pro rata basis, based upon the Closing Date Fair Market
Value of Whitman Stock. For purposes of the indemnification provisions of the
Merger Agreement, "Closing Date Fair Market Value" shall mean the closing
sales prices of Whitman Stock as reported by the AMEX on the trading day
immediately prior to the Closing Date as accurately reported by the "Wall
Street Journal." No MDJB Stockholder shall have any liability for
indemnification of Whitman and Acquisition with
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respect to claims for indemnification exceeding the Closing Date Market Value
of the Escrow Portion allocated to such Stockholder. If as of the Escrow
Release Date, the claims for indemnification are less than the Closing Date
Fair Market Value of the Escrow Portion, the remaining Escrow Portion shall be
released to the MDJB Stockholders, on a pro rata basis, with cash payments
made to each MDJB Stockholder who would otherwise be entitled to a fractional
share from the Escrow Portion then remaining, based on the Closing Date Fair
Market Value. Whitman shall have the right to set-off against the Escrow
Portion the amount of any claims for indemnification incurred by Acquisition
or Whitman. Whitman's right of set-off with respect to third party claims may
be exercised upon the relevant determination date. Whitman shall provide the
Shareholders with written notice of any set-off for any indemnity loss.
Whitman's and Acquisition's sole remedy for indemnity is limited to the Escrow
Portion. If Whitman is determined by a court of competent jurisdiction to have
wrongfully set-off claims for indemnification against the Escrow Portion,
Whitman's liability to the MDJB Stockholders shall be limited to the number of
shares wrongfully set-off from the Escrow Portion.
Upon Acquisition receiving Certification from ED to participate in
Title IV Programs, and until the issuance of the first independent audit
report on the combined results of Acquisition and MDJB following the Merger,
the MDJB Stockholders shall be severally liable with Acquisition for Title IV
Program liabilities arising prior to the Closing Date, with any such
liabilities being satisfied from the Escrow Portion.
Indemnification of MDJB
The Merger Agreement provides that until the issuance of the first
independent audit report on the combined results of Acquisition and MDJB
following the Merger, Acquisition and Whitman shall indemnify and hold MDJB
harmless in respect of each and all of the following:
(i) Any damages resulting from any misrepresentation, breach of
warranty, nonfulfillment of any agreement or obligation on the part of
Acquisition or Whitman contained in the Merger Agreement (or any exhibits or
schedules thereto) and from any misrepresentation in, or omission from any
certificate, exhibit, schedule, instrument or other information furnished to
MDJB in connection with the Merger Agreement by Acquisition, Whitman or any of
their respective officers; and
(ii) All demands for Claims, including reasonable attorneys' fees,
arising from or in connection with any action, suit, proceeding or settlement
of Claims incident to the foregoing subparagraph or involving a third-party
action against MDJB.
Neither Whitman nor Acquisition shall have any liability with respect
to the inaccuracy or breach of representations and warranties of Acquisition
or Whitman or for such other liability arising out of actions or omissions
unless all such aggregate losses actually paid and suffered by MDJB as a
result of any claims for indemnification exceed the Deductible, in which case
Whitman will be liable for such aggregate losses to the extent they exceed the
Deductible. The sole remedy for a post-closing Claim shall be for losses
actually paid or suffered by MDJB. No claim may be made by the MDJB
Stockholders for Rescission of the Merger. See "-- Condition Subsequent to
Obligations of Whitman and Acquisition."
For a period of three years after the Effective Time, Acquisition shall
maintain in effect liability insurance coverage known as "Tail Coverage"
covering the prior acts and omissions of the officers and directors of MDJB
and Colorado Tech preceding the Effective Time. In addition, Acquisition shall
maintain director and officer liability insurance for each of its officers and
directors for a period of at least three years following the Effective Time.
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TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger to the MDJB Stockholders and
the Whitman Stockholders:
(a) by the Board of Directors of MDJB or Acquisition if the
Closing Date shall not have taken place by March 29,1996;
(b) by the Board of Directors of Acquisition at any time prior
to the Closing Date if:
(i) a material condition to Acquisition's
performance under the Merger Agreement or a
covenant of MDJB or Colorado Tech contained in
the Merger agreement shall not have been
fulfilled on or before the Closing Date or on
such other date specified for the fulfillment
of such covenant or condition; or
(ii) a material breach or default of the Merger
Agreement shall be made by MDJB or
Colorado Tech; or
(iii) since December 31, 1994, there shall be a
material adverse change in the results of
operations of MDJB or Colorado Tech or any
adverse change in the business, income before
income taxes (as compared with the same period
in the preceding year), prospects, manner of
conducting business, financial condition or
any asset of MDJB or Colorado Tech, which
change is material; or
(iv) the Board of Directors of Acquisition shall
have determined in its reasonable opinion that
the transactions contemplated by the Merger
Agreement have become inadvisable or
impracticable by reason of the institution or
threat by any governmental authorities or by
any other person of (A) litigation, or
proceedings to restrain or prohibit the
consummation of the transactions contemplated
by the Merger Agreement or which seeks
substantial damages in connection with the
Merger Agreement or the transactions
contemplated thereby; or (B) other litigation
or proceedings the outcome of which in the
reasonable opinion of Acquisition would have a
material adverse effect on the business,
results of operations, prospects, manner of
conducting business, financial condition or
any material asset of MDJB, Colorado Tech or
Acquisition; or
(v) by the Board of Directors of Acquisition if it
shall have determined in its reasonable
opinion that the results of the due diligence
of MDJB is unsatisfactory.
(c) by the Board of Directors of MDJB at any time prior to the
Closing Date if:
(i) a material condition to MDJB's performance
under the Merger Agreement shall not be
fulfilled on or before the Closing Date or on
such other date specified for the fulfillment
of such condition; or
(ii) a material default or breach of the Merger
Agreement shall be made by Whitman or
Acquisition; or
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(iii) since March 31, 1995, there shall be a
material adverse change in the results of
operations of Acquisition or Whitman, or any
material adverse change in the business,
results of operations ( as compared with the
same period in the preceding year), prospects,
manner of conducting business, financial
condition or any asset of Acquisition or
Whitman, except as disclosed to MDJB in
writing on or prior to the date hereof.
Additional Right of Acquisition to Terminate
As soon as practicable after execution of the Merger
Agreement, Acquisition's representatives and MDJB's representatives shall
together meet with officials from ED's Institutional Participation Division
("IPD") to inform IPD of the Merger Agreement and determine whether IPD
reasonably anticipates that Acquisition will be able to obtain Certification
for Colorado Technical University subsequent to the proposed Merger. If, on
the basis of the above-described meeting, Acquisition reasonably believes that
IPD will not certify Colorado Technical University at any time or in a timely
manner, then, notwithstanding any other provision of the Merger Agreement to
the contrary, Acquisition may elect to terminate the Merger Agreement by
notice to MDJB given not less than five business days prior to the Closing
Date, including in such notice the basis for belief upon which the election is
taken. Acquisition may withdraw its election if, subsequent to the giving of
notice, it is satisfied that the basis cited in the notice has been
satisfactorily resolved, the determination of Acquisition to be dispositive.
EXPENSES
All legal and other costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses. Without limiting the
generality of the foregoing, any and all fees and expenses of any attorneys,
accountants or investment bankers of the parties hereto incurred in connection
with the Merger Agreement or the transactions contemplated thereby shall be
borne by the party incurring such expense and shall not be assumed by any
other party; provided, however, that in no event shall the legal, accounting
and other fees and expenses incurred by or on behalf of MDJB and/or Colorado
Tech exceed an aggregate of $75,000 without the prior written consent of
Whitman.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial
information gives effect to the proposed Merger of Acquisition and MDJB on a
pooling of interest basis. For a description of pooling of interests
accounting with respect to the Merger, See "THE MERGER-Accounting Treatment."
The following unaudited pro forma combined financial information has been
prepared based upon the historical consolidated financial statements of
Whitman and MDJB giving effect to the Merger. The accompanying unaudited pro
forma combined balance sheet assumes that the Merger took place on September 30,
1995 and combines Whitman's September 30, 1995 historical condensed consolidated
balance sheet with MDJB's June 30, 1995 historical condensed consolidated
balance sheet. The unaudited pro forma combined statements of operations
assumes that the Merger occurred as of the beginning of the periods presented
and combine Whitman's consolidated results of operations for the six months
ended September 30, 1995 and for each of the three years in the period ended
March 31, 1995 with MDJB's consolidated results of operations for the six months
ended June 30, 1995 and for each of the three years in the period ended
December 31, 1994, respectively.
Whitman acquired SBC on December 21, 1994. The acquisition
was accounted for using the purchase method of accounting. The acquired assets
and liabilities of SBC are included in Whitman's condensed consolidated
balance sheet as of September 30, 1995. Whitman's consolidated results of
operations include the operating
182426-1
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<PAGE>
results of SBC from the date of acquisition. Pro forma results of operations
for the year ended March 31, 1995 assume the acquisition of SBC occurred on
April 1, 1994.
The unaudited pro forma combined financial information is
intended for informational purposes only and is not necessarily indicative of
the future financial position or future results of operations of the combined
company, or of the financial position or results of operations of the combined
company that would have actually occurred had the Merger been in effect as of
the date or the periods presented.
These unaudited pro forma combined financial statements and
the accompanying notes should be read in conjunction with and are qualified in
their entirety by the Whitman and MDJB Consolidated Financial Statements,
including the related notes thereto, included elsewhere in this Proxy
Statement-Prospectus and the SBC Financial Statements incorporated by
reference in this Proxy Statement-Prospectus.
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<PAGE>
WHITMAN MEDICAL CORP. AND M.D.J.B., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Historical Historical
Whitman M.D.J.B. Pro Forma Pro Forma
September 30, 1995 June 30, 1995 Adjustments Combined
------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 1,115,479 $ 55,828 $ 1,171,307
Accounts receivable, net ................................ 11,231,548 1,502,879 12,734,427
Other current assets .................................... 1,043,057 394,568 1,437,625
------------ ------------ ------------
Total current assets ............................... 13,390,084 1,953,275 0 15,343,359
Equipment and leasehold improvements, net ..................... 4,884,672 1,675,667 6,560,339
Deposits and other assets ..................................... 1,967,810 17,633 1,985,443
Goodwill, net ................................................. 2,564,647 2,564,647
Restricted cash - escrow ...................................... 2,400,000 2,400,000
------------ ------------ ------------ ------------
Total assets ....................................... $ 25,207,213 $ 3,646,575 0 $ 28,853,788
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................... $ 1,614,422 $ 813,407 (1)$300,000 $ 2,727,829
Current portion of long-term debt ....................... 7,976,766 201,162 8,177,928
Deferred tuition revenue ................................ 8,451,675 1,333,266 9,784,941
------------ ------------ ------------ ------------
Total current liabilities .......................... 18,042,863 2,347,835 300,000 20,690,698
Deferred income taxes ......................................... 73,990 (8) (73,990) 0
Long-term debt ................................................ 2,167,195 212,901 2,380,096
Stockholders' equity .......................................... 4,997,155 1,011,849 (1)(300,000) 5,782,994
(8) 73,990
------------ ------------ ------------ ------------
$ 25,207,213 $ 3,646,575 $ 0 $ 28,853,788
============ ============ ============ ============
</TABLE>
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<PAGE>
WHITMAN MEDICAL CORP. AND M.D.J.B., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Historical
Whitman M.D.J.B.
Six Months Ended Six Months Ended Pro Forma Pro Forma
September 30, 1995 June 30, 1995 Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tuition and other revenues, net ................................. $13,410,119 $4,347,827 $17,757,946
Cost of educational services .................................... 8,155,630 2,759,587 10,915,217
Student services and administrative expenses .................... 6,106,348 981,946 7,088,297
------------ ----------- ------------
(Loss) income from operations ............................. (851,859) 606,291 (245,568)
Interest income (expense), net .................................. (513,649) (24,623) (538,272)
------------ ----------- ------------
(Loss) income from continuing
operations before income taxes ............................ (1,365,508) 581,668 (783,840)
Income tax expense .............................................. 37,621 213,206 250,827
Net (loss) income from continuing
operations ..................................................... $(1,403,129) $ 368,462 $(1,034,667)
============ =========== =============
Net (loss) per common share (3) .......................... $ (.36) $ (.20)
============ =============
Weighted average common shares and
common share equivalents .................................. 3,854,851 (2)1,250,000 5,104,851
</TABLE>
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<PAGE>
WHITMAN MEDICAL CORP. AND M.D.J.B., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Historical Historical
Whitman SBC M.D.J.B
Year Ended Period Pro Forma Year Ended Pro Forma Pro Forma
March 31, 1995 4/1/94-12/20/94 Adjustments Subtotal December 31, 1994 Adjustments Combined
-------------- -------------- ----------- -------- ----------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Tuition and other
revenues, net ......... $11,759,258 $10,773,344 $22,532,602 $7,867,523 $30,400,125
Cost of educational
services .............. 6,179,696 5,565,279 11,744,975 5,662,689 17,407,664
Student services and
administrative
expenses .............. 5,699,426 4,399,164 $ (4)55,400 10,153,990 1,798,538 11,952,528
------------ ------------ ---------- ------------ ----------- ------------ ------------
(Loss) income from
operations ............ (119,864) 808,901 (55,400) 633,637 406,296 1,039,933
Interest income
(expense), net ........ (268,050) 7,862 (5)(152,500) (412,688) (42,821) (455,509)
------------ ------------ ---------- ------------ ----------- ------------
(Loss) income from
continuing operations
before income taxes ... (387,914) 816,763 (207,900) 220,949 363,475 584,424
Income tax expense
(benefit) ............. (32,935) 195,898 (6)(57,900) 105,063 155,107 260,170
------------ ------------ ---------- ------------ ----------- ------------ ------------
Net (loss) income from
continuing operations . $ (354,979) $ 620,865 $ (150,000) $ 115,886 $ 208,368 $ 324,254
============ ============ ========== ============ ============ ============ ============
Net (loss) income
per common share (3) .. $(0.10) $0.03 $0.06
====== ====== =====
Weighted average common
shares and common
share equivalents ..... 3,599,993 (7)71,050 4,181,849 (2)1,250,000 5,431,849
(9)510,806
</TABLE>
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<PAGE>
WHITMAN MEDICAL CORP. AND M.D.J.B., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Historical
Whitman M.D.J.B.
Year Ended Year Ended Pro Forma Pro Forma
March 31, 1994 December 31, 1993 Adjustments Combined
-------------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
Tuition and other revenues, net ........... $6,158,203 $7,062,536 $13,220,739
Cost of educational services .............. 3,415,312 5,448,285 8,863,597
Student services and administrative
expenses ................................. 2,427,051 1,390,660 3,817,711
------------ ------------ ------------
Income from operations .............. 315,840 223,591 539,431
Interest income (expense), net ............ (21,885) (22,193) (44,078)
----------- ------------ ------------
Income from continuing operations
before income taxes ............... 293,955 201,398 495,353
Income tax expense ........................ 80,394 62,140 142,534
----------- ------------ ------------
Net income from continuing operations ..... $ 213,561 $ 139,258 $ 352,819
=========== ============ ============
Net income per common share (3) ........... $0.06 $0.07
===== =====
Weighted average common shares and common
share equivalents ......................... 3,645,886 (2)1,250,000 4,895,886
</TABLE>
58
181422-1
<PAGE>
WHITMAN MEDICAL CORP. AND M.D.J.B., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Historical
Whitman M.D.J.B.
Year Ended Year Ended Pro Forma Pro Forma
March 31, 1993 December 31, 1992 Adjustments Combined
-------------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
Tuition and other revenue, net ............. $ 4,268,406 $ 6,512,779 $10,781,185
Cost of educational services ............... 2,557,344 4,761,987 7,319,331
Student services and administrative expense 1,830,134 1,217,322 3,047,456
----------- ----------- -----------
(Loss) income from operations ........... (119,072) 533,470 414,398
Interest income (expense), net ............. 25,496 (20,504) 4,992
----------- ----------- -----------
(Loss) income from continuing operations
before income taxes ..................... (93,576) 512,966 419,390
Income tax expense ......................... 21,742 180,070 201,812
----------- ----------- -----------
Net (loss) income from continuing operations $ (115,318) $ 332,896 $ 217,578
=========== =========== ===========
Net (loss) income per common share (3) ..... $(0.03) $0.05
====== =====
Weighted average common shares and
common share equivalents ................... 3,534,434 (2)1,250,000 4,784,434
</TABLE>
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<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
(1) The estimated costs associated with the Merger of $300,000 relate
primarily to legal and accounting fees. All of these costs will be charged
against operations of the combined company in the period in which the Merger
is consummated. Accordingly, the effects of these costs have not been
reflected in the unaudited pro forma condensed combined statements of
operations, but are reflected in the unaudited pro forma condensed combined
balance sheet.
(2) Reflects the issuance of 1,250,000 shares of Whitman Common Stock in
exchange for all outstanding shares of M.D.J.B. based on an exchange ratio of
1.163 shares of Whitman Common Stock exchanged for each share of M.D.J.B. stock.
(3) Pro forma income (loss) per common share was computed by dividing pro
forma net income (loss) by the pro forma combined weighted average number of
common shares outstanding. The pro forma combined weighted average number of
common and common equivalent shares assumes that the 1,250,000 shares were
outstanding as of the beginning of each period presented.
(4) Reflects amortization expense of deferred financing fees and goodwill
related to the SBC acquisition for the period from April 1, 1994 through
December 20, 1994. Goodwill is being amortized using the straight-line method
over a 40 year period.
(5) Estimate for additional interest expense for the period from April 1, 1994
through December 20, 1994 on the assumed average outstanding SBC acquisition
loan balance at prime minus 1/2% (actual interest rate on the SBC acquisition
loan).
(6) Reflects pro forma tax expense attributable to SBC's income in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
after giving effect to the pro forma acquisition adjustments. SBC had elected S-
Corp filing status for federal income tax purposes.
(7) Reflects issuance of 98,232 shares of Whitman Common Stock in conjunction
with the acquisition of SBC as if the shares were issued effective April 1,
1994.
(8) To reduce Whitman's valuation allowance related to its deferred tax assets
to the extent that it is expected to be offset by M.D.J.B.'s taxable temporary
differences in periods when the companies are expected to file a consolidated
tax return. This adjustment will be reflected in operations in the period of the
merger.
(9) Reflects as common stock the 510,806 shares of Whitman Common Stock held in
escrow pursuant to the SBC acquisition agreement since, on a pro-forma basis,
their effect is not anti-dilutive for the year ended March 31, 1995 and,
accordingly, considered outstanding for the full year on a pro forma basis. See
Note 12 to the Whitman financial statements included in this Proxy
Statement/Prospectus for a description of the conditions precedent to the
issuance of the shares of Whitman Common Stock held in escrow.
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<PAGE>
INFORMATION CONCERNING WHITMAN
Whitman is engaged in the operation of 20 proprietary career-oriented
degree and non degree granting post-secondary schools. Through its
wholly-owned subsidiary, Ultrasound Technical Services, Inc., the Company owns
and operates the Ultrasound Diagnostic School, believed by Whitman management
to be the largest school in the United States for the training of sonographers
for the field of medical diagnostic ultrasound. Through its wholly owned
subsidiary Sanford Brown College, Inc., the Company owns and operates
Sanford-Brown College, a post-secondary school which offers healthcare and
business degree and non-degree programs.
The Company's executive offices are located at 485 Building E, U.S.
Highway 1 South, Iselin, New Jersey 08830-3005 and its telephone number is
(908) 636-3640.
Ultrasound Diagnostic School
The Ultrasound Diagnostic School ("UDS") teaches more students to be
ultrasound technologists for the field of diagnostic medical ultrasound than
any other school in the United States. Medical ultrasound employs harmless
high frequency sound waves to form a picture of the internal organs of the
body. Diagnostic medical ultrasound is employed in various medical
specialties, including obstetrics, gynecology, cardiology, internal medicine,
oncology and ophthalmology.
At December 1, 1995, UDS consisted of 15 teaching facilities: three
in New York State, three in Florida, two in Pennsylvania, two in Texas and one
each in Georgia, Maryland, Massachusetts, New Jersey and Ohio. Of the 15
facilities, four began operations in fiscal 1993 and one in fiscal 1994. The
fifteen facilities are organized into four main campuses -- Carle Place, N.Y.,
Elmsford, N.Y., New York City, N.Y. and Iselin, N.J.
UDS' general ultrasound program teaches its students to become
diagnostic medical sonographers. To qualify for the program, a student must
have completed either one year of college or have two years of work
experience. A typical UDS facility conducts four classes each year of the
general ultrasound program consisting of 645 hours of classroom and laboratory
study and 560 hours of clinical training at a healthcare facility. In fiscal
1994, UDS received permission from the various states in which it operates to
increase the total number of hours in the general ultrasound program from 961
to 1205 hours. With the increase in the hours of the program, UDS increased
tuition for the general ultrasound program to $9,800. The Company believes
that the increase in tuition resulted in an increase in revenues without
having a material adverse effect on enrollment. UDS further increased tuition
to $11,495 for general ultrasound classes that began after July 31, 1995. In
addition, the Company plans to offer UDS' general ultrasound programs at its
newly-acquired Sanford-Brown College, as well as offer certain Sanford-Brown
College courses at UDS teaching facilities.
The Company believes that it can more effectively use UDS' existing
resources, increase revenues and generate profits by expanding the healthcare
programs offered by UDS. As a result, UDS added two major programs to its
curriculum offerings, Cardiovascular Technology and Medical Assisting.
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<PAGE>
The Cardiovascular Technology ("CVT") program provides concentrated
study and practical experience in cardiac and vessel anatomy, pathophysiology
and other anatomical landmarks, biophysics, acquired and congenital disease,
ultrasound physics, pharmacology and drug interaction, electrocardiograms,
holter monitoring and stress testing, echocardiography and cardiac doppler,
and the entire spectrum of arterial and venous doppler using ultrasound color
flow technology.
The CVT program consists of 544 hours of classroom and laboratory
study and 480 hours of clinical training at a healthcare facility. Tuition for
the program is $9,700. UDS began offering the CVT program in September, 1994;
by fiscal year end, seven UDS facilities had begun offering the program. UDS
plans to offer the CVT program in all 15 UDS facilities by the end of fiscal
1996. When the CVT program is fully implemented, each UDS facility will offer
four classes per year of the CVT program.
The second major program added to the UDS curriculum was Medical
Assisting ("MA"). Medical assistants are basic health care employees with
broad responsibilities. The MA program provides concentrated study and
practical experience in routine front office administrative skills and
clinical capabilities performed in a primary healthcare setting. The program
teaches patient scheduling, insurance billing and reimbursement, medical
computer systems, basic on-site laboratory tests, patient history, vital
signs, sterile procedures, diet and medication. The MA program consists of 720
hours of classroom and laboratory study and 180 hours of clinical training at
a healthcare facility.
Tuition for the MA program is $8,100. The MA program was first
offered at a UDS facility in December of 1994. At March 31, 1995 the course
was being offered at two UDS facilities. The Company anticipates that the
program will be offered at all 15 UDS facilities by the end of fiscal 1996.
When the MA program is fully implemented, each UDS facility will offer 16
classes per year of the program.
Implementing the new programs entails a significant cost and expense
in advance and in anticipation of revenues. In the short term, this has an
adverse effect on cash flow and earnings. Before a new program can be offered,
it must be approved by the state in which the program is to be offered, and
under certain circumstances by ED. The CVT and MA programs have been approved
in seven of the nine states in which UDS operates. The CVT and MA programs
require equipment and systems that are not required for the general ultrasound
program, and, hence, were not available at the various UDS facilities.
Moreover, in order to offer the MA program, more space was required at various
UDS facilities. UDS has been acquiring additional equipment and systems,
expanding various of its teaching facilities, hiring additional staff and
increasing its marketing and sales efforts in order to begin offering the CVT
and MA programs.
In addition to offering the general ultrasound program and the CVT
and MA programs, UDS, through its Division of Continuing Medical Education,
offers advanced continuing medical education courses in diagnostic ultrasound,
Magnetic Resonance Imaging ("MRI") and Computed Axial Tomography ("CAT scan").
MRI is a method of imaging internal body organs, bones and vessels, utilizing
radio frequency waves. Like sonography, MRI is not invasive and not
cumulative. CAT scan is a method of imaging internal body organs and bones
utilizing X-rays. X-rays are invasive and cumulative and X-ray technicians, in
contrast to sonographers and MRI technologists, require licensing.
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<PAGE>
The UDS programs are not degree granting programs. Graduates receive
a certificate or diploma. However, the Program on Non Collegiate Sponsored
Instruction of the American Council on Education ("ACE") evaluated the
ultrasound courses and recommended that universities and colleges give UDS
graduates up to 43 college credits towards a baccalaureate degree. Of these
credits, 36 are from the general ultrasound program and 7 are from the
continuing medical education programs. ACE also reviewed the CVT and MA
programs and recommended the CVT program for 24 college credits and the MA
program for l8 college credits. Whitman strategy is to obtain college credit
recommendations from ACE for all UDS courses. Descriptions of the UDS courses
appear in the National Guide to Educational Credit for Training Programs,
published annually by ACE.
UDS is seeking to establish joint programs with community colleges
and has successfully consummated an articulation agreement with Florida
Community College of Jacksonville. In a joint program, a student would take
one year of courses at the participating community college and one year at
UDS, and graduate with both an Associate's Degree from the community college
and a certificate from UDS.
At September 30, 1995, 1,213 students were enrolled in the various
UDS programs. In fiscal 1995, UDS graduated 676 students from its various
programs. The overall completion rate in the general ultrasound program is
approximately 80%.
Sanford-Brown College
On December 21, 1994, a wholly-owned subsidiary of Whitman acquired
Sanford-Brown College (See, "Acquisition of Sanford-Brown College"). Founded
shortly after the Civil War, Sanford-Brown College ("SBC") operates four
schools in Missouri and one in Illinois organized into two main campuses --
Des Peres, Missouri and Granite City, Illinois. SBC offers the following
programs: physical therapy assistant, occupational therapy assistant,
associate degree nursing, licensed practical nursing, medical administrative
assistant, accounting, secretarial, data processing, travel and hospitality
and paralegal.
SBC's practical nursing program is the largest in the State of
Missouri, enrolling approximately 350 students each year. SBC's associate
degree nursing program enrolls approximately 290 students each year. All of
SBC's nursing programs are fully accredited by the Missouri State Board of
Nursing. Upon completion of the nursing program, the student is considered a
graduate nurse and is eligible to make application to the Missouri State Board
of Nursing to take either the Licensed Practical Nurse or Registered Nurse
licensure examination. The Company plans to offer UDS' general ultrasound and
CVT programs at the SBC Des Peres, Missouri school; and based on its
evaluation of the market, may offer these programs at other SBC schools.
SBC is accredited by the Accrediting Commission for Independent
Colleges and Schools, and is a candidate for accreditation by the North
Central Association ("NCA"). The NCA candidacy status allows SBC to issue
accredited associate's degrees, giving a student the ability to transfer
credits earned at SBC toward a baccalaureate degree at many four year
colleges. SBC is one of two proprietary schools in Missouri that has been
approved for NCA candidacy.
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<PAGE>
Tuition rates for SBC programs range from $10,965 for its legal
office assistant program to $16,320 for its physical therapy program.
At September 30, 1995, 1,505 students were enrolled in the various
SBC programs; and during the most recent year ended March 31, 1995, 1,493
students were graduated from SBC. The overall completion rate of SBC's
students is approximately 77% and the completion rate of the students in its
healthcare programs exceeds 90%.
Regulation
Each UDS and SBC teaching facility is regulated and licensed by the
state in which it operates. In addition, although approval of ED is not
required for UDS or SBC to operate, both UDS and SBC derive a substantial
portion of their revenues through the Title IV Programs. Approval for
participation in Title IV Programs requires as a prerequisite that a school be
licensed by the state in which it operates and accredited by an accrediting
agency approved by ED. All UDS teaching facilities are accredited by the
Accrediting Bureau of Health Education Schools. All SBC teaching facilities
are accredited by the Accrediting Commission for Independent Colleges and
Schools. The accreditation of SBC's facilities is due to expire on December
31, 1995. SBC's management believes that the facilities will be reaccredited.
Federal Financial Aid Programs
Both UDS and SBC derive a majority of their revenue from the Title IV
Programs. The Title IV programs consist of loan programs and grant programs.
To participate in various of the Title IV Programs, a school must comply with
the HEA, and the regulations promulgated thereunder by ED. The 1992
reauthorization of the HEA, and the regulations promulgated thereunder,
expanded significantly the regulation of proprietary schools participating in
Title IV Programs.
State Postsecondary Review Entity. The HEA requires each state to
establish a State Postsecondary Review Entity ("SPRE") to review institutions
within its state to determine continued eligibility to participate in the
Title IV Programs. SPRE reviews will be mandatory for institutions meeting
specific criteria. At present, UDS and SBC operate teaching facilities in 11
states. Each state is required to submit its review standards to the
Department of Education for approval. The review standards promulgated by a
state could adversely affect the eligibility of Whitman's teaching facility in
that state to participate in the Title IV Programs.
The 85/15 Rule. The HEA requires that an annual comparison be made of
the percentage of Title IV Program receipts of a proprietary school to its
total receipts in Title IV eligible programs. Under the 85/15 Rule, a
proprietary school will be ineligible to participate in Title IV Programs if,
utilizing a cash basis of accounting, more than 85% of its revenues from Title
IV eligible programs for the prior fiscal year were derived from Title IV
Program funds. The Company believes that each of the UDS and SBC facilities is
in compliance with the 85/15 Rule.
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<PAGE>
Federal Direct Lending. The HEA establishes a system of direct
lending by the federal government. At present loans are made by third parties
and are guarantied by the federal government. Federal direct student loans
eliminate third party lending institutions and guaranty agencies from the
student loan disbursement process. All UDS and SBC facilities have been
approved to participate in the direct loan program beginning in July 1995.
Standards of Financial Responsibility. Under ED regulations, each
institution must satisfy certain standards of financial responsibility to
continue to participate in Title IV Programs. A failure to satisfy those
standards could result in restrictions being placed upon that school's
participation in Title IV Programs or a termination of its eligibility to
participate in Title IV Programs. For purposes of these Standards, at present
SBC is evaluated as a distinct entity. UDS, on the other hand, is evaluated on
the basis of the financial perfor mance of Whitman, its parent, as a whole.
One standard of financial responsibility is profitability. A school
may not have operating losses in either or both of its two most recent fiscal
years that in sum result in a decrease in tangible net worth in excess of 10
percent of the school's tangible net worth at the beginning of the two year
period. SBC operated profitably in fiscal 1995. Although the Company had an
operating loss for fiscal 1995, the sum of its performance in fiscal 1994 and
1995 did not result in a decrease in its tangible net worth in excess of 10
percent. Should Whitman experience an operating loss, or have insufficient
operating profits, for fiscal 1996, the UDS teaching facilities would likely
fail to meet the profitability requirements which could have a material
adverse effect on Whitman.
A second standard of financial responsibility is the acid test ratio.
A school must maintain a ratio of at least 1 to 1 at the end of its fiscal
year of cash, cash equivalents, restricted cash and current accounts
receivable to total current liabilities. At March 31, 1995, Whitman's acid
test ratio was 1.36 to 1.00 and SBC's acid test ratio was 1.21 to 1.00.
A third standard of fiscal responsibility is the requirement that a
school maintain a positive tangible net worth. At March 31, 1995, SBC and
Whitman each had a positive tangible net worth.
Cohort Default Rates. If a school's cohort default rate, that is, the
rate at which its students default on repayment of student loans obtained
under the Federal Family Education Loan Programs ("FFELP"), exceeds 25% in all
of its three most recent federal fiscal years, it becomes ineligible to
participate in the FFELP programs. A school's cohort default rate is published
annually by ED. The most recent cohort year published was 1992. A school may
appeal its published rate and/or its loss of eligibility. SBC's 1992 default
rate was published at 30% and is currently on appeal with ED. SBC's 1993
default rate is expected to exceed the 25% ceiling. Stringent measures have
been implemented by SBC to reduce its default rate. Whitman does not
anticipate that SBC will lose FFELP eligibility because of its default rate,
but ED may place restrictions on SBC until the rate has been reduced below the
25% ceiling. The failure of SBC to maintain FFELP eligibility would have a
material adverse affect on the operations and financial condition of Whitman.
A portion of the purchase price paid by Whitman for SBC remains in escrow
subject to certain conditions including SBC's Missouri and Illinois campuses
each maintaining its eligibility in the event its default rate exceeds 25% in
each of fiscal 1992, 1993 and 1994. (See "- Acquisition of Sanford-Brown
College"). The published default rate for UDS's four main campuses for the
1992 fiscal year ranged from 6% to 13%. The default rates of the UDS
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<PAGE>
facilities have been low historically and Whitman does not anticipate the
rates exceeding current regulatory ceilings.
SBC Change of Control. The change of control of SBC automatically
terminated the participation of SBC in the Title IV Programs. After the
closing, the Company applied for, and SBC was declared eligible for
participation in the Title IV Programs in early May 1995. Students who
enrolled in SBC during the period in which its participation was terminated
could not utilize Title IV Program loans and grants for the payment of
tuition. Students who had been enrolled prior to this period also faced
limitations in their ability to receive program loans and grants. As a result
of SBC's eligibility, most of the Title IV Program funds affected by the
termination of SBC's participation have been or will be received by SBC from
the Title IV Programs. A portion will not, and SBC must look to its students
for that portion which may result in a future increase in SBC's bad debt
experience. In addition, the period during which SBC was ineligible to
participate in the Title IV Programs had an adverse effect on the cash flow of
SBC.
Settlement of Dispute with Department of Education. In fiscal 1995,
UDS settled a dispute it had with ED relating to federal financial aid granted
to students at the UDS Norwood, Massachusetts teaching facility between April
28, 1988 and November 21, 1989. UDS paid approximately $61,000 in the
settlement. Included in that amount was UDS' repurchase of student loans
totaling approximately $19,000. If the loans are repaid in full to UDS, the
cost to UDS of the settlement will be approximately $42,000. The pendency of
this dispute contributed to a delay in ED approving the UDS Dallas and
Cleveland facilities for participation in the Title IV Programs. After the
settlement was consummated, both the Dallas and Cleveland facilities were
approved for participation in the Title IV Programs. The delay in approving
the Dallas and Cleveland facilities had an adverse effect upon Whitman's
earnings for fiscal 1995 and on its cash flow.
Payment of SBC by Reimbursement
In fiscal 1995, a regional office of ED performed a program review of
SBC with respect to the 1992-93, 1993-94 and 1994-95 award years.
Substantially all of this period preceded SBC's acquisition by Whitman. After
the close of fiscal 1995, ED placed SBC on a reimbursement program for certain
Title IV Programs, the most important of which to SBC is the Pell grant
program. As a result, SBC will have to advance the amount of the Pell grants
on behalf of its students and await reimbursement from the government. This
has had an adverse effect upon SBC's cash flow. The final report relating to the
program review has not yet been issued by ED. As a result, Whitman is unable to
determine the amount of liability, if any, for noncompliance by SBC with Title
IV Programs as a result of such program review.
Acquisition of Sanford-Brown College
On December 21, 1994, Whitman's wholly-owned subsidiary acquired
substantially all of the assets and assumed certain liabilities of
Sanford-Brown College, Inc., a Missouri corporation. After the acquisition the
seller changed its name to SBC Liquidating Inc. and Whitman's subsidiary
changed its name to Sanford Brown College, Inc. The assets acquired consisted
principally of tangible and intangible assets owned and/or leased by the
seller in the operation of Sanford Brown College and the liabilities assumed
consisted principally of preclosing trade payables and accrued expenses
relating to the operation of Sanford-Brown College. The purchase price paid
was $9,000,000 of which $5,900,000 was in cash and the balance in shares of
Whitman's Common Stock. The number of shares delivered at the closing was
609,038, determined on the basis of a
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<PAGE>
formula set forth in the acquisition agreement. The acquisition agreement
provided for conditions subsequent pursuant to which, under certain
conditions, the transaction could have been terminated and rescinded by the
Company in whole or in part; pending the satisfaction or expiration of the
conditions subsequent, the entire purchase price was delivered into escrow at
the closing. When the ED recertified SBC for participation in the Title IV
Programs in May 1995, pursuant to the agreement $3,500,000 of the cash and
98,232 of the shares of Whitman Common Stock held in escrow were disbursed to
SBC Liquidating, Inc. The balance of the cash and common stock remains in
escrow to be disbursed to SBC Liquidating, Inc. or returned to Whitman upon
the occurrence or failure to occur of certain events relating to ED regulation
of SBC.
Whitman's obligation to close the acquisition of SBC was subject to
it obtaining a binding commitment from a bank or other financial institution
to lend it at least $8,500,000 at a rate and on terms reasonably satisfactory
to it. This sum was needed to fund the cash portion of the purchase price and
to provide working capital particularly during the period between the closing
and the recertification of SBC for participation in the Title IV Programs.
Whitman was unable to secure the requisite financing on its own credit. Bank
of America Illinois offered to extend the financing on the credit and guaranty
of Frost-Nevada, Limited Partnership ("Frost- Nevada"), Whitman's largest
shareholder. Frost-Nevada agreed to guaranty the loans and the bank extended
to the Company an $8,500,000 credit facility consisting of a $6,000,000 term
loan and a $2,500,000 revolving credit loan. The loans bear interest at a rate
of 1/2% below the prime rate and are due on April 16, 1996. In consideration
for guarantying the facility, Whitman issued warrants to Frost-Nevada to
purchase 575,000 shares of Whitman Common Stock at a price of $6.25 per share.
Dr. Phillip Frost, Chairman of Whitman's Board of Directors, is the beneficial
owner of Frost-Nevada.
Competition
In almost all the geographic areas in which UDS teaching facilities
are located, hospitals and community colleges operate programs to train
medical sonographers. Generally, hospitals operate these programs for their
own staffing requirements. Community colleges and other proprietary and
private schools compete directly with UDS. There are few proprietary schools
or community colleges that offer the CVT program. Currently, most of the
teaching of this program is hospital based for the hospital's own staffing
needs. Medical assisting is a commonly offered health Care program and is not
exclusive to health Care education institutions. Both proprietary schools and
community colleges offer medical assisting programs.
In the St. Louis area, SBC has 10 competitors who provide comparative
educational degrees and curriculum, four of which are NCA accredited. SBC has
four competitors in the St. Louis area offering comparable health Care
programs. SBC has two principal competitors to its practical nursing program
in the Kansas City area.
A clinical training externship performed at a health Care center is
an integral part of each health Care program offered by UDS and SBC. Demand
for clinical training sites is great. In general, there is a finite number of
available clinical sites in a geographic area. Increased competition for
available clinical sites increases the cost and difficulty of procuring such
sites. If a facility is unsuccessful in procuring a sufficient number of
clinical training sites, it may have to limit enrollment thereby adversely
affecting revenue.
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<PAGE>
Employees
As of December 1, 1995, Whitman and its subsidiaries had 375 full
time and 220 part time employees and engaged 5 independent contractors.
Properties
Whitman leases approximately 5200 square feet of space in an office
building located at 485 Building E, U.S. Highway 1 South, Iselin, New Jersey
08830-3005. UDS leases 16 premises, three each in New York and Florida, two
each in Texas and Pennsylvania and one each in Georgia, Maryland,
Massachusetts, New Jersey, Ohio and Minnesota. At present UDS intends to delay
opening the Minnesota teaching facility. SBC leases six premises, one of which
is its corporate headquarters and the balance are teaching facilities. Five of
the SBC premises are in Missouri and one in Illinois. Subject to the current
expansion of individual UDS facilities to allow UDS to offer the medical
assisting program, Whitman believes that the facilities it occupies are
sufficient to carry on its business operations. Whitman owns or rents
sufficient equipment for its current operations. All such equipment is in
satisfactory condition.
Legal Proceedings
There is no material litigation pending against Whitman or its
subsidiaries.
WHITMAN MEDICAL CORP.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for each of the three years
in the period ended March 31, 1995 set forth below are derived from the
audited Consolidated Financial Statements that are included elsewhere in this
Proxy Statement-Prospectus and should be read in conjunction with such
Consolidated Financial Statements and related notes thereto and "Whitman
Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data for each of the two
years in the period ended March 31, 1992 has been derived from audited
financial statements of Whitman which are not included herein. The interim
consolidated financial information for the six months ended September 30, 1995
and 1994 is unaudited and reflects all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of the consolidated financial information for these periods.
Operating results for the six months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1996.
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<PAGE>
<TABLE>
<CAPTION>
WHITMAN HISTORICAL CONSOLIDATED SUMMARY FINANCIAL DATA
Six Months Ended
Years Ended March 31 September 30,1995
-------------------- ---------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(In thousands, except for per share data) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Total Revenues .......... $ 3,370 $ 3,852 $ 4,268 $ 6,158 $ 11,759 $ 3,501 $13,410
Net Income (loss) from
continuing operations ... 354 259 (115) 214 (355) (79) (1,403)
Net Income (loss) from
continuing operations per
common and common
equivalent share (1) .... .30 .22 (.03) .06 (.10) (.02) (.36)
BALANCE SHEET DATA:
Working Capital
(Deficiency) (2) ....... 910 1,181 2,655 3,046 5,100 2,808 (4,653)
Total Assets ............ 3,868 4,000 7,936 9,225 27,367 11,044 25,207
Long-Term Obligations ... 45 82 392 484 9,244 1,412 2,167
Stockholders' Equity .... 1,636 1,907 4,403 4,903 6,226 4,659 4,997
</TABLE>
- ---------------------------------
(1) The 510,806 shares issued in connection with the Sanford Brown College
acquisition that remain in escrow to be disbursed to the seller or returned to
Whitman upon the occurrence or failure to occur of certain events relating to
the regulation of Sanford Brown College are not considered outstanding for
purposes of computing the net loss for fiscal 1995 as their effect is
anti-dilutive.
(2) Working Capital (Deficiency) includes, as a current liability, deferred
tuition revenue of $1,913,634, $1,794,515, $2,698,620, $3,348,629 and $9,910,213
as of March 31, 1991, 1992, 1993, 1994 and 1995, respectively, and $4,292,978
and $8,451,675 as of September 30, 1994 and 1995, respectively.
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<PAGE>
WHITMAN MEDICAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with Whitman's
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Proxy Statement-Prospectus.
RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
For the six months ended September 30, 1995 (the "1995 Six Month Period"),
Whitman had net loss of $1,403,129, or $.36 per share. The 510,806 shares
that remain in escrow in connection with the SBC acquisition are not
considered outstanding for the purpose of the per share loss computation as
their effect is anti-dilutive. For the six month period ended September 30,
1994 (the "1994 Six Month Period"), Whitman had a net loss of $78,534, or
$.02 per share.
In both periods, virtually all of Whitman's revenues were generated by its
school operations. However, in the 1994 Six Month Period, Whitman's school
operations consisted solely of UDS whereas, in the 1995 Six Month Period, the
school operations also consisted of SBC which was acquired in December 1994.
Therefore, the discussion below of the 1994 Six Month Period does not include
SBC.
For the 1995 Six Month Period the contribution to the operating
performance of Whitman from each of its two school operations, exclusive of
$407,356 of Whitman's corporate overhead, was:
<TABLE>
<CAPTION>
UDS SBC
------------- ------------
<S> <C> <C>
Total revenues ......... $ 5,367,145 $8,042,974
Operating expenses .... 6,557,278 7,297,344
Operating (loss) income (1,190,133) 745,630
Interest expense, net . 218,766 294,883
Pretax (loss) income .. (1,408,899) 450,747
</TABLE>
SBC interest expense reflects the bank debt associated with its acquisition
by Whitman.
Whitman had total revenues of $13,410,119 for the 1995 Six Month Period,
as compared to total revenues of $3,501,242 for the 1994 Six Month Period. Of
Whitman's total 1995 Six Month Period revenues, $5,367,145 were earned by UDS
and $8,042,974 were earned by SBC.
UDS tuition revenues increased 50%, or $1,689,000, in the 1995 Six Month
Period as compared to the 1994 Six Month Period. Revenues from the general
ultrasound program decreased $200,000 and revenues from continuing medical
education decreased $82,000 in the 1995 Six Month Period as compared to the
1994 Six Month Period, as UDS emphasized enrollments in the new MA and CVT
programs, but tuition revenue from the CVT program increased from $43,000 to
$803,000 and tuition revenue from the MA program increased from $0 to
$1,090,000. UDS expects to continue to focus on enrollments in the new programs
as a means of further growth. Management believes that enrollment and revenue in
the general ultrasound program will remain stable or decline slightly.
182431-1
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<PAGE>
As part of the addition of the CVT and MA programs, employees were hired
(administrative and teaching), equipment was acquired and school facilities
were expanded. As a result, expenses are being incurred in advance of further
anticipated increases in enrollments and revenues that management believes
will continue to occur from the expansion.
Cost of educational services were $8,155,630 in the 1995 Six Month Period
($3,230,185 incurred by UDS and $4,925,445 incurred by SBC) as compared to
$2,039,999 in the 1994 Six Month Period.
At UDS, cost of educational services increased by approximately 58%, from
$2,040,000 to $3,230,000, in the 1995 Six Month Period as compared to the 1994
Six Month Period. In the 1995 Six Month Period, instructor payroll increased by
approximately 70%, from $904,000 to $1,538,000 as approximately 40 additional
instructors were employed at UDS in the 1995 Six Month Period as compared to the
1994 Six Month Period reflecting the staff necessary to deliver the new CVT and
MA programs. Administration payroll increased by approximately 47%, from
$454,000 to $669,000, as additional staff were hired to deliver enhanced
services to the growing student body and facility rent expense increased by
approximately 76%, from $381,000 to $669,000, because of the relocation or
expansion of 11 school facilities to larger, more expensive facilities, in order
to accommodate the increased student population.
General and administrative expense, excluding $407,356 in corporate
overhead, was $5,698,992 in the 1995 Six Month Period ($3,327,093 incurred by
UDS and $2,371,899 incurred by SBC) as compared to $1,466,659 in the 1994 Six
Month Period.
At UDS, general and administrative expense increased approximately 127% in
the 1995 Six Month Period as compared to the 1994 Six Month Period. The
expenses in most of the categories that comprise general and administrative
expense increased because of the increase at UDS of its number of students,
the corresponding financial commitment UDS made to support this growth and
the commensurate additional operating expenses related to larger facilities
and increased student body. The categories that increased in the 1995 Six
Month Period as compared to the 1994 Six Month Period and the respective
increases were: sales and marketing expenses, including the cost of
admissions representatives and advertising, increased $791,000, management
employee expense increased $95,000, equipment rental expense increased
$51,000, consulting fees increased $113,000, general office supplies
increased $177,000, travel expense increased $235,000, depreciation expense
increased $119,000 and bad debt expense increased $215,000.
Bad debt expense at UDS increased $189,000, from $42,000 to $268,000, in the
1995 Six Month Period. The increase at UDS was due, primarily, to growth in
student population, resulting in an increase in the related accounts receivable
and the related reserve. There were no significant changes in the Company's
credit terms or collection efforts during this period. Accounts charged off
during the six months ended September 30, 1995 at SBC were the result of the
delay in recertification of Title IV eligibility and the related unfunded
student accounts receivable balances. As a result of the acquisition of SBC and
the related change in ownership, SBC was immediately terminated from the Title
IV programs. SBC's application for reinstatement in participation in Title IV
programs was approved in May 1995. As a result of the length of time
which elapsed before Title IV eligibility was reinstated, certain student
balances were unable to be funded, requiring a higher than normal level of
reserve against those receivables. The following table reflects the activity in
the allowance for doubtful accounts and bad debt expense for the six months
ended September 30, 1995:
<TABLE>
<CAPTION>
Allowance for
doubtful accounts Six months ended Six months ended
rollforward September 30, 1995 September 30, 1995 Consolidated
- ------------------------------------- ------------------ ------------------ --------------
UDS SBC WHITMAN
------------------ ------------------ --------------
<S> <C> <C> <C>
Beginning balance as of 4/1/95 ...... $146,754 $ 854,110 $1,000,864
Bad debt expense .................... 267,662 901,058 1,168,720
Charged off during year ............. (30,161) (639,952) (670,113)
---------- ----------- -----------
Ending balance as of 9/30/95 ........ $384,255 $1,115,216 $1,499,471
========== =========== ===========
</TABLE>
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<PAGE>
For accounting purposes, tuition income is recorded as income in the
period in which it is earned and any portion not yet earned from active
students is treated as deferred tuition revenue, a liability account. At
September 30, 1995, deferred tuition revenue increased $840,037 as compared
to March 31, 1995. At UDS, deferred tuition revenue at September 30, 1995 as
compared to March 31, 1995 increased $3,920,379 due, principally, to the
increased number of students currently enrolled in UDS, which was 629 at
March 31, 1995 and 1213 at September 30, 1995. At SBC, deferred tuition
revenue decreased $3,080,342 at September 30, 1995 as compared to March 31,
1995 due, principally, to the fact that SBC changed its method of recording
tuition charges for its programs from academic year based programs to term based
program. This change in the method of recording tuition charges, which is
reflected in SBC's accounts receivable and deferred revenue accounts, was made
in response to Department of Education regulations. Prior to the change in
recording tuition charges, SBC was charging for an academic year equal to three
terms or quarters as compared to the current method of charging one term or
quarter at a time. This change had the effect of reducing both the amounts
charged to accounts receivable and the amounts recorded as liabilities for
revenues not yet earned.
The Company will be required to adopt Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of in fiscal 1997, and Statement of Position
93-7, Reporting on Advertising Costs, in fiscal 1996. The implementation of
these new pronouncements is not expected to have a material affect on the
financial position or the results of operations of the Company.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1995 AND 1994
In fiscal 1995, Whitman had a net loss of $354,979, or $.10 per
share. The 510,806 shares that remain in escrow in connection with the SBC
acquisition are not considered outstanding for the purposes of the per share
loss computation as their effect is anti-dilutive. In fiscal 1994, Whitman
had net income of $213,561, or $.06 per share.
Whitman had total revenues of $11,759,258 for fiscal 1995, as
compared to total revenues of $6,158,203 for fiscal 1994. For fiscal year
1995, virtually all of Whitman's revenues were generated by its school
operations. Beginning on December 21, 1994 and for the period through the
fiscal year ended March 31, 1995, Whitman's school operations also included
the activities of its wholly-owned subsidiary Sanford-Brown College, Inc. Of
Whitman's total fiscal 1995 revenues, $7,570,591 were earned by UDS and
$4,188,667 were earned by SBC.
In fiscal 1995, the contribution to the operating performance of
Whitman from each of its two school operations, UDS and SBC, was:
UDS SBC
--- ---
Total revenues $ 7,570,591 $ 4,188,667
Operating expenses 7,787,622 3,761,095
Operating (loss) income (217,031) 427,572
Interest expense, net 135,993 132,057
Pretax (loss) income (353,024) 295,515
SBC interest expense includes $148,062 attributable to the bank debt
associated with its acquisition by Whitman. Pretax loss and income of each
subsidiary does not include any attribution of Whitman's corporate overhead of
$330,405.
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<PAGE>
UDS' revenues increased 23% in fiscal 1995 as compared to fiscal
1994. The increase was due, almost equally, to the increased tuition rate of
the general ultrasound program and to an increase in enrollment in career
programs attributable to the new CVT and MA programs.
Enrollment in the general ultrasound program at March 31, 1995
declined 11% compared to enrollment at March 31, 1994 due, principally, to the
cancellation of three classes scheduled to start in fiscal 1995 and to a
decrease in retention in the general ultrasound program from 91% in fiscal
1994 to 86% in fiscal 1995.
Starting with the November 1993 class, an expanded general
ultrasound program with an increased tuition rate was offered in nine UDS
facilities; and all UDS facilities offered the expanded program starting with
the February 1994 class. UDS tuition increase affected approximately 79% of
the students whose tuition was recognized as revenues for fiscal 1995. In
fiscal 1995 all students newly enrolled in the general ultrasound program pay
the higher tuition. The expanded program required additional expenditures for
instructors and equipment. Demand for the general ultrasound program remains
stable and UDS has increased the tuition rate in fiscal 1996. Management
believes the planned increase in the general ultrasound tuition rate will not
have an adverse effect on enrollment and ultimately will result in increased
revenues and profits.
Revenues from continuing medical education (CME) courses decreased
by approximately 10% in fiscal 1995 compared to fiscal 1994 due, principally,
to a decrease in revenue from the MRI course. Management believes that
interest in this specialty has waned. Revenues from UDS' other CME courses
increased in fiscal 1995 compared to 1994. Management believes the CME courses
will continue to offer an opportunity to increase revenues per facility.
During fiscal 1995, UDS began a planned expansion to increase the
number of career programs offered. Two new programs, the CVT program and the
MA program, are being phased in during fiscal 1995 and 1996. When the
expansion is complete, each UDS facility will have quadrupled, on the average,
its number of full-time employees. Teaching and other personnel have been
hired. To teach the program and better equip its ultrasound laboratories, UDS
acquired state- of-the-art color flow doppler scanning machines for all of its
teaching facilities. To accommodate the MA program, school facilities had to
be expanded and new specialized rooms added. During fiscal 1995, UDS expanded
11 of its 15 teaching facilities to accommodate the MA program and acquired
computers, laboratory equipment and furniture for those facilities. The
remaining four facilities will be similarly expanded and equipped in fiscal
1996. Management believes Whitman will not realize the benefits from this plan
until the fourth quarter of fiscal 1996 when the physical expansion of the UDS
facilities and the implementation of its new programs are substantially
complete. Management believes that the additional programs will increase
revenues and generate profits by more efficient utilization of the individual
UDS teaching facilities.
Cost of educational services were $6,179,696 in costs in fiscal 1995
as compared to $3,415,312 in fiscal 1994. Of the $6,179,696 in costs in fiscal
1995, $4,294,618 was incurred by UDS and $1,885,078 was incurred by SBC.
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<PAGE>
At UDS, cost of educational services increased approximately 26% in
fiscal 1995 as compared to fiscal 1994. The major components of this category
that increased in fiscal 1995 were instructor payroll, administrative and
sales payroll, rent expense and the cost of books offered for sale. Instructor
payroll increased in fiscal 1995 due, principally to the addition of
instructors to teach the new CVT and MA programs and to the increased cost of
teaching the expanded general ultrasound program. Administration and sales
payroll increased in fiscal 1995 because of the addition of full-time school
sales and administrative staff necessary to operate the expanded school
facilities. Facility rent increased in fiscal 1995 because of the relocation
or expansion of 11 school facilities to larger, more expensive quarters. Books
were offered for sale to students for the first time in fiscal 1995.
General and administrative expense was $5,699,426 in fiscal 1995 as
compared to $2,427,051 in fiscal 1994. Of the $5,699,426, $3,823,409 was
incurred by UDS, representing an increase of approximately $1,400,000, and
$1,876,017 was incurred by SBC.
At UDS, general and administrative expense increased approximately
$1,400,000 or 58% in fiscal 1995 as compared to fiscal 1994. Payroll increased
approximately $392,000, from approximately $925,000 to approximately $1,317,000,
in fiscal 1995. The increase was due, primarily, to the addition of employees at
the corporate office to provide the management structure necessary to operate
the presently expanded schools and the future planned school expansions and to
the addition of employees at the schools to provide expanded levels of student
services. Bad debt expense at UDS increased approximately $331,000, from
approximately $71,000 to approximately $402,000, in fiscal 1995. The following
table reflects the activity in the allowance for doubtful accounts and bad debt
expense for fiscal 1995:
<TABLE>
<CAPTION>
Allowance for doubt- Twelve December 21, 1994
ful accounts roll- months ended to March 1995
forward March 31, 1995 Consolidated
UDS SBC WHITMAN
- --------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Beginning balance $138,582 $943,999 $1,082,581
Bad debt expense 402,304 429,078 831,382
Charged off during year (394,132) (518,967) (913,099)
Ending balance $146,754 $854,110 $1,000,864
</TABLE>
UDS increased the amount of allowance for doubtful accounts charged to expense
in fiscal 1995, in part, to reflect the increase in accounts receivable
outstanding from students in the Cleveland and Dallas facilities. The Cleveland
and Dallas facilities were not able to utilize Title IV program funds until the
fourth quarter of fiscal 1995 and a number of sudents completed their programs
with substantial unsecured, unpaid balances. UDS evaluated the balances and
consistently applied its reserve calculation to determine the associated bad
debt expense. In addition, UDS identified and charged off $262,000 in fiscal
1995. During fiscal 1995, credit terms and collection procedures did not change
significantly. Depreciation and amortization increased $163,000, from $313,000
to $476,000 in fiscal 1995, principally, because of the expenses associated with
$1,200,000 of new capital equipment and leasehold improvements acquired
primarily in fiscal 1995. These capital items were acquired in connection with
the new CVT program and to improve the equipment used in the existing ultrasound
program. Advertising expense increased $68,000, from $271,000 to $339,000 in
fiscal 1995, due to the increased level of advertising necessary to attract the
additional students for the newly available programs in conjunction with the
expansion plan. Travel expense increased $79,000 from $89,000 to $168,000 in
fiscal 1995. The increase reflects travel and meetings conducted in order to
train personnel and prepare facilities for the planned school expansion. General
administrative expenses, including professional fees, increased $111,000, from
$392,000 to $503,000 in fiscal 1995. The increase in these expenses reflects the
additional costs of operating the expanded corporate office and expanded school
facilities and the costs associated with the anticipated additional future
expansion.
Whitman has been able, and anticipates that at current rates of
inflation it will continue to be able, to increase tuition to accommodate
increases in costs due to inflation.
For accounting purposes, tuition income is recorded as income in the
period in which it is earned and any unearned portion is treated as deferred
tuition revenue, a liability account. In fiscal 1995 deferred tuition revenue
increased $3,122,639 as compared to fiscal 1994; of the increase, $1,617,586
was attributable to SBC and $1,505,053 to UDS. At UDS, the increase in
deferred tuition revenue was due, principally, to the fact that most of the
deferred tuition revenue per student enrolled at March 31, 1995 was at a
higher tuition rate than the deferred tuition revenue per student enrolled at
March 31, 1994.
SFAS #115. The Financial Accounting Standards Board has recently
issued Statement of Financial Accounting Standard No. 115 Accounting for
Certain Investments in Debt and Equity
182431-1
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<PAGE>
Securities ("SFAS #115"). Whitman adopted SFAS #115 in fiscal year 1995 which
had no material impact on its financial position or results of operations.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1994 AND 1993
In fiscal 1994, Whitman had net income of $213,561, or $.06 per
share. In fiscal 1993, Whitman had a net loss of $280,263, or $.08 per share
consisting of a loss from continuing operations of $115,318 ($.03 per share)
and a loss from discontinued operations of $164,945 ($.05 per share).
Whitman had revenues of $6,158,203 for fiscal 1994, as compared to
revenues of $4,268,406 for fiscal 1993. All but an insignificant amount of the
Company's revenues in fiscal 1994 were received from UDS. Revenues increased
in fiscal 1994 due to increases in enrollment and tuition. Enrollment in the
general ultrasound program increased by 26% in fiscal 1994 as compared to
fiscal 1993. During fiscal 1993 four facilities were opened. Two of the four
new facilities made no significant impact on fiscal 1993 revenues but did so
on fiscal 1994 revenues.
UDS revenues for fiscal 1993 were reduced because of two events in
Massachusetts. The relocation of the Massachusetts facility from Norwood to
Marlborough, Massachusetts disrupted recruitment for the February 1993 class
and the class was canceled. In addition, tuition refunds were made to settle
claims of students enrolled at the Massachusetts facility, principally in the
February 1991 class. Professional fees were incurred in fiscal 1993 in
connection with these claims. All the claims were resolved and management
believes that these charges and expenses were one time and non-recurring in
nature. Fiscal 1993 revenues also suffered from a low enrollment in the spring
1992 class. Revenues from continuing medical education courses increased from
$276,470 in fiscal 1993 to $583,005 in fiscal 1994. The increase was due,
primarily, to the MRI course which UDS offered in nine facilities in the
second quarter of fiscal 1994 and 15 locations in the fourth quarter of fiscal
1994.
Cost of educational services increased $858,000 in fiscal 1994 as
compared to fiscal 1993. In fiscal 1994, cost of sales and services related
entirely to the operations of UDS. The two major components of this category
that increased were payroll and facility rent. School related payroll increased
$587,000, from $1,572,000 to $2,159,000 in fiscal 1994. Facility rent increased
$241,000 from $448,000 to $689,000 in fiscal 1994. These increases reflected a
year of operating expenses in fiscal 1994 of the newly opened facilities
(Houston and Dallas, Texas, Jacksonville, Florida, Pittsburgh, Pennsylvania, and
Cleveland, Ohio) compared to a partial year of operating expenses for those same
facilities in fiscal 1993. In addition, in fiscal 1994 UDS relocated two
facilities (Philadelphia, Pennsylvania and Iselin, New Jersey) to larger, more
costly premises.
In fiscal 1994, UDS incurred general and administrative expense of
$2,427,051, an increase of $597,000 as compared to fiscal 1993. Payroll
increased $153,000, from $555,000 to $708,000, in fiscal 1994. Depreciation and
amortization increased $136,000, from $202,000 to $338,000 in fiscal 1994,
principally, because of the expenses associated with $350,000 of new capital
equipment and leasehold improvements acquired in fiscal 1994. These capital
items were acquired, primarily, to enable UDS to improve the equipment used in
its existing ultrasound program and to prepare to offer its new CVT program.
Advertising expense increased $133,000, from $154,000 to $287,000 in fiscal
1994, due to the increased level of advertising to attract students to enroll in
its new school facilities. Fees related to a proposed acquisition of $155,000
were incurred in fiscal 1994 as compared to $77,000 in fiscal 1993. When it was
determined the acquisition would not be consummated, the related costs were
expensed in the period. Bad debt expense at UDS decreased approximately $4,000,
from $74,000 in fiscal 1993 to $70,000 in fiscal 1994. The following table
reflects the activity in the allowance for doubtful accounts and bad debt
expense for fiscal 1994:
Allowance for Twelve Months
doubtful accounts roll forward ended March 31, 1994
------------------------------ -----------------------
Beginning Balance $104,763
Bad Debt Expense 70,863
Charged Off During Year (37,044)
Ending Balance 138,582
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<PAGE>
At March 31, 1994 deferred tuition revenue totaled $3,348,829 as
compared to $2,698,620 at March 31, 1993. The increase in deferred tuition
revenue was due to the fact that the number of students enrolled at March 31,
1994 was greater than at March 31, 1993, and that most of the deferred tuition
revenue per student enrolled at March 31, 1993 was at a lower tuition rate
than the deferred tuition revenue per student enrolled at March 31, 1994.
UDS revenues for fiscal 1993 were reduced because of two events in
Massachusetts. The relocation of the Massachusetts facility from Norwood to
Marlborough, Massachusetts disrupted recruitment for the February 1993 class
and the class was cancelled. In addition, tuition refunds in the amount of
approximately $42,000 were made to settle claims of students enrolled at the
Massachusetts facility, principally in the February 1991 class. Professional
fees were incurred in fiscal 1993 in connection with these claims. All the
claims were resolved and management believes that these charges and expenses
were non-recurring. Fiscal 1993 revenues also suffered from a low enrollment in
the spring 1992 class. Revenues from continuing medical education courses
increased from $276,470 in fiscal 1993 to $583,005 in fiscal 1994. The increase
was due, primarily, to the MRI course which UDS offered in nine facilities in
the second quarter of fiscal 1994 and fifteen locations in the fourth quarter of
fiscal 1994.
In fiscal 1993, revenue increased approximately 11% or $419,000. UDS
opened four new school facilities in fiscal 1993. Houston, Texas opened in
June 1992, Jacksonville, Florida opened in December 1992, Dallas, Texas and
Pittsburgh, Pennsylvania both opened in March 1993. Of the $419,000 increase
in fiscal 1993 revenues over fiscal 1992, $397,000 was due directly from the
revenue of the four new school facilities. The remaining increase, $22,000,
was due to the increase in tuition charges.
In fiscal 1994, revenue increased approximately 44% or $1,890,000. Of the
increased revenue, $213,000 was due to the tuition increase which took effect
in eight school facilities in November 1993 (Atlanta, Georgia, Houston and
Dallas, Texas, Pittsburgh and Philadelphia, Pennsylvania, Pompano Beach,
Tampa and Jacksonville, Florida) and the remaining seven school facilities in
February 1994. The remainder of the increased revenue, $1,677,000, was due to
the revenue from the five new school facilities (Houston and Dallas, Texas,
Pittsburgh, Pennsylvania, Jacksonville, Florida and Cleveland, Ohio). Of the
five new school facilities, one was opened in June 1992, one was opened in
December 1992, two were opened in March 1993 and one was opened in June 1993.
Whitman discontinued its medical device business in fiscal 1993.
Revenues from that business were not significant in fiscal 1993, and Whitman
incurred losses totaling $164,945, net of a federal income tax benefit of
$55,088 which arose from the utilization of a net operating loss carry back of
approximately $190,000. Whitman plans to dispose of its remaining patents and
related medical device products.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, Whitman had cash on hand of $1,115,479, as compared
to $1,970,104 at March 31, 1995. Included in cash on hand at September 30, 1995
were $393,276 and $312,000,respectively, as cash set aside in accordance with ED
regulations to be available for student refunds. Receivables at September 30,
1995 were $11,231,548 (net of an allowance of $1,499,971 for doubtful accounts),
compared to receivables of $11,917,551 (net of an allowance of $1,000,864 for
doubtful accounts) at March 31, 1995. Of the $11,231,548 in accounts receivable
at September 30, 1995, $8,090,702 were held by UDS and $3,140,846 were held by
SBC as compared to $5,031,731 held by UDS and $6,885,820 held by SBC at March
31, 1995. Receivables held by UDS increased at September 30, 1995 from March 31,
1995 because of the increase in the UDS student population. Receivables held by
SBC decreased at September 30, 1995 from March 31, 1995 even though the SBC
student population increased due to the change in SBC's tuition charging method
for term based programs.
Of the $1,499,471 in allowance for doubtful accounts at September 30,
1995, $384,255 was provided by UDS and $1,115,216 was provided by SBC, as
compared to $146,575 provided by UDS and $854,109 by SBC at March 31, 1995. The
allowance for doubtful accounts of UDS increased at September 30, 1995 from
March 31, 1995 as a result of the corresponding increase in accounts receivable.
The allowance for doubtful accounts of SBC increased at September 30, 1995 from
March 31, 1995 to provide additional exposure on such student receivables, as a
result of the delay in recertification during the period in which the school was
terminated from access to new Title IV Program funding. This termination
resulted form the change in control and ownership associated with the
acquisition of SBC by the Company on December 21, 1994. SBC was then required
to obtain certification form the Department of Education, which was received on
May 4, 1995.
76
Whitman's primary source of operating liquidity is the cash received from
payments of tuition and fees. At both UDS and SBC, most students receive some
form of financial aid under the Title IV federal student financial aid
programs. Disbursements under each program are subject to
disallowance and repayment by the Schools. At present, SBC has an open
program review on its Title IV activity for the award years 1992 through
1994. No determination as to whether a liability exists or the amount of
liability, should one exist, can be made. Accordingly, no contingency is
reflected. UDS has no known liabilities related to its Title IV programs.
Should the Schools be limited, suspended or terminated from the Title IV
programs, from which UDS and SBC receives 66% and 76% of its funding,
respectively, the result would have a material negative impact on the results
of operations, liquidity and net worth of Whitman. Whitman will continue to
evaluate the effect of any changes in these contingencies and, as
determinable, will reflect their impact in the financial statements. At
present, there are no known environmental contingencies or issues.
In order to finance the acquisition of SBC, Whitman obtained a bank
term loan in the amount of $6,000,000 which is due on April 16, 1996 and is
reflected as a current liability on the balance sheet at September 30, 1995
resulting in a working capital deficiency of $4,652,000 at September 30, 1995.
The Company will continue to invest in the expansion of UDS and management does
not expect positive cash flows from UDS until the first quarter of fiscal 1997.
SBC generates positive cash flows from its operations. Management believes
these cash flows combined with the existing lines of credit are sufficient to
fund the remaining expansion of UDS but that it is not sufficient to repay the
$6,000,000 term loan due April 16, 1996. Management believes SBC's positive
cash flow and the available line of credit are sufficient to fund the Company's
daily operating expenses and no additional material short ferm capital
commitments are planned. (See "RISK FACTORS--Recent Losses; Additional Capital
Requirements.") Whitman intends to seek financing which may include an extension
of the due date of the term loan, refinancing of the term loan and/or equity
financing. Whitman is currently in discussions with its bank to extend the
maturity date of the term loan. Management believes it will be able to extend or
refinance the $6,000,000 term loan, which will result in positive working
capital. If Whitman is unable to extend or refinance the term loan it could have
a material adverse effect on Whitman's net income (loss), liquidity and equity.
The table below demonstrates the significance of the $6,000,000 term loan
outstanding as compared to the activity of the Company and the necessity of the
Company to refinance the obligation due to its current inability to repay the
term bank loan.
<TABLE>
<CAPTION>
Description March 31, 1995 September 30, 1995
- -------------------- -------------- ------------------
<S> <C> <C>
Stockholder's equity 6,225,896 4,997,155
Debt to equity ...... 1 to 1.04 1 to .83
Income (loss) ....... (354,979) (1,403,129)
Cash flow (used) ... 288,642 (935,901)
</TABLE>
The Company has not formalized its long term capital resource
requirements beyond the planned expansion of UDS, which expansion will be
substantially complete by the end of the first quarter of fiscal 1997. The
Company believes it will be able to restructure the $6,000,000 term loan to a
long term obligation from a short term obligation and that it will have
sufficient cash flows from operations to repay the obligation in the future or
will have other financing alternatives when the loan becomes due.
The majority of the Company's long term financing will continue to be in
the form of operating leases at the facilities in which it operates its schools.
Management believes it will generate positive long term cash flows and that
those cash flows will be sufficient to funds its future operating requirements.
Whitman has entered into master equipment leases totaling $2,190,00
to finance the purchase of capital equipment. At September 30, 1995,
approximately $300,000 remained available under those leases with which to
purchase capital equipment. Whitman had no other material commitments for
capital expenditures at the end of the 1995 Six Month Period.
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<PAGE>
Whitman has available to it a working capital facility expiring
April 16, 1996 in the amount of $2,500,000. At September 30, 1995, Whitman had
approximately $1,210,000 available for use from this credit facility as
compared to approximately $876,000 available for use at March 31, 1995. Since
the recertification of SBC by ED in May 1995, cash flow generated from the
operations of SBC, particularly cash received from the federal government,
have been applied to reduce the outstanding balance in the working capital
facility and has repaid all monies borrowed under the working capital facility
to fund the SBC change of ownership. The $2,500,00 working capital facility was
opened originally to fund the operations of SBC during the change of ownership.
As SBC has positive cash flow and has repaid the amount it used to fund its
operations, the working capital facility is being used to help fund UDS during
its expansion. Management believes Whitman will have sufficient cash flow to
repay the balance on the working capital facility by April 16, 1996. Whitman
also has a bank line of credit expiring August 31, 1996 in the amount of
$500,000, the full amount of which was available for use from this credit
facility at September 30, 1995.
In the six months ended September 30, 1995, the Company had positive
cash flow from operations of $106,092 as compared to using cash in its
operations of $149,119 in the 1994 six month period. SBC had positive cash flow
from its operations of $1,409,647 and UDS used $1,303,550 in its operations,
resulting in $106,092 of positive cash flow from Whitman's operations.
At UDS, the cash used in operating activities was due, principally,
to the expenditures utilized to expand UDS (management, staff, programs,
equipment and size of facilities) in advance of the receipt of revenues from
anticipated expanded enrollments in new programs and to an increase in accounts
receivable. Management believes that UDS will continue to use cash in the first
three quarters of fiscal 1996 but by the fourth quarter, the UDS planned
expansion will begin to generate positive cash flow from operations. Management
further believes that the excess cash generated from SBC operations, the
availability of the bank line of credit and the working capital facility and the
balance available under the master equipment leases will be sufficient to
provide the necessary resources to accomplish the expansion of UDS. Management
also believes it will be able to extend or refinance the $6,000,000 term loan
due April 16, 1996, which will result in positive working capital. If, however,
Whitman is unable to extend or refinance the term loan, it will have a material
adverse effect on Whitman's net income (loss), liquidity and equity.
On December 21, 1994 as a result of its change of ownership, SBC was
automatically required to cease awarding and disbursing Title IV Program funds
to many of its students, pending recertification by ED. The cash used in
operating activities at SBC in fiscal 1995 was due to the decertification of
SBC. SBC was recertified to participate in Title IV Programs in May 1995. In
anticipation of the negative impact on cash flow caused by this process,
Whitman, on the guaranty of Frost-Nevada, obtained the $2,500,000 working
capital facility. Upon recertification most of the Title IV Program funds for
student tuition which were delayed have been or will be recoverable from the
government. SBC has established long-term tuition payment plans with the
students for the funds which are not recoverable. Management believes that any
negative impact upon bad debts will not be material.
182431-1
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<PAGE>
The delay in Title IV recertification of SBC upon its acquisition and
change of ownership resulted in temporary negative cash flow of approximately
$1,800,000. After SBC received its recertification, approximately $1,300,000 in
receivables were funded and approximately $500,000 of student receivables
relating to students who were no longer in school, were unfunded. SBC determined
approximately 50% of the unfunded receivables to be uncollectible and fully
reserved such amount during the six month period. This effect had a non-
recurring impact.
Commencing in July 1995, UDS and SBC were approved for participation
in the federal government's program of direct lending. Direct lending provides
Title IV loans to eligible students directly from the federal government by
passing traditional lending institutions. Management believes participation in
direct lending will have a positive affect on cash flow.
As part of the recertification process, ED conducted program reviews
of SBC. As a result of the program reviews, ED placed SBC on reimbursement for
certain Title IV Programs, the only such program significant to SBC being the
Pell Grant program. Management believes that although reimbursement will
result in some delay in receipt of Pell Grant funding, SBC will continue to
generate positive cash flow sufficient for its operating requirements and to
repay the working capital loan.
At UDS, the delay in Title IV funding at its Dallas and Cleveland
school facilities resulted in the delay of cash flow of approximately $800,000
over twelve months. In addition, bad debt expense for the unfunded student
receivables increased by approximately $200,000 due to the delay in Title IV
funding. The effect of these delays is not expected to be recurring.
EXECUTIVE OFFICERS AND DIRECTORS OF WHITMAN
The executive officers and directors of Whitman are as follows:
Name Age Position
- ---- --- --------
Randy S. Proto .................... 38 President
Phillip Frost, M.D ................ 59 Chairman of the Board of Directors
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<PAGE>
Joseph Lichtenstein ................. 69 Vice President, Secretary,
Treasurer and Director
Isaac Kaye .......................... 66 Director
Richard C. Pfenniger, Jr ............ 40 Director
Peter S. Knight ..................... 44 Director
Jack R. Borsting .................... 66 Director
Randy S. Proto has been President of Whitman since November 25,
1994. For seven years prior thereto, Mr. Proto was the Chief Executive Officer
of, and had ownership interests in, 11 proprietary schools in four states. For
eight years prior thereto, Mr. Proto was employed by Computer Processing
Institute. Among the positions he held at that institution were Vice President
and School Director, Director of Admissions and Marketing, Director of Finance
and Financial Aid, Director of Placement and Director of Education.
Phillip Frost, M.D. has been a Director of Whitman since April 6, 1992
and Chairman of the Board of Directors since November 19, 1992. Dr. Frost has
been Chairman of the Board of Directors and Chief Executive Officer of IVAX
Corporation, a pharmaceutical company, since 1987 and President of that company
since July 1991. Dr. Frost is a director of North American Vaccine,
Inc., American Exploration Company, Intercontinental Bank, and NaPro
Biotherapeutics, Inc. Dr. Frost was Chairman of the Department of Dermatology
at Mt. Sinai Medical Center of Greater Miami from 1972 to 1990. Dr. Frost is a
trustee of the University of Miami and a member of the Board of Governors of the
American Stock Exchange, Inc.
Joseph Lichtenstein has been Vice President, Secretary and Treasurer
and a Director of Whitman, since its organization in 1979. Prior to organizing
Whitman, and from 1962, Mr. Lichtenstein was President of a manufacturer of
pharmaceuticals where his responsibilities included administration and
management. Mr. Lichtenstein is the father of William Lichtenstein, the
President of Ultrasound Technical Services, Inc., Whitman's subsidiary that
operates UDS.
Isaac Kaye has been a Director of Whitman since April 6, 1992. Mr.
Kaye has been Deputy Chief Executive Officer and a director of IVAX Corporation
since December 1990, Chief Executive Officer of Norton Health Care Limited since
December 1990 and an employee of Norton Health
182431-1
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<PAGE>
Care Limited since 1988, and from 1985 to 1988 Mr. Kaye was a consultant to
Norton Health Care Limited.
Richard C. Pfenniger, Jr. has been a director of Whitman since April
6, 1992. Mr. Pfenniger, an attorney, has been Chief Operating Officer of IVAX
Corporation since May 1994 and President of its Health Care Group since
January 1995. From 1989 to May 1994 he served as Senior Vice President - Legal
Affairs and General Counsel of IVAX Corporation and as its Secretary from 1990
to 1994. From 1986 to 1989, Mr. Pfenniger was a member of the law firm of
Greer, Homer & Bonner, P.A. Mr. Pfenniger is a director of North American
Vaccine, Inc. and NaPro BioTherapeutics, Inc.
Peter S. Knight has been a director of Whitman since December 20,
1994. Mr. Knight, an attorney, is a member of the law firm of Wunder,
Diefenderfer, Cannon & Thelen. Mr. Knight was Chairman of the Vice
Presidential campaign of Vice President Gore, was Deputy Director of Personnel
in the Clinton/Gore presidential transition and a Consultant to the Office of
Presidential Personnel. From 1989 to 1991, Mr. Knight was General Counsel and
Secretary to Medicis Pharmaceutical Corporation. Mr. Knight is a director of
COMSAT and Wertheim Schroeder Investment Services.
Jack R. Borsting has been a director of the Company since December
20, 1994. Dr. Borsting is the E. Morgan Stanley Professor of Business
Administration at the University of Southern California and Director of its
Center for Telecommunication Management. From 1988 to 1994, Dr. Borsting was
Dean of the University of Southern California School of Business
Administration, and from 1983 to 1988 was Dean of the University of Miami
School of Business Administration. Dr. Borsting, a former Assistant Secretary
of Defense (Comptroller), is a director of Northrop Corporation and of TRO
Learning, . Dr. Borsting is a member of the National Research Council
Committee on Military Enlistment Standards and a trustee of the Institute for
Defense Analysis, of the Rose Hill Association and of the Los Angeles
Orthopedic Hospital Foundation.
Certain Significant Employees
William Lichtenstein (age 36), a certified public accountant and the
son of Joseph Lichtenstein, an executive officer and director of the Company,
has been employed by Ultrasound Technical Services, Inc. since August 1991,
first as Vice President-Operations and since January 1995 as its President.
For two years prior thereto, Mr. Lichtenstein was a marketing representative
for CSC Health Care Systems, Inc.
Brett Combs (age 34), holder of an MBA degree, has been President of
Sanford Brown College since the acquisition of SBC in December 1994. Mr.
Combs, whose father is the sole shareholder of the entity that sold SBC to the
Company, had previously been employed by Sanford Brown College as Vice
President of Operations and earlier as Vice President of Marketing.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 15, 1995 certain
information with respect to Whitman Stock, both before and after the Merger,
that may be deemed to be beneficially owned by each director and executive
officer of Whitman, by all directors and executive officers as a group and by
all persons who may deemed to beneficially own five percent (5%) or more of
the outstanding Whitman Stock:
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<TABLE>
<CAPTION>
Before Merger After Merger
Percentage of Percentage of
Name of Beneficial Owner Whitman Stock Whitman Stock (1) Whitman Stock (1)
------------------------ ------------- ------------------- -----------------
<S> <C> <C> <C>
Frost-Nevada, Limited
Partnership
3500 Lakeside Court
Suite 200
Reno, Nevada 89509 ..................... 1,989,814(2) 40.4% 32.2%
Phillip Frost, M.D ..................... 1,989,814(2) 40.4% 32.2%
Azure Limited
c/o Charter Management
Limited
P.O. Box 134
Town Mills, Trinity Square
St. Peter Fort
Guernsey Channel Island ................ 600,000(3) 13.6% 10.6%
SBC Liquidating, Inc.
P.O. Box 31452
Des Peres, Missouri 63131 .............. 98,232(4) 2.2% 1.7%
Joseph Lichtenstein .................... 221,983(5) 4.9% 3.8%
Isaac Kaye ............................. 20,000(6) * *
Richard C. Pfenniger, Jr ............... 45,000(6) * *
Peter S. Knight ........................ 10,000(6) * *
Jack R. Borsting ....................... 10,300(7) * *
Randy S. Proto ......................... 100 * *
All Officers and directors or a
group (7 persons) ...................... 2,297,197 44.9% 36.1%
</TABLE>
- -------------
*Percentage of shares beneficially owned does not exceed 1% of Whitman Stock.
(1) All Shares are beneficially owned and sole investment power
is held by the persons named except as otherwise indicated.
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<PAGE>
(2) Dr. Phillip Frost is the sole limited partner of
Frost-Nevada, Limited Partnership and the sole shareholder
of the corporate general partner of Frost-Nevada, Limited
Partnership. Share information for each of Dr. Frost and
Frost-Nevada, Limited Partnership includes 425,000 shares
which can be obtained upon the exercise of stock purchase
warrants within 60 days and 100,000 shares which can be
obtained by the exercise of outstanding stock options within
60 days. Exercise of these warrants and options are subject
to the restrictions under the New Jersey Shareholders
Protection Act.
(3) Azure Limited holds the referenced shares as Trustee for the
benefit of Charter Trust Company Limited ("Charter"), a
limited liability corporation organized under the laws of
Guernsey, a Channel Island which is part of the United
Kingdom. Charter holds such shares through Azure Limited, as
Trustee, for the I. Kaye Family Trust (the "Trust"), which was
created by Mr. Isaac Kaye, a director of Whitman, in March
1988. The beneficiaries of the Trust include Mr. Kaye's
children and remote issue (including their spouses) of Mr.
Kaye's father, any person or class of persons selected by the
trustee of the Trust and such charities as the trustee shall
from time to time select; provided, however, that neither the
trustee, Mr. Kaye or his spouse (during the lifetime of Mr.
Kaye), nor any other person excluded by the trustee may be a
beneficiary of the Trust. Isaac Kaye disclaims beneficial
ownership of the Whitman Common Stock owned by the Trust.
(4) In connection with the purchase by Whitman of Sanford Brown
College, 609,038 shares of Whitman Stock were registered in
the name of SBC Liquidating, Inc. and were delivered into
escrow under an Escrow Agreement which provides for the
return to Whitman of all our portion of the escrow shares
upon the occurrence of certain contingencies. Mr. James Combs,
the prior owner of Sanford-Brown College, is the sole
shareholder of SBC Liquidating, Inc. Among other
things, all the shares were required to be returned to
Whitman if ED failed to certify SBC for participation in
Title IV Programs. In May 1995, SBC was certified by ED and
98,232 of the escrow shares were delivered to SBC
Liquidating, Inc. from the escrow account. The balance of
510,806 shares remaining in the escrow account continued to
be subject to return to Whitman upon the occurrence of
certain contingencies. SBC Liquidating, Inc. has disclaimed
beneficial ownership of any of the shares except for the
98,232 shares delivered to ED from the escrow account. Each
of Whitman and SBC Liquidating, Inc. have agreed that the
shares held in escrow will not be voted by either party.
(5) Includes 100,000 shares which can be obtained upon the
exercise of stock options within 60 days.
(6) Consists of shares which can be obtained upon the exercise
of stock options within 60 days.
(7) Includes 10,000 shares which can be obtained upon the
exercise of stock options within 60 days.
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<PAGE>
WHITMAN MEDICAL CORP.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1995, Career Master a company 40% owned by Randy S. Proto,
President of Whitman, entered into an agreement with UDS pursuant to which
Career Master would implement at UDS its system of organizing and operating
job placement departments for use at the UDS teaching facilities. In addition
to paying a small fee for the service, UDS agreed to purchase over a two year
period approximately $160,000 in text books and related materials from Career
Master to be resold to UDS students. In addition, Whitman agreed to seek
approval from its Stock Option Committee to issue options to purchase 15,000
shares of Whitman Stock to a Principal of Career Master who is not related to
Mr. Proto.
In fiscal 1995, UDS paid rent of $60,545 to a partnership in which
Joseph Lichtenstein Vice President, Secretary, Treasurer and a Director of
Whitman, is a general and limited partner that owns the building in which is
located the premises occupied by UDS's Pompano Florida facility. Mr.
Lichtenstein is also a principal in the company that manages that building.
UDS purchased approximately $290,000 in medical equipment and supplies from a
medical supply distributor owned by the wife of Mr. Lichtenstein at prices at
least as favorable as UDS would have paid to third parties. This same
distributor is the exclusive licensee of the Whitman's change-in-temperature
indicator utilized in the transportation and storage of blood. Royalties
received by Whitman in connection with this license are not significant.
In fiscal 1995, in connection with the acquisition of Sanford-Brown
College, Frost-Nevada, Limited Partnership, a limited partnership beneficially
owned by Dr. Phillip Frost, was issued warrants to purchase 575,000 shares of
the Company's Common Stock at a price of $6.25 per share in consideration for
Frost-Nevada agreeing to guaranty an $8,500,000 credit facility consisting of
a $6,000,000 term loan and $2,500,000 revolving credit loan to Whitman. The
number of warrants exercisable by Frost-Nevada at any time is subject to the
restrictions of the New Jersey Shareholders Protection Act. See "INFORMATION
CONCERNING WHITMAN-Acquisition of Sanford-Brown College".
In the last quarter of fiscal 1995, management of Whitman concluded
that it was advisable that Whitman obtain an infusion of equity capital in
order, among other things, to insure that it will be in compliance at fiscal
year end with certain ED regulations including the positive tangible net worth
requirement. As an inducement to Frost-Nevada to make this equity investment,
the Company offered to discount the exercise price of 385,480 warrants
utilizing a present value calculation to the expiration date of those
warrants. Accordingly, on March 31, 1995 Frost-Nevada purchased 75,000 shares
of Common Stock at $3.12 per share, 160,480 shares at $.93 per share and
150,000 shares at $3.51 per share. The latter shares were purchased on the
exercise of a portion of the Warrants issued to Frost- Nevada in January 1995
in connection with Whitman's acquisition of Sanford-Brown College.
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James Combs, the beneficial owner of the company from which SBC was
acquired, is the beneficial owner of three buildings occupied by SBC under
lease agreements. In fiscal 1995, the Company's SBC subsidiary paid Mr. Combs
rent totaling $119,097.
INFORMATION CONCERNING MDJB
MDJB owns Colorado Technical University, commonly known as Colorado
Tech ("Colorado Tech" or the "University"). Colorado Tech is a regionally
accredited, degree granting institution with approximately 1600 students
enrolled primarily in computer science, engineering and management programs.
Colorado Tech confers degrees at the associate's, bachelor's, master's and
doctorate level. MDJB also owns Concept Communications, an advertising and
marketing firm which provides services to Colorado Tech and other clients not
affiliated with MDJB.
MDJB's corporate offices are located at 4435 North Chestnut Street,
Colorado Springs, Colorado 80907 (Telephone: (719) 598-0200).
COLORADO TECHNICAL UNIVERSITY
Markets
Colorado Tech was founded in Colorado in 1965. The mission of the
University is to provide career-oriented education by teaching applied,
real-world, state-of-the-practice programs in selected technical, business and
health science fields. Colorado Tech is accredited by the Commission on
Institutions of Higher Education of the North Central Association of Colleges
and Schools (NCA) and its programs have been endorsed by organizations
including the International Society of Logistics Engineers (SOLE) and the
Logistics Education Foundation (LEF).
In the past ten years, student enrollment has grown from 250 to over
1600. Colorado Tech is an adult-oriented commuter school. Most students live
in Colorado Springs and nearby communities. Many of Colorado Tech's students
are already established in their career fields and their educational goals
focus on career advancement. To support the lifestyle demands and time
constraints of these students, Colorado Tech provides day, evening and weekend
classes, and a flexible approach to program structuring. Class sizes are
small, and professors share their knowledge and experience in a highly
personal atmosphere.
Colorado Tech's strategic marketing objectives include expansion of
branch campuses into other markets in its region as well as to expand program
offerings that target high school graduates, building its day-student
enrollment.
Academic Programs
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Colorado Tech offers a variety of programs at the associate's,
bachelor's, master's and doctorate levels as well as numerous professional
certificate programs for degree students who wish to expand or enhance their
knowledge in a specific field. Each program discipline has a separate advisory
board made up of respected leaders in related career fields. As a result, each
curriculum focuses on the practical needs of industry, yet is flexible enough
to respond quickly to changes in those needs.
DOCTORATE PROGRAMS, leading to Doctor of Computer Science or Doctor
of Management. The Colorado Tech doctorate degree differs from a Ph.D.
(philosophical) degree in that the doctorate degree emphasizes applying
knowledge to solve today's problems in business and industry. Three steps are
involved in obtaining a Colorado Tech doctorate degree: course work (eight
courses each lasting five weeks; six in a major area of study and two in a
minor area); an eight-hour comprehensive written exam followed by an oral
exam, and a doctoral dissertation which offers an opportunity to conduct
applied research that exhibits intellectual achievement.
Doctorate degrees are earned with a minimum of 64 credit hours at a
cost of $350 per credit hour. The program can be completed in two years.
Students can, at additional cost, extend to a third year if additional time is
needed for completion.
MASTER OF SCIENCE PROGRAMS, leading to Master of Science in Computer
Engineering, Computer Science (with Concentrations in Computer Systems
Engineering, Software Engineering, and Systems Engineering), Electrical
Engineering (with concentrations in Electronic Systems and Communication
Systems) or Management (with concentrations in Business Management, Logistics,
Management Information Systems/MIS and Systems Management).
The master's degree has two phases. Phase one consists of course
work. Students may enter the program in any 5-1/2 week course period. Phase
two -- the completion phase -- offers two options. Students who wish to
broaden their academic experience as much as possible may opt for additions
courses to complete their master's studies; students who wish to conduct
applied research, prepare for future academic pursuits, or contribute directly
to scholarly investigation of a problem within their organization may select
the Thesis Option which allows the student to complete an in-depth research
project focused on a specific issue within the area of study.
Master's degree are 48 credit hours (Thesis Option) or 52 hours
(Academic Option). Cost per credit hour is $215. Typical master's degree
completion time at Colorado Tech ranges from 18 to 21 months, depending upon
the option a student selects.
BACHELOR OF SCIENCE PROGRAMS, leading to Bachelor of Science in
Business Management, Computer Engineering, Computer Science, Electrical
Engineering, Electronic Engineering Technology, Logistics Systems Management,
Management Information Systems, Systems Management, or Telecommunication
Electronics Technology. Colorado Tech's Bachelor of Science degree programs
are relevant to today's industry needs and are designed to prepare students
for success and productivity in their selected profession.
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The Bachelor of Science degree program in Electrical Engineering is
accredited by the Engineering Accreditation Commission of the Accreditation
Board for Engineering and Technology; the Bachelor of Science degree in
Electronic Engineering Technology is accredited by The Technology
Accreditation Board Commission for Engineering and Technology.
Credit hours required for completion of a Colorado Tech bachelor of
science degree range from 178 to 199 depending upon the program selected. Cost
per credit hour is $135. A full-time student will typically complete the
bachelor's degree program in four years.
An ASSOCIATE OF SCIENCE PROGRAM in Electronics Technology offers
hands-on, practical experience in the electronics industry. This undergraduate
program is structured to provide in-depth technical preparation combined with
academic foundation that prepares the student for a variety of entry level
challenges, or serves as a platform to advance to the Bachelor's Degree.
The program consists of 95 credit hours of course work. Cost per
credit hour is $135. Typical completion time is two years for a full-time
student.
PROFESSIONAL CERTIFICATE PROGRAMS are college-level courses that
advance technical expertise within a specific discipline or enhance technical
awareness in related areas. Certificates are offered in the following areas:
Advanced Programming, C/C++ Programming, Computer Design, Computer Technology
Contract Management, Digital Telecommunications, Logistics Systems Management,
Object-Oriented Development, Professional Communication, Software Engineering,
Total Quality Management, Voice and Wireless Telecommunications.
Customized Professional Certificate programs can be designed to meet
specific company training needs.
Most certificate programs are completed in less than a year; cost per
credit hour is $135.
Student Services
Colorado Tech students have access to a wide range of services
through specially chosen and trained advisors and mentors. University advisors
and mentors team with a student throughout their educational program, offering
assistance in academics, financial aid, professional development and other
education-related needs. The advisor/mentor approach has proven to be
extremely beneficial in student retention; students who are well supported and
motivated for academic success are significantly more inclined to complete
their program of study and advance to the next degree level.
A student services area offers centralized access to admissions,
student records, the business office, financial aid, and a bookstore with a
full range of educational supplies, software and textbooks.
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<PAGE>
The University Resource Center is an evolving virtual library
environment providing technology to support student research and study needs.
Students have access to a wide range of information and educational resources
on campus as well as materials and services located at remote facilities. The
Colorado Tech Resource Center includes a supportive book periodical
collection; CD ROM bibliographic databases; articles from journals and
industry conferences; a videotape library; and software tutorials. Students
also may access worldwide library and bibliographic databases, including
Internet access.
Service Development and Marketing Strategy
The success of Colorado Tech has been accomplished through strategic
planning and effective implementation. On-going analysis of market needs,
growth industries and economic impact enables the University to continually
evolve its programs and curriculum to identify windows of opportunity as well
as maximize student success.
Colorado Tech provides industry-focused education that revolves
around three separate yet supportive components: the educational product, or
curriculum; a University-wide commitment to customer/student service; and a
method of delivery designed for customer/student convenience.
The product components feature educational programs in
industry-relevant fields such as computer science, software development,
hardware technology, engineering and business/management. The content of each
is focused on utilization of leading edge technology in that specific
environment.
The service component relies on a company-wide commitment to customer
service and continuous improvements and enhancement. Students are customers,
as are colleagues, vendors, and anyone else without whose support the success
of the University would not be possible.
The delivery component includes scheduling classes at times when
working adults are able to attend (typically evenings and weekends), offering
program structures that allow frequent start dates for students, and a
flexible approach to accommodating students' demanding lifestyle needs.
A close working relationship with business and industry, including
tapping the resources of advisory boards made up of key managers and
executives in related fields, enables Colorado Tech to
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<PAGE>
adapt its curriculum to changing needs in the marketplace. By way of example,
Colorado Tech has been successful in implementing the following programs:
o Doctorate degrees were introduced in January 1995; 60 degree
candidates were in the first class start. Within four
months, a waiting list existed. As of October 1, 1995, it is
believed by management to be the only main campus program of
its kind -- public or private -- available in southern
Colorado.
o Master's enrollment has been stimulated by demand for the
doctorate degree as students take the initiative to complete
prerequisite studies prior to embarking on the doctorate
program.D.
o Bachelors degrees in management information systems and
business management were introduced in the first quarter of
1995. Business concentrations in the master's degree program
followed in the second quarter of 1995. Colorado Tech
customized this traditional area of study to create "hybrid"
degrees that combine contemporary business leadership
strategies with working knowledge from the technical side.
The cross-over approach produces managers who are
realistically informed and prepared for the challenge of
change.
o Undergraduate technology programs were "re-engineered" in
1995 to offer a stronger, more hands-on electronics
education at the two-year point. The changes in curriculum
respond to growing industry demand for entry-level
candidates. Students are now better positioned to begin work
after two years, gaining on-the-job experience to complement
their learning program and often qualifying for company
tuition assistance to help finance the final two years of a
bachelor's degree.
Student Recruitment
Colorado Tech alumni represent a significant number of managers and
key executives in area companies. The success and influence of these ranks of
graduates exert a strong, positive effect on educational decision made by the
area's high tech workers.
A newly introduced high school recruitment program will support
growth in enrollment of college-bound high school seniors. Because the high
tech industries employ a large percentage of the local workforce, the sons and
daughters of individuals who are successfully employed in these fields are
ideal candidates for training in related career fields.
Colorado Tech employs an aggressive, consistent marketing effort in a
variety of media vehicles to attract new students and support the credibility,
image and identity of the University.
Competition
The University of Colorado at Colorado Springs, the University of
Phoenix, Chapman University, Webster University and Regis University are located
in Colorado Tech's market area. All such institutions represent post-secondary
education options to that of Colorado Tech. MDJB
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management believes that Colorado Tech has been successful in competing with
area Universities because of its range of technically oriented studies and
degree programs.
Flexible course structures, class schedules designed for the working
adult, and the recent introduction of local-campus doctorate programs have
solidified Colorado Tech's position as a recognized leading source of
education in its current market. Colorado Tech believes this provides a strong
competitive base for expansion and growth in new markets.
By offering business degree programs that combine contemporary
business leadership strategies with working knowledge from the technical side,
Colorado Tech's business degrees offer a unique alternative to the traditional
business graduate degrees offered by traditional liberal arts and
business-oriented universities and colleges.
Research and Development
Advanced technology is the cornerstone of Colorado Technical
University. Multi-media classrooms, student laptop computers with modem access
to the campus, and the "virtual" library that links the campus to the
information superhighway are in place.
Classrooms are evolving into live laboratory settings, where
professors and students -- both on campus and from off-site locations --
interact as a learning unit.
Among the opportunities that are on the technological horizon for
Colorado Tech is interactive learning that opens the campus to students from
remote locations. Via interactive learning, Colorado Tech's programs can
become available to individuals and corporations worldwide.
Investment has already been made in feasibility and design of
interactive learning. Market opportunities, the mechanics of product delivery,
the cost of prototype testing and implementation are currently being analyzed.
Employees
Colorado Technical University employs approximately 160 full- and
part-time individuals including: 30 full-time faculty members, 81 adjacent
faculty members and 49 support staff personnel. Among its full-time staff are
18 members who hold doctorate degrees and an additional six who are doctoral
candidates.
CONCEPT COMMUNICATIONS
Markets
Concept Communications was founded in Colorado Springs in 1987 as a
full-service advertising, marketing and communications company. The firm has
grown consistently over the years
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both in sales volume and client stature. In 1993 Concept Communications was
acquired by MDJB, Inc. and today provides services both to MDJB and to a
diversified outside client base.
Its client roster includes an assortment of local accounts and
national firms with local communications requirements. Among the firms served
by Concept Communications are Colorado Technical University, ITT Federal
Services Corp., Martin Marietta, Hewlett Packard, Dain Bosworth, Norwood
Development Corp., The Schuck Corporation, Crystal Specialties and Sky Sox
professional baseball.
Services
Concept Communications offers a variety of services in all aspects of
marketing and communications, from print and broadcast advertising production
and placement to proposal packaging and documentation support.
Among its services are: logo development and image packaging; media
relations and publicity programs; video presentations for sales training and
trade shows; special effects and animation production; special events planning
and implementation; interactive CD ROM and computer based training support;
collateral production including internal and external newsletters, brochures,
annual reports and sales literature; and design and production of all forms of
advertising.
Competition
Concept Communications is believed by management to rank sixth in
sales volume among more than 20 advertising/marketing agencies in the Colorado
Springs area. The development of expertise and investment in technology tools
that have allowed the agency to diversify from the traditional advertising
business enable Concept Communications to do business in an entirely different
venue than its competitors. Since this documentation/publishing support niche
is considerably more profitable than mainstream advertising business, Concept
Communications can continue to service accounts with more traditional needs
while maintaining a high level of profitability.
Employees
Concept Communications has a full-time staff of seven. Concept
expands its internal capabilities with freelance talent on a
project-to-project basis for specialized needs such as copywriting, design and
video production. Utilization of this stable of talent enables the company to
provide maximum service to clients while eliminating the need for additional
full-time employees and increased overhead.
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<PAGE>
M.D.J.B., INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data for each of the three years in the period
ended December 31, 1994 set forth below are derived from the audited
consolidated financial statements that are included elsewhere in this Proxy
Statement-Prospectus and should be read in conjunction with such financial
statements and related notes thereto and "MDJB, Inc. Management's Discussion
and Analysis of Financial Conditions and Results of Operations." The selected
financial data for each of the two years in the period ended December 31, 1991
set forth below are derived from the audited consolidated financial statements
which are not included herein. The interim consolidated financial information
furnished herein is unaudited and reflects all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation. Operating results for the nine months ended September
30, 1995 are not necessarily indicative of the results that may be expected for
the year ending December 31,1995.
<TABLE>
<CAPTION>
MDJB CONSOLIDATED HISTORICAL SUMMARY FINANCIAL DATA
Nine Months
Years Ended December 31 Ended September 30
----------------------------------------------- --------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
(in thousands)
CONSOLIDATED OPERATING
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues ................... $ 5,216 $ 5,695 $6,513 $7,063 $7,868 $5,667 $6,421
Net Income from continuing
operations ..................... 26 124 333 139 208 173 218
BALANCE SHEET DATA:
Working Capital (Deficiency) (1).. (1,314) (1,185) (957) (588) (493) (574) 208
Total Asset ...................... 2,773 2,656 3,679 3,742 4,128 4,038 4,563
Long-Term Obligations ............ 132 34 185 215 223 177 1,057
Stockholders' Equity ............. 187 306 473 815 924 891 862
</TABLE>
- ----------------
(1) Working Capital (Deficiency) includes, as a current liability, deferred
tuition and fees of $1,221,765, $1,175,123, $1,492,861, $1,531,375 and
$1,653,993 as of December 31, 1990, 1991, 1992, 1993 and 1994, respectively, and
$1,885,268 and $1,906,349 as of September 30, 1994 and 1995, respectively.
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<PAGE>
M.D.J.B., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994.
MDJB had total revenues of $6,420,823 for the nine months ended
September 30, 1995 as compared to total revenues of $5,667,487 for the same
period in 1994, representing a 13% increase in revenue. Virtually all of MDJB's
revenues in the nine months ended September 30, 1995 were from educational
operations with approximately 6% or $408,316 coming from the Concept
Communications division's advertising operations. The growth in revenue is due
to the introduction of the Doctorate programs into the graduate product mix
beginning in January 1995.
In the nine months ended September 30, 1995 MDJB had net income of
$218,460 as compared with net income of $172,607 for the same period in 1994,
representing a 27% increase.
Operating expenses for the nine months ended September 30, 1995 were
$6,046,702 or 94% of total revenues, as compared to $5,325,175 or 94% of total
revenues for the same period last year. This increase in operating expenses of
approximately 14% was due to the start-up costs associated with the introduction
of the Doctorate programs.
Interest expense for the nine months ended September 30, 1995 was
$34,762 as compared to $43,985 for the same period last year. Interest expense
is made up predominately of interest on capital leases as well as interest
expenses associated with the utilization MDJB's revolving line of credit
facility.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
MDJB had total revenues of $7,867,523 in 1994 as compared to total
revenues of $7,062,536 in 1993, representing a 11% increase in revenue.
Virtually all of MDJB's revenues in 1994 were from educational operations with
only 7% or $521,816 coming from the Concept Communications division's
advertising operations.
In 1994 MDJB had net income of $208,368 as compared with net income
of $139,258 in 1993, representing a 50% increase.
Operating expenses grew to $7,461,227 in 1994 versus $6,838,945 in
1993, a 9% increase. The major components of this growth were payroll costs
which supported revenue growth in the educational area and cost of advertising
sales which directly supported such revenues.
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<PAGE>
Interest expense for the year ended December 31, 1994 was $42,821
as compared to $38,488 for the year ended December 31, 1993. Interest expense
is made up predominantly of interest on capital leases as well as interest
expenses associated with the utilization of MDJB's revolving line of credit
facility.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
MDJB had total revenues of $7,062,536 in fiscal 1993 as compared to
total revenues of $6,512,779 in fiscal 1992, representing an 8% increase in
revenue. Virtually all of MDJB's revenues in 1993 were from educational
operations with only 2% or $172,812 coming from the Concept Communications
division's advertising operations which was acquired on March 31, 1993.
In fiscal 1993 MDJB had net income of $139,258 as compared with a
net loss of $50,801 in fiscal 1992. The loss in fiscal 1992 was caused by the
cumulative effect of an accounting change related to marketing costs of
$425,897. Prior to 1992, marketing costs (exclusive of salaries and benefits)
were capitalized and amortized over the following 24 months. Beginning in 1992
this was changed so marketing costs incurred during a quarter were accumulated
and expensed in the following quarter. Beginning in 1995, marketing costs are
expensed as incurred.
Operating expenses grew to $6,838,945 in fiscal l993 versus
$5,979,309 in fiscal 1992, a 14% increase. The major components of this growth
were payroll costs which supported revenue growth in the educational area and
depreciation expense following a capital buildup in anticipation of graduate
program expansion.
Interest expense for the year ended December 31, 1993 was $33,488
as compared to $26,039 for the year ended December 31, 1992. Interest expense
is made up predominantly of interest on capital leases as well as interest
expenses associated with the utilization of MDJB's revolving line of credit
facility.
GENERAL ANALYSIS AND COMPARISON OF OPERATIONS
Increases in revenues in all comparative time frames covered are due
largely to growth in the graduate programs product area. Increases in revenue
due to price increases have been quite small, averaging from as little as zero
to a maximum of 5%, depending on the time period and varying by product. The
purchase of Concept Communications in 1993 represents no more than a third of
the increased revenue during any of the comparative periods. The University
has strengthened admissions and academic standards during the period which has
essentially held the total undergraduate program in a stable state. Some
shifting of student populations between majors has been noted. This movement
has generally been from technology and engineering into computer science and
most recently towards management disciplines. Even with some shifting of
subgroups the overall trend has been stable at the undergraduate level with
growth coming from new product at the graduate level.
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Due to the seasonality of traditional higher education programs,
where summer populations are at reduced levels, interim financial results are
not indicative of a full fiscal year. This seasonality normally causes a drop
in revenue and losses in the summer quarter which are offset by higher revenue
and profitability in the other three quarters.
The University is currently a one campus operation in a community
experiencing excellent economic growth. Competitive factors are stable and not
likely to change in the near term. Uncertainty does exist in the plans of
local employers/agencies in connection with their educational reimbursement
policies, as this is a major source of revenue for the institution. The risk
from such an environmental factor could be significant.
Further risk exists from federal funding sources that
students utilize to pay for their education at the University. This includes
tuition assistance programs from military employers/agencies such as the U.S.
Air Force and Army. Both agencies having sizable operations in the local
economy. Many students utilize various Veterans benefits programs as well.
While no trends or event are likely to effect either of these programs in a
negative manner some degree of risk exists in the continuity of any federal
program.
Colorado Tech participates in the Federal Title IV financial aid
programs. Certain risks inherent to these programs exist on an ongoing basis
as well as specifically as relates to the Merger.
See "RISK FACTORS-Federal Financial Aid Programs."
The University has experienced historical growth through new product
introduction and expansion. Further significant sales growth would require
market expansion beyond the single campus structure and/or into new product
areas such as new academic disciplines. This would entail growth in fixed
costs beyond current levels in both human resources and fixed assets/buildings.
Management is at the exploratory stages and continues reviewing opportunities
for expansion. The board of directors has approved for submission to Colorado
Tech's accreditor (NCA), a request for expansion into the health science
academic disciplines. At this time no firm financial commitments exist regarding
expansion plans as they are still in the formative and evaluative stages.
Historical tax loss carry forwards were exhausted in 1992 and are
not likely to recur. In 1992 approximately $113,000 of net operating loss
carry forwards were utilized to reduce income taxes. The impact of this
extraordinary item was to reduce actual income taxes below normal statutory
levels.
LIQUIDITY AND CAPITAL RESOURCES
The most material change in MDJB's liquidity has been the transition
from a situation where the majority of Colorado Tech's students were supported
by financial aid and this funding was paid in advance of term starts, often in
excess of current term needs. Changes in institutional policies, Federal
regulation and student populations has changed the situation to one best
described as "pay as you go". The impact of this change can be seen in the
growth of receivables and the reduction of prepaid tuition and fees. The
growth in sales has also driven the growth of deferred income and
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receivables. As a service business, the deferred revenue is shown as a
liability and is a good indicator of next quarters revenue. This liability is
of a non-cash nature and is earned and non-refundable for most customers
within two weeks of the quarter start.
Uncertainties related to liquidity, specifically as it pertains to
concentrations of credit risk, are the same as covered under results from
operations and pertain to various federal programs and employers reimbursement
plans. Shifts in timing for these plans can have adverse effects on short term
liquidity and as recent historical conditions have shown can result in shifts
in major balance sheet items such as receivables and prepaid revenues.
The Merger of MDJB and Acquisition will require a recertification by
U.S. Department of Education (ED) for Title IV Program participation. This
process could take 60 to 180 days and could affect over one-third of Colorado
Tech's cash flow. The Merger Agreement provides that Whitman will provide
Acquisition with advances up to the amount of the University would have
received under these Title IV Programs. In addition to ED, other agencies of
government and various accreditors will need to approve the Merger, though no
impact on cash flows or any disruption of operations in anticipated as a
result.
The Merger will result in technical violation of certain covenants
under MDJB's line of credit facility with its bank and will require updates to
legal documents and agreements. The Bank is not opposed to the Merger and
these updates should be able to be made in the normal course of business
without a disruption in service and without the line of credit being canceled.
This line of credit carries the personal guarantee of David D. O'Donnell,
President and CEO of MDJB. This guarantee would need to continue or be
replaced by some other facility agreeable to the Bank for the line of credit
to remain intact. Certain corporate guarantees by MDJB relating to bank and
lease debt facilities carried by Colorado Tech will need to be restated as a
result of the Merger though no concern on the part of debt holders has been
noted to date. Access to capital and operating leasing, has in no way been
disrupted by the on-going merger discussions and all major providers are aware
of the pending transaction and continue to quote and approve leases for MDJB.
MDJB's improved financial condition over the past few years has
resulted in enhanced access to capital resources. Cost of capital relative to
prevailing prime market rates has been reduced. MDJB's line of credit is
significantly larger having grown from $300,000 in 1992 to $1,000,000 as of
December 22, 1995. In September 1995, MDJB converted the short-term line of
credit to a long-term revolving note with its bank. As of September 30, 1995,
MDJB had drawn $750,000 under this credit facility to maintain sufficient
operating capital. The larger facility is used more months of the year in 1995
than the smaller facility was in 1992. Cash from operating activities is
generaly balanced by expenditures or investing activities associated with the
acquisition of equipment and furnishings. Educational programs offered in high
tech fields require such capital investment on a continuing basis. Such
acquisitions are financed through operating cash or capital leases. Access to
leases and/or debt to finance fixed asset expansion is available and currently
under utilized. Net fixed assets are not highly leveraged, normally carrying
less than a 15% long term debt against them. Capital expenditures are financed
mainly from operations and leases. This trend is anticipated to continue on the
current base of operations into the future. Only major expansion actions beyond
current operations would require alternative sources of funds.
Financing activities consist mainly of debt borrowings and repayment.
Transactions in MDJB common stock result from the issuance of stock to employees
and MDJB's optional repurchase of stock from its employees upon retirement,
severance or other purchase events.
The Company maintains a leased facility at 4435 N. Chestnut Street
in Colorado Springs, Colorado occupying approximately 80,000 square feet. This
is covered by a noncancelable lease which expires in 2008 with annual rental
obligations in excess of $500,000. Further off-balance sheet
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commitments consist of the rental (operating leases) of lap top computers
associated with the Doctoral programs. These commitments are relatively short
in nature expiring in February 1997 and represent approximately $85,000 as of
September 30, 1995.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1995, certain
information with respect to MDJB Stock that may deemed to be beneficially
owned by each director and executive officer of MDJB as well as by each MDJB
Stockholder known by MDJB to own five percent (5%) or more of MDJB's
outstanding shares.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name of Beneficial Owner Ownership Percentage of Class
- ------------------------ ------- -------------------
<S> <C> <C>
David D. O'Donnell ............. 365,000 33.96%
Marilyn O. Sullivan Family Trust 344,000 32%
William Ayen ................... 12,400 1.15%
Kenneth Burnley, Ph. D ......... -- --
Richard Gillaspie .............. -- --
Randolph Karsh ................. -- --
J. Dan Martinez ................ -- --
David Oxenhandler .............. 33,350 3.1%
Marvin Strait .................. 33,333 3.1%
All Directors and Officers as a 788,084 73.32%
group (9 Persons)
</TABLE>
Each named holder has, to the best knowledge of MDJB, sole voting
and investment power with respect to the indicated shares.
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<PAGE>
CAPITALIZATION OF WHITMAN
The consolidated capitalization of Whitman and subsidiaries at
September 30, 1995 and the adjusted consolidated capitalization of Whitman and
subsidiaries after giving effect to the Merger is set forth below. The
adjustments made to Whitman and subsidiaries' historical consolidated
capitalization to arrive at the adjusted consolidated capitalization are
described under "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
This table should be read in conjunction with the Consolidated
Financial Statements and relating notes thereto and other financial
information included elsewhere in this Proxy Statement- Prospectus.
At September 30, 1995
----------------
Actual As Adjusted(2)
------ -----------
Current Portion of Long-Term Debt (1).. $ 7,976,766 $ 8,177,928
============ ============
Long-Term Debt:
Long-Term Obligations (1) 2,167,195 2,380,096
Stockholders' equity:
Common Stock-50,000,000 shares
authorized; 3,864,248 shares issued
and outstanding before the Merger
(excluding shares held in escrow),
5,114,248 shares issued and
outstanding, as adjusted ......... 7,029,516 7,431,875
Additional Paid in Capital ........ 175,000 175,000
Retained earnings (deficit) ...... (1,728,111) (1,098,066)
Treasury Stock ..................... (430,500) (677,065)
Net unrealized loss on non-current
marketable securities ............. (48,750) (48,750)
------------ ------------
Total Stockholders' Equity ....... 4,997,155 5,782,994
Total Capitalization ............. $ 7,164,350 $ 8,163,090
============ ============
- -------------------------------------------
(1) See Note 6 of the Notes to the Consolidated Financial Statements.
(2) Financial data relating to MDJB is as of June 30, 1995.
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DESCRIPTION OF WHITMAN COMMON STOCK
COMMON STOCK
Whitman is authorized to issue 50,000,000 shares of common stock, no
par value per share. As of December 15, 1995, there were 4,395,762 shares of
Whitman Stock and options and warrants to purchase 1,386,400 shares of Whitman
Stock outstanding.
Holders of Whitman Stock are entitled to one vote per share for each
share held in all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Holders of majority of the shares of Whitman Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Frost-Nevada, Limited Partnership, a limited
partnership controlled by Dr. Philip Frost, a director of Whitman,
beneficially owns approximately 40% of Whitman Stock and, accordingly, has the
power to direct the control of Whitman. Holders of Whitman Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. Upon liquidation,
dissolution, or winding up of Whitman, the holders of Whitman Stock are
entitled to receive ratably the net assets of Whitman available after the
payment of all debts and other liabilities. Holders of Whitman Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Whitman Stock are fully paid and non-assessable.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Pursuant to the provisions of the New Jersey Business Corporation Act
(the "NJBCA"), Whitman has adopted provisions in its Certificate of
Incorporation and Bylaws which require Whitman to indemnify its officers and
directors to the fullest extent permitted by law, if (a) he acted good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of Whitman and (b) with respect to any criminal proceeding, provided
he had no reasonable cause to believe his conduct was unlawful. These
provisions do not eliminate any director's or officer's liability if a
judgment or other final adjudication adverse to such director or officer
establishes that his acts or omissions (a) were in breach of his duty of
loyalty to Whitman and its stockholders, (b) were not in good faith or
involved a knowing violation of law or (c) resulted in receipt by the director
or officer of an improper personal benefit. Whitman believes that these
provisions will assist Whitman in attracting or retaining qualified
individuals to serve as directors and officers.
NEW JERSEY ANTI-TAKEOVER LAW
Whitman is a New Jersey corporation that is subject to Section
14A:10A-4 of the NJBCA which provides, among other things, that no resident
domestic corporation may engage in any business combination with any
"interested stockholder" of such corporation (defined as a holder of 10% or
more of stock) for a period of five years unless that business combination is
approved by the Board of Directors prior to the date on which the interested
stockholder made its stock acquisition.
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See "COMPARISON OF RIGHTS OF STOCKHOLDERS OF WHITMAN AND MDJB - Anti-
Takeover Statutes."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Whitman's Common Stock is
Continential Stock Transfer and Trust Company, 2 Broadway, New York, New York
10004.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
WHITMAN AND MDJB
GENERAL
If the Merger is consummated, MDJB Stockholders will become holders
of Whitman Stock, which will result in their rights as Stockholders being
governed by the laws of the State of New Jersey and by Whitman's Certificate
of Incorporation (the "Whitman Charter") and Bylaws. It is not practical to
describe all of the differences between the MDJB Certificate of Incorporation
(the "MDJB Charter") and the MDJB Bylaws and the Whitman Charter and Whitman
By-laws, and the laws of the States of New Jersey and Colorado. The following
is a summary of some of the significant rights of the Stockholders of Whitman
and MDJB. This summary is qualified in its entirety by reference to the full
text of such documents. For information as to how such documents may be
obtained, see "Available Information."
AUTHORIZED CAPITAL STOCK
Whitman. The authorized capital stock of Whitman consists of
50,000,000 shares of Whitman Common Stock, no par value, of which 4,395,762
shares were issued and outstanding as of December 15, 1995. No Whitman
Stockholder has preemptive rights with respect to any class of stock of
Whitman.
MDJB. The authorized capital stock of MDJB consists of 10,000,000
shares of MDJB Common Stock, no par value per share, of which 1,074,847 shares
were issued and outstanding as of December 15, 1995. No MDJB Stockholder has
preemptive rights with respect to any class of stock of MDJB.
DIRECTORS
Whitman. Whitman's Bylaws provide that Whitman's Board shall consist
of at least two and not more than nine directors with the actual number being
fixed from time to time by action of the Stockholders or of the Board.
Whitman's Bylaws provide that a vacancy among the directors may be filled for
the unexpired term by the vote of a majority of the remaining directors in
office, though less than a quorum.
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MDJB. MDJB's Bylaws provide that MDJB's Board shall consist of at
least one director with the actual number being fixed from time to time by
action of the Stockholders or of the Board. A majority of the number of
directors constitutes a quorum (if the total number of directors is at least
3) for the transaction of business. MDJB's Bylaws provide that a vacancy among
the directors may be filled for the unexpired term by the vote of a majority
of the remaining directors in office, though less than a quorum.
ELECTION AND REMOVAL OF DIRECTORS
Whitman. Whitman's Bylaws provide that directors hold office until
their successors are elected and qualified or until their earlier resignation
or removal. Any director, or the entire Board of Directors, may be removed,
with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
MDJB. MDJB's Bylaws provide that directors hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Any director, or the entire Board of Directors, may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
LIMITATIONS ON THE LIABILITY OF DIRECTORS
Whitman. The Whitman Charter includes a provision stating that the
directors of the Corporation shall not be personally liable to the Corporation
or its shareholders for damages for breach of any duty owed to the Corporation
or its shareholders; provided, however, a director shall not be relieved from
liability for any breach of duty based upon an act or omission (i) in breach
of such director's duty or loyalty to the Corporation or its shareholders,
(ii) not in good faith or involving a knowing violation of law, or (iii)
resulting in the receipt by such person of an improper personal benefit.
MDJB. The MDJB Charter includes a provision eliminating the personal
liability of directors to the fullest extent permitted by the Colorado
Business Corporation Act ("CBCA").
STOCKHOLDER ACTION BY WRITTEN CONSENT
Whitman. Whitman Stockholders may take action by written consent if a
consent or consents setting forth the action taken are signed by the holders
of outstanding having not less than the minimum number of votes that would be
necessary to take such action at a meeting.
MDJB. MDJB Stockholders may take action by written consent if a
consent or consents setting forth the action taken are signed by the holders
of outstanding having not less than the minimum number of votes that would be
necessary to take such action at a meeting.
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<PAGE>
AMENDMENT OF BY-LAWS
Whitman. Whitman's bylaws may be altered, amended, or repealed or new
bylaws may be adopted by the affirmative vote of the majority of the board of
directors at any regular or special meeting of the board, subject to any
provision of the Whitman charter reserving to the shareholders the power to
adopt, amend, or repeal the bylaws; but bylaws made by the board may be
altered or repealed and new bylaws made by the shareholders. The shareholders
may prescribe that any bylaw made by them shall not be altered or repealed by
the board.
MDJB. The MDJB bylaws may be amended, altered, or modified by its
board of directors or its stockholders.
MEETINGS OF STOCKHOLDERS
Whitman. The Whitman Bylaws provide that annual meetings shall be
held at the date and time as the directors shall fix and special meetings of
Stockholders may be called by the President and shall be called by the
Secretary upon the written request of Stockholders owning at least twenty
percent of the shares entitled to vote at such meeting. The holders of shares
entitled to cast a majority of the votes at a meeting shall constitute a
quorum for the transaction of any business.
MDJB. The MDJB Bylaws provide that annual meetings shall be held at
the date and time as the directors shall fix and special meetings of
Stockholders may be called by the President and shall be called by the
Secretary upon the written request of Stockholders owning at least twenty
percent of the shares entitled to vote at such meeting. The holders of shares
entitled to cast a majority of the votes at a meeting shall constitute a
quorum for the transaction of any business.
CORPORATE LAW
In addition to the changes described above in respect of the Charter
and Bylaws of the two companies, the Merger will effect several changes in the
rights of MDJB Stockholders as a result of differences between the corporate
laws of the state of Colorado and the state of New Jersey. Summarized below
are certain of the principal differences affecting the rights of MDJB
Stockholders. This summary does not purport to be a complete statement of
differences affecting such Stockholders' rights under the CBCA and the NJBCA
and is qualified in its entirety by reference to the provisions thereof.
Voting Rights with respect to Extraordinary Corporate Transactions
NEW JERSEY. Approvals of mergers and consolidations and of sales of
all or substantially all of the assets of the corporation, other than in the
ordinary course of the business of such corporation, requires the approval of
a majority of the outstanding shares of the corporation, except that no vote
of stockholders of the corporation surviving a merger (unless its certificate
of incorporation provide otherwise) is necessary if: (i) the plan of merger
does not amend the certificate of incorporation of
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<PAGE>
the surviving corporation which is required by the provisions of the NJBCA to
be approved by the shareholders; (ii) each shareholder of the surviving
corporation whose shares were outstanding immediately before the effective
date of the merger will hold the same number of shares, with identical
designations, preferences, limitations, and rights, immediately after; (iii)
the number of voting shares outstanding immediately after the merger, plus the
number of voting shares issuable on conversion of other securities or on
exercise of rights and warrants issued pursuant to the merger, will not exceed
by more than 40% the total number of voting shares of the surviving
corporation outstanding immediately before the merger; and (iv) the number of
participating shares outstanding immediately after the merger, plus the number
of participating shares issuable on conversion of other securities or on
exercise of rights and warrants issued pursuant to the merger, will not exceed
by more than 40% the total number of participating shares of the surviving
corporation outstanding immediately before the merger.
COLORADO. The CBCA generally requires the affirmative vote of the
holders of a majority of the outstanding shares of each class entitled to vote
to approve a merger or share exchange. In certain circumstances, the holders
of outstanding shares of a class of capital stock of a Colorado corporation
are entitled to vote as a separate voting group, without regard to whether the
articles of incorporation provide that such shares of capital stock are
entitled to vote. However, no vote of shareholders of a Colorado corporation
is required to approve a merger if (i) that corporation is the surviving
corporation of the merger, (ii) the articles of incorporation of the surviving
corporation, with certain exceptions, will not differ from its articles of
incorporation before the merger, (iii) each shareholder of the surviving
corporation whose shares are outstanding immediately before the merger will
hold the same number of shares, with identical designations, preferences,
limitations, and relative rights, immediately after the merger, and (iv) the
number of shares of the corporation to be issued in the merger does not exceed
20% of the voting stock of that corporation outstanding immediately before the
merger.
Stockholders Consent without a Meeting
NEW JERSEY. Action requiring the vote of stockholders may be taken
without a meeting, by the written consent of stockholders having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which all shares entitled to vote thereon were present and voting,
except that written consent for the annual election of directors must be
unanimous.
COLORADO. The CBCA permits written actions by shareholders, but
requires that a written consent be signed by all of the shareholders entitled
to vote thereon.
Dissenters' Rights
NEW JERSEY. Under the NJBCA, dissenting shareholders who comply with
certain procedures are entitled to appraisal rights in connection with the
merger, consolidation or sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation not in the usual or regular
course of business, unless the certificate of incorporation otherwise
provides, except that
182435-1
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<PAGE>
such rights are not provided when (i) the shares are listed on a national
securities exchange or held of record by not less than 1,000 holders (or
shareholders receive in such transaction cash and/or securities which are
listed on a national securities exchange or held of record by not less than
1,000 shareholders) or (ii) no vote of the corporation's shareholders is
required for the proposed transactions.
COLORADO. Under the CBCA, any shareholder of a Colorado corporation
is entitled to receive payment of the fair value of such shareholder's shares
of capital stock if such shareholder properly dissents from (i) any merger,
share exchange or consummation of a sale or exchange of all or substantially
all of the assets of the corporation not made in the regular course of
business for which a vote of such shareholder is required, (ii) any corporate
action that results in an amendment of the articles of incorporation, which
materially and adversely affects rights with respect to a dissenter's shares
because it alters or abolishes a preferential right of the shares, creates,
alters or abolishes a right in respect of redemption, excludes or limits the
right of the shares to be voted on any matter or to cumulate votes, or reduces
the number of shares owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash, or (iii) any other
corporate action taken pursuant to a shareholder vote to the extent the bylaws
or resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and to obtain payment for their shares.
Dividends
NEW JERSEY. The NJBCA prohibits a corporation from making any
distribution to its shareholders if, after giving effect to such distribution,
the corporation would be unable to pay its debts as they became due in the
usual course of business or the corporation's total assets would be less than
its total liabilities.
COLORADO. Distributions to shareholders of a Colorado corporation may
not be made if any such distribution would render the corporation unable to
meet its liabilities in the ordinary course of business or, if as a result of
such distribution, the excess of the corporation's assets over its liabilities
would be less than the liquidation preference of all shares having a
preference on liquidation over the class or series to which the distribution
is made.
Quorum of Directors
NEW JERSEY. Unless a greater number is required for a quorum by the
article of incorporation or bylaws (but in no event less than one-third of the
votes of the entire board or committee), a majority of the directors than in
office shall constitute a quorum.
COLORADO. A majority, or all of the directors if there be fewer than
three, shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but if less than such quorum is present at
a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
182435-1
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<PAGE>
Inspection of Books and Records
NEW JERSEY. The NJBCA grants the right to inspect a corporation's
minutes of shareholder proceedings and its record of shareholders only for any
proper purpose and only (i) to shareholders of record for at least six months
preceding the demand, (ii) to holders of at least 5% of the outstanding shares
of any class or series of the corporation's stock or (iii) to shareholders
upon receipt of court order.
COLORADO. Colorado law allows any shareholder who has been a record
holder for at least three months, or who holds at least five percent of all
outstanding shares, to inspect and copy the shareholders' list, minute books,
and accounting records for any proper purpose, and generally permits all
shareholders to inspect the corporation's charter documents, minutes of
shareholders' meetings and certain other lists, reports and financial records.
The CBCA also provides that a court may order the production of corporate
records for examination irrespective of the number of such shareholder's
shares or the period of time for which they have been held.
Special Meetings of Stockholders
NEW JERSEY. Special Meetings may be called by the President, the
Chairman of the Board of Directors, a majority of the directors, stockholders
of not less than 10% of the shares entitled to vote at the meeting (unless the
articles of incorporation or bylaws provide for a smaller percentage) or such
other officers or persons as may be provided in the articles of incorporation
or bylaws. However, if a corporation fails to hold its annual meeting within a
period of 30 days after the date designated therefor, or if no date has been
designated for a period of 13 months after its last annual meeting, the
Superior Court may, upon the application of any shareholder, summarily order
the meeting.
COLORADO. The CBCA, provides that special meetings of the
shareholders may be called by the board of directors, a person authorized in
the bylaws to call special meetings or a shareholder or shareholders holding
10% or more of the voting power of all shares entitled to vote.
Amendments to Charter
NEW JERSEY. Amendments to the articles of incorporation must be
approved by the Board of Directors adopted and approved by the affirmative
vote of holders of a majority of all shares entitled to vote thereon and in
addition, if any class or series of shares is entitled to vote thereon, a
majority of the votes cast in each class vote; except that if the articles of
incorporation require the vote of a greater proportion of all or any class of
the stockholders than is required by New Jersey law to effect such amendment,
such provision shall control and may not be amended, altered or repealed
except by such greater vote.
COLORADO. Under the CBCA, the holders of shares representing at least
10% of the votes entitled to be cast on the amendment may propose an amendment
to the articles of incorporation.
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<PAGE>
Colorado law, generally requires that the amendment be approved by a majority
of the votes entitled to be cast on the amendment by any voting group with
respect to which the amendment would create dissenters' rights.
Anti-Takeover Statutes
NEW JERSEY. Section 14A:10A-4 of the NJBCA provides, among other
things, that no resident domestic corporation may engage in any business
combination with any "interested stockholder" of such corporation (defined as
a holder of 10% or more of stock) for a period of five years unless that
business combination is approved by the Board of Directors prior to the date
on which the interested stockholder made its stock acquisition. In addition to
the restrictions stated in the preceding sentence, no such corporation may
engage in a business combination with an interested stockholder other than one
in which (1) the board of directors has approved such business combination
prior to such interested stockholder's stock acquisition date; (2) such
business combination is approved by the affirmative vote of the holders of
two-thirds of the voting stock not beneficially owned by that interested
stockholder at a meeting called for such purpose; or (3) the aggregate amount
of cash and the market value, as of the consummation date, of consideration to
be received per share by holders of outstanding shares of common stock in the
business combination is at least equal to a certain "fair price" as determined
by various criteria set forth in the statute, subject to certain provisions.
Section 49:5 of the NJBCA provides, among other things, that, in
certain limited circumstances, a person making an offer to purchase in excess
of 10% (or such amount which, when aggregated with such person's present
holdings, exceeds 10%) of any class of equity securities of any corporation or
other issuer of securities which is organized under the laws of New Jersey
must, 20 days before the offer is made, file a disclosure statement with the
target company and the Bureau of Securities in the Division of Consumer
Affairs in the Department of Law and Public Safety of the State of New Jersey
(the "Bureau"). Such takeover bid may not proceed until after receipt of the
Bureau's permission, which shall be granted unless the Bureau, after public
hearing, finds that (i) the financial condition of the offeror is such as to
jeopardize the financial stability of the target company, or prejudice the
interests of any employees or securityholders who are unaffiliated with the
offeror, (ii) the terms of the offer are unfair or inequitable to the
securityholders of the target company, (iii) the plans and proposals which the
offeror has to make any material change in the target company's business or
corporate structure or management, are not in the interest of the target
company's remaining securityholders or employees, (iv) the competence,
experience and integrity of those persons who would control the operation of
the target company are such that it would not be in the interest of the target
company's remaining securityholders or employees to permit the takeover or (v)
the terms of the takeover bid do not comply with the provisions of Section
49:5 of the NJBCA.
COLORADO. Colorado has no comparable provision.
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OTHER MATTERS
REGULATORY APPROVALS REQUIRED
The Merger may be rescinded in the absence of Acquisition's obtaining
Certification from ED for participation in Title IV Programs. See "THE MERGER
AGREEMENT - Conditions to Consummation of the Merger" and "Whitman's Right of
Rescission." There can be no assurance that such Certification will be
obtained.
STOCKHOLDER PROPOSALS
Whitman's next annual meeting will be its 1996 Annual Meeting. Whitman
Shareholders proposals must be received by Whitman no later than July 1, 1996
to be considered for inclusion in the Proxy Statement and form of proxy for
the 1996 Annual Meeting of Shareholders. Whitman will provide timely advance
notice to shareholders of any change in that date.
EXPERTS
The Consolidated Financial Statements of Whitman and subsidiaries at
March 31, 1995 and 1994 and for each of the three years in the period ended
March 31, 1995, appearing in this Proxy Statement-Prospectus, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of said firm as experts in accounting
and auditing.
The Consolidated Financial Statements of MDJB and subsidiaries at
December 31, 1994 and 1993 and for each of the three years in the period ended
December 31, 1994, appearing in this Proxy Statement-Prospectus, have been
audited by Stockman Kast Ryan & Scruggs, P.C. independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of Whitman Stock offered hereby will be
passed upon for Whitman by Robinson, St John & Wayne. Certain legal matters
relating to the Merger will be passed upon for Whitman by Robinson, St. John &
Wayne. Certain legal matters relating to the Merger will be passed upon for
MDJB by Norman A. Palermo, P.C.
OTHER BUSINESS AT THE SPECIAL MEETINGS
Neither Whitman Board or MDJB Board is aware of any other business to
be presented at the respective Special Meetings other than the matters
described in this Proxy Statement-Prospectus. If any other matter should
properly come before the Special Meetings, the persons named as proxies on the
accompanying proxy card will have the discretionary authority to vote the
shares of MDJB
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Stock and Whitman Stock at the MDJB Special Meeting and the Whitman Special
Meeting, respectively, represented by proxy in accordance with the discretion
and judgment of the person or persons voting the proxies as to the best
interests of their respective companies and stockholders.
The cost of the solicitation of proxies will be borne by the
respective companies. In addition to solicitation by mail, directors, officers
and regular employees of Whitman and MDJB may solicit proxies personally or by
telegraph or telephone but will not be entitled to receive additional
compensation for such services.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WHITMAN MEDICAL CORP.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors.................................................................................. F-2
Consolidated Balance Sheets at March 31, 1994 and 1995.......................................................... F-3
Consolidated Statements of Operations for the years ended March 31, 1993, 1994
and 1995....................................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1993, 1994 and 1995.................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1993,
1994 and 1995.................................................................................................. F-6
Notes to the Consolidated Financial Statements.................................................................. F-7
Unaudited Consolidated Balance Sheet at September 30, 1995...................................................... F-18
Unaudited Consolidated Statements of Operations for the six months ended September 30, 1994 and 1995.......... F-20
Unaudited Consolidated Statements of Cash Flows for the six months ended September 30, 1994 and 1995.......... F-21
M.D.J.B., INC.
(INFORMATION AT AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
Report of Independent Auditors.................................................................................. F-24
Consolidated Balance Sheets at December 31, 1993 and 1994 and September 30, 1995................................ F-25
Consolidated Statements of Income for the years ended December 31, 1992,
1993 and 1994 and nine months ended September 30, 1994 and 1995................................................ F-26
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1992, 1993 and 1994 and the nine months ended September 30, 1995.................................. F-27
Consolidated Statements of Cash Flows for the years ended December 31, 1992,
1993 and 1994 and the nine months ended September 30, 1994 and 1995............................................ F-28
Notes to the Consolidated Financial Statements.................................................................. F-29
</TABLE>
F-1
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Report of Independent Auditors
The Board of Directors
Whitman Medical Corp.
We have audited the accompanying consolidated balance sheets of Whitman Medical
Corp. and subsidiaries as of March 31, 1994 and 1995 and the related
consolidated statements of operations, changes in stockholders'equity and cash
flows for each of the three years in the period ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Whitman
Medical Corp. and subsidiaries at March 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
MetroPark, New Jersey
May 5, 1995, except for Note 15, as to
which the date is June 15, 1995.
F-2
Whitman Medical Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION> MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 1,369,462 $ 1,658,104
Restricted cash ................................................................. 312,000
Accounts receivable, less allowance for doubtful accounts of $138,582
in 1994 and $1,000,864 in 1995 ................................................. 5,399,170 14,216,126
Inventories ..................................................................... 290,450
Other current assets ............................................................ 114,582 520,044
------------ ------------
Total current assets ............................................................... 6,883,214 16,996,724
Equipment and leasehold improvements, net .......................................... 991,201 3,678,239
Marketable securities .............................................................. 750,000 750,000
Deferred costs, net of accumulated amortization of $388,099 in 1994 and
$553,434 in 1995 .................................................................. 317,248 518,705
Deposits and other assets, net of amortization of $42,687 in 1994 and
$58,998 in 1995 ................................................................... 207,264 449,872
Goodwill, net of accumulated amortization of $87,971 in 1994 and
$113,762 in 1995 .................................................................. 75,672 2,572,979
Restricted cash - escrow ........................................................... 2,400,000
------------ ------------
$ 9,224,599 $ 27,366,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 117,833 $ 829,959
Accrued expenses ................................................................ 165,149 764,881
Income taxes payable ............................................................ 53,163
Current portion of capitalized lease obligations ................................ 152,615 391,496
Deferred tuition revenue ........................................................ 3,348,829 9,910,213
------------ ------------
Total current liabilities .......................................................... 3,837,589 11,896,549
Capitalized lease obligations ...................................................... 484,077 1,620,453
Long-term bank notes ............................................................... 7,623,621
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized 50,000,000 shares, issued and
outstanding, excluding shares held in escrow, 3,351,036 shares in
1994 and 3,854,748 shares in 1995 .............................................. 5,505,936 7,008,878
Additional paid-in capital ...................................................... 175,000
Retained earnings (deficit) ..................................................... 29,997 (324,982)
Treasury stock, 58,374 shares in 1994 and 1995 .................................. (430,500) (430,500)
Net unrealized loss on noncurrent marketable securities ......................... (202,500) (202,500)
------------ ------------
Total stockholders' equity ......................................................... 4,902,933 6,225,896
------------ ------------
$ 9,224,599 $ 27,366,519
============ ============
</TABLE>
See accompanying notes.
F-3
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Tuition .................................................... $ 4,268,406 $ 6,158,203 $ 10,954,572
Other educational materials ................................ 634,623
Other ...................................................... 170,063
------------ ------------ ------------
Total revenues ............................................. 4,268,406 6,158,203 11,759,258
COSTS AND EXPENSES
Cost of educational services ............................... 2,557,344 3,415,312 6,179,696
General and administrative expense ......................... 1,830,134 2,427,051 5,699,426
------------ ------------ ------------
Total costs and expenses ................................... 4,387,478 5,842,363 11,879,122
------------ ------------ ------------
(Loss) income from operations .............................. (119,072) 315,840 (119,864)
Interest income ............................................ 75,419 57,742 58,075
Interest expense ........................................... (49,923) (79,627) (326,125)
------------ ------------ ------------
(Loss) income from continuing operations before income
tax (benefit) provision ................................... (93,576) 293,955 (387,914)
Income tax (benefit) provision ............................. 21,742 80,394 (32,935)
------------ ------------ ------------
(Loss) income from continuing operations ................... (115,318) 213,561 (354,979)
Discontinued operations:
Loss from operations of subsidiary, net of tax benefit
of $15,321 .............................................. (42,224)
Loss on disposal of subsidiary, net of tax
benefit of $39,767 ...................................... (122,721)
------------
Total loss from discontinued operations .................... (164,945)
------------ ------------ ------------
Net (loss) income .......................................... $ (280,263) $ 213,561 $ (354,979)
============ ============ ============
(Loss) income per share of common stock:
Continuing operations ................................... $ (.03) $ .06 $ (.10)
Discontinued operations ................................. (.05)
------------ ------------ ------------
Net (loss) income .......................................... $ (.08) $ .06 $ (.10)
============ ============ ============
Average number of common and common equivalent shares
outstanding, excluding common shares held in escrow ....... 3,534,434 3,645,886 3,599,993
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<TABLE>
<CAPTION>
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years ended March 31, 1993, 1994 and 1995
Net
Unrealized
(Loss)
Gain on
Common Additional Retained Noncurrent
Shares Common Paid-In Earnings Treasury Marketable
Outstanding Stock Capital (Deficit) Stock Securities Total
----------- ----------- ----------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1992 ............... 1,143,710 $ 1,810,007 $ 96,699 $ -- $ -- $1,906,706
Shares issued in private placement .. 2,000,000 2,984,402 2,984,402
Shares issued for exercise of
stock options 164,000 451,540 451,540
Shares received for payment of 150,000
stock options exercised ............ (58,374) (430,500) (430,500)
Net unrealized loss on noncurrent
marketable securities .............. (228,750) (228,750)
Net loss ............................ (280,263) (280,263)
----------- ----------- ----------- --------- ---------- ---------- ----------
Balance at March 31, 1993 .............. 3,249,336 5,245,949 (183,564) (430,500) (228,750) 4,403,135
Shares issued for exercise of
stock options....................... 101,700 259,987 259,987
Net unrealized gain on noncurrent 26,250
marketable securities .............. 26,250
Net income .......................... 213,561 213,561
----------- ----------- ----------- --------- ---------- ---------- ----------
Balance at March 31, 1994 .............. 3,351,036 5,505,936 29,997 (430,500) (202,500) 4,902,933
Shares issued for exercise of stock
options and warrants ............... 405,480 1,002,942 1,002,942
Shares issued in acquisition ........ 98,232 500,000 500,000
Value of warrants issued for loan
guarantee .......................... $175,000 175,000
Net loss ............................ (354,979) (354,979)
----------- ----------- ----------- --------- ---------- ---------- ----------
Balance at March 31, 1995 ............. 3,854,748 $ 7,008,878 $175,000 $(324,982) $(430,500) $(202,500) $6,225,896
=========== =========== =========== ========= ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income .......................................... $ (280,263) $ 213,561 $ (354,979)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization ........................... 201,913 323,196 616,104
Bad debt expense ........................................ 74,624 70,863 831,382
Loss on sale of equipment and write-off of patents
from disposal of discontinued operations ............... 10,138 3,307 9,338
Changes in operating assets and liabilities,
net of effects from purchase of Sanford-Brown College:
Restricted cash ....................................... (312,000)
Accounts receivable ................................... (1,034,372) (1,839,745) (6,122,288)
Inventories ........................................... 142,067 (197,390)
Other current assets .................................. (94,249) 5,291 (190,269)
Deferred costs ........................................ (262,326) (136,935) (191,792)
Deposits and other assets ............................. (8,945) (16,554) (94,239)
Accounts payable ...................................... 56,367 3,305 108,127
Accrued expenses ...................................... 78,452 (25,549) 22,537
Income taxes payable .................................. 5,111 42,554 (53,163)
Deferred tuition revenue .............................. 904,105 650,209 3,122,639
------------ ------------ ------------
Net cash used in operating activities ...................... (207,378) (706,497) (2,805,993)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Sanford-Brown College ....................... (2,590,110)
Payments into escrow for acquisition of Sanford-Brown College (2,400,000)
Purchase of equipment and leasehold improvements ........... (173,717) (71,016) (438,481)
Proceeds from sale of equipment ............................ 60,476 4,200 37,300
------------ ------------ ------------
Net cash used in investing activities ...................... (113,241) (66,816) (5,391,291)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term bank loan .......................... 6,000,000
Proceeds from revolving line of credit and long-term
borrowings ................................................ 200,000 250,000 2,428,621
Principal payment on revolving line of credit and
long-term borrowings ...................................... (180,000) (270,000) (805,000)
Principal payments of capitalized lease obligations ........ (128,157) (143,205) (140,637)
Proceeds from exercise of options and warrants ............. 21,040 259,987 1,002,942
Proceeds from sale of common stock - private placement ..... 2,100,000
------------ ------------ ------------
Net cash provided by financing activities .................. 2,012,883 96,782 8,485,926
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ........... 1,692,264 (676,531) 288,642
Cash and cash equivalents at beginning of year ............. 353,729 2,045,993 1,369,462
------------ ------------ ------------
Cash and cash equivalents at end of year ................... $ 2,045,993 $ 1,369,462 $ 1,658,104
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid .............................................. $ 49,923 $ 76,627 $ 277,000
============ ============ ============
Income taxes paid .......................................... $ 46,188 $ 14,422 $ 89,738
============ ============ ============
Stock issued in connection with acquisition ................ $ 500,000
============ ============ ============
</TABLE>
See accompanying notes.
F-6
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1993, 1994 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company's primary business is the operation of proprietary schools
devoted to career program training primarily in the business and medical
fields. The Company's revenues are received from students who attend the
Company's schools. The majority of these students participate in one or
more federal financial aid programs. The Company also maintains patents for
some medical devices and licenses one product for use in the health care field.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Whitman
Medical Corp. and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions have been eliminated. On November 19,
1992 the Company increased the number of common shares authorized from
4,000,000 to 50,000,000.
CASH AND CASH EQUIVALENTS
The Company's policy is to invest cash in excess of operating requirements
in income producing investments. The Company considers all investments
with a maturity of three months or less as of the date of purchase as cash
equivalents.
RESTRICTED CASH
Cash invested in U.S. government securities is restricted for payment of
student refunds, as required by the United States Department of Education
(USDE). While the funds are immediately available for refunds, they are
currently invested. Such cash is restricted for refunds at March 31, 1995 as
follows:
<TABLE>
<CAPTION>
<S> <C>
Sanford Brown College .......................... $287,000
Ultrasound Diagnostic Schools .................. 25,000
--------
$312,000
========
</TABLE>
REVENUES, RECEIVABLES AND DEFERRED TUITION REVENUE
Upon enrollment, the Company bills the student for the full contract amount of
the course resulting in the recording of an accounts receivable and a
corresponding deferred tuition revenue liability. The deferred tuition revenue
liability is reduced and recognized into income on a straight-line basis over
the term of the course being attended by the student.
F-7
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and fixtures and automobiles are stated at cost, less
accumulated depreciation. Expenditures for maintenance and repairs which do not
add to the value of the related assets or materially extend their original
lives are expensed as incurred.
Depreciation of equipment, furniture and fixtures and automobiles is computed
principally by the straight-line method over the estimated useful lives of the
assets ranging from 1 to 10 years. Leasehold improvements are amortized over
the term of the related leases, which approximates the estimated useful lives.
DEFERRED COSTS
Deferred costs consist primarily of costs associated with the opening of new
school locations, the expansion of facilities to accommodate new programs and
the development of new curriculum at existing locations. Such costs are
amortized on a straight-line basis over thirty-six months.
GOODWILL
The Company amortizes the goodwill associated with acquisitions using the
straight-line method, principally over a forty-year period. The realizability
of goodwill and other intangibles is evaluated periodically as events or
circumstances indicate a possible inability to recover their carrying amount.
Such evaluation is based on various analyses, including cash flow and
profitability projections that incorporate, as applicable, the impact on
existing Company businesses. The analyses necessarily involve significant
management judgment to evaluate the capacity of an acquired business to perform
within projections.
(LOSS) INCOME PER SHARE
(Loss) income per common share are computed by dividing net (loss) income by
the weighted average number of common shares, as well as common share
equivalents, outstanding during the period assuming exercise of all stock
options and warrants to the extent dilutive using the treasury stock method.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
F-8
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consists primarily of books, uniforms and supplies and is valued at
the lower of cost or market using the FIFO (first-in , first-out) method.
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Student receivables ........................... $ 5,537,752 $ 15,216,990
Less allowance for doubtful accounts .......... (138,582) (1,000,864)
------------ ------------
$ 5,399,170 $ 14,216,126
============ ============
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance at beginning of year ............................ $ 50,377 $ 104,763 $ 138,582
Acquisition of Sanford-Brown College .................... 943,999
Charged to expense ...................................... 74,624 70,863 831,382
Accounts charged off during the year .................... (20,238) (37,044) (913,099)
------------ ------------ ------------
$ 104,763 $ 138,582 $ 1,000,864
============ ============ ============
</TABLE>
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Furniture and fixtures ........................ $ 280,501 $ 1,035,865
Equipment ..................................... 1,273,183 2,734,680
Automobiles ................................... 148,936 124,689
Leasehold improvements ........................ 145,562 988,885
Other ......................................... 25,512
------------ ------------
1,848,182 4,909,631
Less accumulated depreciation and amortization (856,981) (1,231,392)
------------ ------------
$ 991,201 $ 3,678,239
============ ============
</TABLE>
F-9
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. MARKETABLE SECURITIES
The Company's marketable equity securities, which are considered available-for-
sale, have been classified as non-current as it is Company's intention to hold
such security for a foreseeable future. Available-for-sale securities are
carried at fair value, with unrealized gains and losses, net of tax, reported
in a separate component of stockholders' equity.
Marketable securities consist of the following at both March 31, 1994 and 1995:
<TABLE>
<CAPTION>
UNREALIZED
COST MARKET LOSS
------------ ------------ ------------
<S> <C> <C> <C>
Noncurrent portfolio:
IVAX Common Stock, 30,000 shares,
$.10 par value ......................................... $ 952,500 $ 750,000 $ (202,500)
</TABLE>
5. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
This statement became effective for the fiscal year ended March 31, 1994 and
did not have a material impact on the Company's financial statements.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Current:
Federal ................................................. $ 46,776 $ (51,680)
State and local ......................................... $ 21,742 33,618 18,745
------------ ------------ -----------
Total ...................................................... $ 21,742 $ 80,394 $ (32,935)
============ ============ ===========
</TABLE>
F-10
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The differences between the statutory income tax rate and the effective tax
rate for continuing operations are summarized below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory tax rate ..................................... (34.0)% 34.0% (34.0)%
State income taxes, net ................................ (23.2) 11.4 6.9
Utilization of tax credits and operating losses ........ 34.0 (13.2)
Valuation allowance .................................... 1.5 20.7
Other, net ............................................. (6.4) (2.1)
------------ ------------ ------------
Effective tax rate ..................................... (23.2)% 27.3% (8.5)%
============ ============ ============
</TABLE>
Deferred tax assets of approximately $50,000 and $129,000 at March 31, 1994 and
1995, respectively, have been offset by a valuation allowance of the same
amount and consists of the following:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Accounts receivable reserves .................. $ 50,000 $ 20,000
Prepaid expenses .............................. (18,000)
Other (net) ................................... 8,000
Net operating loss carryforwards .............. 85,000
Tax credit carryforwards ...................... 34,000
------------ ------------
Deferred tax asset ............................ 50,000 129,000
Less valuation allowance ...................... (50,000) (129,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
At March 31, 1995 the Company has available net operating loss carryforwards of
$250,000, expiring in the year 2010.
F-11
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. DEBT
Long-term debt consists of the following at March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Term note due April 16, 1996 (with interest at prime less 1/2%,
8.5% at March 31, 1995).......................................... $6,000,000
$2.5 million revolving credit facility expiring April 16, 1996
(with interest at prime less 1/2%, 8.5% at March 31, 1995) ...... 1,623,621
----------
$7,623,621
==========
</TABLE>
The Company also has a $500,000 unsecured revolving line of credit which
expires on August 31, 1996. Under the terms of this facility, the Company may
borrow funds at 1.5% above the bank's floating prime rate. The average
amount outstanding during 1994 and 1995 was $70,000 and $261,000 at an
average interest rate of 7.5% and 10.11%, respectively. The maximum month end
borrowing outstanding in 1994 and 1995 was $150,000 and $375,000, respectively.
There were no borrowings outstanding under this agreement at March 31, 1994
and 1995.
7. CAPITALIZED LEASE OBLIGATIONS
The Company leases equipment under several lease agreements which are
accounted for as capitalized leases. The assets and liabilities under capital
leases are recorded at the lower of the net present value of the minimum lease
payments or the fair value of the asset. The assets are amortized over the
related lease term.
During 1995, the Company entered into leases totaling approximately $1,500,000
in connection with the purchases of equipment and automobiles.
The following is a summary of assets held under capital leases which are
included in equipment and leasehold improvements:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Equipment .................................. $932,335 $2,444,743
Automobiles................................. 142,169 124,689
Less accumulated amortization .............. (363,558) (584,137)
------------ ------------
$710,946 $1,985,295
============ ============
</TABLE>
F-12
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
Amortization of leased assets is included in depreciation and amortization
expense.
Future minimum lease payments under capital leases as of March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Years ended March 31:
1996 ...................................... $ 588,136
1997 ...................................... 593,550
1998 ...................................... 524,473
1999 ...................................... 417,679
2000 ...................................... 378,028
Thereafter ................................ 30,575
----------
Total minimum lease payments ................ 2,532,441
Less amount representing interest ........... (520,492)
----------
$2,011,949
==========
</TABLE>
8. STOCK OPTION PLANS AND WARRANTS
The Company has adopted stock option plans under which employees, directors
and consultants of the Company may be issued options covering up to 1,712,000
shares of the common stock. Options are granted at the fair market value of the
stock at the date of the grant. A summary of stock option activity related to
the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
AVERAGE NUMBER
PRICE OF SHARES
------------ ------------
<S> <C> <C>
Outstanding April 1, 1992 ................... $ 2.97 384,200
Granted................................... 4.89 354,500
Exercised................................. 2.75 (164,000)
Cancelled ................................ 4.38 (2,000)
------------ ------------
Outstanding March 31, 1993 .................. 4.21 572,700
Granted................................... 10.84 87,500
Exercised ................................ 2.56 (101,700)
Cancelled ................................ 3.00 (3,500)
------------ ------------
Outstanding March 31, 1994 .................. 5.56 555,000
Granted .................................. 4.68 377,050
Exercised ................................ 4.74 (20,000)
Cancelled ................................ 4.91 (33,750)
------------ ------------
Outstanding March 31, 1995 .................. 5.23 878,300
============ ============
Exercisable March 31, 1995 .................. $ 5.36 525,000
============ ============
</TABLE>
F-13
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTION PLANS AND WARRANTS (CONTINUED)
In connection with the 1993 private placement, a stock purchase warrant was
issued to a company beneficially owned by a stockholder of the Company to
purchase 75,000 shares of the Company's common stock at an exercise price of
$4.00 a share. In fiscal 1994, this stock purchase warrant, plus warrants
for 160,480 shares held by another company beneficially owned by this
stockholder, were acquired by a partnership beneficially owned by the
Chairman of the Board.
In connection with the term loan and revolving credit facility, a company
beneficially owned by the Chairman of the Board provided a guarantee of the
debt in exchange for warrants to purchase 575,000 shares of common stock at
$6.25 per share, the fair value of the common stock at the date of issuance.
At the Company's request, the stock purchase warrant to purchase 75,000 shares
issued in 1993 and 160,480 shares issued in 1994, and the warrants to purchase
150,000 shares (included in 575,000 mentioned above) were exercised during
fiscal 1995 at agreed upon discounted prices. The stock purchase warrant to
purchase 75,000 shares, with an original exercise price of $4.00 per share and
an expiration date of April 1997, was exercised at a discounted price of $3.12
per share. The stock purchase warrant to purchase 160,480 shares, with an
original exercise price of $1.56 per share and an expiration date of July 1999,
was exercised at a discounted price of $.93 per share. The warrants to purchase
150,000 shares, with an original exercise price of $6.25 per share and an
expiration date of January 2000, were exercised at a discounted price of $3.51
per share. Included in the total warrants exercised were 150,000 warrants as to
which $175,000 of deferred interest expense has been recorded at March 31,
1995, which is being recognized as expense over a 16 month period.
Common stock reserved for issuance under the stock option plans and outstanding
warrants aggregate 1,830,300 shares.
9. LEASE COMMITMENTS
Future minimum annual rental commitments under noncancellable operating leases
as of March 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996.......................... $ 2,070,388
1997.......................... 1,994,434
1998.......................... 1,901,711
1999.......................... 1,748,147
2000.......................... 1,557,866
Thereafter.................... 1,761,170
------------
Total minimum lease payments.. $ 11,033,716
============
</TABLE>
Rent expense during fiscal 1993, 1994 and 1995 was $447,842, $688,887 and
$1,108,306, respectively.
F-14
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. DISCONTINUED OPERATIONS
In fiscal 1993, the Company discontinued operations of its manufacturing
subsidiary and the Company sold and/or disposed of all of the subsidiary's
assets. The loss from the discontinued operations amounted to $164,945, net of
a federal income tax benefit of $55,088. The Company plans to dispose of its
remaining patents and medical device products.
11. RELATED PARTY TRANSACTIONS
The Company purchased various advertising services from a marketing and
advertising agency owned by a former director of the Company totaling
$102,000 during the fiscal year ended March 31, 1993. No such purchases were
made during the fiscal years ended March 31, 1994 and 1995.
The Company paid rent to a partnership in which an officer and director of
the Company and an outside consultant (and former director) of the Company
maintain an interest. These rents totaled $39,000, $47,000 and $61,000 during
the fiscal years ended March 31, 1993, 1994 and 1995, respectively.
The Company paid rent to a partnership containing one general partner who is
a consultant (and former director) of the Company. These rents totaled
$33,000, $39,000, and $35,000 during the fiscal years ended March 31, 1993,
1994 and 1995, respectively.
The Company paid for accounting services provided by an outside accounting
corporation owned partially by a consultant (and former director) of the
Company. These services totaled $78,000, $53,000, and $48,000 during the
fiscal years ended March 31, 1993, 1994 and 1995, respectively.
During the fiscal year ended March 31, 1995, the Company purchased $290,000
in medical supplies and equipment from a medical supply distributor owned by
the wife of an officer and director of the Company. No such purchases were
made during the fiscal years ended March 31, 1993 and 1994.
The Seller of Sanford-Brown College (SBC) is the beneficial owner of three
buildings occupied by SBC under lease agreements. In fiscal 1995, the
Company's SBC subsidiary paid the Seller rent totaling $119,000.
F-15
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
In April 1995, the Company entered into an agreement with another company 40%
owned by the Company's president. In addition to paying a fee for services,
the Company agreed to purchase textbooks and materials totaling $160,000 over a
two-year period. These textbooks and materials will be resold to the Company's
students.
12. ACQUISITION
On December 21, 1994, the Company completed the purchase of Sanford-Brown
College, a privately held proprietary business and allied healthcare
college. Sanford-Brown was acquired for $3.5 million in cash and $500,000
(98,232 shares) in common stock and contingent consideration of $2.4 million in
cash and 510,806 shares of common stock held in escrow at March 31, 1995.
The balance of $2,400,000 and 510,806 shares of Whitman common stock currently
held in escrow pursuant to Whitman's acquisition of Sanford Brown College will
be disbursed, in whole or in part, to Whitman or the Seller based principally
upon the Cohort Default Rates for each of the Missouri and Granite City,
Illinois locations of SBC. The Cohort Default Rate is the rate at which the
student borrowers entering repayment in one federal fiscal year default on
repayment of student loans obtained under any Federal Family Education Loan
Programs before the end of the following fiscal year. Specifically, the entire
$2,400,000 and 255,403 shares of the Whitman common stock retained in escrow
will be released to the Seller or Whitman based upon the Cohort Default Rate
for the SBC Missouri locations for each of fiscal year 1992, 1993 and 1994 (the
"Missouri Escrow Allocation"). The remaining 255,403 shares of Whitman common
stock held in escrow have been allocated to the SBC Granite City, Illinois
location and will be released based upon such location's compliance with
permitted Cohort Default Rates and other financial requirements (the "Granite
City Escrow Allocation").
With respect to the Missouri Escrow Allocation, if the Cohort Default Rate for
SBC Missouri in 1992, 1993 or 1994 is less than 25%, the Missouri Escrow
Allocation will be released to the Seller of SBC. If, however, SBC Missouri is
decertified by ED because of excessive Cohort Default Rates in 1992, 1993 and
1994, the Missouri Escrow Allocation and the Granite City Escrow Allocation
will be returned to Whitman; provided, however, that notwithstanding the
foregoing, the Missouri Escrow Allocation will be released to the Seller upon
the first to occur of (a) confirmation from ED that SBC Missouri will not be
decertified as a result of Cohort Default Rates exceeding 25% for the period
1992 through 1994; (b) the receipt of an unqualified opinion from a law firm
designated by Seller and Whitman that, notwithstanding that Cohort Default
Rates for the period 1992 through 1994 are likely to exceed 25%, SBC Missouri
will not be decertified by ED as a result; or (c) the mutual agreement of the
parties to release the Missouri Escrow Allocation.
With respect to the Granite City Escrow Allocation, if the conditions for the
relase of the Missouri Escrow Allocation have been satisfied and an audit
report indicates that Granite City is in compliance with the 85/15 rule as
prescribed by ED for its fiscal year ending as of June 30, 1995, 49,116 shares
of Whitman common stock held in escrow shall be released to the Seller.
Additionally, if SBC Granite City (a) demonstrates compliance with the 85/15
rule as of June 30, 1995, (b) has a finally determined Cohort Default Rate for
1993 or 1994 of less than 25% and (c) the conditions for the release of the
Missouri Escrow Allocation have been satisifed, the remaining balance of the
Granite City Escrow Allocation shall be released to Seller; provided, however,
if any one of (a), (b) or (c), is not achieved by the final determination of
the 1994 Cohort Default Rate, the balance of the Granite City Escrow Allocation
shall be disbursed to Whitman.
The acquisition has been accounted for as a purchase, and the net assets and
results of operations are included in the Company's consolidated financial
statements since the date of acquisition. The purchase price has been
allocated to the assets and liabilities of Sanford-Brown based on their
relative fair market value which approximated their net book value. The
purchase price and expenses associated with the acquisition exceeded the
fair value of Sanford-Brown's net assets by approximately $2.4 million
which has been assigned to goodwill.
In connection with the acquisition, the Company acquired assets with a fair
market value of approximately $6.3 million and assumed liabilities of
approximately $4.6 million.
Based on the terms of the escrow agreement, upon the occurrence of certain
events, the escrow agent will disburse cash and stock to either the seller or
the Company. If and when the cash and stock in escrow are released to the
seller, their value will be accounted for as an increase in goodwill.
F-16
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. ACQUISITION (CONTINUED)
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company and its subsidiaries for the
years ended March 31, 1994 and 1995 as though the acquisition described above
was made at the beginning of each fiscal year:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Net Revenues .................................. $20,297,114 $22,532,602
Income before taxes ........................... 2,079,135 220,949
Net income .................................... 1,406,457 115,886
Net income per share .......................... $ .36 $ .03
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
In fiscal 1995 the Company entered into financing agreements to acquire capital
equipment totaling $2,190,000. The capital equipment, primarily ultra sound
scanners, are being used in the new career programs being offered. In fiscal
1995, $1,488,000 of capital equipment was financed under the agreements.
14. STUDENT FINANCIAL AID PROGRAMS
The Colleges operated by the Company participate in various student
financial aid programs. These programs are subject to respective periodic
review by the United States Department of Education. Disbursements under each
program are subject to disallowance and repayment by the Schools. At present,
SBC has an open program review on its Title IV activity for the award years 1992
through 1994. No determination as to whether a liability exists or the amount of
liability, should one exist, can be made. Accordingly, no contingency is
reflected. UDS has no known liabilities related to its Title IV programs. Should
the Schools be limited, suspended or terminated from participation in Title IV
programs, from which UDS and SBC receives 66% and 76% of its funding,
respectively, it would have a material negative impact on the results of
operations, liquidity and net worth of the Company.
15. SUBSEQUENT EVENT
On June 15, 1995, the Company entered into a letter of intent to acquire another
company that operates a regionally accredited degree granting institution.
The consummation of the transaction is subject to the fulfillment of several
conditions, including that the transaction qualifies for pooling of interests
accounting treatment, the performance of a due diligence investigation by the
Company and certain regulatory approvals, including approval by the United
States Department of Education. There can be no assurance that a final
agreement will be entered into, or if entered into, the terms of any such
agreement.
F-17
Whitman Medical Corp. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30,
1995
(Unaudited)
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ............. $ 722,203
Restricted cash ....................... 393,276
Accounts receivable, less allowance
for doubtful accounts of $1,499,471 11,231,548
Inventories ........................... 682,800
Other current assets .................. 360,257
-----------
Total current assets ..................... 13,390,084
Equipment and leasehold improvements,
net ................................... 4,884,672
Marketable securities .................... 903,750
Deferred costs, net of accumulated
amortization of $689,780 .............. 387,237
Deposits and other assets, net of
accumulated amortization of $69,645 ... 676,823
Goodwill, net of accumulated
amortization of $149,999 .............. 2,564,647
Restricted cash - escrow ................. 2,400,000
-----------
$25,207,213
===========
</TABLE>
See accompanying notes.
F-18
182398-1
<PAGE>
Whitman Medical Corp. and Subsidiaries
Consolidated Balance Sheet - Continued
<TABLE>
<CAPTION>
September 30,
1995
(Unaudited)
------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 737,389
Accrued expenses ...................................... 872,311
Income taxes payable .................................. 4,722
Bank notes payable .................................... 7,290,000
Current portion of capitalized
lease obligations ................................. 686,766
Deferred tuition revenue .............................. 8,451,675
-----------
Total current liabilities ................................ 18,042,863
Capitalized lease obligations ............................ 2,167,195
Commitments and contingencies
Stockholders' equity:
Common stock, no par value,
authorized 50,000,000 shares,
3,864,248 shares issued and outstanding,
excluding shares held in escrow ................... 7,029,516
Additional paid-in capital ............................ 175,000
Retained (deficit) .................................... (1,728,111)
Treasury stock, 58,374 shares ......................... (430,500)
Net unrealized loss on noncurrent
marketable securities ............................. (48,750)
-----------
Total stockholders' equity ............................... 4,997,155
-----------
$ 25,207,213
===========
</TABLE>
See accompanying notes.
F-19
182398-1
<PAGE>
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Six
Months Ended
September 30,
1995 1994
------------- -------------
<S> <C> <C>
REVENUES
Tuition ...................................... $12,385,058 $3,401,432
Educational materials and other............... 1,025,061 99,810
----------- ----------
Total revenues .................................. 13,410,119 3,501,242
COSTS AND EXPENSES
Cost of educational services ................. 8,155,630 2,039,999
General and administrative expenses .......... 6,106,348 1,466,659
----------- ----------
Total costs and expenses ........................ 14,261,978 3,506,658
----------- ----------
Loss from operations ............................ (851,859) (5,416)
Interest income ................................. 25,634 23,092
Interest expense ................................ (539,283) (46,578)
----------- ----------
Loss before income taxes ........................ (1,365,508) (28,902)
Income tax provision ............................ 37,621 49,632
----------- ----------
Net loss ........................................ $(1,403,129) $ (78,534)
=========== ==========
Net loss per share of common stock .............. $ (.36) $ (.02)
=========== ==========
Weighted average number of common and common
equivalent shares outstanding, excluding
common shares held in escrow ................... 3,854,851 3,493,802
=========== ==========
</TABLE>
See accompanying notes.
F-20
182398-1
<PAGE>
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Six
Months Ended
September 30,
1995 1994
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................... $(1,403,129) $ (78,534)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization ............... 473,372 210,286
Bad debt expense............................. 1,168,720 52,056
Loss on sale of equipment ................... 26,425
Changes in operating assets and
liabilities:
Restricted cash ....................... (81,276)
Accounts receivable ................... 1,815,858 (1,238,678)
Inventory ............................. (392,350)
Other current assets .................. 159,787 (34,794)
Deferred costs ........................ (4,878) (83,004)
Deposits and other assets ............. (217,481) (42,553)
Accounts payable ...................... (92,570) (4,998)
Accrued expenses ...................... 107,430 78,690
Income taxes payable .................. 4,722 48,261
Deferred tuition revenue .............. (1,458,538) 944,149
----------- ----------
Net cash provided from (used in)
operating activities ........................ 106,092 (149,119)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold
improvements ................................ (462,313) (104,248)
Proceeds from sale of equipment ................ 11,300
----------- ----------
Net cash used in investing
activities .................................. (462,313) (92,948)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term borrowings .................... 3,850,000
Principal payment on revolving line of
credit and long-term borrowings ............. (4,183,621)
Principal payments of capitalized
lease obligations ........................... (266,697) (82,970)
----------- ----------
Proceeds from exercise of options -
common stock ............................... 20,638
----------- ----------
Net cash used in
financing activities ........................ (579,680) (82,970)
----------- ----------
</TABLE>
See accompanying notes.
F-21
182398-1
<PAGE>
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Cash Flows - continued
(Unaudited)
<TABLE>
<CAPTION>
For The Six
Months Ended
September 30,
1995 1994
------ ------
<S> <C> <C>
Decrease in cash and
cash equivalents ...................................... $ (935,901) $ (325,037)
Cash and cash equivalents at
beginning of period ................................... 1,658,104 1,369,462
----------- ----------
Cash and cash equivalents
at end of period ...................................... $ 722,203 $1,044,425
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid ......................................... $ 518,086 $ 46,575
=========== ==========
Income taxes paid ..................................... $ 7,389 $ 78,842
=========== ==========
Equipment and leasehold
improvements financed through
capital leases .................................... $ 1,160,758 $1,081,660
=========== ==========
</TABLE>
See accompanying notes.
F-22
182398-1
<PAGE>
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1995
(Unaudited)
Reference is made to the financial statements included in the Company's Annual
Report on Form 10K for the year ended March 31, 1995.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and Article 10 of Regulation
S-X and, in the opinion of the management of the Company, include all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of financial position and the results or operations and cash flows
for the periods presented. However, the financial statements do not include all
information and footnotes required for a presentation in accordance with
generally accepted accounting principles. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included or incorporated by reference in the
Company's 1995 Annual Report on Form 10-K. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the full year.
The accompanying financial statements include the accounts of Whitman Medical
Corp. and its subsidiaries, all of which are wholly owned. All intercompany
accounts and transactions have been eliminated.
Certain September 30, 1994 balances have been reclassified to conform to the
current year's presentation.
Accounts receivable and deferred revenue balances reflect the activity of
currently enrolled students. Amounts from future enrollment have been removed.
1. ACQUISITION
On December 21, 1994, the Company completed the purchase of Sanford-Brown
College, a privately held proprietary business and allied healthcare college.
Sanford-Brown was acquired for $3.5 million in cash and $500,000 (98,232 shares)
in common stock and contingent consideration of $2.4 million in cash and 510,806
shares of common stock held in escrow at September 30, 1995.
The following table summarizes, on an unaudited pro forma basis, the combined
results of operations of the Company and its subsidiaries for the six months
ended September 30, 1995 as though the aquisition of Sanford Brown College was
made at the beginning of fiscal year 1995:
<TABLE>
<S> <C>
Revenues ...................................... $13,410,119
Income before taxes ........................... (1,365,508)
Net income ................................... (1,403,129)
Net income per share .......................... (.36)
</TABLE>
2. PROBABLE ACQUISITION
On September 12, 1995, the Company entered into an Agreement and Plan of Merger
with MDJB, Inc. ("MDJB") pursuant to which MDJB will merge into a wholly owned
subsidiary of the Company. Upon the merger of MDJB into the subsidiary,
1,250,000 registered shares of the Company's common stock will be exchanged for
all of the outstanding MDJB stock.
The following table summarizes, on an unaudited pro forma basis, the first six
months of operations of MDJB for fiscal 1995 combined with the results of
operations based on the pooling of interests method of accounting of the Company
and its subsidiaries for the six months ended September 30, 1995 as though the
acquisition described above was made at the beginning of each fiscal year:
Revenues $17,757,946
(Loss) income before taxes (783,840)
Net (loss) (1,034,667)
Net (loss) per share $ (.20)
F-23
182398-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
M.D.J.B., Inc.
Colorado Springs, Colorado
We have audited the accompanying consolidated balance sheets of M.D.J.B., Inc.
as of December 31, 1994 and 1993, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of M.D.J.B.,
Inc. as of December 31, 1994 and 1993 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As described in Note 9, during the year ended December 31, 1992, M.D.J.B.,
Inc. changed its method of accounting for marketing costs.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
February 4, 1995
(except for Note 11 as to which
the date is September 12, 1995)
182435-1
F-24
<PAGE>
M.D.J.B., Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1995
ASSETS 1994 1993 UNAUDITED
---- ---- ------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) ............................... $ 129,177 $ 36,017 $ 334,802
Cash reserved for refunds (Note 8) ................................ 34,026 34,026
Accounts receivable net of allowance for doubtful
accounts of $10,944 and $11,668 at December 31,
1994 and 1993, respectively (Note 3) ......................... 1,750,727 1,524,144 1,993,529
Merchandise and supplies inventory (Note 3) ....................... 235,089 211,814 219,375
Prepaid expenses .................................................. 292,095 307,824 270,516
----------- ----------- -----------
Total current assets ................................................. 2,441,114 2,079,799 2,852,248
Property and equipment (Notes 2, 3 and 4) ............................ 1,649,326 1,621,225 1,676,278
Other assets ......................................................... 37,504 41,366 34,734
----------- ----------- -----------
Total ................................................................ $ 4,127,944 $ 3,742,390 $ 4,563,260
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including checks written against
future deposits of $143,691 and $132,641 at
December 31, 1994 and 1993, respectively ...................... $ 622,422 $ 543,360 $ 135,380
Accrued expenses .................................................. 167,957 158,374 86,149
Income taxes payable (Note 5) ..................................... 122,651 49,000 95,144
Line of credit payable (Note 3) ................................... 37,000
Note payable to former stockholder (Note 6) ....................... 39,401
Current portion of obligations under capitalized
leases (Note 4) ............................................... 204,492 195,291 213,556
Current portion of deferred income tax liability (Note 5) ......... 27,758
Prepaid tuition and fees .......................................... 135,063 153,723 168,281
Deferred tuition and fees ......................................... 1,653,993 1,531,375 1,906,349
----------- ---------- ----------
Total current liabilities ............................................ 2,934,336 2,668,123 2,644,260
Long-term liabilities:
Long-term Revolving Note (Note 3) ................................ 750,000
Obligations under capitalized leases,
net of current portion (Note 4) ............................... 222,884 214,767 233,163
Deferred income tax liability,
net of current portion (Note 5) .............................. 46,232 44,750 73,990
----------- ---------- ----------
Total long-term liabilities .......................................... 269,116 259,517 1,057,153
----------- ---------- ----------
Total liabilities .................................................... 3,203,452 2,927,640 3,701,413
Commitments and contingencies
(Notes 6, 7 and 8)
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized, 1,168,122,
1,198,875 and 1,125,847 shares outstanding at December 31, 1994
and 1993 and September 30, 1995 respectively (Note 6) ......... 436,899 535,525 308,794
Retained earnings ................................................. 487,593 279,225 706,053
Treasury stock, 51,000 shares ..................................... (153,000)
----------- ----------- -----------
Total stockholders' equity ........................................... 924,492 814,750 861,847
----------- ----------- -----------
Total ................................................................ $ 4,127,944 $ 3,742,390 $ 4,563,260
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
182435-1
F-25
<PAGE>
M.D.J.B., Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
FOR THE YEAR ENDED DECEMBER 31, 1995 1994
1994 1993 1992 UNAUDITED UNAUDITED
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Tuition and fees $ 6,538,737 $ 6,087,274 $ 5,696,221 $ 5,327,699 $ 4,710,271
Bookstore sales 722,459 735,046 772,950 636,321 539,692
Marketing division sales 521,816 172,812 408,316 360,848
Other 84,511 67,404 43,608 48,487 56,676
----------- ----------- ----------- ----------- -----------
Total 7,867,523 7,062,536 6,512,779 6,420,823 5,667,487
Operating expenses:
Cost of educational services 5,662,689 5,448,285 4,761,987 4,097,154 3,853,881
General and administrative
expenses 1,456,479 1,294,310 1,217,322 1,547,371 1,091,339
Marketing division expenses 342,059 96,350 402,177 379,955
----------- ----------- ----------- ----------- -----------
Total 7,461,227 6,838,945 5,979,309 6,046,702 5,325,175
----------- ----------- ----------- ----------- -----------
Income from operations 406,296 223,591 533,470 374,121 342,312
Other income (expenses):
Interest income 16,295 5,535
Interest expense (42,821) (38,488) (26,039) (34,762) (43,985)
----------- ----------- ----------- ----------- -----------
Total (42,821) (22,193) (20,504) (34,762) (43,985)
Income before provisions for income
taxes, extraordinary credits and
cumulative effect of accounting
change 363,475 201,398 512,966 339,359 298,327
Provisions for income taxes (Note 5) 155,107 62,140 180,070 120,899 125,720
----------- ----------- ----------- ----------- -----------
Income before extraordinary credits
and cumulative effect of
accounting change 208,368 139,258 332,896 218,460 172,607
Extraordinary credits-- benefits of
income tax loss carryforward (Note 5) 42,200
Cumulative effect of accounting
change on years prior to
1992 (Note 10) (425,897)
----------- ----------- ----------- ----------- -----------
Net income (loss) $208,368 $139,258 $(50,801) $218,460 $172,607
======== ======== =========== ========= ========
</TABLE>
See notes to consolidated financial statements.
182435-1
F-26
<PAGE>
M.D.J.B., Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 ..... 99,500 $ 115,000 (10,000) $(35,000) $35,000 $190,768 $305,768
Cancellation of treasury stock (10,000) (35,000) 10,000 35,000
Common stock issued in
connection with capital
previously contributed
(Note 6) .................... 10,000 35,000 (35,000)
10 for 1 stock split (Note 6) 895,500
Issuance of common stock ..... 109,000 218,000 218,000
Net loss ..................... (50,801) (50,801)
--------------------------------------------------------------------------------------
Balance, December 31, 1992 ... 1,104,000 333,000 139,967 472,967
Repurchase and cancellation
of stock previously issued .. (36,583) (112,999) (112,999)
Issuance of common stock ..... 131,458 315,524 315,524
Net income ................... 139,258 139,258
--------------------------------------------------------------------------------------
Balance, December 31, 1993 ... 1,198,875 535,525 279,225 814,750
Repurchase and cancellation
of stock previously issued .. (30,753) (98,626) (98,626)
Net income ................... 208,368 208,368
--------------------------------------------------------------------------------------
Balance, December 31, 1994 ... 1,168,122 436,899 487,593 924,492
Repurchase of stock
previously issued (unaudited). (51,000) (153,000) (153,000)
Repurchase and cancellation
of stock previously issued
(unaudited) ................. (51,000) (153,000) (153,000)
Issuance of common stock
(unaudited) ................. 8,725 24,895 24,895
Net income (unaudited) ....... 218,460 218,460
--------------------------------------------------------------------------------------
Balance, September 30, 1995 .. 1,125,847 $ 308,794 (51,000) $(153,000) $ -- $ 706,053 $ 861,847
(unaudited) ========================================================================================
</TABLE>
182435-1
F-27
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1994
1994 1993 1992 UNAUDITED UNAUDITED
-------- -------- ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................. $ 208,368 $ 139,258 $ (50,801) $ 218,460 $ 172,607
Adjustments to reconcile net income (loss)
to cash and cash equivalents provided by
(used in) operating activities:
Depreciation and amortization .................. 442,867 408,995 311,563 368,613 326,305
Bad debt expense ............................... 61,661 53,436 31,542 38,080 39,000
Common stock issued in lieu of cash
compensation ................................. 59,523 126,000
Deferred income tax expense (credit) ........... 32,456 12,140 (15,500)
Changes in operating assets and liabilities:
Restricted cash ............................. (34,026) (34,026)
Accounts receivable ......................... (288,244) (362,604) (488,039) (280,882) (189,603)
Inventory ................................... (23,275) (18,643) (44,349) 15,714 (20,230)
Other current assets ........................ 15,729 3,015 422,726 21,579 (138,702)
Deposits and other assets ................... 3,862 3,741 (6,588) (5,149)
Accounts payable ............................ 79,062 62,755 90,690 (487,042) (130,261)
Accrued expenses ............................ 9,583 (151,267) 207,420 (81,808) (41,421)
Accrued income taxes payable ................ 70,435 (56,260) 153,370 (27,507) 73,504
Deferred and prepaid tuition and fees ....... 103,958 (255,680) 186,178 285,574 383,749
Other ....................................... 34,041 3,735 (2,216)
--------- --------- --------- --------- ---------
Net cash and cash equivalents provided by
(used in) operating activities .................... 716,477 (97,856) 928,584 64,193 435,773
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements ................................... (253,992) (226,320) (560,638) (213,309) (221,788)
Purchase of investment ............................ (7,000)
--------- --------- --------- --------- ---------
Net cash and cash equivalents used in
investing activities ........................... (253,992) (226,320) (567,638) (213,309) (221,788)
Cash flows from financing activities:
Principal payments on capital lease obligations ... (233,699) (191,439) (154,420) (153,555) (107,933)
Net borrowings (repayments) under line of
credit agreement ............................... (37,000) 37,000 750,000 (37,000)
Proceeds from sale of common stock ................ 213,024 92,000 24,895
Repurchase of common stock ........................ (98,626) (112,999) (153,000) (96,626)
Payments received on notes receivable ............. 109,478 823
Loans to others ................................... (40,301)
Principal payments on note payable to
former stockholders ............................ (12,785) (113,599)
Repayment of note payable ......................... (21,759)
--------- --------- --------- --------- ---------
Net cash and cash equivalents provided by
(used in) financing activities .................... (369,325) 55,064 (136,442) 354,741 (241,559)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents .................................. 93,160 (269,112) 224,504 205,625 (27,574)
Cash and cash equivalents, beginning of year ...................... 36,017 305,129 80,625 129,177 36,017
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year ............................ $ 129,177 $ 36,017 $ 305,129 $ 334,802 $ 8,443
========= ========= ========= ========= =========
Supplemental cash flow information is as follows:
Equipment acquired under capital leases ........... $ 251,017 $ 235,251 $ 407,593 $ 177,898 $ 78,536
Interest paid ..................................... 47,375 37,153 25,836 33,143 43,985
Income taxes paid ................................. 52,217 109,790 148,405
Lease security deposit converted to note payable .. 40,000
Note payable issued in connection with purchase
of treasury stock .............................. 153,000
Sale of investment for note receivable ............ 30,000
</TABLE>
See notes to financial statements
182435-1
F-28
<PAGE>
M.D.J.B., INC.
Notes to Consolidated Financial Statements
(Information as of and for the nine month periods ended
September 30, 1995 and 1994 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
M.D.J.B., Inc. (M.D.J.B.) is the sole shareholder of Colorado Technical
University, Inc. (Colorado Tech). Colorado Tech is a for-profit private
educational institution which offers higher education in engineering, computer
science, and high-tech management. It is accredited by the Commission on
Institutions of Higher Education of the North Central Association of Colleges
and Schools. Colorado Tech offers programs leading to Associates, Bachelors,
Masters and Doctorate degrees. It also offers professional certificates and
customized corporate training which are not a part of these degree programs.
M.D.J.B. also provides marketing services to the general public through its
marketing division, known as Concept Communications.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of M.D.J.B.
and Colorado Tech. Intercompany transactions and balances have been
eliminated.
REVENUE AND EXPENSE RECOGNITION
M.D.J.B. recognizes revenues and expenses on the accrual basis.
Tuition and fee income is recognized as revenue over the term of the course to
which it relates.
Effective January 1, 1995, M.D.J.B. adopted Statement of Position (SOP) 93-7,
"Reporting on Advertising Costs." The SOP generally requires advertising costs
to be expensed as incurred. In adopting the SOP, M.D.J.B.'s total advertising,
selling and promotional costs are expensed as incurred in 1995 rather than
deferred and amortized, as in prior periods. Adoption of the SOP in 1995
resulted in charges of $407,090 for the nine months ended September 30, 1995
which consists of two components: $89,600 results from the amortization of the
prepaid marketing balance of December 31, 1994 and $314,490 results from
marketing expenditures incurred during the nine months ended September 30, 1995.
Prior to adopting the SOP, marketing costs were deferred and amortized to
expense in the subsequent calendar quarter in order to match expenses with the
revenues derived from related marketing efforts.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, cash and cash equivalents
include cash on hand and all highly liquid investments purchased with a maturity
of three months or less.
MERCHANDISE AND SUPPLIES INVENTORIES
Inventories consist of books, classroom supplies and other items which are
valued at the lower of first-in, first-out (FIFO) cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation, including
amortization of capitalized leases, is calculated using the straight-line
method over the assets estimated useful lives as follows: equipment - five
years; furniture, fixtures and improvements - ten years; and capitalized
equipment leases - over the lease term which is generally five years.
182435-1
F-29
<PAGE>
M.D.J.B., INC.
Notes to Consolidated Financial Statements
(Information as of and for the nine month periods ended
September 30, 1995 and 1994 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PREPAID AND DEFERRED TUITION AND FEES
M.D.J.B. collects tuition and fees in excess of amounts due for the current
quarter (for example, a student may pay for more than one quarter and the entire
amount is deposited with M.D.J.B.). These amounts are classified as prepaid
tuition. Should the student not register for further classes, the amount is
refunded.
Deferred tuition and fees represent tuition and fee income to be earned in
future quarters. Upon registration for classes, a student's account is charged
for the student's tuition and fees; however revenue is deferred until the
quarter begins, at which point revenue is prorated over the quarter. Tuition
and fees are refundable up to two weeks after the start of a quarter.
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform to
the current year presentation.
INTERIM FINANCIAL STATEMENTS
The financial statements of M.D.J.B. for the nine months ended September 30,
1995 and 1994 are unaudited. In management's opinion, the financial statements
reflect all adjustments necessary for a fair presentation of the results for
these periods, all adjustments being of a normal and recurring nature.
M.D.J.B.'s revenues and expenses are subject to seasonal variations and, as a
result, the interim financial statements may not be indicative of M.D.J.B.'s
operations for the related fiscal years.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
SEPTEMBER 30,
DECEMBER 31, 1995
1994 1993 (UNAUDITED)
---------- ---------- ------------
Equipment ............................... $1,466,199 $1,305,356 $1,613,452
Furniture, fixtures and improvements .... 1,282,713 1,166,058 1,363,732
Capitalized equipment leases ............ 721,141 646,689 879,078
---------- ---------- ----------
3,470,053 3,118,103 3,856,262
Less accumulated depreciation ........... 1,820,727 1,496,878 2,179,984
---------- ---------- ----------
Net ..................................... $1,649,326 $1,621,225 $1,676,278
========== ========== ==========
3. LINE OF CREDIT AND LONG-TERM REVOLVING NOTE
At December 31, 1994, M.D.J.B. has a $600,000 revolving line of credit with a
bank under a loan agreement which expires May 30, 1995. Interest is payable
monthly at 1 1/2% over the bank's prime rate, with an interest rate floor
of 6% and ceiling of 11%. The line of credit is secured by cash, accounts
receivable, inventory and equipment, and is guaranteed by the President of
M.D.J.B. The loan agreement also requires M.D.J.B. to maintain certain minimum
financial ratios; all of which have been exceeded at December 31, 1994.
As of September 30, 1995, M.D.J.B. has a $750,000 long-term revolving note with
a bank under a loan agreement which expires May 30, 1997. Interest is payable
monthly at 1% over the bank's prime rate with an interest rate floor of 7 1/2%
and ceiling of 12 1/2%. The line of credit is secured by cash, accounts
receivable, inventory and equipment and is guaranteed by the President of
M.D.J.B. The loan agreement also requires M.D.J.B. to maintain certain minimum
financial ratios.
182435-1
F-30
<PAGE>
M.D.J.B., INC.
Notes to Consolidated Financial Statements
(Information as of and for the nine month periods ended
September 30, 1995 and 1994 is unaudited)
4. CAPITAL LEASES
M.D.J.B. leases certain of its property and equipment under non cancelable lease
agreements which are accounted for as capital leases.
As of December 31, 1994, future minimum lease payments under capital leases
are as follows:
Years Ending December 31,
1995 ......................................... $235,895
1996 ......................................... 145,531
1997 ......................................... 65,543
1998 ......................................... 23,628
1999 ......................................... 11,814
--------
Total minimum lease payments ...................... 482,411
Less amount representing interest at 9.0% per annum 55,035
--------
Present value of capitalized lease obligations .... 427,376
Less current portion .............................. 204,492
--------
Long-term portion ................................. $222,884
========
Accumulated depreciation on assets under capital leases was $92,554, $172,881,
$193,885 and $271,605 at December 31, 1994, 1993, 1992 and September 30, 1995,
respectively.
5. INCOME TAXES
M.D.J.B. files a consolidated income tax return with its wholly-owned
subsidiary, Colorado Tech.
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, was issued by the Financial Accounting Standards Board (FASB) in
February 1992, effective January 1, 1993, with earlier adoption encouraged.
M.D.J.B. elected to adopt the new standard effective January 1, 1992. Adoption
of this standard did not affect prior year financial statements.
Temporary differences, giving rise to the deferred tax liability, consist
primarily of excess depreciation and marketing expenses deducted for tax
purposes over the amount deducted for financial reporting purposes.
M.D.J.B. uses the flow-through method of accounting for investment tax credits.
For the year ended December 31, 1992, M.D.J.B. utilized investment tax credits
of $17,000, which were generated in a prior period to reduce its tax provision.
182435-1
F-31
<PAGE>
M.D.J.B., INC.
Notes to Consolidated Financial Statements
(Information as of and for the nine month periods ended
September 30, 1995 and 1994 is unaudited)
5. INCOME TAXES (CONTINUED)
Provision for income tax for the years ended December 31, 1994, 1993 and 1992
consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- ---------
<S> <C> <C> <C>
Current federal and state income taxes
(including charges in lieu of taxes of $42,200
for the year ended December 31, 1992) ... $122,651 $50,000 $ 195,570
Deferred federal and state income taxes .. 32,456 12,140 (15,500)
-------- ------- ---------
Total .................................... $155,107 $62,140 $ 180,070
======== ======= =========
</TABLE>
The difference between the statutory income tax rates and the effective tax
rates are summarized below for the years ended December 31:
1994 1993 1992
------ ------ ------
Statutory tax rate .... 34.0% 34.0% 34.0%
State income taxes, net 1
Permanent differences . 5.4
Other, net ............ 2.3 (3.1) 1.1
------ ------ ------
42.7% 30.9% 35.1%
====== ====== ======
Deferred tax liabilities consist of the following at December 31:
1994 1993
---- ----
Prepaid expenses ........... $ 31,300 $ 34,890
Depreciation ............... 46,390 13,770
Accounts receivable reserves (3,700) (3,910)
-------- --------
Deferred tax liability ..... $ 73,990 $ 44,750
======== ========
For the year ended December 31, 1992, the income tax provision contains
charges in lieu of taxes of $42,200, which represents taxes that would have
been required in the absence of operating loss carryforwards. The income tax
benefit resulting from the partial utilization of the operating loss
carryforwards is presented as an extraordinary credit. M.D.J.B. utilized
approximately $113,000 of its net operating loss carryforwards during 1992 to
reduce income taxes.
182435-1
F-32
<PAGE>
M.D.J.B., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the nine month periods ended
September 30, 1995 and 1994 is unaudited)
6. COMMON STOCK
On June 26, 1992, the Board of Directors authorized a 10 for 1 stock split,
thereby increasing the number of shares issued and outstanding by 895,500. In
conjunction with the stock split, the Board of Directors amended the Articles
of Incorporation, giving M.D.J.B. authority to issue 10,000,000 shares of
common stock, without par value.
During 1989, an individual affiliated with M.D.J.B. contributed $35,000 to
M.D.J.B. for future issuance of stock. During 1992, stock was issued to the
individual and the contribution was reclassified as common stock.
During the year ended December 31, 1993 and 1992, the Board of Directors
authorized the issuance of 19,841 and 63,000 shares, respectively, of M.D.J.B.'s
common stock to certain employees and officers of M.D.J.B. as bonuses for
services provided. The shares issued were valued at $3.00 per share in 1993 and
$2.00 per share in 1992, which were the most recent selling prices of the stock
at the dates authorized.
At December 31, 1994, M.D.J.B. has committed to repurchase 102,000 shares of
common stock from a stockholder for $3.00 per share. In January 1995, M.D.J.B.
did repurchase the shares for $153,000 cash and a note payable of $153,000.
The note is payable in monthly installments of $13,309, including interest at
8%, due December 31, 1995, and collateralized by the stock repurchased.
M.D.J.B. and all of its stockholders are parties to a stock redemption
agreement. The agreement requires stockholders who wish to sell their shares to
offer them to M.D.J.B. and, if M.D.J.B. declines to purchase the shares, then to
other M.D.J.B. stockholders. If both M.D.J.B. and the other M.D.J.B.
stockholders decline to purchase the shares, all restrictions are then removed
from the shares and they may be sold to other parties. The agreement also
provides that M.D.J.B. will purchase shares from stockholders upon a death or
disability.
The stock redemption agreement provides for its termination upon the merger of
M.D.J.B. In conjunction with the Plan of Merger described in Note 11, M.D.J.B.
stockholders have approved the suspension of all redemption provisions of the
agreement until termination of the Merger Agreement.
7. COMMITMENTS AND CONTINGENCIES
M.D.J.B. leases its building under a noncancelable operating lease, which
expires May 31, 2008.
Future minimum lease payments for each of the next five years, and in the
aggregate, are:
Year ended December 31,
1995 ......................... $ 502,914
1996 ......................... 511,081
1997 ......................... 519,247
1998 ......................... 527,413
1999 ......................... 535,580
Subsequent to 1999 4,830,425
-----------
Total $7,426,660
===========
182435-1
F-33
<PAGE>
M.D.J.B., INC.
Notes to Consolidated Financial Statements
(Information as of and for the nine month periods ended
September 30 1995 and 1994 is unaudited)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Building rental expense was as follows:
Year ended December 31,
1994 ................... $496,585
1993 ................... 483,929
1992 ................... 493,490
8. STUDENT FINANCIAL ASSISTANCE PROGRAMS
M.D.J.B. participates in various Federal and State of Colorado student
financial assistance programs. These programs provide grants and loans to
eligible students. The results of the operations of the programs are not
included in these financial statements. The student financial assistance
programs administered by Colorado Tech are subject to program reviews by the
U.S. Department of Education, Colorado Commission on Higher Education (CCHE)
and the Colorado Student Loan Program (CSLP). These reviews could produce
disallowed costs that would result in liabilities to Colorado Tech. In
addition, the programs are audited every year by an independent certified
public accountant. The U.S. Department of Education, CCHE, and CSLP have
completed examinations through June 30, 1993. The independent certified public
accountants have completed their examinations through June 30, 1994. These
examinations resulted in no material exceptions or liabilities.
Through these programs, Colorado Tech awards student financial assistance
based on the number of credit hours for which a student registers. Refund of
student financial assistance funds occurs if a recipient of Federal student
financial assistance takes fewer credit hours than they had originally been
registered and upon which awards had been made. Effective in 1994, Colorado
Tech is required to maintain minimum cash reserves for the refund of Federal
Student financial assistance equal to one quarter of the total dollar amount
of refunds paid in the previous year. To comply with Federal regulations, at
December 31, 1994, Colorado Tech has $34,026 reserved for possible future
refunds. The amount reserved is in excess of the minimum Federal requirements
and the funds are maintained in a separate bank account. During the year ended
December 31, 1994, Colorado Tech paid refunds of $135,237. Actual refunds due at
December 31, 1994 of $4,040 are included in current liabilities. Deferred and
prepaid tuition and fees recorded in the accompanying balance sheets include
amounts for possible future refunds.
182435-1
F-34
<PAGE>
M.D.J.B., INC.
Notes to Consolidated Financial Statements
(Information as of and for the nine month periods ended
September 30, 1995 and 1994 is unaudited)
9. CHANGE IN METHOD OF ACCOUNTING FOR MARKETING COSTS
During 1992, M.D.J.B. changed its method of accounting for marketing costs.
Prior to 1992, marketing costs (exclusive of marketing salaries and benefits)
incurred during an academic quarter were capitalized and amortized over the
following 24 months. Effective January 1, 1992, marketing costs incurred
during a quarter are accumulated and recognized as an expense in the following
quarter. Management believes the new method more closely relates marketing
costs to revenues derived from the marketing efforts. The effect of the change
was to increase income before extraordinary credit and net income for 1992 by
$89,107. The cumulative effect of the change in prior years is recorded as a
one-time charge to income. There was no tax effect as a result of this change.
The following pro forma amounts are presented showing the effect of applying
the change retroactively:
1992
----
ACTUAL PRO FORMA
------ ---------
Income before extraordinary item $332,896 $332,896
========= ========
Net Income (loss) $ (50,801) $437,471
========== ========
10. PROFIT-SHARING PLAN AND RETIREMENT SAVINGS PLAN
PROFIT-SHARING PLAN -- M.D.J.B. maintains a profit-sharing plan for full-time
and part-time employees of Colorado Tech and M.D.J.B. Amounts provided are
determined at the discretion of the Board of Directors. Profit-sharing expense
for the years ended December 31, 1994, 1993 and 1992 was $63,051, $57,600 and
$65,852, respectively, and are included with salaries and employee benefits in
the statements of income.
RETIREMENT SAVINGS PLAN -- M.D.J.B. maintains a 401(k) retirement savings plan
for its full-time employees. Each participant in the plan may elect to
contribute up to 15% of annual salary to the plan, subject to certain
limitations. M.D.J.B. may make contributions to the plan. M.D.J.B. made no
contributions to the plan during the years ended December 31, 1994, 1993 and
1992.
11. SUBSEQUENT EVENT
On September 12, 1995, M.D.J.B. entered into an Agreement and plan of merger
(the Agreement) with Whitman Medical Corporation and Whitman Acquisition
Corporation (Whitman). The Agreement will result in M.D.J.B. being acquired by
and becoming a wholly owned subsidiary of Whitman. The consummation of the
transaction is subject to certain terms and conditions including approval of
the stockholders of both M.D.J.B. and Whitman and numerous regulatory
approvals.
182435-1
F-35
<PAGE>
ANNEX A
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger (this "Amendment") dated as of
December 13, 1995 by and among Whitman Medical Corp., a New Jersey Corporation
("Whitman"), Whitman Medical Acquisition Corporation, a Delaware Corporation
("Acquisition") and M.D.J.B., Inc., a Colorado Corporation ("MDJB").
RECITALS
WHEREAS, each of Whitman, Acquisition and MDJB are parties to a certain
Agremeent and Plan of Merger dated as of September 12, 1995 (the "Merger
Agreement"); and
WHEREAS, each of the parties hereto desire to amend the Merger Agreement as
provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Subparagraph (a) of Section 11.01 of the Merger Agreement is
hereby deleted and replaced with the following:
"(a) by the Board of Directors of MDJB or Acquisition if the
Closing Date shall not have taken place on or prior to March 29, 1996;"
2. All terms and provisions of the Merger Agreement not expressly
modified herein shall remain unmodified and in full force and effect.
3. This Amendment shall in all respects be interpreted, construed
and governed by and in accordance with the internal substantive laws of the
State of New Jersey, disregarding principles of conflict of laws and the like.
4. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused their signatures to be
affixed to this amendment as of the date first above written.
ATTEST: WHITMAN MEDICAL
By: By: /s/ Randy S. Proto
-------------------------- -----------------------
Name: Name: Randy S. Proto
Title: Title: President
ATTEST: WHITMAN MEDICAL ACQUISITION
CORPORATION
By: By: /s/ Randy S. Proto
-------------------------- -----------------------
Name: Name: Randy S. Proto
Title: Title: President
ATTEST: M.D.J.B., INC.
By: By: /s/ David D. O'Donnell
-------------------------- ----------------------------
Name: Name: David D. O'Donnell
Title: Title: Chairman and President
ATTEST: COLORADO TECHNICAL UNIVERSITY, INC.
By: By: /s/ David D. O'Donnell
-------------------------- ----------------------------
Name: Name: David D. O'Donnell
Title: Title: Chairman
A-1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, (this "Agreement") dated as of
September 12, 1995 by and among Whitman Medical Corp., a New Jersey
corporation ("Whitman"), Whitman Medical Acquisition Corporation, a Delaware
corporation ("Acquisition") and MDJB, Inc., a Colorado corporation ("MDJB").
RECITALS
WHEREAS, the Boards of Directors of MDJB, Whitman and Acquisition deem it
advisable and in the best interests of the shareholders of such corporations
to effect the merger of MDJB with and into Acquisition (the "Merger") pursuant
to this Agreement;
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
THE MERGER AND RELATED TRANSACTIONS
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, certificates of merger (the "Certificates of Merger"), shall be
duly prepared, executed and acknowledged by Acquisition and such other parties
as may be appropriate and thereafter simultaneously delivered to the Secretary
of State of the State of Colorado for filing, as provided in the Colorado
Business Corporation Act (the "CBCA") and the Secretary of State of the State
of Delaware for filing, as provided in the Delaware General Corporation Law
("DGCL"), respectively, as soon as practicable on or after the Closing Date.
The Merger shall become effective upon the filing of the Certificates of
Merger with the Secretary of State of the State of Colorado and the Secretary
of State of the State of Delaware, respectively, or at such time thereafter as
is provided in the Certificates of Merger (the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m., as soon as practicable after the closing conditions set forth in
Articles VIII, IX and X have been met or waived, at the offices of Robinson,
St. John & Wayne, Two Penn Plaza East, Newark, New Jersey, unless another
time, date or place is agreed to in writing by the parties hereto.
1.3 Effects of the Merger.
182435-1
A-2
<PAGE>
(a) At the Effective Time, (i) the separate existence of MDJB shall
cease and MDJB shall be merged with and into Acquisition and Acquisition, as
the surviving corporation in the Merger under the name "Whitman Medical
Acquisition Corporation" shall continue its corporate existence under the
laws of the State of Delaware, (ii) the Certificate of Incorporation of
Acquisition as in effect immediately prior to the Effective Time shall be
the Certificate of Incorporation after the Effective Time and thereafter may
be amended or repealed as provided by law (provided that by virtue of the
Merger, Article III of such Certificate of Incorporation shall be amended to
change the name of Acquisition to a name selected by Whitman following the
Effective Time and (iii) the Bylaws of Acquisition as in effect immediately
prior to the Effective Time shall be the By-laws after the Effective Time
and thereafter may be amended or repealed in accordance with its terms, the
Certificate of Incorporation of Acquisition and as provided by law.
(b) At and after the Effective Time, the Merger will have the
effects set forth in Section 106 of the CBCA and Section 259 of the DGCL.
1.4 Absence of Control. Subject to any specific provisions of this
Agreement, it is the intent of the parties that Acquisition and Whitman by
reason of this Agreement shall not (until consummation of the transactions
contemplated hereby) control, and shall not be deemed to control, directly or
indirectly, MDJB or any of its Subsidiaries and shall not exercise, or be
deemed to exercise, directly or indirectly, a controlling influence over the
management or policies of MDJB or any of its Subsidiaries.
ARTICLE II
DEFINITIONS
2.1 Defined Terms. As used herein, the terms below shall have the following
meanings. Any of these terms, unless the context otherwise requires, may be
used in the singular or plural depending upon the reference.
"Accounts" shall mean all accounts, account receivable,
other receivables, contract rights, chattel paper, insurance claims and
proceeds and notes receivable of MDJB.
"Accreditations" shall mean accreditations, licenses,
permits, certifications, approvals, and other governmental and regulatory
authorizations required under all laws, rules and regulations applicable to or
affecting MDJB or the Institution as described in Schedule 5.31 exclusive of
the Certification.
"Acquisition" is defined in the introduction to this
Agreement.
"Application" shall mean the U.S. Department of Education
application for Institutional Participation, ED Form: E40-34P, [EXPIRATION DATE
_/9_.]
182435-1
A-3
<PAGE>
"Books and Records" shall mean all records pertaining to
the assets, liabilities, customers, or suppliers of MDJB (including the
corporate minute book, corporate tax returns, stock ledger and related items).
"Certification" shall mean certification by the U.S.
Department of Education for institutional participation in the programs of
student financial assistance pursuant to Title IV of the Higher Education Act
of 1965, as amended.
"Claims" shall mean with respect to MDJB and any
Subsidiary, all claims, causes of action, chooses in action, rights of
recovery and rights of set-off of whatever kind or description.
"Closing Date Balance Sheet" shall mean the consolidated
balance sheet of MDJB as of the closing date to be delivered to Acquisition
within thirty (30) days of the Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"Colorado Tech" shall mean Colorado Technical University,
Inc., a Colorado corporation and wholly-owned Subsidiary of MDJB.
"Condition Subsequent" shall have the meaning set forth in
Section 7A.4 hereof.
"Contract" shall mean with respect to MDJB or any
Subsidiary any of the agreements, contracts, leases, notes, loans, evidence of
indebtedness, purchase orders, letters of credit, franchise agreements,
undertakings, covenants not to compete, employment agreements, licenses,
instruments, obligations, commitments to which MDJB or any Subsidiary is a
party or to which any of its assets are subject, whether oral or written
express or implied.
"Contract Rights" shall mean with respect to MDJB or any
Subsidiary all of MDJB's or any Subsidiary's rights and obligations under the
Contracts.
"ED" shall mean the U.S. Department of Education.
"ED Certification Period" shall have the meaning set forth
in Section 7A.4 hereof.
"Encumbrances" shall mean any claim, lien, pledge, option,
charge, easement, security interest, right-of-way, encumbrance or other right
of third parties.
"Escrow Portion" shall have the meaning set forth in
Section 3.2 hereof.
"Facilities" shall have the meaning set forth in Section
5.20.
"Facility Leases" shall mean all of the Leases of
Facilities listed on Schedule 5.20.
"Financial Statements" shall have the meaning ascribed
thereto in Section 5.08 hereof.
182435-1
A-4
<PAGE>
"Fixtures and Equipment" shall mean all of the furniture,
fixtures, furnishings, machinery and equipment, spare parts, supplies,
vehicles and other tangible personal property owned by MDJB as of the Balance
Sheet Date plus all additions, replacements or deletions since the Balance
Sheet Date in the ordinary course of MDJB's or any Subsidiary's business.
"Fractional Share Consideration" shall have a meaning
ascribed thereto in Section 3.1(d) hereof.
"GAAP" shall mean generally accepted accounting principles
in the United States of America, as in effect from time to time.
"Guaranty Agency" shall mean a state or private nonprofit
organization that has an agreement with the Secretary under which it
administers a loan program under Title IV, and including, without limitation,
the Colorado Student Loan Program, United Student Aid Fund, and Higher
Education Assistance Agency.
"HEA" shall mean the Higher Education Act of 1965, as
amended, 20 U.S.C. 1001 et seq.
"Institutional Accrediting Agency" shall mean the
accrediting agency that grants the Colorado Tech institutional accreditation
and that Acquisition has declared prior to Closing will be the Colorado Tech
institutional accreditor.
"Institution" shall mean the educational institution
operated by Colorado Tech located in Colorado Springs, Colorado.
"Insurance Policies" shall mean with respect to MDJB the
insurance policies set forth on Schedule 5.33 hereto.
"Interim Financial Statements" shall have the meaning
ascribed thereto in Section 5.08 hereof.
"Intellectual Property" shall have the meaning ascribed
thereto in Section 5.19 hereof.
"Inventory" shall mean all of MDJB's and any Subsidiary's
inventory and supplies and all other materials utilized in connection with the
conduct of its business operation.
"Leasehold Estates" shall mean all of MDJB's and any
Subsidiary's rights and obligations as lessee under the Leases and all
leasehold improvements.
"Leases" shall mean all of the leases of MDJB and any
Subsidiary's listed on the Schedules hereto and all other leases relating to
the Purchased Assets which are not required to be scheduled pursuant to this
Agreement.
"Material Adverse Effect" shall mean with respect to MDJB
or Whitman, as appropriate in the context, a material adverse effect on (i)
its assets, the business or the condition (financial or
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otherwise), properties, liabilities, reserves, working capital, earnings,
technology, Prospects or relations with customers, suppliers, distributors,
employees or regulators of such entity or any Subsidiary or (ii) the right or
ability of such entity to consummate the transactions contemplated hereby.
"Merger Consideration" shall have the meaning set forth in
Section 3.2 hereof.
"MDJB Common Stock" shall mean the common stock, no par
value per share of MDJB.
"MDJB Shareholders' Meeting" shall mean the special meeting
of Shareholders of MDJB to consider and vote upon the Merger contemplated by
this Agreement.
"Other Rights" shall mean all assignable or conveyable
rights under licenses, permits, approvals, qualifications or the like relating
directly or indirectly to the business of MDJB issued or to be issued prior to
the Closing by any government or by any governmental unit, agency, body or
instrumentality whether Federal, State, local, foreign or other.
"Per Share Stock Consideration" shall have the meaning
ascribed thereto in Section 3.2 hereto.
"Permits" shall mean all licenses, permits and other
governmental authorizations necessary to carry on the business MDJB and any
Subsidiary as presently conducted and as proposed to be conducted.
"Prospects" shall mean, with respect to MDJB or Whitman, as
appropriate in the context, and any Subsidiary taken as a whole, the future of
MDJB's or Whitman's business based upon MDJB's or Whitman's business plans or
other projections and shall not mean the expectations of the other party.
"Rescission Right" shall have the meaning set forth in
Section 7A.4 hereof.
"Registration Statement" or "S-4" shall mean the
registration statement to be filed with the U.S. Securities and Exchange
Commission on Form S-4 to register 1,250,000 Shares of Whitman Common Stock
for distribution in accordance with Articles III and IV hereof.
"Stockholders" shall mean the stockholders of MDJB.
"Subsidiary" means any corporation, association or other
entity in which MDJB or Whitman, as appropriate in the context, controls,
directly or indirectly 50% or more of the outstanding securities or 50% or
more of the total equity interest of such entity.
"Tax" or "Taxes" shall mean all federal, state, local,
foreign and other taxes, assessments or other government charges, including,
without limitation, income, estimated income, business, occupation, franchise,
property, sales, transfer, use, employment, commercial rent or withholding
taxes, including interest, penalties and additions in connection therewith for
which MDJB or any Subsidiary may be liable.
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"Title IV Programs" shall mean the programs of student
financial assistance in effect under Title IV of the Higher Education Act of
1965, as amended.
"Vehicles" shall mean all automobiles and other vehicles
listed on Schedule 5.24 attached hereto.
"Whitman Common Stock" shall mean the registered common
stock, no par value per share, of Whitman.
"Whitman Shareholders' Meeting" shall mean the special
meeting of the Shareholders of Whitman to consider and vote upon the Merger
contemplated by this Agreement.
ARTICLE III
MANNER OF CONVERTING SHARES
3.1 Conversion.
(a) Subject to the provisions of this Article III and of Article I, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holders thereof, the shares of each of Acquisition and MDJB shall be
converted as follows:
(i) Each of the shares of capital stock of Acquisition issued and
outstanding immediately prior to the Effective Time shall remain
outstanding;
(ii) Subject to the provisions of Section 3.3, each share of MDJB
Common Stock, no par value per share (collectively, the "Shares") issued and
outstanding immediately prior to the Effective Time shall be converted into
the right to receive the Per Share Stock Consideration; and
(iii) Each outstanding share of MDJB Common Stock as to which a
written notice of election to dissent is filed in accordance with Title
7-113 of the CBCA at or prior to the Stockholders' Meeting and not withdrawn
at or prior to the Stockholders' Meeting and which is not voted in favor of
the Merger shall not be converted into or represent a right to receive
Whitman Common Stock hereunder unless and until the holder shall have failed
to perfect, or shall have effectively withdrawn or lost his or her right to
appraisal of and payment for his or her MDJB Common Stock under such Title,
at which time his or her shares shall be converted into Whitman Common Stock
as set forth in Section 3.1(a) (ii). All such shares of MDJB Common Stock as
to which such a written demand for appraisal is so filed and not withdrawn
at or prior to the time of such vote and which are not voted in favor of the
Merger are herein called "Dissenting Stock." MDJB shall give Whitman prompt
notice upon receipt by MDJB of any written demands for appraisal rights or
withdrawal of such demands, and MDJB shall give Whitman the opportunity to
direct all negotiations and proceedings with respect to such demands. MDJB
shall not voluntarily make any payment with respect to any demands for
appraisal rights and shall not, except with the prior written consent of
Whitman, settle or offer to settle any such demands. Each holder of MDJB
Common Stock who becomes entitled, pursuant to provisions of said Title
7-113, to payment for his
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or her shares of MDJB Common Stock under the provisions of said title shall
receive the fair market value (as determined pursuant to Title 7-113) for
each share of Dissenting Stock in payment therefor from Whitman and such
shares of MDJB Common Stock shall be canceled.
(b) The calculations of the computations required by this Article III shall
be prepared by Whitman prior to the Closing date and shall be set forth in a
statement furnished to MDJB not later than one day prior to Closing showing in
reasonable detail the manner of calculation.
(c) Each of the shares of MDJB capital stock held by Whitman or any of its
wholly owned Subsidiaries or MDJB or any of its wholly owned Subsidiaries
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor.
(d) Subject to the terms of Section 3.2 hereof, each holder of shares of
MDJB Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Whitman Common Stock (after
taking into account all certificates delivered by such holder) shall receive,
in lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of Whitman Common Stock multiplied by the closing price of the
Whitman Common Stock on the trading day immediately preceding the Closing as
reported by the American Stock Exchange (the "Fractional Share
Consideration"). No such holder will be entitled to dividends, voting rights
or any other rights as a stockholder in respect of any fractional share.
(e) At the Effective Time, the stock transfer books of MDJB shall be closed
as to holders of MDJB Common Stock and no transfer of MDJB Common Stock by any
such holder shall thereafter be made or recognized. If, after the Effective
Time, certificates are properly presented in accordance with Article IV of
this Agreement to Whitman's stock transfer agent or such other agent as the
parties may agree (the "Exchange Agent"), such certificates shall be canceled
and, subject to the terms of Section 3.2 and Article 7A hereof, exchanged for
certificates representing the number of whole shares of Whitman and a check
representing the amount of cash for fractional shares, if any, into which the
MDJB Common Stock represented thereby was converted in the Merger.
3.2 Conversion of MDJB Common Stock. A. Subject to Section 3.3, each share
of MDJB Common Stock outstanding at the Effective Time shall be converted into
the right to receive the quotient of (i) 1,250,000 shares of Whitman Common
Stock divided by (ii) the total number of MDJB shares outstanding ("Per Share
Stock Consideration"). Schedule 3.2 hereto sets forth the allocation of the
Per Share Stock Consideration to each of the MDJB Stockholders including the
cash payments to such Stockholders representing the Fractional Share
Consideration to each Stockholder.
B. On the Closing Date, the Per Share Stock Consideration
and the Fractional Share Consideration shall be deemed issued to the
Stockholders of MDJB in accordance with the allocations set forth in Schedule
3.2 and in the manner provided in Article IV hereof (collectively, the "Merger
Consideration"). Each of Whitman, Acquisition, MDJB and the Stockholders
hereby acknowledge and agree that notwithstanding the terms of Article IV
hereof, pending the satisfaction of the Condition Subsequent (as defined in
Section 7A.1 hereof), the Merger Consideration shall be held in escrow by
Whitman. Upon satisfaction of the Condition Subsequent, the Merger
Consideration,
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exclusive of the Escrow Portion which shall be retained in accordance with
Article XII hereof, will be delivered to the Stockholders of MDJB as provided
in Article IV and Whitman's Rescission Right, as defined and set forth in
Article VIIA hereof, shall lapse. In the event the Condition Subsequent to the
Merger is not satisfied within the time period and in accordance with the
requirements specified in Section 7A.4 hereof, Whitman shall be deemed to have
exercised its Rescission Right and shall (i) deliver to the Stockholders of
MDJB all the capital stock of Acquisition in proportion to each Stockholder's
interest in MDJB immediately prior to the Merger (as shown on Schedule 3.2
hereof), (ii) cancel the shares of Whitman Common Stock comprising a portion
of the Merger Consideration and (iii) transfer the Fractional Share
Consideration comprising a portion of the Merger Consideration to a general
operating account of Whitman for its benefit, all as more particularly
described in Section 7A.4 hereof.
C. Eighty seven thousand five hundred (87,500) shares of
Whitman Common Stock comprising a portion of the Merger Consideration shall be
held in escrow in accordance with the terms and provisions of Section 12.01
hereof (the "Escrow Portion"). Schedule 3.2 hereto sets forth the relative
contributions of each MDJB Stockholder to the Escrow Portion. Subject to the
provisions of Article XII hereof, the Escrow Portion shall be released to the
MDJB Stockholders in accordance with the allocation set forth on Schedule 3.2
hereof on the Escrow Release Date (as defined in Section 12.06).
3.3 Transmittal Procedures. Appropriate and customary transmittal materials
(which shall specify that delivery shall be effected, and risk of loss and
title to the certificates theretofore representing shares of MDJB Common Stock
shall pass, only upon proper delivery of such certificates to the Exchange
Agent) in such form as Whitman and MDJB shall mutually agree ("Transmittal
Form") shall be mailed on such date as MDJB and Whitman shall mutually agree
("Mailing Date") to each holder of record of MDJB Common Stock as of five
business days prior to the Mailing Date ("Transmittal Form Record Date").
ARTICLE IV
EXCHANGE OF SHARES
4.1 Exchange Procedures. Upon the Effective Time, Whitman shall issue to the
Exchange Agent the number of shares of Whitman Common Stock issuable in the
Merger (after reduction for the Escrow Portion) and the amount of cash payable
in the Merger for fractional Shares; provided that notwithstanding any other
provision of this Agreement, Whitman shall not issue to the Exchange Agent
Whitman Common Stock or cash payable with respect to shares of MDJB Common
Stock unless and until share certificates and the required transmittal
materials pursuant to Article III and Article IV have been received in proper
form by the Exchange Agent. The Exchange Agent shall not be entitled to vote
or exercise any rights of ownership with respect to Whitman Common Stock held
by it from time to time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such
shares for the account of the persons entitled
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thereto. Notwithstanding the foregoing, the Merger Consideration shall be
retained by the Exchange Agent or Whitman in escrow pending the satisfaction,
or failure to satisfy, the Condition Subsequent, as provided in Section 3.2
and Section 7A.4 hereof.
Each holder of a certificate formerly representing MDJB Common Stock who
surrenders or has surrendered such certificate (or customary affidavits and
indemnification regarding the loss or destruction of such certificate),
together with duly executed transmittal materials included in the Transmittal
Form, to the Exchange Agent shall, upon acceptance thereof, be entitled to a
certificate representing the Whitman Common Stock into which the shares of
MDJB Common Stock shall have been converted pursuant hereto after deduction to
give effect to the Escrow Portion. Whitman shall cause the Exchange Agent to
accept such certificate upon compliance with such reasonable and customary
terms and conditions as the Exchange Agent may impose to effect an orderly
exchange thereof in accordance with normal practices. Until surrendered as
contemplated by this Section 4.1, each certificate representing MDJB Common
Stock shall be deemed at any time after the Effective Time to evidence only
the right to receive upon such surrender the Whitman Common Stock (or cash for
fractional shares thereof) into which the MDJB Common Stock are convertible.
To the extent provided by Section 3.1(d) of this Agreement, each holder of
shares of MDJB Common Stock issued and outstanding at the Effective Time also
shall receive, upon surrender of the certificate or certificates representing
such shares, cash in lieu of any fractional shares of Whitman Common Stock to
which such holder would otherwise be entitled. Whitman shall not be obligated
to deliver the Per Share Stock Consideration to which any former holder of
MDJB Common Stock is entitled as a result of the Merger until such holder
surrenders his or her certificate or certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificate)
representing shares of MDJB Common Stock for exchange as provided in this
Article IV. In addition, certificates surrendered for exchange by any person
constituting an "Affiliate" of MDJB for purposes of Rule 144(a) under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged for certificates representing whole shares of Whitman Common Stock
until Whitman has received a written agreement from such person as provided in
Section 7.12. If any certificate for shares of Whitman Common Stock, or any
check representing cash is to be issued in a name other than that in which a
certificate surrendered for exchange is issued, the certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and the
person requesting such exchange shall affix any requisite stock transfer tax
stamps to the certificate surrendered or provide funds for their purchase or
establish to the satisfaction of the Exchange Agent that such taxes are not
payable.
4.2 Voting and Dividends. Former stockholders of record of MDJB shall not be
entitled to vote after the Effective Time at any meeting of Whitman
stockholders, unless such holders have exchanged their certificates (or
customary affidavits and indemnification regarding the loss or destruction of
such certificates) representing MDJB Common Stock for certificates
representing Whitman Common Stock, and/or cash, in accordance with the
provisions of this Agreement. Upon such exchange, notwithstanding the escrow
of the Merger Consideration in accordance with Section 3.2 and 7A.4 hereof,
each MDJB Stockholder shall be deemed the record owner of the Whitman Common
Stock as provided in Schedule 3.2 hereto. No dividends or other distribution
declared or
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made after the Effective Time with respect to Whitman Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered certificate of MDJB Common Stock with respect to the shares of
Whitman Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder until the holder of such
certificate of MDJB Common Stock shall surrender such certificate (or
customary affidavits and indemnification regarding the loss or destruction of
such certificates). Subject to the effect of applicable laws and the
satisfaction of the Condition Subsequent provided in Article VIIA hereof,
following surrender of any such certificate of MDJB Common Stock (or customary
affidavits and indemnification regarding the loss or destruction of such
certificates), there shall be paid to the holder of the certificates
representing whole shares of Whitman Common Stock issued in exchange therefor
(after deduction for the Escrow Portion), without interest, the amount of any
cash payable with respect to a fractional share of Whitman Common Stock to
which such holder is entitled pursuant to Section 3.1.
4.3 No Liability. Any other provision of this Agreement notwithstanding,
neither Acquisition, Whitman, MDJB nor the Exchange Agent shall be liable to a
holder of MDJB Common Stock for any amount paid or property delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
4.4 Withholding Rights. Whitman or the Exchange Agent shall be entitled to
deduct and withhold from the Per Share Stock Consideration and the Fractional
Share Consideration otherwise payable pursuant to this Agreement to any holder
of shares of MDJB Common Stock such amounts as Whitman or the Exchange Agent
is required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Whitman or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of MDJB Common Stock in respect of which
such deduction and withholding was made by Whitman or the Exchange Agent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MDJB AND COLORADO TECH
The following representations and warranties are made by each of
MDJB and Colorado Tech, on a joint and several basis, and by each of the
Shareholders of MDJB (the "Shareholders"), on a several basis, to Acquisition
and Whitman, and shall continue in full force and effect after the date hereof
and, subject to the survival provisions hereinbelow, after the Closing Date.
Unless the context indicates to the contrary, each of MDJB and Colorado Tech
shall be referred to collectively in this Article V as ("MDJB").
Section 5.01. Organization and Capitalization. MDJB is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, with an authorized capital stock consisting of
10,000,000 shares of common stock, no par value per share, of which 1,074,847
shares of common stock are issued and outstanding. All of the aforesaid issued
and outstanding shares are duly authorized, have been validly issued, and are
fully paid and non-assessable. Except as set forth on Schedule 5.01, there are
no outstanding preemptive, conversion or other rights, options, warrants, or
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agreements granted or issued by or binding upon MDJB for the purchase or
acquisition of any shares of its capital stock. The Stockholders listed on
Schedule 3.2 hereto are the record owners of all of the issued and outstanding
shares of MDJB Common Stock. Except as set forth in Schedule 5.01 , no
Shareholder has been granted options or other rights to purchase any shares of
Common Stock from any other Shareholder. Except as set forth on Schedule 5.01,
there are no voting trusts or other agreements or understanding with respect
to the voting of any shares of MDJB Common Stock. Except as set forth on
Schedule 5.01 MDJB does not own, directly or indirectly any outstanding stock
or securities convertible into capital stock of any other corporation or
participating interest in any partnership, joint venture or other business
enterprise.
Section 5.02. Power and Authority. MDJB has all requisite corporate
power and authority to own, lease and operate its properties and to conduct
its business as presently conducted and as proposed to be conducted and is
duly qualified or licensed as a foreign corporation in good standing in each
jurisdiction in which the character of its properties or the nature of its
business activities requires such qualification. All such jurisdictions are
listed on Schedule 5.02.
Section 5.03. Certificate of Incorporation and By-Laws of MDJB.
Copies of the Certificate of Incorporation of MDJB and Colorado Tech, each
(and all amendments thereto), certified as of a recent date by their
respective Secretary of State of the state of incorporation of MDJB and
Colorado Tech, each and the by-laws of MDJB, each certified by its corporate
secretary, are attached hereto as Schedule 5.03 and are true, complete and
correct.
Section 5.04. Authority for Agreement. The Board of Directors of
each of MDJB, and Colorado Tech has approved this Agreement, and have
authorized the execution and delivery and performance hereof. MDJB has full
corporate power, authority and legal right to enter into this Agreement and to
consummate the transactions contemplated hereby subject to shareholder
approval. This Agreement is a legal, valid and binding obligation of MDJB
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights in general.
Section 5.05. Registration Statement. When the Registration
Statement shall be filed with the United States Securities and Exchange
Commission ("SEC") and subsequently declared effective by the SEC (the
"Registration Statement Effective Date"), the information with respect to MDJB
set forth in the Registration Statement will be true and correct, except that
no representation is hereby made as to any statements or omissions as
described in this clause with respect to which, prior to the Registration
Statement Effective Date, MDJB shall have requested in writing any addition or
modification to the Registration Statement, which shall be necessary in order
to make the Registration Statement not untrue or misleading in any material
respect, unless such addition or modification shall have been made by Whitman
prior to the Effective Date. Whitman agrees to timely provide prior to filing
drafts of and amendments to the Registration Statement to MDJB so that MDJB
may comply with the representation in this Section 5.05. If MDJB does not
object to a draft or amendment within five (5) business days after receipt, it
shall be deemed an acceptance by MDJB of the information with respect to MDJB
contained therein.
Section 5.06. No Violation to Result. Except as set forth on
Schedule 5.06, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby:
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(a) are not in violation or breach of, do not conflict with or
constitute a default under, and will not accelerate or permit the acceleration
of the performance required by, any of the terms of the charter documents or
by-laws of MDJB or any Contract, note, debt instrument, security agreement or
mortgage, or any other contract or agreement, written or oral, to which MDJB
is a party or by which any of their respective properties or assets are bound;
(b) will not be an event which, after notice or lapse of time or
both, will result in any such violation, breach, conflict, default, or
acceleration;
(c) will not result in a violation under any law, judgment, decree,
order, rule, regulation or other legal requirement of any governmental
authority, court or arbitration tribunal whether federal, state, provincial,
municipal or local (within the U.S. or otherwise) at law or in equity, and
applicable to MDJB; and
(d) will not result in the creation or imposition of any lien,
possibility of lien, encumbrance, security agreement, equity, option, claim,
charge, pledge or restriction in favor of any third person upon the properties
or assets of any of MDJB.
Section 5.07. No Existing Defaults. Except as set forth in Schedule
5.07, MDJB is not in default:
(a) under any of the material terms of any Contract, note, debt
instrument, security agreement or mortgage or under any other commitment,
contract, agreement, license, lease or other instrument, whether written or
oral, to which it is a party or by which any of its properties or assets are
bound;
(b) under any material law, judgment, decree, order, rule regulation
or other legal requirement or any governmental authority, court or arbitration
tribunal whether federal, state, provincial, municipal or local (within the
U.S. or otherwise), at law or in equity, and applicable to it or to any of its
properties or assets; or
(c) in the payment of any material monetary obligations or debts.
There exists no condition or event which, after notice or lapse of time or
both, would constitute a default in connection with any of the foregoing.
Section 5.08. Financial Statements. (a) The audited financial
statements of MDJB as of and for the fiscal years ended December 31, 1994,
1993 and 1992, respectively (which financial statements, including, without
limitation, any notes thereto and reports thereon are hereinafter collectively
called the "Financial Statements"), and the unaudited financial statements of
MDJB as of and for the six (6) months ended June 30, 1995 (the "Interim
Financial Statements"), all of which are attached hereto as Schedule 5.08, are
complete and correct in all material respects, fairly present the financial
position of MDJB and the results of operations as of the respective dates and
for the periods indicated thereon in all material respects and have been
prepared in accordance with GAAP applied on a consistent basis. MDJB has no
material liability or obligation, fixed, contingent, known, unknown or
otherwise, not reflected in the December 31, 1994 balance sheet included in
the Financial Statements or not reflected in the Interim Financial Statements,
and all provisions, reserves and allowances provided for therein are adequate,
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except for liabilities or obligations incurred between July 1, 1995 and the
date of this Agreement in the ordinary and usual course of business consistent
with past practices and with the representations and warranties set forth
herein, except for expenses incurred in connection with the transactions
contemplated by this Agreement.
Section 5.09. No Adverse Changes. From December 31, 1994 to the date
of this Agreement, except as disclosed on Schedule 5.09 hereto and except as
otherwise permitted herein:
(a) MDJB has not sustained any damage, destruction or loss, by
reason of fire, explosion, earthquake, casualty, labor trouble, requisition or
taking of property by any government or agency thereof, windstorm, embargo,
riot, act of God or the public enemy, flood, volcanic eruption, accident,
other calamity or other similar event (whether or not covered by insurance)
materially and adversely affecting the business, properties, financial
condition or operations of MDJB;
(b) there have been no changes in the condition (financial or
otherwise), business, net worth, assets, properties, Prospects, liabilities or
obligations (fixed, contingent, known, unknown or otherwise) of MDJB which
have had or is likely to have a Material Adverse Effect on the business,
properties, Prospects, financial condition or operations of MDJB, and there
has been no occurrence, circumstance or combination thereof which might
reasonably be expected to result in any such Material Adverse Effect before or
after the Closing Date; and
(c) MDJB has taken all necessary action so that MDJB has performed
all of the acts specified in Sections 7.02(a), (c) and (o) hereof and has
refrained from performing any of the acts specified in Sections 7.02(a), (b),
(d), (e), (f), (g), (h), (i), (j), (k), (l), (m) and (n) hereof.
Section 5.10. Employee Plans and Agreements. Schedule 5.10 contains
an accurate and complete list of all plans, contracts, programs and
arrangements, whether written or oral, including, but not limited to,
employment agreements, union contracts, pensions, welfare benefits, deferred
compensation, supplemental retirement, severance, salary continuation, and
other employee benefit plans, programs, policies or arrangements of every
kind, maintained by MDJB and providing benefits to any employee or former
employee (or dependents of such employee) of MDJB, whether or not any of the
foregoing is funded, (i) to which MDJB has any obligations or (ii) with
respect to which MDJB has made any payments or contributions or may otherwise
have any liability (including any such plan or arrangement formerly maintained
by MDJB (the "Plans")). MDJB has delivered to Acquisition, with respect to
each Plan, accurate and complete copies of all current plan documents,
including amendments and related trusts, the most recent annual actuarial
valuation report (including a copy of the census forwarded to the actuary for
such report), if any, the last filed Form 5500 or 5500-C and Schedules A and B
thereto, the most recent completed annual and periodic accounting of related
plan assets, if any, all rulings, if any, of the Internal Revenue Service (the
"IRS"), the documents relating to the most recent request for an IRS
determination letter, and the most recent IRS determination letter.
Except as set forth on Schedule 5.10 hereto:
(a) all of the Plans which are "employee pension benefit plans,"
within the meaning of Section 3(2) of the Employee Retirement Income Security
Act ("ERISA"), which plans are identified as such on Schedule 5.10 hereto, and
the trusts, if any, forming a part thereof (each a "Pension Plan and Trust")
now
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meet, and since the date of the most recent IRS determination letter have met,
the requirements for the qualification under Section 401(a) or 403 of the Code
in all respects and are now, and since the date of the most recent IRS
determination letter have been, exempt from taxation under Section 501(a) of
the Code;
(b) the IRS has issued a favorable determination letter, on the
dates identified on Schedule 5.10, with respect to the qualification of each
Pension Plan and Trust, if any, relating thereto, and has not taken any action
to revoke such letter;
(c) to the best of MDJB's and the Shareholders' knowledge, MDJB has
performed in all respects all obligations required to be performed by it
under, (including, but not limited to, the making of all contributions
required by any collective bargaining agreement), is not in default under or
in violation of, and MDJB has no knowledge of any such default or violation by
any other party to, any and all of the Plans;
(d) MDJB is not a "disqualified person" or "party in interest" (as
defined in Section 4975 of the Code and Section 3 of ERISA, respectively) and
has not engaged in any "prohibited transactions," as such term is defined in
Section 4975 of the Code and Section 406 of ERISA, which could subject any
Plan (or its related trust) or MDJB or any plan fiduciary to any tax or
penalty imposed under Section 4975(a) of the Code or the 5% penalty under
Section 502(i) of ERISA;
(e) there are no actions, suits or claims pending (other than
routine claims for benefits) or threatened against any Plan or against the
assets of any Plan;
(f) no Plan which is subject to Part III of Subtitle B of Title I of
ERISA or Section 412 of the Code has incurred any "accumulated funding
deficiency" (as defined in ERISA), whether or not waived;
(g) each "fiduciary" and every "plan official" (as defined in
Section 412 of ERISA) of each Plan is bonded to the extent required by such
Section 412;
(h) no proceeding has been initiated to terminate any Plan and no
"reportable event" within the meaning of Section 4043(b)(1)-(9), 4062(e),
4063(a) or 4041(f) of ERISA has occurred with respect to any Plan (other than
those which may result from the transactions contemplated hereby);
(i) no Plan is a "multiple employer plan" within the meaning of the
Code or ERISA or the regulations promulgated thereunder or a "multi-employer
plan" as defined in Section 3(37) of ERISA;
(j) to the best of MDJB's and the Shareholders' knowledge, MDJB is
in compliance with, and each Plan has been operated in all respects in
accordance with, its provisions and in compliance with the rules and
regulations governing each such employee benefit plan, including without
limitation, the rules and regulations promulgated by the Department of Labor,
the Pension Benefit Guaranty Corporation (the "PBGC") and the Department of
the Treasury pursuant to the provisions of ERISA and the Code;
(k) assuming Acquisition assumes MDJB's existing 401(k) Plan, the
execution and performance of this Agreement will not constitute a stated
triggering event under any Plan that will result in any
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payment (whether of severance pay or otherwise) becoming due from MDJB to any
employee or former employee (or dependents of such employee) of MDJB;
(l) there are no severance payments which are or could become
payable by MDJB to any director, officer or other employee of MDJB under the
terms of any oral or written agreement or commitment, custom, trade or
practice; and
(m) each Plan has been amended to comply with the Tax Equity and
Fiscal Responsibility Act, the Deficit Reduction Act, Tax Reform Act of 1986
and the Retirement Equity Act and, in each case, such amendments have been
filed with the IRS before the end of the applicable remedial amendment period.
Acquisition is aware of MDJB's plans to change the Trustee and
service provider of its 401(k) Plan as in effect on the date hereof.
Section 5.11. Full Disclosure. The written information furnished by
MDJB or by any of the directors, officers, employees, agents, accountants or
representatives of MDJB to Acquisition pursuant to this Agreement, the
information contained in the schedules referred to in this Agreement, and the
other information furnished to Acquisition by MDJB or by any of the directors,
officers, employees, agents, accountants or representatives of MDJB and at any
time prior to the Closing Date (pursuant to the request of Acquisition or
otherwise), does not and will not contain any untrue statement of a material
fact and does not and will not omit to state any material fact necessary to
make all such information not misleading.
Section 5.12. Taxes. (a) Except as set forth on Schedule 5.12 MDJB
has prepared (or caused to be prepared) and timely and properly filed (or
caused to be timely and properly filed) with the appropriate federal, state,
provincial, municipal or local authorities (within the U.S. or otherwise) all
material tax returns, information returns and other reports required to be
filed and has paid or accrued (or caused to be so paid or accrued) in full all
material taxes, interest, penalties, assessments or deficiencies, if any, due
to, or claimed to be due by, any taxing authority. The balance sheets included
in the Financial Statements and the Interim Financial Statements include
appropriate provisions for all taxes, interest, penalties, assessments or
deficiencies, if any, for the periods indicated thereon to the extent not
theretofore paid. MDJB has not executed or filed with any taxing authority any
agreement extending the period for assessment or collection of any taxes. MDJB
is not a party to any pending action or proceeding, nor is any such action or
proceeding threatened, by any governmental authority for the assessment or
collection of taxes, and no claim for assessment or collection of taxes has
been asserted against MDJB, and during the course of any audit currently in
process or not completed, no issues have been suggested by any representative
of any such governmental authority that, if asserted, would result in a
proposed assessment of taxes, interest or penalties, against MDJB.
(b) Neither MDJB nor the Shareholders has taken or agreed to take
any action or has any knowledge of any fact or circumstance that would prevent
the Merger from qualifying as a tax-free reorganization within the meaning of
Section 368 of the Code.
Section 5.13. Accounts Receivable. All of the Accounts receivable of
MDJB as reported on the Financial Statements and the Interim Financial
Statements represent bona fide claims against debtors for
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sales made or services performed in the ordinary and usual course of business
and in accordance with applicable orders, contracts, standards or
requirements. Such receivables are, and shall be, subject to no defenses,
counter-claims or rights of setoff and, other than collected amounts of such
receivables as of the date of this Agreement, will be fully collectible in the
ordinary and usual course of business without unreasonable cost to Acquisition
in collection efforts, except to the extent of any reserve with respect
thereto expressly set forth in said financial statements.
Section 5.14 . [Intentionally Omitted.]
Section 5.15. Condition of Assets. The December 31, 1994 balance
sheet of MDJB included in the Financial Statements reflects all of the
properties and assets of MDJB except for (i) property and assets disposed of
or acquired by MDJB since December 31, 1994 in the ordinary and usual course
of business and consistent with the representations and warranties of MDJB
contained herein, and (ii) leased properties and assets. All of the properties
and assets of MDJB are in good operating condition, free from any defect,
ordinary wear and tear excepted.
Section 5.16. Title to Assets. Except as otherwise set forth on
Schedule 5.16 hereto, MDJB has good and marketable title to the assets that
are material to the operation or conduct of its business, free and clear of
any and all liens, encumbrances, security agreements, equities, options,
claims, charges, pledges, and defects in title. As of the Closing Date, MDJB
will have good and marketable title to such properties and assets, free and
clear of any and all liens, encumbrances, security agreements, equities,
options, claims, charges, pledges, restrictions, encroachments, defects in
title and easements except as otherwise set forth on Schedule 5.16 hereto.
Section 5.17. Inventory. The inventory of MDJB as reported on the
Financial Statements and Interim Financial Statements will consist solely of
items of a quality and quantity usable or saleable in the normal course of
business, subject to normal obsolescence in accordance with MDJB's historical
operations.
Section 5.18. Prepaid Items, etc. The prepaid items recorded on
MDJB's balance sheet included in the Financial Statements and Interim
Financial Statements constitute a full and complete presentation of each and
every prepaid item which MDJB is entitled to list, in accordance with GAAP on
the asset side of its balance sheet.
Section 5.19. Intellectual Property. Schedule 5.19 hereto,
constitutes a true and complete list of all trademarks, certification marks,
trade names, service marks, copyrights, patents, patent applications and
product composition formulae owned or used by MDJB including without
limitation the trade name "Colorado Tech College" (collectively, "Intellectual
Property"). MDJB owns or possesses adequate licenses or other rights to use
all trademarks, certification marks, trade names, service marks, copyrights,
patents, patent applications, trade secrets, product composition formulae,
computer programs, product development records and other proprietary processes
and information used in its business, and the same are sufficient in all
respects to conduct the business as currently conducted. Except as described
in Schedule 5.19 hereto, MDJB is not required to pay any royalty, license fee
or similar type of compensation in connection with the conduct of its business
as it is now or heretofore has been conducted or as proposed to be conducted.
All patents, patent applications and rights to inventions or discoveries
(whether or not patentable) owned or held by any officer, director,
stockholder, employee, consultant or
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agent of MDJB relating to the business of MDJB have been duly and effectively
transferred to MDJB and, except as described on Schedule 5.19 hereto, to the
best of our knowledge, none of the operations of MDJB infringe, and no one has
asserted to MDJB that such operations do infringe, the patents, patent
applications, trademarks, certifications marks, trade names, service marks,
trade secrets or other intellectual property rights of anyone.
Section 5.20. Real Property. Schedule 5.20 constitutes a true and
complete list of all leaseholds of real property leased by MDJB or to which
MDJB may have any leaseholds rights (the "Premises"). Acquisition is aware of
MDJB's Plans to acquire an additional 3,700 square feet of space by subleasing
from an existing Tenant such space in the building currently occupied by MDJB.
With respect to each and every parcel of land described in Schedule 5.20
hereto and the portion of the buildings, structures and improvements thereon
leased by MDJB (collectively, the "Facilities"):
(a) except as otherwise disclosed on Schedule 5.20 there are no
outstanding written or oral leases or tenancies of any kind (including
tenancies by sufferance and/or holdover tenancies arising under expired
written or oral leases) covering or in any way affecting the Facilities or any
part or parts thereof;
(b) except as a matter of record, no person, firm or corporation
other than MDJB has any rights (including rights arising under an installment
contract, option to purchase, easement, right-of-way, or otherwise) with
respect to the Facilities or any part or parts thereof;
(c) there have been no improvements to, construction on, work done
at, and/or services or material supplied to, the Facilities or any part or
parts thereof since January 1, 1995;
(d) MDJB is not in violation of or in default under the terms of any
oral or written lease or other agreement covering or in any way affecting the
Facility;
(e) the Facilities are subject to a valid certificate of occupancy
and are sufficient and adequate for the conduct and the operation of the
business of MDJB;
(f) MDJB has not granted to any person, firm or corporation any
right or rights in and to the Facilities or any part or parts thereof which
would prevent or interfere with Acquisition's occupancy and possession of the
Facilities; and
(g) to the best of MDJB's and the Shareholders' knowledge, MDJB has
performed all obligations imposed by any governmental authority in connection
with the improvement of the Facilities.
Section 5.21. Buildings. Each of the Facilities constituting part of
the Premises is of sound structural integrity, ordinary wear and tear excepted
and is usable and adequate for its intended purpose and to conduct the
business of MDJB as such business is now being conducted.
Section 5.22. Utilities. There are no restraints respecting
availability of public utilities, including, but not limited to, adequate
amounts of water, sewer, gas and electricity and the Facilities are adequately
serviced by all such utilities; all payments, assessments, deposits and other
charges relating to such utilities and any other existing on-site improvements
or off-site improvements (including public or quasi-public utilities or
services) have been paid in full to the extent that they are due.
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Section 5.23. Machinery and Equipment. MDJB owns or has adequate
rights to all machinery and equipment (including, without limitation,
machinery and equipment under development or construction) used or necessary
for use in its trade or business, and all such machinery and equipment is in
operating condition and free from any defect, ordinary wear and tear excepted.
Section 5.24. Vehicles. MDJB owns all cars, trucks, and other motor
vehicles used or necessary for use in its trade or business and each such car,
truck, aircraft or motor vehicle is in good operating condition and free from
any defect and is identified and listed on Schedule 5.24 hereto.
Section 5.25. Brokers. MDJB has not engaged any broker, finder or
agent with respect to this Agreement or any transaction contemplated hereby.
Section 5.26. Contracts. Schedule 5.26 hereto constitutes a true and
complete list of each Contract or agreement requiring aggregate payments by
MDJB or receipt by MDJB, of in excess of $10,000 and to which MDJB is a party,
or by which any MDJB or its assets is bound, in any respect, including, but
not limited to, each such contract which is:
(a) a license or a lease;
(b) a contract, agreement or commitment for the purchase, sale or
lease of materials, equipment, real or personal property, capital assets or
supplies;
(c) a contract, agreement or commitment for the sale by MDJB of
products or the performance of any services;
(d) a management, advisory or collective bargaining agreement or a
non-competition or nondisclosure agreement;
(e) a pension, profit sharing, bonus, retirement, deferred
compensation, stock option, employee stock purchase, insurance or other
employee benefit plan or arrangement;
(f) a contract or agreement with an agent, dealer or sales
representative or franchisee;
(g) a contract or agreement with employees, consultants,
stockholders, directors or officers, or any agreement relating to a power of
attorney;
(h) a loan or guaranty agreement, credit agreement, note or other
evidence of indebtedness, forward contract, consignment agreement, custody
agreement, or indenture or instrument evidencing liens or secured transactions
(exclusive of the contracts, agreements and the like referred to in subsection
(k) below);
(i) a contract, license or other agreement relating to a patent,
invention or discovery (whether or not patentable), trade secret, trademark,
service mark, certification mark, trade name or copyright or application for
any of the foregoing;
(j) a contract of insurance; or
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(k) notwithstanding the foregoing $10,000 threshold, Schedule 5.26
includes a copy of each form of agreement between MDJB and its students and an
accounts receivable listing relating to the rendering of services to students
and/or to the receipt of payment by MDJB for such services from any student,
governmental entity or other source.
Each of the contracts or agreements listed in Schedule 5.26 hereto is in full
force and effect, is a valid, binding and enforceable obligation by or against
MDJB and no event has occurred which constitutes or, with the giving of notice
or passage of time, or both, would constitute, a default or breach thereunder
of MDJB. MDJB has delivered or caused to be delivered or made available to
Acquisition correct and complete copies of each contract or agreement listed
in Schedule 5.26 hereto and all modifications or amendments thereto, and every
oral contract or agreement is listed on Schedule 5.26, and all modifications
or amendments thereto, are correctly and completely summarized in all material
respects on Schedule 5.26 hereto.
Section 5.27. Assets Sufficient. The assets owned or leased by MDJB
constitute all the property, real and personal, tangible and intangible, and
are sufficient for the conduct of MDJB's business as currently conducted.
Except as set forth on Schedule 5.27 no such asset is subject to or held under
any lease, mortgage, security agreement, conditional sales contract or other
title retention agreement, or is other than in the sole possession and control
of MDJB.
Section 5.28. Litigation. Except as set forth in Schedule 5.28
hereto, there is no litigation, suit, proceeding, action, claim or
investigation, at law or in equity, pending or to the best of MDJB's and the
Shareholders' knowledge threatened against or affecting MDJB or involving any
of its property or assets, before any court, agency, authority or arbitration
tribunal, including, without limitation, any product liability, workers'
compensation or wrongful dismissal claims, or claims, actions, suits or
proceedings relating to toxic materials, hazardous substances, pollution or
the environment. To the best of MDJB's and the Shareholders' knowledge there
are no facts that would likely result in any such litigation, suit,
proceeding, action, claim or investigation. MDJB is not subject to or in
default with respect to any notice, order, writ, injunction or decree of any
court, agency, authority or arbitration tribunal.
Section 5.29. Compliance with Laws. To the best of MDJB's and the
Shareholders' knowledge, MDJB has complied with all laws, municipal by-laws,
regulations, rules, orders, judgments, decrees and other requirements and
policies imposed by any governmental authority applicable to it, its
properties or the operation of its business. Without limiting the generality
of the foregoing, MDJB is in compliance in all material respects with:
(a) all applicable laws relating to the protection of human health
and safety, including, without limitation, the Occupational Safety and Health
Act of 1970, as amended, and all regulations and standards issued thereunder
by the Secretary of Labor or the Occupational Safety and Health Administrator
or other governmental agency or authority acting at any time thereunder;
(b) all applicable laws relating to protection of the environment,
including, without limitation, the Resource Conservation and Recovery Act
("RCRA") and the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA");
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(c) all applicable laws administered by the Department of Education
or by any state or local governmental entity with jurisdiction over education
matters including, without limitation, all government programs for grants or
financial aid to students and accreditation of educational institutions;
(d) all applicable laws relating to equal employment opportunity; and
(e) all zoning, building and other laws, ordinances, rules,
regulations, plans and directives of governmental authorities, Boards of Fire
Underwriters and other entities having jurisdiction, as well as all private
restrictions and covenants (whether or not registered or of record), in each
case without reliance on non-conforming use or similar rule.
Except as set forth in Schedule 5.29 hereto, MDJB has not received
any notice or citation for noncompliance with any of the foregoing, and to the
best of MDJB's and the Shareholders' knowledge, there exists no condition,
situation or circumstance, nor has there existed such a condition, situation
or circumstance, which, after notice or lapse of time, or both, would
constitute noncompliance with or give rise to future liability with regard to
any of the foregoing.
Section 5.30. Compliance with Title IV Programs.
(a) Schedule 5.30 hereto lists all agreements between MDJB and ED or
any other governmental unit, agency, body or instrumentality relating to any
federal program for the funding of student loans or other forms of financial
aid for education under the Title IV Programs (the "Financial Aid"). Each of
such agreements listed in Schedule 5.30 hereto is in full force and effect, is
a valid, binding and enforceable obligation by or against MDJB and to the best
of MDJB's and the Shareholders' knowledge, no event has occurred which
constitutes or, with the giving of notice or the passage of time, or both,
would constitute, a default or breach thereunder. MDJB has delivered or caused
to be delivered to Acquisition correct and complete copies of each contract or
agreement listed in Schedule 5.30 hereto and all modifications and amendments
thereto.
(b) Schedule 5.30 hereto also lists each program pursuant to which
Financial Aid is provided to or on behalf of MDJB including a description of
whether such Financial Aid is provided pursuant to the Pell Grant Program, 20
U.S.C. 1070(a), et seq., the Guaranteed Student Loan Program, including the
Stafford Loan Program, 20 U.S.C. 1071, et seq., the Plus Program, 20 U.S.C.
1078-2 and the Supplemental Loans for Students Program, 20 U.S.C. 1078-1, the
Perkins Loan Program, 20 U.S.C. 1087(aa), et seq., the Supplemental
Educational Opportunity Grant Program, 20 U.S.C. 1070(b) et seq. and the
College Work-Study Program, or otherwise.
(c) Except as set forth on Schedule 5.30 hereto, to the best
knowledge of MDJB and the Shareholders, there exists no set of facts which
could have an adverse effect on the ability of Acquisition to enter into a
program participation agreement with ED.
(d) MDJB has, for the fiscal years 1991 and 1992, a published cohort
default rate of 12.1%, 16.8% respectively, and for fiscal year 1993, a
pre-published cohort default rate of 11.9%.
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(e) MDJB has previously delivered to Acquisition true and complete
copies of all correspondence received or sent by or on behalf of MDJB during
the past three (3) years from or to the U.S. Department of Education or any
other governmental or regulatory authority having jurisdiction over the
provision, funding or approval of the Financial Aid. This shall include,
without limitation (i) any documentation relating to the agreements described
in Section 5.30(a) above; (ii) any reports relating to any audits, program
reviews or examinations conducted by ED or others; (iii) notices or
correspondence concerning the qualification of any of MDJB for the receipt of
the Financial Aid; and (iv) notices or correspondence indicating an intention
to withdraw, suspend or terminate the provision of Financial Aid to MDJB.
(f) Except as set forth on Schedule 5.30 hereto, MDJB is and during
the past five (5) years has been in compliance in all material respects with
any and all applicable statutes pursuant to which it receives Financial Aid,
including, without limitation, those described in Section 5.30(b) hereof, and
all regulations promulgated thereunder. Without limiting the generality of the
foregoing, except as otherwise described in Schedule 5.30 hereto MDJB (i)
maintains cash balances in the Title IV federal funds account not in excess of
its three-business day requirements and (ii) to the best of MDJB's and the
Shareholders' knowledge, is in compliance with applicable Federal statutes and
regulations governing record keeping and student file maintenance and
information disclosure requirements to students and others in connection with
the provision of its Financial Aid.
(g) To the best knowledge of MDJB and the Shareholders, from 1989 to
present no principal, affiliates (as those terms are defined in 34 C.F.R. part
85) owners, stockholders, trustees, or any other individual or entity holding
an ownership interest in MDJB, whether legal or equitable, is or has been a
principal, affiliate, owner, stockholder or trustee or holds an ownership
interest, whether legal or equitable in any other Title IV participating
institutions other than as disclosed in Schedule 5.30. No Title IV
participating institution is, or has been, administered commonly, jointly or
in conjunction with MDJB.
Section 5.31. Institutional Approval and Accreditation. Schedule
5.31 hereto lists each state and governmental department and/or agency and
independent accrediting commission that has authorized, licensed and
accredited the Institution operated by MDJB, including, without limitation,
the NCA and the department of education, or other similar state agency, in
Colorado ("State Authorization"). Except as otherwise set forth on Schedule
5.31 hereto, the Institution operated by MDJB, as described on Schedule 5.31
hereto, has received all necessary licenses, permits, approvals and
accreditation necessary for its existing operation and receipt of Financial
Aid, including, without limitation, State Authorization and accreditation by
the NCA, and to the best of MDJB's and the Shareholders' knowledge, is in
compliance with the terms of all such licenses, permits, approvals and
accreditations.
Section 5.32. Environmental Matters. Except as set forth on Schedule
5.32 hereto, MDJB has not stored, nor is storing, any hazardous wastes, as
defined by RCRA, for ninety days or more, and:
(a) MDJB has not generated, stored, transported, recycled, disposed
of or otherwise handled in any way any waste material or hazardous substance
for itself or for any other person or entity, nor has any other person or
entity stored, transported, recycled, disposed of or otherwise handled in any
way any waste material or hazardous substances;
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(b) there are no locations where any waste material or hazardous
substances from the operation of MDJB have been stored, treated, recycled or
disposed of;
(c) to the best of MDJB's knowledge, there are no Contaminants (as
defined hereinbelow) located on or within the Premises;
(d) there is no ongoing release and there has been no past release
of Contaminants into the environment from the operation of the business of
MDJB;
(e) there are no PCBs nor any asbestos contained in or otherwise
parts of the Premises or the Facilities and no product compositions used in
the business of MDJB contain more than five percent of the element beryllium;
(f) MDJB has not been required by any governmental authority to make
any expenditure to achieve or maintain compliance with any environmental
standard;
(g) MDJB has no knowledge of any information indicating that any
person, including any employee, may have impaired health or that the
environment may have been damaged as the result of the operation of the
business of MDJB or as the result of the release of Contaminants from the
Premises or the Facilities; and
For the purposes of Section 5.32(c), (d) and (g), the term
"Contaminants" includes any pollutant, waste materials, petroleum and
petroleum products and hazardous substances, as defined by CERCLA.
Section 5.33. Insurance. MDJB has in full force and effect (with no
overdue premiums) the policies of insurance, or renewals thereof, in the
amounts and for the periods set forth in Schedule 5.33 hereto, which Schedule
constitutes a true and complete list of all policies of insurance to which
MDJB is a party that relate to its assets or operations. To the best of MDJB's
and the Shareholders' knowledge, such policies adequately cover all risks
reasonably foreseeable in the operation and conduct of MDJB's business. MDJB
has not received any notices of, or been threatened with, cancellation with
regard to its policies of insurance. The policies listed on Schedule 5.33 will
remain in full force and effect through the Closing Date and the consummation
of the transactions contemplated herein.
Section 5.34. Licenses, Permits and Approvals. To the best of MDJB's
and the Shareholders' knowledge, MDJB has all licenses, permits, approvals,
qualifications or the like, issued or to be issued to MDJB by any government
or any governmental unit, agency, body or instrumentality, whether federal,
state, provincial, municipal or local (within the U.S. or otherwise) or any
third party necessary for the conduct of such MDJB's trade or business and all
such items are in full force and effect. Except as set forth on Schedule 5.34
hereto, no registration with, approval by, consent or clearance or other
action from or prenotification to any governmental agency or any third party
is required in connection with the execution and performance of this Agreement
by of MDJB.
Section 5.35. Employee Compensation and Agreements with Affiliates.
Schedule 5.35 hereto constitutes a true and complete list of all the
stockholders, directors and officers of MDJB and all employees of MDJB earning
or receiving more than $60,000 annually from MDJB. Except as set forth and
described on such Schedule, to the best of MDJB's and the Shareholders'
knowledge, no
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stockholder, directors or officers and no employees listed thereon nor any
affiliate of any such person has, either directly or indirectly:
(a) an interest in any corporation, partnership, proprietorship,
association or other person or entity which furnishes or sells those services
or products which are furnished to or sold by MDJB; or
(b) a beneficial interest in any contract or agreement to which MDJB
is a party or by which MDJB or its properties are bound.
For the purpose of this Agreement, the term "affiliate" means any
person that directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, any such person
or, directly or indirectly, is related to or otherwise associated with any
such person.
Section 5.36. Labor Relations. In general, MDJB has good and
amicable relations with its employees, and does not have any reason to believe
that this situation will change or that any collective representation of the
employees has been or is being considered by such employees.
Section 5.37. True Copies. All documents furnished or caused to be
furnished to Acquisition by MDJB are true and correct copies, and there are no
amendments or modifications thereto except as set forth in such documents.
Section 5.38 Access to Data. MDJB, each of the Shareholders or their
representative(s), if any, has been afforded the opportunity to obtain any
information in connection with any representations or information supplied to
MDJB and has had all of his/her/its inquiries to Acquisition answered in full,
and has been furnished all requested materials relating to Acquisition.
He/She/It acknowledges receipt of Whitman's report on Form 10-K for the year
ended March 31, 1995, reports on Form 10-Q for the quarters ended June 30,
1994, September 30, 1994 and December 31, 1994, and proxy statement dated
September 24, 1994 respecting the annual meeting held on October 20, 1994.
Section 5.39. Survival of Representations and Warranties of MDJB and
the Shareholders. The representations and warranties made in Article V of this
Agreement are correct, true and complete as of the date hereof and will be
correct, true and complete as at the Effective time with the same force and
effect as though such representations and warranties had been made at the
Effective Time, and shall survive the Effective Time until the issuance of the
first independent audit report (following the completion of the Merger) on the
combined results of Acquisition and MDJB.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF WHITMAN AND ACQUISITION
The following representations and warranties are made by Acquisition
and Whitman to MDJB:
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Section 6.01. Organization and Capitalization. Each of Whitman and
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey as to Whitman, and Delaware
as to Acquisition and authorized to do business in all jurisdictions where the
conduct of their business makes such authorization necessary.
Section 6.02. Authority for Agreement. The Board of Directors of
each of Whitman and Acquisition has approved this Agreement and has authorized
the execution and delivery hereof. Each of Whitman and Acquisition has full
power, authority and legal right to enter into this Agreement and, to
consummate the transactions contemplated hereby subject to the approval of the
Shareholders of Whitman. This Agreement has been duly executed and delivered
by each of Whitman and Acquisition and is a legal, valid and binding
obligation of each of Whitman and Acquisition, enforceable against them in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights in general.
Section 6.03. No Violation to Result. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby:
(a) are not in violation or breach of, do not conflict with or
constitute a default under, and will not accelerate or permit the acceleration
of the performance required by, any of the terms of the charter documents or
by-laws of Acquisition or Whitman or any note, debt instrument, security
agreement or mortgage, or any other contract or agreement, written or oral, to
which Acquisition or Whitman is a party or by which Acquisition or Whitman or
any of their respective properties or assets are bound;
(b) will not be an event which, after notice or lapse of time or
both, will result in any such violation, breach, conflict, default, or
acceleration;
(c) will not result in violation under any law, judgment, decree,
order, rule, regulation or other legal requirement of any governmental
authority, court or arbitration tribunal whether federal, state, provincial,
municipal or local (within the U.S. or otherwise) at law or in equity, and
applicable to either Acquisition or Whitman; and
(d) will not result in the creation or imposition of any lien,
possibility of lien, encumbrance, security agreement, equity, option, claim,
charge, pledge or restriction in favor of any third person upon the properties
or assets of either Acquisition or Whitman.
Section 6.04. SEC Filings. Neither Whitman's report on Form 10-K for
the year ended March 31, 1995 nor reports on Form 10-Q for the quarters ended
June 30, 1994, September 30, 1994 and December 31, 1994 (each such document
having been delivered to MDJB) contained, as of their respective dates, any
untrue statement of a material fact, or omitted to state any material fact
necessary to make the statements or facts contained thereon, in light of the
circumstances under which they were made, not misleading. Whitman is in
material compliance with all applicable SEC rules and regulations.
Section 6.05. No Adverse Changes. After March 31, 1995 to the date
of this Agreement, except as disclosed in Schedule 6.05 hereto there has not
been any:
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(a) actions which have resulted in or, to the best of Whitman's
knowledge, may result in a Material Adverse Effect on the assets, liabilities,
business, condition (financial or otherwise), operations or results of Whitman
and its Subsidiaries taken as a whole;
(b) failure to operate the business of Whitman or its Subsidiaries
in the ordinary course consistent with past practice; or
(c) revaluation by Whitman of any material assets of Whitman or its
Subsidiaries including, without limitation, writing off notes or accounts
receivable other than in the ordinary course of business consistent with past
practice; or
(d) issuance by Whitman of any shares of stock or other equity
securities (other than pursuant to any stock option plans, employee benefit
plans, or obligations to employee or directors).
Section 6.06. Whitman Common Stock. As and when required by the
provisions of this Agreement and subject to the terms and conditions hereof,
Whitman will reserve for issuance and issue shares of Whitman Common Stock to
the shareholders of MDJB. The shares of Whitman Common Stock to be issued in
accordance with this Agreement will have been duly authorized and upon such
issuance will be validly issued, fully paid and nonassessable and will be
registered under the Securities Act of 1933, as amended pursuant to the
Registration Statement.
Section 6.07 Ownership of Acquisition. All of the outstanding shares
of capital stock of, and all other ownership interest in, Acquisition (i) are
validly issued, fully paid and non- assessable and free of any preemptive
rights, and (ii) are owned by Whitman, free and clear of all liens, claims,
pledges, agreements or encumbrances, such that Whitman directly owns the
entire equity interest in Acquisition.
Section 6.08 Tax Matters. Neither Whitman nor Acquisition has taken
or agreed to take any action or has any knowledge of any fact or circumstance
that would prevent the Merger from qualifying as a tax-free reorganization
within the meaning of Section 368 of the Code.
Section 6.09 Litigation. Except as set forth on Schedule 6.09
hereto, there is no litigation, suit, proceeding, action, claim or
investigation, at law or in equity, pending or to the best of Whitman's
knowledge, threatened against or effecting Whitman or its Subsidiaries or
involving any of their respective property or assets, pursuant to which an
adverse determination in such matter would have a Material Adverse Effect on
Whitman and its Subsidiaries taken as a whole.
Section 6.10 Full Disclosure. The Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q furnished by Whitman to MDJB pursuant to this
Agreement, the information contained in the Schedules referred to in this
Agreement and the disclosure relating to Whitman and its Subsidiaries to be
included in the Registration Statement does not and will not contain any
untrue statement of a material fact and does not and will not omit to state
any material fact necessary to make such information not misleading.
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Section 6.11 Access to Data. Whitman, Acquisition and their
representatives, if any, have been afforded the opportunity to ask questions
of representatives of MDJB in connection with the representations and
information supplied by MDJB and have been furnished all requested materials
relating to MDJB.
Section 6.12. True Copies. All documents furnished or caused to be
furnished to MDJB by Acquisition or Whitman are true and correct copies, and
there are no amendments or modifications thereto except as set forth in such
documents.
Section 6.13. Survival of Representations and Warranties of Whitman
and Acquisition. The representations and warranties of Acquisition and Whitman
made in this Agreement are correct, true and complete as of the date hereof
and will be correct, true and complete as at the Effective Time with the same
force and effect as though such representations and warranties had been made
at the Closing Date, and shall survive the Effective Time until the issuance
of the first independent audit report (following the completion of the Merger)
on the combined results of Acquisition and MDJB.
ARTICLE VII
MDJB'S CONDUCT
AND TRANSACTIONS PRIOR TO CLOSING DATE
AND CERTAIN AGREEMENTS; CERTAIN COVENANTS
Section 7.01. Access to Properties and Records. (a) MDJB (which
shall be deemed to include Colorado Tech for purposes of this Article VII
unless the context clearly provides otherwise) shall afford to the officers,
employees, attorneys, accountants and other authorized representatives of
Acquisition, free and full access to all of MDJB's assets, properties, Books
and Records, and employees in order to afford Acquisition as full an
opportunity of review, examination and investigation as Acquisition shall
desire to make of the affairs of MDJB, and Acquisition shall be permitted to
make extracts from, or take copies of, such books, records (including the
stock record and minute books) or other documentation or to obtain temporary
possession of any thereof as may be reasonably necessary; and MDJB shall
furnish or cause to be furnished to Acquisition such reasonable financial and
operating data and other information about MDJB's business, properties and
assets which any of Acquisition's respective officers, employees, attorneys,
accountants or other authorized representatives may request provided that
Acquisition and its agents shall give advance notice to MDJB of any intended
visit to any Facility or meeting with MDJB's employees and shall not
unreasonably interfere with the operations of MDJB's business.
(b) Until the Merger has been consummated (and if the Merger is not
consummated, at all times hereafter), MDJB, Whitman and Acquisition will not
disclose or use any information obtained in the course of their respective
investigations. If the proposed Merger is not consummated, Whitman and
Acquisition and its representatives will return all documents, worksheets and
data to MDJB and MDJB and its representatives will return all documents,
worksheets and data to Whitman and Acquisition and, except as required by law
neither party shall discuss or release information to any third person (except
the attorneys, accountants and representatives of the parties) with respect to
such unconsummated Merger. Such obligation of confidentiality shall not extend
to any information which is shown to have been previously known by MDJB,
Whitman or Acquisition, as the case may be, or generally known to
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others engaged in the same trade or business as MDJB, Whitman or Acquisition
or made known to MDJB, Whitman or Acquisition or the public by a third party.
Section 7.02. Interim Covenants of MDJB. From the date of this
Agreement until the Closing Date, except to the extent expressly permitted by
this Agreement or otherwise consented to by an instrument in writing signed by
Acquisition or as otherwise set forth in Schedule 7.02 hereto, MDJB shall take
all necessary action so that:
(a) MDJB shall keep its business and organization intact and shall
not take or permit to be taken or do or suffer to be done anything other than
in the ordinary course of its business as the same is presently being
conducted, and shall use its good faith efforts to keep available the services
of its directors, officers, employees and agents and to maintain the goodwill
and reputation associated with its business. Acquisition acknowledges that
Marilyn Sullivan intends to resign as an employee of Colorado Tech and from
the Board of Directors of MDJB and Colorado Tech;
(b) MDJB shall not make any change in its constituent documents,
i.e., Certificate of Incorporation or by-laws;
(c) MDJB shall exercise its good faith efforts to maintain all of
its properties and assets that are material to the operation or conduct of its
business, tangible or intangible, in good operating condition and repair, and
take all reasonable steps necessary to keep its operations functioning
properly, ordinary wear and tear excepted;
(d) MDJB shall not purchase, sell, lease or dispose of or make any
contract for the purchase, sale, lease or disposition of or subject to lien or
security interest or any other encumbrance properties or assets other than in
the ordinary and usual course of its business consistent with past practices
and with the representations and warranties contained herein and not in breach
of any of the provisions of this Article VIII; and in the case of assets
having a replacement value of $1,000 or more, for a consideration at least
equal to the fair value of such property or asset;
(e) MDJB shall not, other than in the ordinary and usual course of
its business consistent with past practices, grant any salary increase to, or
increase the draw of, any of its officers or directors, or enter into any new,
or amend or alter any existing, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, stock option, group
insurance, death benefit or other fringe benefit plan, trust agreement or
other similar or dissimilar arrangement, any employment agreement with any
officer or any consulting agreement;
(f) MDJB shall not incur any bank indebtedness or make any
borrowings, or issue any commercial paper other than in the ordinary and usual
course of its business consistent with past practices;
(g) MDJB shall not pay any obligation or liability (fixed or
contingent) or discharge or satisfy any lien or encumbrance, or settle any
claim, liability or suit pending or threatened against it or any of its
properties, except for current liabilities included in the Financial
Statements or Interim Financial Statements and current liabilities incurred
between the date of this Agreement and the Closing Date in
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the ordinary and usual course of its business consistent with past practices
and with its representations and warranties contained herein and not in breach
of any of the provisions of this Article VII;
(h) MDJB shall not enter into any leases of real property or
equipment and machinery other than in the ordinary and usual course of its
business consistent with past practices and except for an additional 3,700
square feet of leased space;
(i) MDJB shall not, without first obtaining the written consent of
Acquisition, enter into any contract, agreement or commitment, including
without limiting the generality of the foregoing, any contract, agreement or
commitment (A) for the purchase of any materials or supplies, if such
contract, agreement or commitment exceeds $50,000 individually and is outside
the ordinary course of MDJB's business, except for the acquisition and
installation of its planned Student Information System which is described on
Schedule 7.02 hereto and is hereby approved by Whitman and Acquisition; or (B)
in which any person listed on Schedule 5.35, any affiliate of such person or
any Shareholder of MDJB has any beneficial interest;
(j) MDJB shall not, other than in the ordinary course of its
business consistent with past practices, further encumber or permit to be
further encumbered any of its properties or assets;
(k) MDJB shall not form any subsidiary and, except as otherwise set
forth in Schedule 7.02(k) hereof, it shall not issue, grant, sell, redeem,
combine, change or purchase any shares, notes or other securities or make any
commitments to do so;
(l) MDJB shall not effect any subdivision of its outstanding capital
stock, purchase or, except as otherwise set forth in Schedule 7.02 (k) hereof,
redeem any capital stock, or declare, make or pay any dividend, distribution
or payment in respect of its capital stock;
(m) MDJB shall not, other than in the ordinary course of its
business consistent with past practices, grant or issue any options, warrants
or other rights to acquire any capital stock or other of its equity
securities, whether by conversion or otherwise, or make any commitment to do
so;
(n) MDJB shall not, other than in the ordinary and usual course of
its business consistent with past practices, curtail purchases or accelerate
shipments beyond customer requirements, or modify, amend, cancel or terminate
any existing contracts or agreements; and
(o) MDJB shall maintain in full force and effect each of the
policies of insurance listed on Schedule 5.33 hereto.
Section 7.03. Information. MDJB shall furnish Acquisition,
upon request, with all information concerning MDJB reasonably required for
inclusion in the Registration Statement or any application made by Acquisition
to the SEC or any governmental or regulatory body in connection with the
transactions contemplated by this Merger, including, without limitation, the
consolidated financial statements of MDJB, including the required accountant's
reports and consents, necessary for the preparation of the Registration
Statement.
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Section 7.04. Interim Financial Statements of MDJB. As soon as
practicable but in any event within 30 days after the end of each month after
the date of this Agreement, MDJB will deliver to Acquisition unaudited balance
sheets of MDJB as at the end of such month and as at the end of the
comparative month of the preceding year, together with the related unaudited
statements of income for the month then ended (including changes in
stockholders' equity and cash flows on a quarterly basis). All such financial
statements shall fairly present the financial position, results of operations
and cash flows of MDJB as at or for the periods indicated, in accordance with
GAAP except as otherwise indicated in such statements, and such financial
statements shall be accompanied by an opinion of the chief financial officer
of MDJB to such effect.
Section 7.05. Public Announcements. Acquisition and MDJB will
consult with each other with respect to any announcement to the public or any
statement to their employees generally concerning or relating to the Merger.
Prior to the Closing Date neither Acquisition nor MDJB will make any
announcement to the public without the prior written consent of the other,
except for announcements which Acquisition believes on the written advice of
its counsel to be required by applicable securities laws or stock exchange
rules. MDJB shall be provided with a copy of such announcement.
Section 7.06. Notice of Breach. (a) Whitman and Acquisition will
promptly give notice to MDJB of the occurrence of any event or the failure of
any event to occur that results in a breach of any representation or warranty
by Acquisition or a failure by Acquisition to comply with any covenant,
condition or agreement contained herein.
(b) MDJB will promptly give notice to Acquisition of the occurrence
of any event or the failure of any event to occur that results in a breach of
any representation or warranty by MDJB or a failure by MDJB to comply with any
covenant, condition or agreement contained herein.
(c) MDJB shall promptly notify Whitman and Acquisition of (i) any
material change in its condition, (ii) any complaints, investigations or
hearings (or communications indicating that the same may be contemplated) of
any Governmental Entity, (iii) the institution or the threat of material
litigation involving MDJB or any Subsidiary or (iv) any event or condition
that might reasonably be expected to cause any of its representations,
warranties or covenants set forth herein not to be true and correct in all
material respects as of the Effective Time. As used in the preceding sentence,
"material litigation" means any case, arbitration or other adversary
proceeding or other matter which would have been required to be disclosed
pursuant to Section 5.28 if in existence on the date hereof. MDJB shall also
promptly notify Whitman and Acquisition of any adverse development involving
any matter disclosed on an exhibit hereto in response to Section 5.28 which
shall occur after the date hereof and in any event MDJB shall regularly advise
Whitman and Acquisition of significant changes in the status of any such
matters.
(d) Whitman shall promptly notify MDJB of any event or condition
that might reasonably be expected to cause any of its representations,
warranties or covenants set forth herein not to be true and correct in all
material respects as of the Effective Time.
Section 7.07. Representations. Whitman, Acquisition and MDJB (a)
will take all reasonable action necessary to render accurate as of the Closing
Date their respective representations and warranties contained herein, (b)
will refrain from taking any action which would render any such representation
or
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warranty inaccurate in any material respect as of such time, and (c) will use
their good faith efforts to perform or cause to be satisfied each covenant or
condition to be performed or satisfied by them.
Section 7.08. Negotiations with Third Parties. Neither MDJB nor the
Shareholders will furnish any information to, or initiate or participate in
discussions or negotiations with, third parties relating to, or otherwise
cause or seek to cause or permit to occur any merger, sale or other
disposition of any substantial part of the assets or stock of MDJB.
Section 7.09. S-4; Regulatory Matters.
(a) Whitman, Acquisition and MDJB shall promptly prepare and file
with the SEC the Proxy Statement and Whitman and Acquisition shall prepare and
file with the SEC the Registration Statement, in which the Proxy Statement
shall be included. Each of Whitman and Acquisition shall provide reasonable
opportunity for the other to review and comment upon the contents of the Proxy
Statement and the Registration Statement and shall not include therein or omit
therefrom any information to which counsel to the other shall reasonably
object. After the date of the mailing of the Proxy Statement, each of Whitman,
Acquisition and MDJB agrees promptly to notify the other of and to correct any
information which either of them shall have furnished for inclusion in the
Proxy Statement that shall have become false or misleading in any material
respect. Each of Whitman, Acquisition and MDJB shall use best efforts to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing, except that Whitman shall have the
right to delay the declaration of effectiveness of the Registration Statement
for a period of up to twenty-five business days to permit the disclosure of
material information concerning Whitman or its Affiliates. Whitman shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Whitman Common Stock
in the Merger.
(b) Whitman, Acquisition and MDJB shall cooperate and use their
respective best efforts (i) to prepare all documentation, to effect all
filings and to obtain the requisite regulatory approvals and (ii) to cause the
Merger to be consummated as expeditiously as reasonably practicable following
MDJB's Stockholders' Meeting.
Section 7.10. Miscellaneous Agreements and Consents. Subject to the
terms and conditions of this Agreement, each of the parties hereto agrees to
use its best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as reasonably practicable,
including, without limitation, using their respective best efforts to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby
and to cause any of the conditions to the Closing hereunder which are to be
satisfied by such party to be satisfied. Whitman shall, and shall cause its
Subsidiaries, as it relates to their contracts, agreements, regulations,
rules, etc., to use their best efforts to obtain consents of all third parties
and Governmental Entities necessary or, in the reasonable opinion of MDJB,
desirable for the consummation of the transactions contemplated by this
Agreement. MDJB shall, and shall cause its Subsidiaries, as it relates their
contracts, agreements, regulations, rules, etc., to use their best efforts
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to obtain consents of all third parties and Governmental Entities necessary
or, in the reasonable opinion of Whitman, desirable for the consummation of
the transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of Whitman shall
be deemed to have been granted authority in the name of MDJB to take all such
necessary or desirable action. MDJB, Whitman and MDJB, as the case may be,
upon request, shall deliver to the other party hereto such appropriate
certifications or opinions by such party's officers or counsel as such other
party shall reasonably request under the circumstances.
Section 7.11. Whitman's Notice of Breach. Whitman shall promptly
notify MDJB of (i) any material change in its condition, (ii) any complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) of any governmental entity or (iii) institution or threat of
material litigation involving Whitman or any Subsidiary with respect to
Whitman and its Subsidiaries or (iv) any event or condition that might
reasonably expected to cause any of its representations, warranties or
covenants set forth herein not to be true and correct in all material respects
as of the Effective Time. "Material Litigation" shall have the meaning
ascribed in Section 7.06 hereof with respect to Whitman and its Subsidiaries
Section 7.12. Affiliates. At least forty days prior to the Closing
Date, MDJB shall deliver to Whitman and Acquisition a letter identifying all
persons who are, at the time this Agreement is submitted for approval to the
stockholders of MDJB, "Affiliates" of MDJB for purposes of Rule 145 under the
Securities Act. MDJB shall use all reasonable efforts to cause each person
named in the letter delivered by it to deliver to Whitman and Acquisition
prior to the Closing Date a written "Affiliates" agreement, in customary form,
providing that such person shall dispose of the Whitman Common Stock to be
received by such person in the Merger only in accordance with applicable law
and, in addition, in such agreement, such Affiliate shall represent that they
have no present plan or intention to dispose of any such shares of Whitman
capital stock.
Section 7.13 Whitman's Quarterly Reports on Form 10-Q. Commencing
upon the date of execution of this Agreement and continuing to the earlier to
occur of (i) the Effective Time and (ii) the termination of this Agreement,
Whitman shall provide to MDJB a copy of its quarterly reports on Form 10-Q as
filed with the Securities and Exchange Commission promptly upon the filing of
such reports with the Commission.
ARTICLE VIIA
PERFORMANCE BY THE PARTIES SUBSEQUENT TO CLOSING
Section 7A.1. Covenants of Whitman and Acquisition Pending
Expiration of the Condition Subsequent. Whitman and Acquisition covenant and
agree with MDJB and its Stockholders that from and after the Closing and until
the satisfaction of the condition subsequent described in Section 7A.4 hereof
(the "Condition Subsequent") or the exercise of Whitman's Rescission Right (as
provided herein), unless otherwise agreed in writing by a majority in interest
of the Stockholders, Whitman and Acquisition (i) shall not mortgage, pledge,
assign, sell or otherwise transfer any of the assets of MDJB or Colorado Tech
other than in the ordinary course of Whitman's and Acquisition's business,
(ii) shall conduct the
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business, operations, activities and practices of the Institution and
Whitman's and Acquisition's business acquired pursuant to the Merger in the
usual and ordinary course, consistent with past practices, (iii) shall use its
best efforts to preserve the business organization of Colorado Tech intact,
continue the present services of MDJB's and Colorado Tech's employees at the
Closing (which efforts shall include maintaining in all material respects
existing employee benefit plans and 401(k) plans), and preserve the goodwill
of the suppliers, students and others with whom MDJB or Colorado Tech has a
business relationship, (iv) shall use reasonable efforts to maintain the
tangible property of MDJB and Colorado Tech in the same condition as it now
exists, ordinary usage, wear and tear excepted, (v) shall not breach any
agreements necessary for Colorado Tech's operations including the operations
of the Institution, (vii) shall not enter into any contract or commitment the
performance of which may extend beyond the expiration of the Condition
Subsequent, except those made in the ordinary course of its business, the
terms of which are consistent with past practice and reasonable in light of
current conditions, (viii) shall not sell, transfer, lease or otherwise
dispose of any of the assets of MDJB or Colorado Tech other than sales of
inventory in the ordinary course of business and consistent with past
practice, (ix) shall not fail to pay prior to delinquency taxes and similar
charges that might become a lien or charge upon any of the assets of MDJB or
Colorado Tech, or (x) shall not waive or permit the loss of any substantial
right.
Section 7A.2. Financial Condition. Until the satisfaction of the
Condition Subsequent or Whitman's exercise of the Rescission Right,
Acquisition shall maintain sufficient, unimpaired equity capital as shall be
acceptable to the ED and other governmental, quasi-governmental, or
accrediting agency authorities including satisfaction of all applicable
financial responsibility regulations and standards, so as to provide
reasonable assurances that Acquisition shall be financially capable of
obtaining Acquisition's Accreditations and Certifications and performing its
obligations hereunder.
Section 7A.3. Administration in Accordance with Accreditations and
Certifications. Until the satisfaction of the Condition Subsequent or
Whitman's exercise of the Rescission Right, Whitman and Acquisition shall
administer and operate the Institution in accordance with all material 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 government, quasi-governmental or
accrediting agency in any way regulating or otherwise relating to the
administration and operation of the Institution. Subject to the terms and
provisions of this Agreement, Whitman and Acquisition shall work in good faith
to obtain any and all approvals from the ED, any state education regulatory
authority and any other governmental, quasi-governmental or accrediting agency
that may be necessary or appropriate to vest in Acquisition the right and
authority to administer and operate the Institution and to certify Acquisition
for participation in Title IV Programs in the same manner and to the same
extent as Colorado Tech prior to the Merger.
Section 7A.4. Condition Subsequent to Obligations of Whitman and
Acquisition. (a) If within 120 calendar days after the Closing Date (the "ED
Certification Period"), the ED has advised Whitman or Acquisition in writing
that it does not intend to certify, whether absolutely or provisionally,
Acquisition for participation in Title IV Programs, and after diligently
pursuing an appeal of such decision for an additional 30 days, Whitman has
been unsuccessful in securing the Certification, whether absolutely or
provisionally, of Acquisition for participation in the Title IV Programs,
Whitman shall (unless the ED Certification Period is extended as provided in
subparagraph (c) hereof) rescind the Merger by giving written notice to each
of the Stockholders to such effect (the "Rescission Right").
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Within ten (10) days of the date of Whitman's Rescission Right notice, Whitman
shall (i) deliver to the former MDJB Stockholders all of the outstanding
capital stock (including the corporate minute book, resolutions, etc.) of
Acquisition so that each Stockholder receives such number of shares of
Acquisition capital stock as equals his/her percentage interest in MDJB
immediately prior to the Merger, (ii) cancel each share of Whitman Common
Stock comprising a portion of the Merger Consideration then held in escrow by
Whitman or the Exchange Agent, (iii) transfer the aggregate Fractional Share
Consideration comprising a portion of the Merger Consideration to a general
operating account of Whitman for its benefit, and (iv) deliver the
resignations of any officers and directors of Acquisition appointed by Whitman
before or after the Merger. Upon satisfaction of Whitman's obligations in
connection with its exercise of the Rescission Right, the Merger of
Acquisition and MDJB shall be deemed rescinded. After giving effect to the
exercise of the Rescission Right, Acquisition will be a corporation having
identity of share ownership (both as to individual shareholders and as to
ownership percentage) as that of MDJB preceding the Merger. Whitman shall
neither be a shareholder of Acquisition following the exercise of the
Rescission Right nor will any officer or director of Whitman have a similar
position in Acquisition following the rescission. Each of Whitman,
Acquisition, MDJB and the Stockholders acknowledge and agree that the sole
purpose of the Rescission Right is to revert the parties to the position each
occupied prior to the Effective Time of the Merger and treat each party as if
the Merger had never been consummated.
(b) Each of Whitman, Acquisition, MDJB and the Stockholders
acknowledge and agree that during the ED Certification Period, Whitman will
provide Acquisition with advances up to the amount of the funding that
Colorado Tech would have received under Title IV Programs in the absence of
Colorado Tech's termination from eligibility for funding under Title IV
Programs as a result of the Merger (the "Advances"). In the event the
Condition Subsequent is not satisfied, Whitman will continue to provide the
Advances (on terms substantially similar to that provided by Whitman during
the ED Certification Period) for a period of 120 days following the date of
Whitman's notice of exercise of the Rescission Right (the "Post- Rescission
Funding Period"). All Advances made by Whitman during the ED Certification
Period and the Post-Rescission Funding Period shall be repaid by Acquisition
as follows:
(i) all accounts receivable of Acquisition or Colorado Tech
received by virtue of Title IV Program funding that would have been collected
by Colorado Tech in the absence of the change of control resulting from the
Merger and that are collected following Whitman's exercise of the Rescission
Right, shall upon collection be dedicated and applied in full to the repayment
of the Advances; and
(ii) the balance of the Advances remaining unpaid following
the application of the accounts receivable as provided in subparagraph (a)
above, solely as a result of such accounts receivable being uncollectable by
reason of the change of control of Colorado Tech (exclusive of any bad debts
for which reserves are provided in its financial statements), shall be
converted to a term loan payable by Acquisition to Whitman, which term loan
shall (i) have a term of (3) years, (ii) provide for monthly payments of
principal in an amount necessary to amortize the loan in equal installments
over its term and (iii) bear interest at a fixed rate equal to the prime rate
of Citibank, N.A. in effect as of the date of Whitman's Rescission Right
notice.
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(c) Whitman and Acquisition may agree in writing to extend the ED
Certification Period by an additional period not to exceed 120 days.
Section 7A.5. Disbursement of Title IV Funds. Each of MDJB and
Colorado Tech agrees that they will continue to disburse Title IV funds in
accordance with 34 C.F.R. ss. 668.26.
Section 7A.6. Best Efforts to Satisfy Condition Subsequent. Whitman
and Acquisition (with the cooperation and assistance of Colorado Tech and its
employees) shall diligently pursue Certification, through timely and complete
filings of the requisite documents and properly responding to inquiries of the
ED. Prior to and after the Closing, Whitman, Acquisition, MDJB and Colorado
Tech shall provide to the ED and to all state regulatory agencies and
accrediting bodies all information reasonably required or reasonably requested
by any of such agencies or bodies, and each of Whitman, Acquisition, MDJB and
Colorado Tech shall use their best efforts to satisfy promptly all
requirements and demands of the ED or of any such agency or body requisite to
obtaining Certification , whether absolute or provisional, within the time
period specified in Section 7A.4 hereof.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE PARTIES
Section 8.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each of Whitman, Acquisition and MDJB to
effect the Merger shall be subject to the fulfillment or waiver at or prior to
the Effective Time of the following conditions:
(a) The stockholders of MDJB shall have approved all matters
relating to the Merger required to be approved by such stockholders by the
vote required under the CBCA at the MDJB Stockholders' Meeting.
(b) The stockholders of Whitman shall have approved all matters
relating to the Merger required to be approved by such stockholders by the
vote required under the New Jersey Business Corporation Act at the Whitman
Shareholders' Meeting.
(c) The Registration Statement shall have been declared effective
and shall not be subject to a stop order or any threatened stop order.
(d) Neither Whitman, Acquisition nor MDJB shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the Merger and no proceeding
shall have been initiated by any Governmental Entity and be continuing seeking
such an injunction. There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation thereof illegal.
(e) Whitman and Acquisition shall have received all state securities
and "blue sky" permits and other authorizations necessary to consummate the
transactions contemplated hereby.
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(f) The shares of Whitman Common Stock which shall be issued to the
holders of the Common Stock of MDJB upon consummation of the Merger shall have
been authorized for trading on the American Stock Exchange subject to official
notice of issuance.
Section 8.02. Best Efforts to Satisfy Conditions. Acquisition shall
diligently pursue certification, through timely and complete filing of the
requisite documents and in promptly responding to inquires. Prior to the
Closing, MDJB and Acquisition shall provide to the ED and to all state
regulatory agencies and accrediting bodies all information required or
reasonably requested by any of them, and Acquisition and MDJB shall use their
best efforts to satisfy promptly all requirements and demands of the ED or any
such agency or body requisite to obtaining certification or provisional
certification as soon as practicable.
ARTICLE IX
CONDITIONS TO WHITMAN'S AND ACQUISITION'S OBLIGATIONS
All obligations of Whitman and Acquisition under this Agreement are
subject to the fulfillment and satisfaction, prior to or at the time at which
the Closing Date is scheduled to occur, of each of the following conditions,
any one or more of which may be waived by Acquisition in writing.
Section 9.01. Representations and Warranties True at the Closing
Date. At the Closing Date, the representations and warranties of MDJB and
Colorado Tech contained in this Agreement will be true and correct in all
material respects at and as of such time, except to the extent affected by the
transactions contemplated hereby and by the operations of MDJB and Colorado
Tech as permitted by the provisions of Section 9.02 from the date hereof to
the Closing Date, and at the Closing Date each of MDJB and Colorado Tech has
delivered to Acquisition a certificate to such effect signed by the President
and the Chief Financial Officer.
Section 9.02. MDJB's Performance. Each of the obligations of MDJB
and Colorado Tech to be performed by it on or before the Closing Date pursuant
to the terms of this Agreement shall have been duly performed in all material
respects at the Closing Date, and at the Closing Date each of MDJB and
Colorado Tech shall have delivered to Acquisition a certificate to such effect
signed by the President and the Chief Financial Officer.
Section 9.03. Authority. All action required to be taken by, or on
the part of, MDJB and Colorado Tech to authorize the execution, delivery and
performance of this Agreement by MDJB and Colorado Tech and the consummation
of the transactions contemplated hereby shall have been duly and validly taken
by the Board of Directors and stockholders of each such entity. This Agreement
and the Merger shall have been approved and adopted by a majority of the
shares of the MDJB Common Stock entitled to vote of the MDJB Shareholders'
Meeting in accordance with the CGCL.
Section 9.04. Opinion of MDJB's Counsel. Acquisition shall have been
furnished an opinion or opinions of Norman A. Palermo, Esq., counsel to MDJB
and Colorado Tech, dated the date of the Closing Date, in form substantially
as set forth on Schedule 9.04 hereto.
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Section 9.05. No Material Adverse Change. There shall have been,
between the date hereof and the Closing Date, (i) no material adverse change
in the condition, financial or otherwise, of MDJB or Colorado Tech, (ii) no
resignations or terminations of, or indications of an intention or plan to
resign, employment by a large number of employees such that the continued
operations of MDJB's or Colorado Tech's business would be materially and
adversely affected, and (iii) no terminations of, or indications of an
intention or plan to terminate, the use to a material extent of the services
of MDJB or Colorado Tech; and at the Closing Date each MDJB and Colorado Tech
shall have delivered to Acquisition a certificate to such effect signed by its
President and the Chief Financial Officer.
Section 9.06. Assignment of Contracts. MDJB shall have received
consents under all Contracts, agreements, commitments, understandings and
instruments to which MDJB or Colorado Tech is a party or by which either or
both is bound which require the consent of any other party or person to the
assignment thereof either by the terms thereof or as a matter of law for their
assumption or performance by Acquisition.
Section 9.07 Certificates. MDJB and Colorado Tech shall have
furnished Acquisition with such certificates of the officers to evidence
compliance with the conditions set forth in this Article IX as may be
reasonably requested by Acquisition, which shall include, but not be limited
to:
(a) A certificate executed by the Secretary or an Assistant
Secretary of MDJB and Colorado Tech certifying as of the Closing Date (a) a
true and complete copy of the Articles of Incorporation of each entity; (b) a
true and complete copy of the bylaws of each entity; (c) a true and complete
copy of the resolutions of the board of directors of each entity authorizing
the execution, delivery and performance of this Agreement by each entity and
the consummation of the transactions contemplated hereby; (d) incumbency
matters; and (e) approval and adoption of this Agreement and Plan of Merger by
the consent of the requisite number of stockholders of MDJB and Colorado Tech;
(b) A certificate executed by the President and the Chief Financial
Officer of each of MDJB and Colorado Tech certifying that, as of the Closing
Date, the conditions set forth in Article IX with respect to MDJB and Colorado
Tech have been satisfied;
(c) A copy of the articles of incorporation of MDJB and Colorado
Tech and all amendments thereto, certified as of a recent date by the
Secretary of State of their respective state of incorporation;
(d) A certificate of the appropriate Secretary of State certifying
the good standing of each of MDJB and Colorado Tech in its state of
incorporation and all states where each is qualified to do business;
(e) Evidence reasonably satisfactory to Acquisition that after the
Closing Date, Acquisition may lawfully occupy the Premises and the Facilities;
(f) Any and all forms, certificates and/or other instruments
required to pay the transfer and recording taxes and charges arising from the
transactions contemplated by this Agreement, together with evidence reasonably
satisfactory to Acquisition that such transfer taxes and charges have been
paid or provided for; and
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(g) A certificate executed by each of MDJB and Colorado Tech
certifying as of the Closing Date that the certificates delivered to
Acquisition pursuant to this Section 9.07 are true and correct in all material
respects.
Section 9.08. Employment. David O'Donnell shall have entered into an
employment agreement with Acquisition or an affiliate on or before the Closing
Date in substantially the form of Exhibit A hereto.
Section 9.09. Audited Financial Statements. Acquisition shall have
received audited financial statements with respect to MDJB as of and for the
year ended December 31, 1994, and reviewed financial statements for the period
ending with the most recently completed calendar month preceding the Closing
Date.
Section 9.10 Acquisition's Review. There shall not have come to the
attention of Acquisition, as a result of its review described in Section 7.01
hereof or otherwise, any material information, (i) not previously disclosed to
Acquisition despite inquiry of MDJB by Acquisition; or (ii) indicating the
occurrence of an event since the date of the execution of this Agreement that
is likely to have a Material Adverse Effect.
Section 9.11. Assignment and Assumption of Leases. MDJB shall have
delivered Assignment, Assumption and Consent agreements with respect to each
Facility, duly executed by each landlord providing for terms and conditions no
less favorable than those contained in the existing leases.
Section 9.12. MDJB's Equity. MDJB shall demonstrate, represent and
warrant that MDJB's stockholders equity as of December 31, 1994 and June 30,
1995 is $924,492.00 and $994,692, respectively, and that there has been no
material decrease in such net equity between June 30, 1995 and the Closing
Date.
Section 9.13. Acid Test and Tangible Net Equity. At the Closing,
MDJB shall demonstrate, represent and warrant that (i) MDJB meets or exceeds,
or is not required to maintain, an acid test of 1 to 1 as required by and
determined in accordance with 34 C.F.R., 668.15 and (ii) MDJB has a positive
Tangible Net Equity as required by and determined in accordance with 34 C.F.R.
668.15.
Section 9.14. Dissenter' Rights of Appraisal. Holders of MDJB Common
Stock shall not have exercised appraisal rights under the CBCA in respect of
more than 3% of shares of MDJB Common Stock outstanding prior to the Closing
Date.
Section 9.15. Pooling Accounting Treatment. Whitman will receive a
letter from Ernst & Young LLP, its independent auditors, regarding that firm's
concurrence with Whitman management's conclusions as to the appropriateness of
pooling of interest accounting for the merger under Accounting Principles
Board Opinion No. 16 if closed and consummated in accordance with this
agreement.
Section 9.16. Tax Representation Letter. Each of the Shareholders
owning ten percent (10%) or more of the MDJB Common Stock shall have executed
and delivered to Whitman the Tax Representation Letter in the form attached
hereto as Exhibit B.
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Section 9.17. Affiliates Agreement. Each officer, director and
shareholder owning beneficially 10% or more of the MDJB Common Stock (after
giving effect to the issuance of shares underlying stock options, warrants or
other securities or agreements that are convertible into MDJB Common Stock
within 60 days of the Closing Date) shall have executed and delivered to
Whitman the Affiliate Letter Agreement in the form attached hereto as
Exhibit C.
ARTICLE X
CONDITIONS TO MDJB'S
OBLIGATIONS
All obligations of MDJB under this Agreement are subject to the
fulfillment and satisfaction, prior to or at the time at which the Closing
Date is scheduled to occur, of each of the following conditions, any one or
more of which may be waived in writing by MDJB.
Section 10.01. Representations and Warranties True at the Closing
Date. At the Closing Date, the representations and warranties of Whitman and
Acquisition contained in this Agreement will be true and correct in all
material respects at and as of such time, except to the extent affected by the
transactions contemplated hereby, and at the Closing Date, each of Whitman and
Acquisition shall have delivered to MDJB a certificate to such effect signed
by the President and the Chief Financial Officer of Acquisition.
Section 10.02. Acquisition's Performance. Each of the obligations of
Whitman and Acquisition to be performed by it on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed in all
material respects at the Closing Date, and at the Closing Date Acquisition
shall have delivered to MDJB a certificate to such effect signed by its
President and the Chief Financial Officer.
Section 10.03. Authority. All action required to be taken by, or on
the part of Whitman and Acquisition to authorize the execution, delivery and
performance of this Agreement by Whitman and Acquisition and the consummation
of the transactions contemplated hereby shall have been duly and validly taken
by the Board of Directors and stockholders of each such entity. This Agreement
and the Merger shall have been approved and adopted by a majority of the
shares of Whitman Common Stock entitled to vote at the Whitman Shareholders'
Meeting in accordance with the New Jersey Business Corporation Act.
Section 10.04. Opinion of Counsel of Acquisition. MDJB shall have
been furnished an opinion of Robinson, St. John & Wayne, counsel to
Acquisition and Whitman, dated the Closing Date, in form substantially as set
forth in Schedule 10.04 hereto.
Section 10.05. No Material Adverse Change. There shall have been,
between the date hereof and the Closing Date no material adverse change in the
condition, financial or otherwise, of Acquisition,
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and at the Closing Date Acquisition and Whitman shall have delivered to MDJB a
certificate to such effect signed by the President and the Chief Financial
Officer of Acquisition.
Section 10.06. Employment. David O'Donnell shall have been offered
an employment agreement with Acquisition or an affiliate on or before the
Closing Date in substantially the form of Exhibit A hereto.
Section 10.07. Certificates. Acquisition and Whitman shall have
furnished to MDJB with such certificates of the officers of Acquisition and
Whitman and others to evidence compliance with the conditions set forth in
this Article X as may be reasonably requested by MDJB, which shall include,
but not be limited to:
(a) A certificate executed by the Secretary or an Assistant
Secretary of Acquisition and Whitman certifying as of the Closing Date (a) a
true and complete copy of the resolutions of the board or directors of
Acquisition and Whitman authorizing the execution, delivery and performance of
this Agreement by Acquisition and Whitman and the consummation of the
transactions contemplated hereby; (b) incumbency matters; and (c) if
applicable, approval and adoption of this Agreement and Acquisition by the
stockholders of Acquisition;
(b) A certificate executed by the President and the Chief Financial
Officer of Acquisition and Whitman certifying that, as of the Closing Date,
the conditions set forth in Article X with respect to Acquisition have been
satisfied;
(c) Any and all forms, certificates and/or other instruments
required to pay the transfer and recording taxes and charges arising from the
transactions contemplated by this Agreement, together with evidence reasonably
satisfactory to MDJB that such transfer taxes and charges have been paid; and
(d) A certificate executed by Acquisition and Whitman certifying as
of the Closing Date that the certificates delivered to MDJB pursuant to this
Section 10.07 are true and correct in all material respects.
Section 10.08. MDJB's Review. There shall not have come to the
attention of MDJB, any material information (i) not previously disclosed to
MDJB despite the inquiry of Acquisition or Whitman by MDJB; or (ii) indicating
the occurrence of events since the date of execution of this Agreement that is
likely to have a Material Adverse Effect.
ARTICLE XI
TERMINATION
Section 11.01. Termination. Notwithstanding anything herein or
elsewhere to the contrary, this Agreement may be terminated and the Merger
abandoned:
(a) by the Board of Directors of MDJB or Acquisition if the
Closing Date shall not have taken place on or prior to January 31, 1996;
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(b) by the Board of Directors of Acquisition at any time
prior to the Closing Date if:
(i) a material condition to Acquisition's performance under this
Agreement or a covenant of MDJB or Colorado Tech contained herein
shall not be fulfilled on or before the Closing Date or on such
other date specified for the fulfillment of such covenant or
condition; or
(ii) a material default or breach of this Agreement shall be made by
MDJB or Colorado Tech; or
(iii) since December 31, 1994, there shall be a material adverse
change in the results of operations of MDJB or Colorado Tech or any
adverse change in the business, income before income taxes (as
compared with the same period in the preceding year), Prospects,
manner of conducting the business, financial condition or any asset of
MDJB or Colorado Tech, which change is material; or
(iv) the Board of Directors of Acquisition shall have determined in
its reasonable opinion that the transactions contemplated by this
Agreement have become inadvisable or impracticable by reason of the
institution or threat by state, local or federal governmental
authorities or by any other person of: (A) litigation or proceedings
to restrain or prohibit the consummation of the transactions
contemplated by this Agreement or which seeks substantial damages in
connection with this Agreement or the transactions contemplated
hereby; or (B) other litigation or proceedings the outcome of which in
the reasonable opinion of Acquisition would have a material adverse
effect on the business, results of operations, prospects, manner of
conducting the business, financial condition or any material asset of
MDJB, Colorado Tech or Acquisition; or
(v) the Board of Directors of Acquisition shall have determined in its
reasonable opinion that the results of the due diligence investigation
of MDJB is unsatisfactory.
(c) by the Board of Directors of MDJB at any time prior to the Closing
Date if:
(i) a material condition to MDJB's performance under this Agreement
shall not be fulfilled on or before the Closing Date or on such other
date specified for the fulfillment of such condition; or
(ii) a material default or breach of this Agreement shall be made by
Whitman or Acquisition; or
(iii) since March 31, 1995 there shall be a material adverse change in
the results of operations of Acquisition or Whitman, or any material
adverse change in the business, results of operations (as compared
with the same period in the preceding year), prospects, manner of
conducting the business, financial condition or any asset of
Acquisition or Whitman, except as disclosed to MDJB in writing on or
prior to the date hereof.
Section 11.02. Additional Right of Acquisition to Terminate. As soon
as practicable after execution of this Agreement, Acquisition and/or
Acquisition's representative and MDJB and/or MDJB's representative shall
together meet with officials from ED's Institutional Participation Division
("IPD") to inform IPD of this Agreement and determine whether IPD reasonably
anticipates that Acquisition will
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be able to obtain Certification for the Colorado Tech subsequent to the
proposed Merger. If, on the basis of the above-described meeting, Acquisition
reasonably believes that IPD will not certify the Institutions at any time or
in a timely manner, then notwithstanding any other provision of this Agreement
to the contrary, Acquisition may elect to terminate this Agreement by notice
to MDJB given not less than five (5) business days prior to the Closing Date,
including in such notice the basis for the belief upon which the election is
taken. Acquisition may withdraw its election if, subsequent to the giving of
notice, it is satisfied that the basis cited in the notice has been
satisfactorily resolved, the determination of Acquisition to be dispositive.
ARTICLE XII
INDEMNIFICATION
Section 12.01. Indemnification of Acquisition and Whitman. (a) The
Shareholders shall, on a several basis, indemnify and hold Acquisition and
Whitman harmless in respect of each and all of the following, provided that a
claim in writing is made against Acquisition or Whitman within the survival
periods specified hereinabove:
(i) Any and all damage or deficiency resulting from any
misrepresentation, breach of warranty, non-fulfillment of any
agreement or obligation on the part of MDJB or Colorado Tech contained
in this Agreement (or any exhibits or schedules hereto) and from any
misrepresentation in or omission from any certificate, exhibit,
schedule, instrument or other information furnished to Acquisition or
Whitman by MDJB, Colorado Tech or by any of their respective officers;
and
(ii) All demands, assessments, judgments, costs and legal and other
expenses, including, without limitation, reasonable attorneys' fees,
arising from or in connection with any action, suit, proceeding or
settlement or claim incident to the foregoing Section 12.01(a) or
involving a third-party action against Whitman or Acquisition.
(b) The Shareholders shall have no liability with respect to the
inaccuracy or breach of representations and warranties of MDJB or Colorado Tech
or for any other liability provided in this Section 12.01 unless (i) written
notice of any claim, loss, damage or cost is given within the survived period
specified in Section 5.39 hereof, and (ii) all such aggregate losses, costs,
damages and expenses actually paid or suffered by Acquisition or Whitman by
reason of subparagraph (a) (i) and/or (ii) above, exceed Twenty Five Thousand
and 00/100 ($25,000) (the "Deductible"), in which case the Shareholders will be
liable for such aggregate losses, costs, damages and expenses to the extent they
exceed the Deductible and not to exceed the Escrow Portion.
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(c) Any claim for indemnification under this Section 12.01 in excess of the
Deductible shall be satisfied from the Escrow Portion allocated to each
Shareholder, on a pro rata basis, based upon the Closing Date Fair Market
Value of Whitman Common Stock. For purposes of this Section 12.01, "Closing
Date Fair Market Value" shall mean the closing sales price of Whitman's Common
Stock as reported by the American Stock Exchange on the trading day
immediately prior to the Closing Date as accurately reported in The Wall
Street Journal (or if The Wall Street Journal no longer reports such price,
any newspaper, trade journal or stock reporting service selected by Whitman).
No Shareholder shall have any liability for indemnification under this Section
12.01 for claims which in the aggregate exceed the Closing Date Fair Market
Value of the Escrow Portion allocated to such Shareholder as shown on Schedule
3.2. If as of the Escrow Release Date (as defined in Section 12.06 hereof) the
aggregate claims for indemnification under this Section 12.01 (and Whitman's
exercise of the set-off rights provided hereunder) are less than the Closing
Date Fair Market Value of the Escrow Portion for each such claim, the
remaining Escrow Portion shall be released to the Shareholders, on a pro rata
basis, with cash payments made to any Shareholder that would otherwise be
entitled to a fractional share from the Escrow Portion then remaining (based
on the Closing Date Fair Market Value.
The provisions of this Section 12.01 (c) may be illustrated by the following
example:
If the aggregate claims subject to indemnification prior
to the Escrow Release Date total $250,000 (after giving effect to the $25,000
Deductible) and the Closing Date Fair Market Value of the Whitman Stock is
$2.00 per share, the entire Escrow Portion would be subject to set-off by
Whitman hereunder and the Shareholders would have no further liability for
indemnification under this Section 12.01. If, however, the Closing Date Fair
Market Value of the Whitman Common Stock is $10.00 per share, only 25,000
shares of the Escrow Portion would be subject to set-off by Whitman. Assuming
no other claims for indemnification were made by Whitman or Acquisition prior
to the Escrow Release Date, the remaining 62,500 shares comprising the Escrow
Portion would be distributed on the Escrow Release Date by Whitman to the
Shareholders on a pro rata basis.
(d) Whitman shall have the right to set-off against the
Escrow Portion the amount of any loss, cost, damage or expense actually paid,
suffered or incurred by Acquisition or Whitman by reason of Section
12.01(a)(i) and/or (ii). Whitman's right of set-off with respect to non- third
party claims may be exercised upon the relevant determination date. Whitman
shall provide the Shareholders with written notice of a set-off for any
indemnity loss under this Section 12.01 shall be limited to the Escrow
Portion. Whitman's exercise of its set-off rights with respect to third-party
claims shall be deemed to have occurred upon the final resolution of such
third-party claim in accordance with Section 12.03 hereof. Whitman,
Acquisition, MDJB and the Shareholders hereby acknowledge and agree that
Whitman's and Acquisition's sole remedy for indemnity under this Section 12.01
shall be limited to the Escrow Portion. If Whitman is determined by a court of
competent jurisdiction to have wrongfully set-off claims against the Escrow
Portion, Whitman's liability to the Shareholders shall be limited to the
number of shares wrongfully set off from the Escrow Portion.
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Section 12.02. Indemnification of MDJB and Shareholders. (a)
Acquisition and Whitman shall indemnify and hold MDJB harmless in respect of
each and all of the following, provided that a claim in writing is made
against MDJB within the survival periods specified hereinabove:
(i) Any and all damage or deficiency resulting from any
misrepresentation, breach of warranty, non-fulfillment of any agreement or
obligation on the part of Acquisition or Whitman contained in this Agreement
(or any exhibits or schedules hereto) and from any misrepresentation in or
omission from any certificate, exhibit, schedule, instrument or other
information furnished to MDJB in connection with this Agreement by
Acquisition, Whitman or any of their respective officers.
(ii) All demands, assessments, judgments, costs and legal and other
expenses, including, without limitation, reasonable attorneys' fees, arising
from or in connection with any action, suit, proceeding or settlement of claim
incident to the foregoing Section 12.02(a) or involving a third-party action
against MDJB.
(b) Neither Whitman nor Acquisition shall have any
liability with respect to the inaccuracy or breach of representations and
warranties of Acquisition or Whitman or for such other liability provided in
this Section 12.02 unless (i) written notice of any claim, loss, damage or
cost is given within the survival period specified in Section 6.13 hereof, and
(ii) all such aggregate losses, costs, damages and expenses actually paid and
suffered by MDJB by reason of subparagraphs (a) (i) and (ii) above, exceed
Twenty Five Thousand Dollars ($25,000) (the "Deductible"), in which case the
Whitman will be liable for such aggregate losses, costs, damages and expenses
to the extent they exceed the Deductible. The sole remedy for a post-closing
claim shall be for losses, costs, damages and expenses actually paid or
suffered by MDJB. No claim may be made for rescission of the purchase and sale
or for punitive, special, consequential or indirect damages.
Section 12.03. Notices, Participation, and Settlement.
Promptly after receipt by any party hereto of notice of a claim or
commencement of any action (legal or administrative) which, if successful,
might require another party hereto to indemnify such other party, the
indemnified party will give written notice thereof to the indemnifying party
of such claim or the commencement of such action, provided that the failure of
any indemnified party to give such written notice shall not relieve the
indemnifying party of its obligations hereunder except to the extent that the
indemnified party is actually prejudiced by such failure. If a claim is so
noticed, the indemnifying party shall be entitled to participate in the
resolution of such claim, and if such action is brought against any
indemnified party, the indemnifying party shall be entitled to participate and
assume defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election to so assume defense thereof, the
indemnifying party shall have no obligation for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof. No indemnifying party shall make any settlement of any claims without
the written consent of the indemnified party, which consent shall not be
unreasonably withheld. Without limiting the generality of the foregoing, it
shall not be deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the indemnified party or its
assets, employees or business. With regard to claims of third parties for
which indemnification is payable hereunder, such indemnification shall be paid
by the indemnifying party upon the earlier to occur of; (i) the entry of a
judgment against the indemnified party and the
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expiration of any applicable appeal period, of if earlier, five days prior to
the date that the judgment creditor has the right to execute the judgment;
(ii) the entry of an unappealable judgment or final appellate decision against
the indemnified party; or (iii) a settlement of the claim. Notwithstanding the
foregoing, expenses by counsel to the indemnified party shall be reimbursed on
a current basis by indemnifying party. With regard to other claims for which
indemnification is payable hereunder, such indemnification shall be paid
promptly by indemnifying party upon demand by the indemnified party. Any claim
for indemnity shall be reduced by the amount of any insurance proceeds
received. In no event shall a Shareholder be required to advance any funds as
all claims for indemnity are to be satisfied from the Escrow Portion and no
Shareholder shall have any liability beyond his or her allocable share of the
Escrow Portion (except as otherwise provided in Section 12.01(e)).
Section 12.04. Indemnification for Brokers. Acquisition and
1the Shareholders shall each indemnify and hold harmless the other against any
losses, claims, expenses (including court costs and attorneys' fees), costs or
liabilities to which the indemnified party may become subject relating to any
brokerage or finders' fees or agents' or banker's commissions or other similar
charges incurred by the indemnifying party in connection with this Agreement
or any transaction contemplated hereby.
Section 12.05. Title IV Liabilities. Upon Acquisition
receiving certification from the ED authorizing Colorado Tech College to
participate in Title IV Programs, and until the issuance of the first
independent audit report (following the completion of the Merger) on the
combined results of Acquisition and MDJB, the Shareholders shall be severally
liable with Acquisition for Title IV liabilities arising prior to the Closing
date and any Shareholder liabilities will be satisfied from the Escrow
Portion.
In the case that the Department of Education, Guaranty Agency or other
agency indicates that it will conduct a review for a period prior to the
Closing Date, the Shareholders shall have the option of being present at the
Colorado Tech College facilities under review, and the Shareholders shall have
the right to be present during and participate in any discussions or
interviews with the reviewers.
Section 12.06. Release of Escrow Portion. Whitman shall release to
each Shareholder his or her allocable share of the Escrow Portion, if any,
after giving effect to the exercise of the set-off rights granted to Whitman
in accordance with Section 12.01, upon the later to occur of (i) the
satisfaction of the Condition Subsequent and (ii) the issuance of the first
independent audit report (following the completion of the Merger) on the
combined results of Acquisition and MDJB (the "Escrow Release Date");
provided, however, that notwithstanding the foregoing, in no event shall the
Escrow Portion be released following the exercise of Whitman's Rescission
Right (as defined and provided in Section 7A.4 hereof).
Section 12.07. Acquisition's Insurance Requirements. For a period of
three (3) years following the Effective Time, Acquisition shall maintain
liability insurance coverage known as "Tail Coverage" covering the prior acts
and omissions of the officers and directors of MDJB and Colorado Tech
preceding the Effective Time. In addition, Acquisition shall maintain Director
and Officer
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Liability Insurance for each of its officers and directors for a period of at
least three (3) years following the Effective Time.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Successors, Assigns and Third Parties. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; provided, however, that, none of the
parties hereto may make any assignment of this Agreement or any interest
herein without the prior written consent of the other parties hereto.
Notwithstanding the foregoing, Whitman and Acquisition may assign their
rights, but not their obligations under this Agreement to a wholly-owned
subsidiary of Whitman or Acquisition without the consent of MDJB or Colorado
Tech. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies
under or by reason of this Agreement.
Section 13.02. Governing Law. This Agreement shall in all respects be
interpreted, construed and governed by and in accordance with the internal
substantive laws of the State of New Jersey, disregarding principles of
conflict of laws and the like.
Section 13.03. Severability. Each section, subsection and lesser
section of this Agreement constitutes a separate and distinct undertaking,
covenant and/or provision hereof. In the event that any provision of this
Agreement shall finally be determined to be unlawful, such provision shall be
deemed severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect; provided, however that if
such unlawful clause is so material to the party for whose benefit the clause
was originally included so that such party would not have entered into this
Agreement without such unlawful clause, the severability of such clause shall
be arbitrated pursuant to Section 13.09 hereof.
Section 13.04. Certain Words. Words such as "herein," "hereof,"
"hereby," "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular Section or subsection of this Agreement.
Section 13.05. Notices. Except as otherwise expressly provided herein,
any notice, consent, or other communication required or permitted to be given
hereunder shall be in writing, delivered by certified mail or a national
overnight delivery services and shall be deemed to have been given when
received, and shall be addressed as follows:
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<TABLE>
<S> <C> <C>
(a) If to Acquisition or Whitman: Whitman Medical Corp.
485E U.S. Highway 1 South
Suite 100
Iselin, New Jersey 08830
Attn: Mr. Randy S. Proto
Telephone: (908) 636-3640
Fax: (908) 636-3667
with a copy to: William P. Oberdorf, Esq.
Robinson, St. John & Wayne
Two Penn Plaza East
Newark, New Jersey 07105
Telephone: (201) 491-3300
Fax: (201) 491-3333
(b) If to MDJB or Colorado Tech: MDJB, Inc.
c/o Colorado Technical University
4435 N. Chestnut Street
Colorado Springs, Colorado 80907-3876
Telephone: (719) 598-0200
Fax: (719) 598-3740
with a copy to: Norman A. Palermo, Esq.
102 East Pikes Peak Avenue
Colorado Springs, CO. 80903
Telephone: (719) 471-7700
Fax: (719) 471-7704
(c) If to the Shareholders: David O'Donnell, as
Agent for the Shareholders
Colorado Technical University
4435 N. Chestnut Street
Colorado Springs, Colorado 80907-3876
Telephone: (719) 598-0200
Fax: (719) 598-3740
with a copy to: Norman A. Palermo, Esq.
102 East Pikes Peak Avenue
Colorado Springs, Colorado 80903
Telephone: (719) 471-7700
Fax: (719) 471-7704
</TABLE>
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<PAGE>
or at such other address or addresses as the party addressed may from time to
time designate in writing. Any communication dispatched by telegram or telex
shall be confirmed by letter.
Section 13.06. Expenses. All legal and other costs and expenses
incurred in connection herewith and the transactions contemplated hereby shall
be paid by the party incurring such expenses. Without limiting the generality
of the foregoing, any and all fees and expenses of any attorneys, accountants
or investment bankers of the parties hereto incurred in connection with this
Agreement or the transactions contemplated hereby shall be borne by the party
incurring such expense and shall not be assumed by any other party; provided,
however, that in no event shall the legal, accounting and other fees and
expenses incurred by or on behalf of MDJB and/or Colorado Tech exceed an
aggregate of $75,000 without the prior written consent of Whitman.
Section 13.07. Headings. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
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Section 13.08. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of
which shall constitute the same agreement.
Section 13.09. Arbitration. Any controversy or claim arising out
of or relating solely to Section 13.03 shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, by a tribunal sitting in Newark, New Jersey if such claim is made
by MDJB, or in Colorado Springs, Colorado if such claim is made by Whitman or
Acquisition, and judgment on the award rendered by the Arbitrator(s) may be
entered in any court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties hereto have caused their signatures
to be affixed to this as of the date first above written.
ATTEST: WHITMAN MEDICAL CORP.
By: /s/ Gary A. Camp By: /s/ Randy s. Proto
---------------- ------------------
Name:Gary A. Camp Name: Randy S. Proto
Title: Vice President-Marketing Title: President
ATTEST: WHITMAN MEDICAL ACQUISITION
CORPORATION
By: /s/ William Lichtenstein By: /s/ Randy S. Proto
------------------------ ------------------
Name: William Lichtenstein Name: Randy S. Proto
Title: President of UDS Title: President
ATTEST: MDJB, INC.
By: /s/ William E. Ayen By: /s/ David D. O'Donnell
------------------- ----------------------
Name: William E. Ayen Name: David D. O'Donnell
Title: Secretary Title: Chairman and President
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<PAGE>
ATTEST: COLORADO TECHNICAL UNIVERSITY,
INC.
By:/s/ William E. Ayen By: /s/ David D. O'Donnell
------------------- ----------------------
Name: William E. Ayen Name: David D. O'Donnell
Title: Secretary Title: Chairman
A-50
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ANNEX B
ARTICLE 113
DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Section 7-113-101. Definitions. For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares
held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a
Dissenter before the corporate action, or the surviving or acquiring domestic
or foreign corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this Article.
(4) "Fair Value," with respect to a Dissenter's shares, means the
value of the shares immediately before the effective date of the corporate
action to which the Dissenter objects, excluding any appreciation or
deprecation in anticipation of the corporate action except to the extent that
exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at the legal rate
as specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
Section 7-113-102. Right to dissent.
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the Fair Value of his or her shares in the event
of any of the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party if:
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(I) Approval by the shareholders of that
corporation is required for the merger by section 7-111-103
or 7-111-104 or by the articles of incorporation, or
(II) The corporation is a subsidiary that is
merged with its parent corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired;
(c) Consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of the
corporation for which a shareholders' vote is required under
section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of an
entity controlled by the corporation if the shareholders of the
corporation were entitled to vote upon the consent of the
corporation to the disposition pursuant to section 7-112-102(2).
(2) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the Fair Value of the shareholder's shares in
the event of:
(a) An amendment to the articles of incorporation that
materially and adversely affects rights in respect of the shares
because it:
(I) Alters or abolishes a preferential right of
the shares; or
(II) Creates, alters, or abolishes a right in
respect of redemption of the shares, including a provision
respecting a sinking fund for their redemption or
repurchase; or
(b) An amendment to the articles of incorporation that
affects rights in respect of the shares because it:
(I) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights; or
(II) Reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the
fractional share or scrip so created is to be acquired for
cash or the scrip is to be voided under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the
Fair Value of the shareholder's shares in the event of any corporate action to
the extent provided by the bylaws or a resolution of the board of directors.
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(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
Section 7-113-103. Dissent by Nominees and Beneficial Owners.
(1) A record shareholder may assert Dissenters' rights as to fewer
than all the shares registered in the record shareholder's name only if the
record shareholder dissents with respect to all shares beneficially owned by
any one person and causes the corporation to receive written notice which
states such dissent and the name, address, and federal taxpayer identification
number, if any, of each person on whose behalf the record shareholder asserts
Dissenters' rights. The rights of a record shareholder under this subsection
(1) are determined as if the shares as to which the record shareholder
dissents and the other shares of the record shareholder were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert Dissenters' rights as to
the shares held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to
receive the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder asserts Dissenters'
rights; and
(b) The beneficial shareholder dissents with respect to all
shares beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder
dissents with respect to the shares held by any one or more beneficial
shareholders, each such beneficial shareholder must certify to the corporation
that the beneficial shareholder and the record shareholder or record
shareholders of all shares owned beneficially by the beneficial shareholder
have asserted, or will timely assert, Dissenters' rights as to all such shares
as to which there is no limitation on the ability to exercise Dissenters'
rights. Any such requirement shall be stated in the Dissenters' notice given
pursuant to section 7-113-203.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Section 7-113-201. Notice of Dissenters' Rights.
(1) If a proposed corporate action creating Dissenters' rights
under section 7-113-102 is submitted to a vote at a shareholders' meeting, the
notice of the meeting shall be given to all shareholders, whether or not
entitled to vote. The notice shall state that shareholders are or may be
entitled to assert Dissenters' rights under this article and shall be
accompanied by a copy of this article and the materials, if any, that, under
articles 101 to 117 of this title, are required to be given to shareholders
entitled to vote on the proposed action at the meeting. Failure to give notice
as
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provided by this subsection (1) to shareholders not entitled to vote shall not
affect any action taken at the shareholders' meeting for which the notice was
to have been given.
(2) If a proposed corporate action creating Dissenters' rights
under section 7-113-102 is authorized without a meeting of shareholders
pursuant to section 7-107-104, any written or oral solicitation of a
shareholder to execute a writing consenting to such action contemplated in
section 7-107-104 shall be accompanied or preceded by a written notice stating
that shareholders are or may be entitled to assert Dissenters' rights under
this article, by a copy of this article, and by the materials, if any, that,
under articles 101 to 117 of this title, would have been required to be given
to shareholders entitled to vote on the proposed action if the proposed action
were submitted to a vote at a shareholders' meeting. Failure to give notice as
provided by this subsection (2) to shareholders not entitled to vote shall not
affect any action taken pursuant to section 7-107-104 for which the notice was
to have been given.
Section 7-113-202. Notice of Intent to Demand Payment.
(1) If a proposed corporate action creating Dissenters' rights
under section 7-113-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert Dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is
taken, written notice of the shareholder's intention to demand
payment for the shareholder's shares if the proposed corporate
action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate
action.
(2) If a proposed corporate action creating Dissenters' rights
under section 7-113-102 is authorized without a meeting of shareholders
pursuant to section 7-107-104, a shareholder who wishes to assert Dissenters'
rights shall not execute a writing consenting to the proposed corporate
action.
(3) A shareholder who does not satisfy the requirements of
subsection (1) or (2) of this section is not entitled to demand payment for
the shareholder's shares under this article.
Section 7-113-203. Dissenters' Notice.
(1) If a proposed corporate action creating Dissenters' rights
under section 7-113-102 is authorized, the corporation shall give a written
Dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
(2) The Dissenters' notice required by subsection (1) of this
section shall be given no later than ten days after the effective date of the
corporate action creating Dissenters' rights under section 7-113-102 and
shall:
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(a) State that the corporate action was authorized and
state the effective date or proposed effective date of the
corporate action;
(b) State an address at which the corporation will receive
payment demands and the address of a place where certificates for
certificated shares must be deposited;
(c) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand
is received;
(d) Supply a form for demanding payment, which form shall
request a Dissenter to state an address to which payment is to be
made;
(e) Set the date by which the corporation must receive the
payment demand and certificates for certificated shares, which date
shall not be less than thirty days after the date the notice
required by subsection (1) of this section is given;
(f) State the requirement contemplated in section
7-113-103(3), if such requirement is imposed; and
(g) Be accompanied by a copy of this article.
Section 7-113-204. Procedure to Demand Payment.
(1) A shareholder who is given a Dissenters' notice pursuant to
section 7-113-203 and who wishes to assert Dissenters' rights shall, in
accordance with the terms of the Dissenters' notice:
(a) Cause the corporation to receive a payment demand,
which may be the payment demand form contemplated in section
7-113-203(2)(d), duly completed, or may be stated in another
writing; and
(b) Deposit the shareholder's certificates for certificated
shares.
(2) A shareholder who demands payment in accordance with subsection
(1) of this section retains all rights of a shareholder, except the right to
transfer the shares, until the effective date of the proposed corporate action
giving rise to the shareholder's exercise of Dissenters' rights and has only
the right to receive payment for the shares after the effective date of such
corporate action.
(3) Except as provided in section 7-113-207 or
7-113-209(1)(b), the demand for payment and deposit of certificates are
irrevocable.
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(4) A shareholder who does not demand payment and deposit the
shareholder's share certificates as required by the date or dates set in the
Dissenters' notice is not entitled to payment for the shares under this
article.
Section 7-113-205. Uncertificated Shares.
(1) Upon receipt of a demand for payment under section 7-113-204
from a shareholder holding uncertificated shares, and in lieu of the deposit
of certificates representing the shares, the corporation may restrict the
transfer thereof.
(2) In all other respects, the provisions of section 7-113-204
shall be applicable to shareholders who own uncertificated shares.
Section 7-113-206. Payment.
(1) Except as provided in section 7-113-208, upon the effective
date of the corporate action creating Dissenters' rights under section
7-113-102 or upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each Dissenter who complied with
section 7-113-204, at the address stated in the payment demand, or if no such
address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder
holding the Dissenter's shares, the amount the corporation estimates to be the
Fair Value of the Dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section
shall be accompanied by:
(a) The corporation's balance sheet as of the end of its
most recent fiscal year or, if that is not available, the
corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, and, if the corporation customarily
provides such statements to shareholders, a statement of changes in
shareholders' equity for that year and a statement of cash flow for
that year, which balance sheet and statements shall have been
audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available
financial statements, if any, for the interim or full-year period,
which financial statements need not be audited;
(b) A statement of the corporation's estimate of the Fair
Value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the Dissenter's right to demand payment
under section 7- 113-209; and
(e) A copy of this article.
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Section 7-113-207. Failure to Take Action.
(1) If the effective date of the corporate action creating
Dissenters' rights under section 7-113-102 does not occur within sixty days
after the date set by the corporation by which the corporation must receive
the payment demand as provided in section 7-113-203, the corporation shall
return the deposited certificates and release the transfer restrictions
imposed on uncertificated shares.
(2) If the effective date of the corporate action creating
Dissenters' rights under section 7-113-102 occurs more than sixty days after
the date set by the corporation by which the corporation must receive the
payment demand as provided in section 7-113-203, then the corporation shall
send a new Dissenters' notice, as provided in section 7-113-203, and the
provisions of sections 7-113-204 to 7-113-209 shall again be applicable.
Section 7-113-208. Special Provisions Relating to Shares Acquired
After Announcement of Proposed Corporate Action.
(1) The corporation may, in or with the Dissenters' notice given
pursuant to section 7- 113-203, state the date of the first announcement to
news media or to shareholders of the terms of the proposed corporate action
creating Dissenters' rights under section 7-113-102 and state that the
Dissenter shall certify in writing, in or with the Dissenter's payment demand
under section 7- 113-204, whether or not the Dissenter (or the person on whose
behalf Dissenters' rights are asserted) acquired beneficial ownership of the
shares before that date. With respect to any Dissenter who does not so certify
in writing, in or with the payment demand, that the Dissenter or the person on
whose behalf the Dissenter asserts Dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of
making the payment provided in section 7-113-206, offer to make such payment
if the Dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section
shall include or be accompanied by the information required by section
7-113-206(2).
Section 7-113-209. Procedure if Dissenter is Dissatisfied With Payment or
Offer.
(1) A Dissenter may give notice to the corporation in writing of
the Dissenter's estimate of the Fair Value of the Dissenter's shares and of
the amount of interest due and may demand payment of such estimate, less any
payment made under section 7-113-206, or reject the corporation's offer under
section 7-113-208 and demand payment of the Fair Value of the shares and
interest due, if:
(a) The Dissenter believes that the amount paid under
section 7-113-206 or offered under section 7-113-208 is less than
the Fair Value of the shares or that the interest due was
incorrectly calculated;
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(b) The corporation fails to make payment under section
7-113-206 within sixty days after the date set by the corporation
by which the corporation must receive the payment demand; or
(c) The corporation does not return the deposited
certificates or release the transfer restrictions imposed on
uncertificated shares as required by section 7-113-207(1).
(2) A Dissenter waives the right to demand payment under this
section unless the Dissenter causes the corporation to receive the notice
required by subsection (1) of this section within thirty days after the
corporation made or offered payment for the Dissenter's shares.
PART 3. JUDICIAL APPRAISAL OF SHARES
Section 7-113-301. Court Action.
(1) If a demand for payment under section 7-113-209 remains
unresolved, the corporation may, within sixty days after receiving the payment
demand, commence a proceeding and petition the court to determine the Fair
Value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay to each Dissenter
whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in
subsection (1) of this section in the district court of the county in this
state where the corporation's principal office is located or, if it has no
principal office in this state, in the district court of the county in which
its registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged into, or whose shares were acquired by, the foreign
corporation was located.
(3) The corporation shall make all Dissenters, whether or not
residents of this state, whose demands remain unresolved parties to the
proceeding commenced under subsection (2) of this section as in an action
against their shares, and all parties shall be served with a copy of the
petition. Service on each Dissenter shall be by registered or certified mail,
to the address stated in such Dissenter's payment demand, or if no such
address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder
holding the Dissenter's shares, or as provided by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more person as appraisers to receive evidence and
recommend a decision on the question of Fair Value. The appraisers have the
powers described in the order appointing them, or in any amendment to such
order. The parties to the proceeding are entitled to the same discovery rights
as parties in other civil proceedings.
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(5) Each Dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the Fair Value of the Dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the Fair Value,
plus interest, of the Dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
Section 7-113-302. Court Costs and Counsel Fees.
(1) The court in an appraisal proceeding commenced under section
7-113-301 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation; except that the court
may assess costs against all or some of the Dissenters, in amounts the court
finds equitable, to the extent the court finds the Dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts due the court finds equitable:
(a) Against the corporation and in favor of any Dissenters
if the court finds the corporation did not substantially comply
with the requirements of part 2 of this article; or
(b) Against either the corporation or one or more
Dissenters, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to the
rights provided by this article.
(3) If the court finds that the services of counsel for any
Dissenter were of substantial benefit to other Dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to said counsel reasonable fees to be paid
out of the amounts awarded to the Dissenters who were benefitted.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the provisions of the Delaware General Corporation Law
("Delaware GCL"), Acquisition has adopted provisions in its Certificate of
Incorporation and Bylaws which require Acquisition to indemnify its officers
and directors to the fullest extent permitted by law, and eliminate the
personal liability of its directors to Acquisition or its stockholders for
monetary damages for breach of their duty of due care except (i) for any
breach of the duty of loyalty; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law; (iii) for
liability under Section 174 of the Delaware GCL (relating to certain unlawful
dividends, stock repurchases or stock redemptions); or (iv) for any
transaction from which the director derived any improper personal benefit. In
addition, Acquisition's Certificate of Incorporation and Bylaws require
Acquisition to indemnify its directors and officers, permit Acquisition to
insure its directors and officers and permit Acquisition to indemnify or
insure its employees or agents to the fullest extent permitted by Delaware
law, including those circumstances in which indemnification would otherwise be
discretionary, except that Acquisition shall not be obligated to advance
expenses or to indemnify any such person (i) with respect to proceedings,
claims or actions initiated or brought voluntarily by any such person and not
by way of defense,(ii) for any amounts paid in settlement or an action
indemnified against by Acquisition without the prior written consent of
Acquisition, or (iii) in connection with any event in which the person did not
act in good faith and in a manner reasonably believed to be in or not opposed
to the best interest of the Corporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are furnished as part of this Regulatory Statement.
2.1 Merger Agreement (appears in ANNEX A to Proxy Statement-Prospectus)
2.2 Amendment to Merger Agreement (appears in ANNEX A to Proxy
Statement-Prospectus)
3.1 Certificate of Amendment of Whitman Medical Corp.**
4.1 Form of Certificate of Common Stock*
5.1 Opinion of Robinson, St. John & Wayne**
8.1 Opinion of Robinson, St. John & Wayne
23.1 Consent of Ernst & Young LLP
23.2 Consent of Stockman, Kast, Ryan and Scuggs
23.3 Consent of Robinson, St. John & Wayne (appears in Exhibit 5.1)
24.1 Power of Attorney**
- ---------------------------
*Incorporated by reference to Whitman's Registration Statement on Form S-18,
Registration Statement No. 2-71623, filed April 3, 1981, as amended, as the
same number exhibit.
**Previously filed.
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(b) Financial Statement Schedule(s):
Schedules have been omitted for the reason that they are not required or not
applicable, or the required information is shown in the financial statements
or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Issuer pursuant to the provisions referred to in Item 20, or otherwise,
the Issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of this matter.
The undersigned registrant hereby undertakings:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and
182435-1
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<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy Statement-Prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
fled subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this registration statement, or amendment
thereto, to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Iselin, State of New Jersey on January 19, 1996.
WHITMAN MEDICAL CORP.
By: /s/ Randy S. Proto
--------------------
Name: Randy S. Proto
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on the 19th day of January, 1996.
/s/ Randy S. Proto * /s/ Phillip Frost, M.D.
- ------------------------ -------------------------------------
Name: Randy S. Proto Name: Phillip Frost, M.D.
Title: President Title: Chairman of the Board of
Directors
* /s/ Joseph Lichtenstein
- -----------------------------------
Name: Joseph Lichtenstein
Title: Vice President, Secretary,
Treasurer, and Director
182435-1
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<PAGE>
* /s/ Isaac Kaye * /s/ Jack R. Borsting
- ------------------ -----------------------
Name: Isaac Kaye Name: Jack R. Borsting
Title: Director Title: Director
* /s/ Richard C. Pfenniger, Jr. * /s/ Peter S. Knight
- ------------------------------ -------------------------
Name: Richard C. Pfenniger, Jr. Name: Peter S. Knight
Title: Director Title: Director
* By: /s/ Randy S. Proto
------------------
Randy S. Proto, Attorney-in-fact
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<PAGE>
Index to Exhibits
Item No. Description Page No.
2.1 Merger Agreement (appear's in Annex
A to the Proxy-Statement-Prospectus)**
2.2 Amendment to Merger Agreement (appears in Annex A to the
Proxy Statement-Prospectus)
3.1 Certificate of Amendment of Whitman
Medical Corp.**
4.1 Form of Certificate of Common Stock*
5.1 Opinion of Robinson, St. John & Wayne**
8.1 Opinion of Robinson, St. John &
Wayne
23.1 Consent of Ernst & Young LLP
23.2 Consent of Stockman, Kast, Ryan & Scuggs
23.3 Consent of Robinson, St. John &
Wayne (appears in Exhibit 5.1)
24.1 Power of Attorney**
- ------------------------------
*Incorporated by reference to Whitman's Registration Statement on
Form S-18, Registration Statement No. 2-21623, filed April 3, 1981, as amended,
as the same number exhibit.
**Previously filed.
182435-1
Exhibit 8.1
December 29, 1995
M.D.J.B., Inc.
4435 N. Chestnut Street
Colorado Springs, CO 80907
Re: Merger of M.D.J.B., Inc. with and into Whitman Medical Acquisition
Corporation
Ladies and Gentlemen:
We have acted as counsel to Whitman Medical Corp. ("Whitman") in connection
with the proposed merger pursuant to which M.D.J.B., Inc. ("MDJB"), will be
merged with and into Whitman Medical Acquisition Corporation ("Acquisition"), a
wholly-owned subsidiary of Whitman (the "Merger"). You have requested that we
provide certain opinions concerning the Federal income tax consequences of the
Merger as specified in Section 10.04 of the Agreement and Plan of Merger dated
as of September 12, 1995 among Whitman, Acquisition and MDJB, as amended (the
"Agreement and Plan of Merger"). Terms used and not otherwise defined herein
shall have the respective meanings ascribed to such terms in the Agreement and
Plan of Merger.
Upon consummation of the Merger, each issued and outstanding share of MDJB
Common Stock (other than shares of MDJB Common Stock as to which the holders
have validly exercised their dissenters' rights under the provisions of
applicable Colorado law) will be converted into the right to receive shares of
Whitman Common Stock as provided in the Agreement and Plan of Merger.
In providing the following opinions, we have relied on the description of
the transaction as set forth in the Agreement and Plan of Merger, the Proxy
Statement-Prospectus (draft dated December 13, 1995) in substantially the form
to be distributed to MDJB and Whitman stockholders in connection with the
Merger, and in the accompanying exhibits to each of those documents, and on
representations provided by Whitman, Acquisition and MDJB and certain
stockholders of MDJB concerning certain facts underlying and relating to the
Merger. Further, our opinions are based upon the Internal Revenue Code of 1986,
as amended (the "Code"), the legislative history with respect thereto, rules and
regulations promulgated thereunder, published rulings of the Internal Revenue
Service and court decisions, all as in effect and existing on the date hereof,
and all of which are subject to change at any time, possibly on a retroactive
basis. There can be no assurance that our conclusions will not be rendered
invalid as a result of subsequent changes in the law, including changes to the
Code, the regulations thereunder, and the interpretation thereof by the courts
and the Internal Revenue Service.
Based upon the subject to the foregoing, and upon our consideration of
applicable law, we are of the opinion that:
(i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Code;
(ii) Whitman, Acquisition and MDJB each will be a party to that
reorganization within the meaning of section 368(b) of the Code;
and
(iii) no gain or loss will be recognized by the stockholders of MDJB to
the extent they receive solely Whitman Common Stock in exchange for
shares of MDJB Common Stock.
This opinion is rendered to you in connection with the transaction
described herein. This opinion may not be used or relied upon by any person
other than MDJB and the holders of MDJB Common Stock or for any other purpose
without our prior written consent.
Very truly yours,
/s/ Robinson, St. John & Wayne
Robinson, St. John & Wayne
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4) and related
Prospectus of Whitman Medical Corp. for the registration of 1,250,000 shares
of its Common Stock and to the use therein of our report dated May 5, 1995
(except for Note 15, as to which the date is June 15, 1995), with respect
to the consolidated financial statements of Whitman Medical Corp. included
in its Annual Report (Form 10-K/A) for the year ended March 31, 1995, filed
with the Securities and Exchange Commission.
ERNST & YOUNG LLP
MetroPark, New Jersey
January 18, 1996
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement no. 33-
64153 of Whitman Medical Corporation of our report dated February 4, 1995 and
September 12, 1995 appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Stockman Kast Ryan & Scruggs, P.C.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
January 16, 1996
PRELIMINARY COPY
M.D.J.B., INC.
PROXY
1995 SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints David D. O'Donnell and William Ayer,
and each of them, with full power of substitution as proxies for the
undersigned, to attend the special meeting of shareholders of M.D.J.B., Inc.
to be held at Colorado Technical University located at 4435 N. Chestnut Street,
Room 250, Colorado Springs, Colorado 80907 on Saturday, February 24, 1996
at 10:00 a.m., Mountain Time, or any adjournment thereof, and to vote the
number of shares of Common Stock of the Company that the undersigned would be
entitled to vote, and with all the power the undersigned would possess, if
personally present, as follows:
1. ADOPTION OF THE MERGER AGREEMENT WITH WHITMAN MEDICAL CORP.
AND THE TRANSACTIONS CONTEMPLATED THEREBY:
[ ] FOR, or [ ] AGAINST, or [ ] ABSTAIN
2. In their discretion, on such other business as may properly
come before the meeting or any adjournment thereof.
(CONTINUED ON THE OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
THE PROXIES WILL VOTE AS SPECIFIED ABOVE, OR IF A CHOICE IS NOT
SPECIFIED, THEY WILL VOTE FOR THE PROPOSAL LISTED IN ITEM 1.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Receipt of Notice of Special Meeting of
Shareholders and Proxy Statement-Prospectus
dated _______, 1996 is hereby acknowledged:
Dated _________________________, 1996
_____________________________________
_____________________________________
_____________________________________
Signature(s)
(PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES
APPEAR HEREON, INDICATING, WHERE PROPER,
OFFICIAL POSITION OR REPRESENTATIVE CAPACITY.)
182435-1
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<PAGE>
PRELIMINARY COPY
WHITMAN MEDICAL CORP.
PROXY
1995 SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Randy S. Proto and Joseph
Lichtenstein, and each of them, with full power of substitution as proxies for
the undersigned, to attend the special meeting of shareholders of Whitman
Medical Corp., to be held at the offices of Ernst & Young LLP located at
99 Wood Avenue South, Iselin, New Jersey 08830, on February 27, 1996
at 10:00 a.m., Eastern Time, or any adjournment thereof, and to vote the
number of shares of Common Stock of the Company that the undersigned
would be entitled to vote, and with all the power the undersigned would
possess, if personally present, as follows:
1. ADOPTION OF THE MERGER AGREEMENT WITH M.D.J.B., INC. AND THE
TRANSACTIONS CONTEMPLATED THEREBY:
[ ] FOR, or [ ] AGAINST, or [ ] ABSTAIN
2. ADOPTION OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
OF THE COMPANY TO CHANGE THE NAME OF WHITMAN MEDICAL CORP. TO
WHITMAN EDUCATION GROUP, INC.:
[ ] FOR, or [ ] AGAINST, or [ ] ABSTAIN
3. In their discretion, on such other business as may properly
come before the meeting or any adjournment thereof.
(CONTINUED ON THE OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
THE PROXIES WILL VOTE AS SPECIFIED ABOVE, OR IF A CHOICE IS NOT
SPECIFIED, THEY WILL VOTE FOR THE PROPOSALS LISTED IN ITEMS 1 AND 2.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Receipt of Notice of Special Meeting of
Shareholders and Proxy Statement-Prospectus
dated _______, 1996 is hereby acknowledged:
Dated ________________________, 1996
____________________________________
____________________________________
____________________________________
Signature(s)
(PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES
APPEAR HEREON, INDICATING, WHERE PROPER,
OFFICIAL POSITION OR REPRESENTATIVE CAPACITY.)
182435-1
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