SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 1-13722
WHITMAN EDUCATION GROUP, INC.
Incorporated under the laws of the I.R.S. Employer Identification Number
State of Florida 22-2246554
4400 BISCAYNE BOULEVARD
MIAMI, FLORIDA 33137
(305) 575-6510
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, NO PAR VALUE AMERICAN STOCK EXCHANGE
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of June 1, 1999, there were 13,431,550 shares of Common Stock
outstanding.
The aggregate market value of the voting stock held by non-affiliates of
the registrant on June 1, 1999 was approximately $46,220,440.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of our Definitive Proxy Statement for our 1999 Annual
Meeting of Stockholders scheduled to be held August 6, 1999 are incorporated by
reference into Part III of this Report.
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WHITMAN EDUCATION GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business.......................................... ....... 3
Item 2. Properties......... ...................................... 22
Item 3. Legal proceedings......................................... 23
Item 4. Submission of matters to a vote of security holders....... 23
Executive Officers of the Registrant...................... 23
PART II
Item 5. Market for registrant's common equity and related
stockholder matters....................................... 25
Item 6. Selected financial data................................... 26
Item 7. Management's discussion and analysis of financial condition
and results of operations................................. 27
Item 7A. Quantitative and qualitative disclosures about
market risk............................................... 33
Item 8. Financial statements and supplementary data............... 33
Item 9. Changes in and disagreements with accountants on
accounting and financial disclosure....................... 33
PART III
Item 10. Directors and executive officers of the registrant........ 33
Item 11. Executive compensation.................................... 33
Item 12. Security ownership of certain beneficial owners
and management............................................ 34
Item 13. Certain relationships and related transactions............ 34
PART IV
Item 14. Exhibits, financial statement schedules, and reports
on Form 8-K............................................... 34
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PART I
Item 1. Business
You are cautioned that the following text concerning our business should be
read in conjunction with the "Forward-Looking Statements; Business Risks"
appearing at the end of Item 1 and that certain statements made in this Item 1
are qualified by the risk factors set forth in that section. Please keep in mind
while reading this report that:
-"We," "Us" or "Whitman" Refers to Whitman Education Group, Inc. and Its
Subsidiaries.
-"Colorado Tech" refers to the three campuses of Colorado Technical
University, and except where otherwise noted, also includes its Huron
University campus.
-"Sanford-Brown" refers collectively to our five Sanford-Brown College
campuses.
-"UDS" refers collectively to the fifteen Ultrasound Diagnostic Schools.
GENERAL
We are a proprietary provider of career-oriented postsecondary education.
Through three wholly- owned subsidiaries, we currently operate 24 schools in 13
states offering a range of graduate, undergraduate and non-degree certificate or
diploma programs primarily in the fields of information technology, healthcare
and business to more than 8,000 students.
We are organized into a University Degree Division and an Associate Degree
Division through which we offer education programs. The University Degree
Division primarily offers doctorate, master's and bachelor's degrees through
Colorado Tech. The Associate Degree Division offers associate's degrees and
diplomas or certificates through Sanford-Brown and UDS.
Our students are predominantly adults, generally between the ages of 24 and
35, who commute to our schools and require limited ancillary student services.
The students are seeking to acquire basic knowledge and skills necessary for
entry-level employment in technical careers or to acquire new or additional
skills to either change careers or advance in their current careers.
Our executive offices are located at 4400 Biscayne Boulevard, 6th Floor,
Miami, Florida 33137, and our telephone number is (305) 575-6510.
BACKGROUND
We were originally incorporated in New Jersey in 1979. In 1983, we acquired
two UDS schools in New York which offered non-degree programs only in diagnostic
medical ultrasound. Enrollment in the two schools was less than 50 students.
Over the next nine years, we opened eight additional UDS schools and increased
our total enrollment to approximately 400 students.
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In 1992, Dr. Phillip Frost invested in Whitman and became our Chairman. At
the time of his investment, we had revenues of approximately $3.8 million from
UDS operations, and total enrollment at the ten existing UDS schools was
approximately 675. We continued to expand UDS by adding five additional
locations by 1994, for a total of 15 locations.
In 1994, we began to expand the scope of our business to offer a broader
range of certificate programs in our UDS schools. Beginning in late 1994, we
began offering cardiovascular technology and medical assisting programs in our
UDS schools. In addition, in 1994 we began to evaluate acquisition candidates
that would permit us to offer a broader range of career-oriented programs,
including degree-based programs.
In December 1994, we acquired Sanford-Brown, a nationally-accredited
college founded in 1868, which offers associate degree programs in business,
computer technology and healthcare. With three campuses in and around St. Louis,
Missouri, one in Kansas City, Missouri and one in Granite City, Illinois,
Sanford-Brown added approximately 1,500 students to our enrollment.
Sanford-Brown, together with UDS, created a network of 20 schools offering both
associate's degrees and non-degree programs in information technology,
healthcare and business. These 20 schools comprise our Associate Degree
Division.
In March 1996, we further broadened our degree program offerings by
acquiring Colorado Tech in Colorado Springs, Colorado. Founded in 1965, Colorado
Tech is a regionally-accredited institution offering doctorate, master and
bachelor degrees in various information technology and business fields. Through
the acquisition of Colorado Tech, we realized one of our goals of offering a
full range of degree programs. The maturity of Colorado Tech and the quality of
its programs also created the opportunity for us to expand by replicating the
Colorado Tech model either in new locations or through the conversion of
acquired institutions. Colorado Tech is the foundation of our University Degree
Division.
Colorado Tech began an expansion program in late 1996. In October 1996,
Colorado Tech opened its second campus in Denver, Colorado; and in December
1996, Colorado Tech expanded its educational content and geographic scope
through the acquisition of two campuses of Huron University in Huron and Sioux
Falls, South Dakota. Huron University, which was founded in 1883, offered an MBA
program as well as bachelor degree programs in healthcare, business, computer
technology and education. After the acquisition of Huron University, the Sioux
Falls campus was converted into an additional location of Colorado Tech because
both the Sioux Falls campus and Colorado Tech principally serve the adult
learner - generally, working adults seeking to advance in an existing career. In
addition, Huron University's MBA program was installed at the other Colorado
Tech campuses. Huron University's Huron campus, however, principally directs its
efforts to serving more traditional students, younger adults pursuing
degree-based higher education upon graduation from high school.
In order to sharpen our strategic focus, we have decided to divest our
Huron University campus and focus our efforts on adult learners. Although the
curricula is career-oriented at Huron University, there are fundamental
differences in a campus serving working adults and a campus serving more
traditional students. Accordingly, in February, 1999, we entered into an
agreement whereby the business operations of Huron University will be
transferred to a new ownership group to be formed by the current chancellor of
Huron University, who will remain with Huron University as its president once
the transaction has been completed.
Completion of the transaction is subject to various conditions,
including the obtaining of adequate financing by the new owners,
the obtaining of all necessary state and other governmental agency approvals,
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the attaining of independent accreditation of Huron University and Huron
University independently qualifying for participation in federal Title IV
student financial assistance programs administered by the United States
Department of Education. We anticipate that these conditions will be fulfilled
sometime in the second half of calendar 1999 after which we will close the
transaction, although there can be no assurance that the transaction will be
consummated.
In connection with the expansion of programs and locations and the
acquisition of new schools, we have continually focused on strengthening our
management and improving our facilities to foster effective oversight of our
operations. In March 1996, we relocated our headquarters from New Jersey to
Miami, Florida. In addition, through both recruitment and acquisition over the
past several years, we established an entirely new executive management team and
have broadened and upgraded our middle management team by adding individuals
with broad experience in proprietary education. We have also expanded the
breadth and depth of our Board of Directors to provide a diverse base of
knowledge and skills in education, regulated industry, mergers and acquisitions,
and business generally, particularly high-growth businesses.
In 1997, we reincorporated in the State of Florida, where we maintain our
corporate headquarters.
THE POSTSECONDARY EDUCATION MARKET
The postsecondary education market is estimated to exceed $210 billion
annually, with more than 14 million students enrolled in over 6,000 single and
multi-location institutions nationwide. According to the United States
Department of Education, the population enrolled in such institutions will
increase by nearly 1.5 million students to over 16 million students by the year
2005. Further, of the Title IV financial aid eligible institutions,
approximately 3,000 are for-profit, with approximately 500 of those offering
associate's degrees or higher. Total enrollment in for-profit institutions is
estimated to be less than 5% of the overall market.
Additionally, we believe that the market for entry-level associate's
degrees is enhanced by the increasing number of new high school graduates,
projected to increase from 2.5 million in 1994 to 3.1 million in 2004. It is
further enhanced by an increase in the percentage of recent high school
graduates who continue their education after graduation. According to the
National Center For Education Statistics, this percentage increased from
approximately 57% in 1987 to 67% in 1997. In addition, the number of adult
learners is increasing. Adults over the age of 24 constitute the largest
group of students measured by age category. The United States Department of
Education estimates that by the year 2001 approximately 6.6 million
or 42% of the students attending postsecondary institutions will be adults
over the age of 24.
Further, the continuing shift in the information age from non-skilled to
skilled workers is dramatic. According to economists, in 1950, 40% of the
workforce in the United States was considered skilled or professional; in 1991
this number had risen to 65% and, it is projected that in the year 2000, 85% of
jobs will require education or training beyond high school. This shift is
reflected by and further driven by the income premium placed on postsecondary
education. According to the United States Census Bureau, in 1995, a full- time
male worker with an associate degree earned an average of 37% more per year than
a comparable worker with only a high school diploma, and a full-time male worker
with a bachelor's degree earned an average of 72% more per year than a
comparable worker with only a high school diploma.
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Based on these trends, we are focusing our efforts in serving two distinct
groups of postsecondary students: those seeking to rapidly enter new careers or
change careers and those seeking to advance in existing careers. Our Associate
Degree Division focuses principally on the former market segment and our
University Degree Division focuses principally on the latter market segment. We
believe that by organizing our business into two divisions, we will be able to
better capitalize on opportunities in both of these market segments.
BUSINESS STRATEGY
We intend to capitalize on what we believe are favorable trends in the
postsecondary education market by focusing on career-oriented education programs
designed primarily for adult learners seeking to acquire basic knowledge and
skills necessary for entry-level employment in new careers or advance in their
current careers. Having established a broad base of educational content offered
in a broad range of degree (associate's, bachelor's, master's and doctorate) and
non-degree programs, we believe we are well-positioned to focus our efforts on
further internal growth.
In the short term, we believe that our best opportunity for achieving
growth will come from the integration of existing operations with the basic
objectives of increasing revenues at existing schools and improving overall
operating efficiencies at each school and within our operations as a whole. To
accomplish our goal of increasing revenues from our existing schools, we intend
to increase enrollment by adding curricula at our existing locations and by
improving our marketing efforts. We also intend to expand our educational
programs. The expansion of educational programs will include the elevation of
certain certificate and diploma programs to associate degree programs as well as
the development of new curricula. We also intend to develop and offer continuing
education programs and corporate training programs for which our curricula is
well-suited and can be customized on a cost-effective basis.
While we will continue to strive for increased revenues and enhanced
operating efficiencies from our current operations in the short term, in the
intermediate and longer term, we will seek to expand our network of campuses by
opening new campuses. We may establish new locations where we believe the
population of working adults, the local employment market, the availability of
management talent and demographic trends will permit us to successfully
replicate our operational model. Establishment of new locations will be subject
to our ability to comply with or satisfy applicable regulatory requirements of
the United States Department of Education and state licensing and accreditation
requirements. We may also augment our expansion through selective strategic
acquisitions where an acquisition is a more feasible alternative both
financially and operationally.
OPERATING STRUCTURE
We operate as two divisions: the University Degree Division and the
Associate Degree Division. Each division focuses on a different segment of the
postsecondary career education market. Our corporate office provides various
centralized administrative services to each of our divisions and has a
management structure which develops and implements corporate policies and
procedures within each division. Each division has campus managers who oversee
the daily operations of their campuses and district directors who
oversee multiple campus locations. We believe that this management
structure allows local school management to develop valuable
local market experience and community and employer relationships that
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are vital to the adult career education market, while still realizing the
economies of scale and degree of control associated with centralization.
The University Degree Division is currently comprised of Colorado Tech, a
regionally-accredited institution. Huron University is an additional location of
Colorado Tech. Students attending the three principal Colorado Tech campuses are
typically working adults seeking to advance in their current careers. Huron
University, being a more traditional institution, primarily serves the
traditional student attending college immediately following high school.
Colorado Tech offers various bachelor's degrees in computer science, management,
engineering and education; master's degrees in computer science, computer
engineering, electrical engineering, management and business administration; and
doctorate degrees in computer science and management. We believe that flexible
course structures, class schedules designed for the working adult, and the
introduction of local-campus doctorate programs have solidified Colorado Tech's
position as a recognized leading source of adult education in its current
markets and have established a successful, replicable model for growth and
expansion into new markets. Huron University is a more traditional residential
based university. The sale of this campus is pending.
The Associate Degree Division focuses on the adult learner who desires to
rapidly change careers or to quickly enter a new career field. The Associate
Degree Division is currently comprised of Sanford- Brown and UDS, which provide
adult students with associate's degrees and professional certificate programs
primarily in the areas of healthcare, computer technology and business.
Sanford-Brown is a nationally- accredited institution that provides various
associate's degrees in computer technology, business, and various allied health
fields and similar professional certificate programs. UDS is also nationally
accredited and provides professional certificate programs in diagnostic medical
ultrasound, cardiovascular technology, medical assisting and surgical
technology. We anticipate offering a new program, Health Information Specialist,
at selected campuses this fiscal year.
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EDUCATIONAL PROGRAMS
We offer a range of career-oriented educational programs, substantially all
of which are in the areas of computer and electronic technology, healthcare and
business. We offer various concentrations in these programs at the associate's,
bachelor's, master's and doctorate levels as well as the professional diploma
and certificate levels. Our programs are designed primarily to serve the adult
learner seeking to acquire basic knowledge and skills necessary for entry-level
employment or to acquire new or additional skills to change careers or to
advance in their current careers. Each institution maintains curriculum action
groups, comprised of faculty, campus program directors and corporate curriculum
specialists, that periodically review and revise curricula as a result of
feedback from students, local advisory boards comprised of professionals in
career fields related to the programs and local employers.
Our educational programs, by degree level, are set forth below:
<TABLE>
<CAPTION>
UNIVERSITY DEGREE DIVISION ASSOCIATE DEGREE DIVISION
- ------------------------------------------------------- -----------------------------------------------------------
COLORADO TECHNICAL UNIVERSITY HURON UNIVERSITY 1 SANFORD-BROWN COLLEGE ULTRASOUND DIAGNOSTIC SCHOOL
<S> <C> <C> <C>
DOCTORATE PROGRAMS MASTER DEGREE PROGRAM ASSOCIATE DEGREE SPECIALIZED ASSOCIATE
Computer Science Business Administration PROGRAMS DEGREE PROGRAMS
Management Computer Information Systems (Florida campuses only)
BACHELOR DEGREE Network Administration Diagnostic Medical Ultrasound
MASTER DEGREE PROGRAMS PROGRAMS Interactive Multimedia Non-Invasive Cardiovascular
Computer Science Computer Science Physical Therapy Assistant Technology
Computer Engineering Management Information Systems Occupational Therapy Assistant
Electrical Engineering Financial Management Respiratory Therapy
Management Management Radiography PROFESSIONAL DIPLOMA
Business Administration Managerial Accounting Nursing PROGRAMS
Teacher Education Medical Assistant Diagnostic Medical Ultrasound
BACHELOR DEGREE Nursing Accounting/Business Management Non-Invasive Cardiovascular
PROGRAMS Criminal Justice Office Administration Technology
Computer Engineering Athletic Training Paralegal Studies Medical Assistant
Computer Science Computer Programming Surgical Technology
Information Technology ASSOCIATE DEGREE
Management Information Systems PROGRAMS PROFESSIONAL DIPLOMA
Telecommunication Electronics Management Information Systems PROGRAMS
Technology Business Management Computer Applications
Electrical Engineering Accounting Computer Programming
Electronic Engineering Technology Nursing Network Administration
Management Criminal Justice Interactive Multimedia
Criminal Justice Practical Nursing
Medical Assistant
Respiratory Therapy
ASSOCIATE DEGREE Accounting
PROGRAM Administrative Office Assistant
Information Technology
Electronics Technology
Business Management
Accounting
Medical Assisting
Criminal Justice
- -------------------
<FN>
1 A campus of Colorado Technical University
</FN>
</TABLE>
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The following table provides information as of May 15, 1999 regarding the
programs offered by each of our schools:
<TABLE>
<CAPTION>
LENGTH OF
TYPE OF NUMBER OF NUMBER OF PROGRAM
SCHOOL PROGRAM LOCATIONS STUDENTS (IN MONTHS1)
------ ------- --------- ---------- ------------
UNIVERSITY DEGREE DIVISION
- --------------------------
<S> <C> <C> <C> <C>
Colorado Technical University Doctoral 2 86 36
Master 3 639 21-25
Bachelor 3 1,394 36
Associate 3 197 18
Non-degree 3 185 Varies
School total 2,501
======
Huron University Master 1 23 21
Bachelor 1 418 48
Associate 1 48 24
Non-degree 1 20 Varies
School total 509
======
Associate Degree Division
Sanford-Brown College Associate 4 1,021 14-18
Non-degree 5 477 11-14
School Total 1,498
======
Ultrasound Diagnostic School Non-degree 15 3,320 9-18
Specialized
Associate 3 278 9-18
------
School Total 3,598
======
Total 8,106
======
Tuition and fees for our programs vary depending on the nature of the
program and the location of the school. Based on rates to be implemented during
the current fiscal year, tuition and fees for the non- degree
programs in the Associate Degree Division range from approximately $9,000
for the nine-month medical assistant program offered by UDS to approximately
$22,500 for the longest associate degree programs offered by Sanford-Brown.
At Colorado Tech, tuition and fees range from approximately $31,000
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<FN>
1 At Colorado Tech, the working adult student typically do not attend their
program on a full-time basis. Therefore, it generally takes longer than the
stated program length to complete the program.
</FN>
</TABLE>
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to $33,000 for the bachelor's degree programs, $13,500 to $19,000 for the
master's program and approximately $35,000 for the doctorate program.
Academic schedules are designed to meet the needs of the adult student. UDS
offers all three of its programs during the day or evening and classes begin
generally every five weeks. Sanford-Brown's programs begin quarterly and are
offered both during the day and evening. Degree programs at Colorado Tech's
Colorado Springs, Denver and Sioux Falls campuses are offered principally in the
evening to accommodate the Colorado Tech student who is typically a working
adult. Classes at Huron are offered principally during the day to meet the
demands of the more traditional student.
STUDENT RECRUITMENT
We utilize a wide array of advertising and marketing strategies to attract
students to our schools, including various combinations of newspaper, radio,
direct contact with human resources departments of various corporations,
television and direct mail. We market each of our schools on a local basis, and
draw the vast majority of our students from the local areas surrounding each
school. We measure the effectiveness of our marketing efforts by tracking the
enrollment rates and costs associated with each form of marketing. Typically,
approximately 25% of our schools' new enrollment is generated by referrals from
graduates or current students with the remainder resulting from advertising
efforts.
STUDENT ADMISSIONS
Each school employs several admissions representatives who interview and
enroll students on-site and a variety of support personnel to assist students in
the admissions process. Each of our schools has admission requirements designed
to ensure that entering students have the educational and work experience,
personal circumstances and the ability necessary to successfully complete their
program of study. Admission requirements differ from program to program and
school to school, but at a minimum, each applicant must be a high school
graduate or possess the recognized equivalent credential, perform successfully
on a personal interview, and in most cases, perform adequately on an entrance
examination. The admissions process is monitored by a director of admissions in
each location, and periodically reviewed for compliance by corporate personnel.
GRADUATE CAREER SERVICES
Each of our schools operates a career services department that provides
career development services to current students and alumni. These services
include various combinations of seminars/courses covering interviewing skills,
resume preparation and enhancement, job search skills, and career planning
advice. In addition, the career services departments of the various schools make
contact with potential employers on behalf of the schools and individual
graduates, schedule interviews, attempt to obtain feedback regarding graduate
performance on interviews and on the job, and provide on-going re-placement
assistance to graduates.
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COMPETITION
The postsecondary school industry is highly fragmented. Typically, no
single public or private school or group of schools dominates markets on a local
or national basis. Accordingly, each of our schools has various competitors,
including public and private colleges and other proprietary institutions. In
addition, in almost all of the geographic areas in which UDS campuses are
located, hospitals also operate programs to train medical sonographers.
Generally, however, hospitals operate these programs for their own staffing
requirements only.
Competition is typically based on the nature and quality of the programs
offered, flexibility of class scheduling, service to the student customers and
employability of graduates. Certain public and private colleges may offer
programs similar to ours at a lower tuition cost due in part to government
subsidies, foundation grants, tax deductible contributions and other financial
resources not available to proprietary institutions. However, tuition at
private, non-profit institutions is, on average, higher than the average tuition
rates of our schools.
SUPERVISION AND REGULATION
GENERAL. Each of our schools is subject to regulation by: (i) the state in
which it operates; (ii) its accrediting body; and (iii) the United States
Department of Education because they are certified to participate in federal
financial aid programs ("Title IV Programs") authorized under the Higher
Education Act of 1965, as amended. The loss of authorization to operate in
states in which we currently operate, the withdrawal of accreditation from our
schools, or the loss of the schools' eligibility to participate in Title IV
Programs would have a material adverse effect.
STATE AUTHORIZATION. Except for South Dakota which no longer regulates
educational institutions, we are required to have authorization to operate in
each state where we physically provide educational programs. Certain states
accept accreditation as evidence of meeting minimum state standards for
authorization. Other states require separate evaluations for authorization.
Generally, the addition of a program 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. Our schools are currently authorized to
operate in all states in which they have physical locations and such
authorization is required. State authorization is required for an institution to
become and remain eligible to participate in Title IV Programs.
ACCREDITATION. Accreditation is a non-governmental process through which an
institution submits itself to qualitative review by an organization of peer
institutions. There are three types of accrediting agencies: (i) national
accrediting agencies, which accredit institutions on the basis of the overall
nature of the institutions without regard to geographic location; (ii) regional
accrediting agencies, which primarily accredit institutions based within their
geographic areas; and (iii) programmatic accrediting agencies, which accredit
specific educational programs offered by institutions. Accreditation
serves as: the basis for the recognition and acceptance by
employers, other higher education institutions and governmental
entities of degrees and credits earned by our students; one of
the qualifications to participate in Title IV Programs; and the
qualification for authorization to operate in certain states. Accrediting
agencies primarily examine the academic quality of the instructional
programs of an institution, and a grant of accreditation is
generally viewed as validation that an institution's
programs meet generally accepted academic standards. Accrediting
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agencies also review the administrative and financial operations of the
institutions they accredit to ensure that each institution has the resources to
perform its educational mission.
Pursuant to provisions of the Higher Education Act, the Department of
Education relies on accrediting agencies and state licensing bodies to determine
whether institutions' educational programs qualify them to participate in the
Title IV Programs. The Higher Education Act requires each recognized accrediting
agency to submit to a periodic review of its procedures and practices by the
Department of Education as a condition of its continued recognition. Accrediting
agencies that meet the Department of Education standards are recognized as
reliable arbiters of educational quality. As required under the Title IV Program
rules, each of our schools is accredited by an accrediting body recognized by
the Department of Education.
The Higher Education Act requires accrediting agencies recognized by the
Department of Education to review many aspects of an institution's operations to
ensure that the education or training offered by the institution is of
sufficient quality to achieve, for the duration of the accreditation period, the
stated objective for which the education or training is offered. Under the
Higher Education Act, a recognized accrediting agency must perform regular
inspections and reviews of institutions of higher education.
If an accrediting agency believes that an institution may be out of
compliance with accrediting standards, it may place the institution on probation
or a similar warning status or direct the institution to show cause why its
accreditation should not be revoked. An accrediting agency may also place an
institution on "reporting" status in order to monitor one or more specific areas
of the institution's performance. An institution placed on reporting status is
required to report periodically to its accrediting agency on that institution's
performance in a specific area. Failure to demonstrate compliance with
accrediting standards in any of these instances could result in loss of
accreditation. While on probation, show cause or reporting status, an
institution may be required to seek permission of its accrediting agency to open
and commence instruction at new location.
FEDERAL FINANCIAL AID PROGRAMS. We derive a majority of our revenue from
students who participate in Title IV Programs under the Higher Education Act,
and the regulations promulgated thereunder by the Department of Education. The
potential loss of student financial aid due to our failure to comply with a
requirement of the regulations would have a material adverse effect.
A brief description of these programs follows:
FEDERAL PELL GRANT ("PELL"). Federal Pell Grants are a primary
component of the Title IV Programs under which the Department of Education makes
grants to students who demonstrate financial need. Every eligible student is
entitled to receive a Pell Grant; there is no institutional allocation or limit.
For the 1998-99 award year, Pell Grants range from $400 to $3,000 per year.
FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT ("FSEOG"). FSEOG
awards are designed to supplement Pell Grants for the neediest students. FSEOG
awards generally range in amount from $100 to $4,000
per year; however the availability of FSEOG awards is limited
by the amount of those funds allocated to an institution
under a formula that takes into account the size of the
institution, its costs and the income levels of its students.
We are required to make a 25% matching contribution for
all FSEOG program funds disbursed. Resources for this
institutional contribution may include institutional grants, scholarships
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and other eligible funds and, in certain states, portions of state scholarships
and grants. During the 1997-98 award year, our required 25% institutional match
was approximately $14,050.
FEDERAL FAMILY EDUCATION LOAN PROGRAM ("FFEL"). The FFEL program
consists of two types of loans; Stafford loans, which are made available to
students, and PLUS loans, which are made available to parents of students
classified as dependents. Under the Stafford loan program, a student may borrow
up to $2,625 for the first academic year, $3,500 for the second academic year
and, in some educational programs, $5,500 for each of the third and fourth
academic years. Students with financial need qualify for interest subsidies
while in school and during grace periods. Students who are classified as
independent can increase their borrowing limits and receive additional
unsubsidized Stafford loans. Such students can obtain an additional $4,000 for
each of the first and second academic years and, depending upon the educational
program, an additional $5,000 for each of the third and fourth academic years.
The obligation to begin repaying Stafford loans does not commence until six
months after a student ceases enrollment as at least a half-time student.
FEDERAL PERKINS LOAN PROGRAM ("PERKINS"). Eligible undergraduate
students may borrow up to $3,000 under the Perkins program during each academic
year, with an aggregate maximum of $15,000, at a 5% interest rate and with
repayment delayed until nine months after the borrower ceases to be enrolled on
at least a half-time basis. Perkins loans are made available to those students
who demonstrate the greatest financial need. Perkins loans are made from a
revolving account, 75% of which was initially capitalized by the Department of
Education. Subsequent federal capital contributions, with an institutional match
in the same proportion, may be received if an institution meets certain
requirements. Each institution collects payments on Perkins loans from its
former students and loans those funds to students currently enrolled. Collection
and disbursement of Perkins loans is the responsibility of each participating
institution. Presently, only Colorado Tech utilizes the Perkins program.
FEDERAL WORK STUDY ("FWS"). Under the FWS program, federal funds are
made available to pay up to 75% of the cost of part-time employment of eligible
students, based on their financial need, to perform work for the institution or
for off-campus public or non-profit organizations. At least 5% of an
institution's FWS allocation must be used to fund student employment in
community service positions.
FEDERAL OVERSIGHT OF TITLE IV PROGRAMS. In order to participate in Title IV
Programs, we must comply with complex standards set forth in the Higher
Education Act and the regulations including the demonstration of "financial
responsibility" and the "administrative capability" to handle and disburse Title
IV funds. Compliance with such standards is subject to periodic reviews by the
Department of Education and state and national agencies which guarantee the
loans made in the Title IV Programs. Disbursements made under the Title IV
Programs are subject to disallowance and repayment if such reviews result in
adverse findings and if such findings are sustained after an institution has
exhausted its right to appeal. We believe that our institutions are in
substantial compliance with the Higher Education Act and the regulations. We
cannot, however, predict with certainty how all of the Higher Education Act
provisions and the regulations will be applied. As described below, our
violation of the Title IV Program requirements could have a material adverse
effect on our financial condition or results of operations. In addition, it is
possible that the Higher Education Act and the regulations may be applied in a
way that could hinder our operations or expansion plans.
ELIGIBILITY AND CERTIFICATION PROCEDURES. The Higher Education Act and its
implementing regulations require each institution to apply to the
Department of Education for continued eligibility and certification to
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participate in the Title IV Programs at least every five years, or when it
undergoes a change of control, opens an additional location or raises the
highest academic credential it offers.
PROVISIONAL CERTIFICATION. An institution may be placed on provisional
certification status for a period not to exceed three years, if the Department
of Education finds that the institution does not fully satisfy all of its
eligibility and certification standards. Provisional certification differs from
full certification in that a provisionally certified school may be terminated
from eligibility to participate in Title IV Programs without the same
opportunity for a hearing before an independent hearing officer and an appeal to
the Secretary of Education afforded to a fully certified school. Further, the
Department of Education may impose additional conditions on a provisionally
certified institution's eligibility to continue participating in Title IV
Programs. If an institution successfully participates in Title IV Programs
during its period of provisional certification but fails to satisfy the full
certification criteria, the Department of Education may renew the institution's
provisional certification. Further, any institution seeking eligibility to
participate in Title IV Programs after a change in control will be provisionally
certified for a limited period, following which the institution will be required
to reapply for continued eligibility.
LEGISLATIVE ACTION
Political and budgetary concerns significantly affect the Title IV
Programs. Congress must re- authorize the Higher Education Act approximately
every six years. The most recent re-authorization in 1998 re-authorized the
Higher Education Act through September 30, 2004. Congress re-authorized
all of the Title IV Programs in which our schools participate, generally
in the same form and at funding levels no less than for the prior year. While
the 1998 re-authorization of the Higher Education Act made numerous changes to
Title IV Program requirements, we believe that these changes will not have a
material adverse effect on our business, results of operations or financial
condition. Changes made by the 1998 re-authorization of the Higher Education
Act include:
- expanding the adverse effects on schools of high student loan default
rates,
- increasing from 85% to 90% the limit of the proprietary school's revenue
that may be derived each year from Title IV Programs,
- revising the refund standards that require an institution to return a
portion of the Title IV Program funds for students who withdraw from
school,
- giving the Department of Education flexibility to continue an
institution's Title IV participation without interruption in some
circumstances following a change of ownership or control,
- changing the formula for calculating the interest rate on FFEL loans and
- modifying the definition of default from 180 days to 270 days past due
for loans payable in monthly installments.
In addition, Congress reviews and determines federal appropriations for
Title IV Programs on an annual basis. Congress can also make changes in
the laws affecting the Title IV Programs in the annual
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appropriation bills and in other laws it enacts between re-authorizations of the
Higher Education Act. Since a significant percentage of our revenue is derived
from the Title IV Programs, any action by Congress that significantly reduces
Title IV Program funding or the ability of our schools or students to
participate in the Title IV Programs could have a material adverse effect on our
business, results of operations or financial condition. Legislative action may
increase our administrative costs and require us to adjust our practices in
order for our schools to comply fully with the Title IV Program requirements.
THE 90/10 RULE. The Higher Education Act requires that an annual
calculation 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
this rule, a proprietary school will be ineligible to participate in Title IV
Programs if, under a modified cash basis of accounting, more than 90% (for
fiscal years ending on or after October 1, 1998, and 85% for fiscal years ending
before that date) of revenues from its Title IV eligible programs for the prior
fiscal year, were derived from Title IV Program funds. If a school were to fail
the 90/10 rule fo r a particular fiscal year, it would be ineligible to
participate in Title IV Programs as of the first day of the following fiscal
year and would be unable to apply to regain its eligibility until the next
fiscal year. Furthermore, if one of our schools violated the 90/10 rule and
became ineligible to participate in Title IV Programs but continued to disburse
Title IV Program funds, the Department of Education would consider all Title IV
Program funds disbursed to the institution after the effective date of the loss
of eligibility to be a liability subject to repayment by the institution.
The Office of the Inspector General ("OIG") of the Department of Education
is currently conducting an audit of the SBC campus in Granite City, Illinois for
the fiscal year ended March 31, 1998. Although this audit has not yet been
completed and no audit report has been issued, the OIG representatives have
questioned the Granite City campus' inclusion of institutional scholarships as
non-Title IV funds in determining compliance with the 85/15 rule. We have
responded to the OIG. Although we believe that the Granite City campus was in
compliance with the 85/15 rule and that the OIG audit will be resolved without
any material adverse effect, as with any such audit, no assurance can be given
as to the final outcome since matters are not yet resolved.
ADMINISTRATIVE CAPABILITY. The Higher Education Act directs the Department
of Education to assess the administrative capability of each institution to
participate in Title IV Programs. The Department of Education has issued
regulations that require each institution to satisfy a series of separate
standards. Failure to satisfy any of the standards may lead the Department of
Education to determine that the institution lacks administrative capability and,
therefore, is not eligible to continue its participation in Title IV Programs or
must be placed on provisional certification status as a condition of such
continued participation.
Under regulations issued by the Department of Education in 1996, as of
January 1, 1998, each institution must utilize certain electronic processes
provided by the Department of Education in order to be considered
administratively capable. Our institutions fully comply with this new
requirement.
INCENTIVE COMPENSATION. An additional standard in the Higher Education Act
prohibits an institution from providing any commission, bonus or other incentive
payment based directly or indirectly on success in securing enrollments or
financial aid to any person or entity engaged in any student recruitment,
admission or financial aid awarding activity. The Department of Education has
provided only limited guidance respecting compliance with this requirement. Our
employees involved in student recruitment, admissions or financial aid receive a
salary and participate in a bonus plan available to all employees. Based on
written guidance from the Department of Education, we believe that our method of
compensating these employees complies with the requirements of the Higher
Education Act. The regulations do not, however, establish clear
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standards for compliance, and there can be no assurance that the Department of
Education will interpret its regulations in the same manner as we have.
STANDARDS OF FINANCIAL RESPONSIBILITY. Each eligible institution (except
for state-owned institutions) must satisfy certain standards of financial
responsibility to continue to participate in Title IV Programs. To be considered
financially responsible under the regulations, an institution must, among other
things, (i) have sufficient cash reserves to make required refunds; (ii) be
current in its debt payments; (iii) be meeting all of its financial obligations;
and (iv) meet prescribed financial standards. For purposes of these standards,
Sanford-Brown and Colorado Tech have historically been evaluated as distinct
entities, while the Department of Education has evaluated UDS on the basis of
the financial performance of Whitman as a whole. However, the regulations allow
the Department of Education to evaluate an institution based on its own
financial condition or that of its corporate parent and there can be no
assurance that the method by which the Department of Education evaluates our
schools will not change in the future.
In November 1997, the Department of Education revised the applicable
standards of financial responsibility. However, the new regulations provide a
transition year alternative for fiscal years beginning after July 1, 1997 and
prior to June 30, 1998. In its transition year, an institution can elect to be
evaluated under either the old or new standards of financial responsibility. Our
transition year is our 1999 fiscal year covered by this Report. The new
standards will become absolutely applicable to our financial statements in our
next fiscal year, ending March 31, 2000. We believe we currently meet both the
old and new standards of financial responsibility.
To be considered financially responsible under the new regulations, an
institution must achieve a composite score of at least 1.5 based on the
institution's Equity, Primary Reserve and Net Income ratios, as calculated on
the basis of the institution's annual audited financial statements. The Equity
Ratio measures capital resources, ability to borrow and financial viability. The
Primary Reserve Ratio measures an institution's ability to support current
operations from expendable resources. The Net Income Ratio measures an
institution's ability to operate profitably.
Once these ratios are computed on the basis of an institutions annual
audited financial statements, they are adjusted by strength factors, weighted
and added to create the composite score which may range from negative one to
three. If the resulting composite score is 1.5 or greater, the institution is
deemed to be financially responsible. If the institution's composite score is
below 1.5, the institution is deemed not to be financially responsible. If the
institution's composite score is more than 1.0 and less
than 1.5, the institution may continue to participate in Title
IV Programs, even though it is deemed not to be financially responsible,
for a period of no more than three years, provided its composite score remains
in the range of 1.0 to 1.4 in each of those years. An institution participating
in Title IV Programs on this basis must participate in the Title IV Programs on
the reimbursement or cash monitoring method of payment under which an
institution must disburse its own funds to students before receiving Title IV
Program funds and must provide the Department of Education with timely
information with respect to certain matters and financial events. The Department
of Education may also request from such institutions additional information
about their current operations and/or future plans. If an institution achieves a
composite score of 1.0 or below, the institution may establish financial
responsibility by posting an irrevocable letter of credit in favor of the
Department of Education in an amount equal to not less than one-half the Title
IV Program funds received by students enrolled at such institution during the
prior fiscal year.
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Under the new standards, our composite score on a consolidated basis (as
historically applied to UDS) is 2.2. Colorado Tech's composite score is 2.6 and
Sanford-Brown's composite score is 2.7. While we will constantly evaluate and
attempt to improve our composite score prior to March 31, 2000, there
can be no assurance that all of our institutions will meet the minimum composite
score of 1.5 at March 31, 2000 and therefore avoid the heightened monitoring
by the Department of Education or the requirement to submit a letter of credit
as described above.
Even if an institution achieved a composite score of at least 1.5, however,
it may be deemed to lack financially responsibility if (i) the
institution's audit report contains an adverse, qualified or disclaimed
opinion, (ii) the institution's participation in Title IV Programs has been
limited, suspended or terminated in the past five years, (iii) in the past two
years, as the result of a finding in its compliance audit or in a program review
by the Department of Education, the institution was required to repay an amount
greater than 5% of the funds the institution received under Title IV in the year
covered by the audit or program review, (iv) the institution has failed in the
past five years to timely submit compliance and financial statement audits, or
(v) the institution failed to resolve satisfactorily any compliance problems
identified in audit or program reviews. The institution may also be deemed to be
not financially responsible if certain controlling persons owe, or are
associated with another institution that owes, Title IV liabilities to the
Department of Education.
Under the old regulations, the three principal numeric standards of
financial responsibility are: profitability, the acid test ratio and tangible
net worth.
PROFITABILITY. A school may not have net operating losses, as defined by
the regulations, 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 ten percent of the
school's tangible net worth at the beginning of the two-year period. We were
profitable in both fiscal 1998 and fiscal 1999 and therefore meet this standard.
ACID TEST RATIO. A school must maintain a ratio of cash, cash equivalents,
certain restricted cash and current accounts receivable to total current
liabilities of at least one to one at the end of its fiscal year. At March 31,
1999, our acid test ratio (applicable to UDS) was 1.10 to 1.00, Colorado Tech's
acid test ratio was 1.32 to 1.00, and Sanford-Brown's acid ratio test was 1.08
to 1.00.
TANGIBLE NET WORTH. An eligible institution is required to have a positive
tangible net worth at the completion of its fiscal year. At March 31, 1999,
Colorado Tech, Sanford-Brown and Whitman each had a positive tangible net worth.
Under the Department of Educations's financial responsibility standards, an
institution that is determined by the Department of Education not to be
financially responsible on the basis of failing to meet one or more of the
specified financial responsibility standards is nonetheless entitled to
participate in Title IV Programs if it can demonstrate to the Department of
Education that it is financially responsible on an alternative basis. Generally,
an institution may submit an irrevocable letter of credit in favor of the
Department of Education, in an amount equal to at least one-half of the total
Title IV Program funds received by students enrolled at such institution during
the prior fiscal year or, in some circumstances, the institution may be required
to submit a letter of credit in an amount equal to at least ten percent of such
prior fiscal year's funds and agree to be provisionally certified and disburse
Title IV funds only after earned by the institution and approved by the
Department of Education. If required to do so, there is no assurance that we
would be able to secure the necessary funds or collateral to post a sufficient
letter of credit to comply with either alternative.
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Under a separate standard of financial responsibility, an institution that
has made late student refunds in more than 5% of cases in either of its last two
fiscal years must post a letter of credit in favor of the Department of
Education in an amount equal to 25% of the total Title IV Program refunds paid
by the institution in its prior fiscal year. Based on this standard, in
October 1998, we posted letters of credit amounting to $450,000 as a result
of late refund findings with respect to fiscal 1998.
COHORT DEFAULT RATES. The regulations also require the calculation of a
cohort default rate on FFEL received by current and former
students to attend the institution. The cohort default rate measures the
percentage of students who enter repayment in a particular federal fiscal year
on FFEL loans and default before the end of the following federal fiscal year.
If a school's official cohort default rate equals or exceeds 25% for each of its
three most recent federal fiscal years, it becomes ineligible to participate in
the FFEL programs as well as the Pell program for the remainder of the year in
which the Department of Education makes that determination and the subsequent
two years. A school may also become ineligible to participate in all Title IV
Programs if its official default rate exceeds 40% in any one fiscal year. A
school's cohort default rate is published annually by the Department of
Education. The most recent official cohort year published was for fiscal year
1996 (published in October 1998). UDS' official 1996 rates ranged from 5.1% to
14.1%; Sanford-Brown's official 1996 rates were 10.0% and 14.7% and Colorado
Tech's official 1996 rate was 5.9%. All of our schools' preliminary 1997 default
rates were below 25% with no preliminary rate exceeding 16.5%. The fiscal year
1996 cohort default rates for all of our schools average 10.5; the average rate
for all proprietary institutions in the United States for the same period was
approximately 18%.
In addition, the regulations provide that in the event that an institution
has an FFEL cohort default rate in excess of 25%, or a Perkins loan default rate
of more than 15% in a year, the Department of Education may place that
institution on provisional certification to participate in Title IV Programs.
Provisional certification may last no longer than three years. As a result of
high default rates at Sanford - Brown's Granite City and Missouri campuses in
federal fiscal years 1992 and 1993, Sanford-Brown's certification to participate
in Title IV Programs is provisional at this time. Sanford-Brown's default rates
in 1994, 1995 and, 1996 were all below the 25% threshold.
CHANGE OF CONTROL. A change of ownership which results in a change in
control (as defined below) of Whitman or one or more of our institutions could
result in all (if Whitman changes ownership) or some of our schools becoming
ineligible to participate in Title IV Programs pending recertification by the
Department of Education. Such change in ownership and control could also require
reauthorization to operate by individual states and trigger a
review by each of our school's accrediting bodies. However, the
1998 re-authorization of the Higher Education Act provides that the Department
of Education may provisionally and temporarily certify an institution undergoing
a change of control under certain circumstances while the Department of
Education reviews the institution's application for recertification.
With regard to publicly held companies, the Department of Education has
generally adopted the change of ownership and control standards used in
reporting such events under federal securities law. A change in control of
Whitman which would require the filing of a Current Report on Form 8-K with the
Securities and Exchange Commission would also require our schools to seek
recertification from the Department of Education as outlined above. A failure to
obtain such recertification would have a material adverse effect on our
financial condition.
Our acquisition of other institutions typically would result in a change of
ownership resulting in a change of control with regard to the acquired
institution. When a change in control does occur, the school's
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certification by the Department of Education following the change in control is
provisional. As a result of the change in ownership resulting in a change in
control that occurred in connection with our acquisition of Colorado Tech in
March 1996, Colorado Tech was provisionally certified for participation in Title
IV Programs until March 31, 1999, at which time it became fully certified.
Similarly, Sanford-Brown was provisionally certified for the three year period
following its acquisition in 1994 due to its change in control. Each accrediting
body and state agency which authorizes us to operate our schools has different
regulations regarding changes in control which could require re-authorization or
re-accreditation. Our failure to obtain state re-authorization or
re-accreditation of any of our schools subsequent to a change in control would
have a material adverse effect on our financial condition.
COMPLIANCE AUDITS. Our institutions are subject to audits or program
compliance reviews by various external agencies, including the Department of
Education, and state, guaranty and accrediting agencies. The Higher Education
Act and its implementing regulations also require that an institution's
administration of Title IV Program funds be audited annually by an independent
accounting firm. If the Department of Education or another regulatory agency
were to determine that one of our institutions had improperly disbursed Title IV
Program funds or had violated a provision of the Higher Education Act or the
implementing regulations, the affected institution could be required to repay
such funds to the Department of Education or the appropriate state agency or
lender and could be assessed an administrative fine. If the Department of
Education viewed the violation as significant, the Department of Education may
also transfer the institution from the advance system of receiving Title IV
Program funds to the reimbursement system, under which a school must disburse
its own funds to students and document students' eligibility for Title IV
Program funds before receiving such funds from the Department of Education.
Violations of Title IV Program requirements could also subject us to other civil
and criminal penalties. In addition, if one or more of the institutions commits
significant violations of regulatory standards governing Title IV Programs, the
Department of Education may initiate a proceeding to impose a fine, place
restrictions on an institution's participation in Title IV Programs or terminate
its eligibility to participate in Title IV Programs. The Department may also
initiate an emergency action to temporarily suspend an institution's
participation in the Title IV Programs without advance notice if it determines
that a regulatory violation creates an imminent risk of material loss of public
funds. An institution may appeal any such action initiated by the Department
with the exception of an action placing an institution on reimbursement,
although a provisionally certified institution has more limited appeal rights.
A fine, up to $25,000 per violation, may be assessed by the Department of
Education based on the gravity of the violation and taking into account the size
of the institution. Potential restrictions may include a suspension of an
institution's ability to participate in Title IV Programs for up to 60 days
and/or a limitation of an institution's participation in the Title IV Programs,
either by limiting the number or percentage of students enrolled who may
participate in Title IV Programs or by limiting the percentage of an
institution's total receipts derived from Title IV Programs. An institution may
apply for removal of a limitation no sooner than 12 months from the effective
date of the limitation and must demonstrate that the violation at issue has been
corrected. If the Department of Education terminates the eligibility of an
institution to participate in Title IV Programs, the institution in most
circumstances must wait 18 months before requesting a reinstatement of its
participation. An institution that loses its eligibility to participate in Title
IV Programs due to a violation of the 90/10 rule may not apply to resume
participation in Title IV Programs for at least one year. Depending on the
severity of the fine, suspension or limitation, such action could have a
material adverse effect on our financial condition. A termination of our
eligibility to participate in Title IV Programs would have a material adverse
effect on our fiancial condition. There is no proceeding pending to fine any
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of our institutions or to limit, suspend or terminate any of our institutions'
participation in the Title IV Programs.
EXPANSION OF PROGRAMS AND LOCATIONS. Generally, if an institution eligible
to participate in Title IV Programs adds an educational program after it has
been designated as an eligible institution, the institution must apply to the
Department of Education to have the additional program designated as eligible.
However, an institution is not obligated to obtain Department of Education
approval of an additional program that leads to a diploma, associate,
baccalaureate, professional or graduate degree or which prepares students for
gainful employment in the same or related recognized occupations as any
educational programs that had previously been designated as eligible programs at
that institution, and meets certain minimum length requirements.
An institution must notify the Department of Education of any location at
which it provides 50% or more of an academic program and may be required to file
an application seeking eligibility for any such location. An additional location
must satisfy all applicable requirements for institutional eligibility, with the
exception of the requirement that it operate for two years prior to obtaining
Title IV funds, but including the requirement that it obtain approval from the
institution's accrediting agency and the relevant state authorizing agency.
SEASONALITY
We experience seasonality in our quarterly results of operations as a
result of changes in the level of student enrollments. New enrollments in our
schools tend to be higher in the third and fourth fiscal quarters because these
quarters cover periods traditionally associated with the beginning of school
semesters. We expect that this seasonal trend will continue. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EMPLOYEES
At March 31, 1999, we had approximately 695 full-time and 432 part-time
employees of whom 550 were faculty and 514 were administrative personnel at the
various schools. The remaining employees were employed by us at our
administrative offices.
FORWARD-LOOKING STATEMENTS; BUSINESS RISKS
Sections of this Report contain statements that are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"), and we intend that such forward-looking statements be subject
to the safe harbors created thereby. Statements in this Report containing the
words "estimate," "project," "anticipate," "expect," "intend," "believe" and
similar expressions may be deemed to create forward-looking statements. These
statements are based on our current expectations and beliefs concerning future
events that are subject to risks and uncertainties. Actual results may differ
materially from the results suggested herein and from the results historically
experienced.
Forward-looking statements contained in this Report may relate to: (i) our
future operating plans and strategies; (ii) the expansion of our business
through the addition of new curricula or new locations, the elevation of certain
locations to degree-granting status or by acquisitions; (iii) the expectation of
Year 2000
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software failures; (iv) our anticipated need for and our ability to fund capital
expenditures associated with the relocation and upgrade of facilities in fiscal
2000; (v) the Department of Education's enforcement or interpretation of
existing regulations affecting our operations; (vi) the seasonality of our
results of operations; (vii) the outcome of pending legal or regulatory
proceedings; and (viii) the sufficiency of our working capital, financings
including our ability to increase our borrowing if necessary, and cash flow
from operating activities for our future operating and capital requirements.
We wish to caution you that in addition to the important factors described
elsewhere in this Form 10-K, the following important factors, among others,
sometimes have affected, and in the future could affect, our actual results and
could cause our actual consolidated results during fiscal 2000, and beyond, to
differ materially from those expressed in any forward-looking statements made by
us, or on behalf : (i) our plans, strategies, objectives, expectations and
intentions are subject to change at any time at our discretion; (ii) the
unanticipated impact of Year 2000 issues, particularly the failure of products
or services from third party vendors to function properly in the Year 2000;
(iii) our ability to successfully divest Huron University, and if not divested,
to increase enrollment to a level sufficient to achieve profitability at this
campus; (iv) the ultimate resolution of pending legal proceedings relating to
UDS' general ultrasound program; (v) the effect of, and our ability to comply
with, state and federal government regulations regarding education and
accreditation standards, or the interpretation or application thereof, including
the level of government funding for, and our eligibility to participate in,
student financial aid programs; (vi) our ability to assess and meet the
educational needs and demands of our customers and employers; (vii) the effect
of competitive pressures from other educational institutions; (viii) our ability
to manage planned internal growth; (ix) our ability to locate, obtain and
finance favorable school sites, negotiate acceptable lease terms, and hire and
train employees; (x) the effect of economic conditions in the postsecondary
education industry and in the economy generally; (xi) the role of the Department
of Education's, Congress' and the public's perception of for-profit education as
it relates to changes in the Higher Education Act and regulations promulgated
thereunder.
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ITEM 2. PROPERTIES
We lease all of our administrative and campus facilities. We, along with
our Associate Degree Division, maintain headquarters in Miami, Florida, where
combined we lease approximately 11,000 square feet of office space.
Sanford-Brown also has limited administrative facilities at its Des Peres
campus. Colorado Tech maintains its administrative offices at its campus in
Colorado Springs, Colorado.
Our schools are operated from the following leased premises:
<TABLE>
<CAPTION>
ADDRESS OF SCHOOL SCHOOL SIZE OF FACILITY
(IN SQUARE FEET)
- ------------------ ------ ---------------------
<S> <C> <C>
Colorado Springs, Colorado Colorado Tech 80,000
Sioux Falls, South Dakota Colorado Tech 21,064
Denver, Colorado Colorado Tech 18,298
Huron, South Dakota Huron University 229,859*
North Kansas City, Missouri Sanford-Brown 38,500
Des Peres, Missouri Sanford-Brown 28,474
Hazelwood, Missouri Sanford-Brown 24,500
St. Charles, Missouri Sanford-Brown 14,650
Granite City, Illinois Sanford-Brown 12,253
New York, New York UDS 14,500
Carle Place, New York UDS 14,607
Iselin, New Jersey UDS 13,000
Atlanta, Georgia UDS 11,469
Bellaire, Texas UDS 10,398
Tampa, Florida UDS 10,263
Irving, Texas UDS 11,453
Trevose, Pennsylvania UDS 10,204
Elmsford, New York UDS 10,034
Jacksonville, Florida UDS 15,871
Springfield, Massachusetts UDS 12,819
Pittsburgh, Pennsylvania UDS 6,238
Fort Lauderdale, Florida UDS 11,800
Independence, Ohio UDS 11,282
Landover, Maryland UDS 7,703
_________________
<FN>
* The Huron,South Dakota campus of Colorado Tech consists of seven buildings
on approximately 15 acres.
We believe that all of our present campus facilities are suitable and
adequate for their current uses. We monitor the suitability of our campus
facilities to anticipate where demand for our products will create overcrowding
or exceed capacity of existing facilities and seek to expand or relocate such
campuses.
</FN>
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
We are subject to litigation and claims in the ordinary course of business,
including the following:
In August 1998, three former students of the diagnostic medical ultrasound
program of the Philadelphia UDS school filed a lawsuit against Whitman, UDS,
certain of our current and former officers, directors and employees and a former
consultant, styled CULLEN, ET AL. V. WHITMAN EDUCATION GROUP, INC., in the
United States District Court for the Eastern District of Pennsylvania (Civil
Action No. 98-CV-4076). The complaint alleged, among other things, certain state
and federal statutory violations, breach of contract and fraud and sought to
have the action certified as a class action encompassing certain students from
both the Philadelphia and Pittsburgh UDS school. The plaintiffs seek injunctive
relief, compensatory, treble and punitive damages and attorneys' fees and costs.
In January 1999, plaintiffs amended their complaint to expand the purported
class to include students who attended the general ultrasound program at any of
the 15 UDS schools and received federal financial aid during the alleged class
period. Our motion to dismiss was denied on February 3, 1999 without prejudice
to raising the same issues at a later stage of the litigation. Oral argument on
class certification was held on March 23, 1999. No ruling on class certification
has been issued. We believe the lawsuit is without merit and intend to
vigorously defend it. While the outcome cannot be predicted with certainty, if
determined adversely to us, it could have a material adverse effect our
financial position and results of operations.
We are a party to other routine litigation incidental to our business,
including but not limited to, claims involving students or graduates and routine
employment matters. While there can be no assurance as to the ultimate outcome
of any such litigation, we do not believe that any pending proceeding will
result in a settlement or an adverse judgment that will have a material adverse
effect on our financial condition or results of operations. See "Forward-Looking
Statements; Business Risks" appearing in Item 1 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list of the names, ages, positions held and business
experience during the past five years of the persons serving as our executive
officers as of March 31, 1999. Officers serve at the discretion of our Board of
Directors. There is no family relationship between any of the executive
officers, and there is no arrangement or understanding between any executive
officer and any other person pursuant to which the executive officer was
selected.
RICHARD C. PFENNIGER, JR. Mr. Pfenniger, age 43, has been our Chief
Executive Officer and Vice Chairman since March 1997 and a
director since 1992. Mr. Pfenniger was Chief Operating Officer
of IVAX Corporation from 1994 to March 1997. He served
as Senior Vice President--Legal Affairs and General Counsel of
IVAX from 1989 to 1994, and as Secretary from 1990 to 1994.
Prior to joining IVAX, Mr. Pfenniger was engaged in private law
practice. Mr. Pfenniger is a director of North American Vaccine, Inc.
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<PAGE>
RANDY S. PROTO. Mr. Proto, age 41, has been our President since 1994. In
1997, Mr. Proto also assumed the duties of Chief Operating Officer. For seven
years prior thereto, Mr. Proto was Chief Executive Officer 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.
DAVID D. O'DONNELL. Mr. O'Donnell, age 57, has been President and Chairman
of the Board of Colorado Tech since 1986. Since 1997, Mr. O'Donnell has also
been Acting Chancellor of Huron University. Prior to 1986, Mr. O'Donnell was
employed by ITT Educational Services, Inc., another provider of proprietary
education, from 1975 through February 1986 when he left to join Colorado Tech.
While at ITT Educational Services, Mr. O'Donnell served in many capacities
including Director of Marketing and Vice President and General Manager of ITT
Employment Training Systems, a subsidiary of ITT Educational Services.
FERNANDO L. FERNANDEZ. Mr. Fernandez, age 38, has served as our Vice
President--Finance, Treasurer and Chief Financial Officer since 1996. Prior to
joining us, Mr. Fernandez, a certified public accountant, served as Chief
Financial Officer of Frost-Nevada Limited Partnership from 1991 to 1996.
Previously, Mr. Fernandez served as Audit Manager for Coopers & Lybrand in
Miami.
RICHARD B. SALZMAN. Mr. Salzman, age 38, has served as our Vice
President--Legal Affairs and General Counsel and Secretary since 1996. For
approximately ten years prior to joining us, Mr. Salzman was engaged in private
law practice in Miami, Florida, primarily with the firm of Homer & Bonner, P.A.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
Our common stock is traded on the American Stock Exchange under the symbol
WIX. The following table sets forth the high and low closing prices of our
common stock as reported by the composite tape of the American Stock Exchange
for each of the quarters indicated.
<TABLE>
<CAPTION>
1999
--------------------------------
HIGH LOW
--------------- ---------------
<S> <C> <C>
Quarter Ended 6/30/98 $ 6.12 $ 4.62
Quarter Ended 9/30/98 5.37 3.12
Quarter Ended 12/31/98 4.25 2.62
Quarter Ended 3/31/99 4.94 3.50
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------
HIGH LOW
--------------- ---------------
<S> <C> <C>
Quarter Ended 6/30/97 $ 5.48 $ 3.75
Quarter Ended 9/30/97 5.94 3.63
Quarter Ended 12/31/97 6.56 5.19
Quarter Ended 3/31/98 6.69 4.75
</TABLE>
As of the close of business on June 1, 1999, there were approximately 279
record holders of our common stock. We have not paid dividends on our common
stock and do not contemplate paying dividends in the foreseeable future.
-25-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)(1)(2)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $ 73,977 $ 60,306 $ 46,993 $ 39,838 $ 19,332
Income (loss) from
operations 4,195 784 (3,245) 951 288
Net income (loss) 3,042 143 (4,363) (101) (147)
Diluted net income
(loss) per share (3) .22 0.01 (0.38) (0.01) (0.02)
Dividends None None None None None
BALANCE SHEET DATA
Total assets $ 62,580 $ 53,821 $ 48,017 $ 35,323 $ 31,600
Long-term debt and
capital lease obligations,
less current portion 12,022 14,350 11,109 11,494 9,467
Stockholders' equity 21,625 17,833 16,107 7,385 7,256
____________________
<FN>
(1) Figures have been restated to reflect the acquisition of Colorado Tech
in March 1996 which was accounted for under the pooling of interests
method of accounting. Figures also reflect the acquisition of Huron
University on December 30, 1996 which was accounted for as a purchase.
(2) All references to per share amounts have been adjusted to give
retroactive effect to the two-for-one stock split effective on
May 13, 1996.
(3) The 1,021,612 shares issued in connection with the Sanford-Brown
acquisition that remained in escrow at March 31,1996 to be disbursed to
the seller or returned to us upon the occurrence or failure to occur of
certain events relating to the regulation of Sanford-Brown were not
considered outstanding for purposes of computing the net loss per share
for fiscal 1995 and 1996 as their effect was anti-dilutive. Due to the
substantial satisfaction of such contingencies in fiscal 1997, the
shares were disbursed to the seller and considered outstanding for
purposes of computing the net loss per share for fiscal 1997.
</FN>
</TABLE>
See Consolidated Financial Statements, Item 8 of this Report,
for supplementary financial information of Whitman.
-26-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of Whitman and the notes thereto appearing
elsewhere in this report and in conjunction with "Forward-Looking Statements;
Business Risks" appearing at the end of Item 1 in that certain statements made
in this Item are qualified by the risk factors set forth in that section.
GENERAL
Through three wholly-owned subsidiaries, we currently operate 24 schools in
13 states offering a range of graduate, undergraduate and non-degree certificate
or diploma programs primarily in the fields of information technology,
healthcare and business to more than 8,000 students. We are organized into a
University Degree Division and an Associate Degree Division. The University
Degree Division offers primarily doctorate, master and bachelor degrees through
Colorado Tech and Huron University. The Associate Degree Division offers
associate degrees and diplomas or certificates through Sanford-Brown and UDS.
The revenues generated from these subsidiaries primarily consist of tuition and
fees paid by students. The majority of students rely on funds received from
Title IV Programs to pay for a substantial portion of their tuition.
Accordingly, a majority of our revenues are indirectly derived from Title IV
Programs.
Historically, our revenues have increased primarily as a result of the
expansion of program offerings and the opening or acquisition of campuses. At
UDS, the expansion of program offerings generated an increase in revenues from
$20.3 million in fiscal 1997 to $34.2 million in fiscal 1999. At Colorado Tech,
the expansion of program offerings, opening of a campus, and the acquisition of
Huron University generated an increase in revenues from $11.8 million in fiscal
1997 to $18.9 million in fiscal 1999.
Instructional and educational support consists primarily of costs related
to the educational activity of our schools. Instructional and educational
support includes faculty compensation, administrative salaries for departments
that provide services directly to the students, occupancy costs, costs of books
sold, and depreciation and amortization of equipment costs and leasehold
improvements.
Selling and promotional expenses consist primarily of advertising costs,
production costs of marketing materials, and salaries and benefits of personnel
engaged in student recruitment, admissions, and promotional functions.
General and administrative expenses consist primarily of administrative
salaries and benefits, occupancy costs, depreciation, bad debt, amortization of
intangibles, and other related costs for departments that do not provide direct
services to students.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
statement of operations data to net revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
------------ ----------- -----------
Costs and expenses:
Instructional and educational
support 64.4 67.1 66.8
Selling and promotional 13.2 14.3 14.8
General and administrative 16.7 17.3 25.3
------------ ----------- -----------
Total costs and expenses 94.3 98.7 106.9
------------ ----------- -----------
Income (loss) from operations 5.7 1.3 (6.9)
Other (income) expenses:
Interest expense 1.9 2.2 2.1
Interest income (0.4) (0.3) (0.2)
Provision for writedown or
marketable securities - - 1.4
------------ ----------- -----------
Income (loss) before income tax benefit 4.2 (0.6) (10.2)
Income tax provision (benefit) 0.1 (0.8) (0.9)
------------ ----------- -----------
Net income (loss) 4.1% 0.2% (9.3)%
============ =========== ===========
</TABLE>
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998
Net revenues increased by $13.7 million or 22.7% to $74.0 million for the
year ended March 31, 1999 from $60.3 million for the year ended March 31, 1998.
The increase was primarily due to an increase in average student enrollment.
Average student enrollment increased 17.7% overall with the University Degree
Division experiencing a 27.4% increase and the Associate Degree Division
experiencing a 12.8% increase.
The increase in student enrollment in the University Degree Division
resulted in increased net revenues of $2.9 million or 18.4%. The increase in
enrollment was primarily due to the addition of new information technology
programs, the implementation of on-site corporate programs and the relocation of
the Sioux Falls campus to a larger facility.
The increase in student enrollment and increase in earning rate in the
Associate Degree Division resulted in increased net revenues of $10.8 million or
24.2%. The increased enrollment related primarily to the medical assisting
program offered by UDS. The medical assisting program, which was introduced
during fiscal 1996 and offered at 12 of 15 campuses during fiscal 1998, was
extended to two additional campuses during fiscal 1999. In addition to the
extension of this program to additional campuses, the medical assisting program
continued to experience growth in student enrollment at the 12 campuses offering
the program prior to fiscal 1999. The increase in earning rate was primarily due
to the shortening of the length of the programs offered at Sanford-Brown
College.
Instructional and educational support expenses increased by $7.2 million or
17.7% to $47.7 million in fiscal 1999 from $40.5 million in fiscal 1998.
Instructional and educational support expenses increased by $2.3
million in the University Degree Division and $4.9 million in
the Associate Degree Division. The increase was primarily due to
the upgrade of equipment and facilities, and the addition of faculty, staff and
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<PAGE>
management at the schools to support the increase in student enrollment. The
decrease in instructional and educational support expenses as a percentage of
net revenues was due to our ability to increase revenues as a result of an
increase in student enrollment at a greater rate than the rate of increase in
such expenses related to educational services.
Selling and promotional expenses increased by $1.2 million or 13.9% to $9.8
million in fiscal 1999 from $8.6 million in fiscal 1998. The increase in selling
and promotional expenses was primarily due to increased marketing and
advertising costs at the Associate Degree Division for the programs offered at
UDS. As a percentage of net revenues, selling and promotional expenses decreased
to 13.2% in fiscal 1999 from 14.3% in fiscal 1998. The decrease in selling and
promotional expenses as a percentage of net revenues was due to our ability to
increase enrollments with a proportionately lower increase in selling and
promotional expenses.
General and administrative expenses increased by $1.9 million or 18.0% to
$12.3 million in fiscal 1999 from $10.5 million in fiscal 1998. The increase in
general and administrative expense was due primarily to an increase in
administrative costs necessary to support the growth in student enrollments and
an increase in bad debt expense due to an increase in student receivables
resulting from an increase in student enrollment. As a percentage of net
revenues, general and administrative expenses decreased to 16.7% in fiscal 1999
from 17.3% in fiscal 1998. The decrease in general and administrative expenses
as a percentage of net revenues was due to our ability to increase revenues at a
greater rate than the rate of increase in administrative operating costs.
We periodically perform an analysis of the realizability of our deferred
tax assets based on our assessment of current and expected operating results. As
of March 31, 1999, we determined that a $50,000 valuation allowance for deferred
tax assets was necessary, which resulted in a decrease in the valuation
allowance of $1,154,000 in fiscal 1999.
We reported net income of $3.0 million and $0.1 million for the years ended
March 31, 1999 and 1998, respectively. The increase in net income in fiscal 1999
was primarily due to an increase in operating income of $3.3 million generated
from the Associate Degree Division and a decrease in operating losses of $0.4
million sustained by the University Degree Division. The increase in operating
income in the Associate Degree Division was due to an increase in revenues of
$10.8 million resulting from increased student enrollment and an increased
earning rate. The decrease in the operating loss sustained by the University
Degree Division was due to an increase in revenues of $2.9 million resulting
from an increase in student enrollment. The operating results of the University
Degree Division were significantly affected by the operating losses sustained by
Huron University of $2.5 million in fiscal 1999, an increase of $1.0 million
from fiscal 1998.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
Net revenues increased by $13.3 million or 28.3% to $60.3 million for the
year ended March 31, 1998 from $47.0 million for the year ended March 31, 1997.
The increase was primarily due to an increase in average student enrollment.
Average student enrollment increased 24.5% overall with the University Degree
Division experiencing a 41.2% increase and the Associate Degree Division
experiencing a 17.7% increase.
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<PAGE>
The increase in student enrollment in the University Degree Division
resulted in increased net revenues of $4.2 million or 35.4%. This increase was
primarily due to the opening of a new Colorado Tech campus in Denver in October
1996 and the acquisition of Huron University in December 1996.
The increase in student enrollment in the Associate Degree Division
resulted in increased net revenues of $9.1 million or 25.9%. The increased
enrollment was primarily in the medical assisting programs offered by UDS which
were introduced during fiscal 1996 and were offered at 12 of 15 campuses during
fiscal 1998.
Instructional and educational support expenses increased by $9.1 million or
29.1% to $40.5 million in fiscal 1998 from $31.4 million in fiscal 1997. As a
percentage of net revenues, instructional and educational support expenses
increased to 67.1% in fiscal 1998 as compared to 66.8% in fiscal 1997.
Instructional and educational support expenses increased by $5.2 million at the
University Degree Division due to the costs incurred to support a full year of
operations of Huron University and the new Denver Colorado Tech campus. At the
Associate Degree Division, the increase in such expenses of $3.9 million was
primarily due to the upgrade of equipment and facilities, and the addition of
faculty, staff and management at the schools to support the increase in student
enrollment.
Selling and promotional expenses increased by $1.6 million or 23.1% to $8.6
million in fiscal 1998 from $7.0 million in fiscal 1997. As a percentage of net
revenues, selling and promotional expenses decreased to 14.3% in fiscal 1998
from 14.8% in fiscal 1997. The increase in selling and promotional expenses was
primarily due to increased marketing and advertising costs at the Associate
Degree Division for the programs offered at UDS and to an increase in selling
and promotional costs at the University Degree Division for the new Denver
Colorado Tech campus and the recently acquired Huron University campuses in
Huron and Sioux Falls, South Dakota.
General and administrative expenses decreased by $1.4 million or 12.1% to
$10.5 million in fiscal 1998 from $11.9 million in fiscal 1997. As a percentage
of net revenues, general and administrative expenses decreased to 17.3% in
fiscal 1998 from 25.3% in fiscal 1997. These decreases were due primarily to a
decrease in bad debt expense at the Associate Degree Division due to improved
cash collections. The decrease in general and administrative expenses as a
percentage of net revenues was due to our ability to increase revenues as a
result of an increase in student enrollment at a greater rate than the rate of
increase in administrative operating costs necessary to support the increase in
enrollment.
Interest expense increased by $333,000 due to the increase in the average
outstanding debt balance necessary to fund capital expenditures.
We periodically perform an analysis of the realizability of our deferred
tax assets based on our assessment of current and expected operating results. As
of March 31, 1998, we determined that a $1.2 million valuation allowance for our
deferred tax assets was necessary, which resulted in the recognition of a
deferred income tax benefit of $489,000 in fiscal 1998.
We reported net income of $143,000 and a net loss of $4.4 million for the
years ended March 31, 1998 and 1997, respectively. The increase in net income
for fiscal 1998 was primarily due to an increase in operating income of $5.6
million generated from the Associate Degree Division which was partially offset
by the increase in operating losses of $1.9 million sustained by the University
Degree Division. The increase in operating income in the
Associate Degree Division was due to an increase in revenues of $9.1 million
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<PAGE>
resulting from increased student enrollment and a decrease in general and
administrative expenses resulting primarily from a decrease in bad debt expense.
The increased operating losses at the University Degree Division resulted from
operating losses sustained by the new Denver Colorado Tech campus and the Huron
University campus. The operating losses sustained by these two campuses, which
were added during fiscal 1997, increased by $1.7 million in fiscal 1998 to
$2.5 million.
SEASONALITY
We experience seasonality in our quarterly results of operations as a
result of changes in the level of student enrollment. New enrollment in our
schools tends to be higher in the third and fourth fiscal quarters because these
quarters cover periods traditionally associated with the beginning of school
semesters. Costs are generally not significantly affected by the seasonal
factors on a quarterly basis. Accordingly, quarterly variations in net revenues
will result in fluctuations in income from operations on a quarterly basis.
YEAR 2000 ISSUE
We have implemented a process for identifying, prioritizing and modifying
or replacing certain computer and other systems and programs that may be
affected by the Year 2000 issue. We are also monitoring the adequacy of the
manner in which certain third parties and third party vendors of systems are
attempting to address the Year 2000 issue. We have substantially completed an
assessment of our computer systems and believe that with the modifications made
to existing software and the conversions made to new software, the Year 2000
issue will not pose significant operational problems to our information systems.
We expect to complete testing of the Year 2000 issues by mid to late 1999, which
would be prior to any anticipated impact on our operating systems.
We are highly dependent on student funding provided through Title IV
programs. Processing of student applications for this funding and actual
disbursement of a significant portion of these funds are accomplished through
the Department of Education's computer systems. Should the Department of
Education experience Year 2000 related disruptions, it could result in
interruption of funding for our students. Any prolonged interruption would have
a material adverse impact on our business, results of operations, liquidity and
financial condition. In April 1999, the Department of Education announced that
all of its 175 data systems, including its 14 mission-critical systems, are Year
2000 compliant.
Based on the assessment performed to date, costs of addressing potential
problems are not currently expected to have a material adverse impact on our
financial position, results of operations or cash flows in future periods. While
we believe our process is designed to be successful, because of the complexity
of the Year 2000 issue, and the interdependence of organizations using computer
systems, it is possible that our efforts or those of third parties with whom we
interact, will not be successful or satisfactorily completed in a timely
fashion.
Based on the modifications and conversions of software made to date and the
assessment of embedded devices that have been identified at our facilities to
date, we do not believe that contingency planning is warranted at this time. The
assessment of outside third parties is underway, and the results of this
assessment, when completed, may reveal the need for contingency planning at a
later date. We will regularly evaluate the need for contingency planning based
on the progress and findings of the Year 2000 project.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 1999, 1998 and 1997 were $4.3
million, $3.4 million and $3.9 million, respectively. Our working capital
totaled $8.4 million at March, 31, 1999, $8.0 million at March 31, 1998 and $5.7
million at March 31, 1997.
Net cash of $6.5 million was provided by operating activities in fiscal
1999, an increase in cash provided of $6.4 million from fiscal 1998 and an
increase of $8.8 million from fiscal 1997. The increase in cash provided by
operating activities in fiscal 1999 was primarily due to an increase in net
income of $2.9 million and $7.4 million from fiscal 1998 and fiscal 1997,
respectively.
Net cash of $2.0 million was used for investing activities in fiscal 1999,
a decrease of $1.7 million from fiscal 1998 and a decrease of $1.8 million from
fiscal 1997. The decrease in fiscal 1999 was primarily due to a decrease in cash
used for capital expenditures from $3.7 million and $3.9 million in fiscal 1998
and fiscal 1997, respectively, to $2.3 million in fiscal 1999.
We estimate that the capital expenditures expected to be incurred during
fiscal 2000 will approximate $3.5 million. These anticipated capital
expenditures primarily relate to the costs associated with the relocation and
upgrade of campus facilities and the acquisition and upgrade of equipment for
the schools. Funds required to finance such capital expenditures are expected to
be obtained from additional capital lease obligations and from funds generated
from operations.
Net cash of $3.6 million was used in financing activities in fiscal 1999,
an increase in cash used of $6.7 million and $10.8 million from fiscal 1998 and
fiscal 1997, respectively. The increase in cash used in investing activities in
fiscal 1999 from fiscal 1998 and fiscal 1997 was due to an increase in the
repayment of debt and due to proceeds received from a private placement in
fiscal 1997 of 1,000,000 shares of our common stock to an unaffiliated
institutional investor for $6.5 million.
We had a $7.5 million revolving credit facility which was scheduled to
mature on April 14, 1999. At March 31, 1999, we had $6.9 million outstanding
under the credit facility and letters of credit outstanding of $555,000 which
reduced the amount available for borrowing. The amounts borrowed under this
facility in fiscal 1999 were primarily used for operations and capital
expenditures. At March 31, 1999, we had letters of credit outstanding of
$715,000, including the $555,000 of letters of credit under the credit facility.
On April 2, 1999, we extended the maturity date on the credit facility to July
31, 1999. On May 28, 1999, we entered into an $8.5 million line of credit with a
new lender, which expires on June 30, 2000, and repaid the outstanding balance
due under the old credit facility with borrowings under the new line of credit.
Of the $8.5 million line of credit, $715,000 is reserved (and thus not available
for borrowing) for draws which may be made under the outstanding letters of
credit.
Our primary source of operating liquidity is the cash received from
payments of tuition and fees. Most students attending our schools receive some
form of financial aid under Title IV Programs. UDS, Sanford-Brown and Colorado
Tech receive approximately 83%, 84% and 36% of their funding, respectively, from
the Title IV Programs. Disbursements under each program are subject to
disallowance and repayment by the schools.
We believe that with our working capital, our cash flow
from operations, our increased working capital facilities and our
expected increased financings under capital lease obligations to fund capital
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<PAGE>
expenditures, we will have adequate resources to meet our anticipated operating
requirements for the foreseeable future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk associated with changes in interest rates. We
are subject to interest rate risk related to our variable-rate line of credit as
described in Note 9 of the Notes to Consolidated Financial Statements.
At March 31, 1999, our variable rate long-term debt had a carrying value of
$6.9 million. The fair value of the debt approximates the carrying value because
the variable rates approximate market rates. A 10% increase in the period end
interest rate would not have a material adverse affect on our results of
operations and financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Form 10-K commencing on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required by item 10 is incorporated by
reference to our Proxy Statement for our 1999 Annual Meeting of Shareholders
scheduled for August 6, 1999. The information concerning executive officers
required by item 10 is contained in the discussion entitled "Executive Officers
of the Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by item 11 is incorporated by reference to our
Proxy Statement for our 1999 Annual Meeting of Shareholders scheduled for August
6, 1999.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by item 12 is incorporated by reference to our
Proxy Statement for our 1999 Annual Meeting of Shareholders scheduled for August
6, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by item 13 is incorporated by reference to our
Proxy Statement for our 1999 Annual Meeting of Shareholders scheduled for August
6, 1999.
PART IV
1. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements are filed as a part of this
report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheet
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
All of the financial statement schedules have been omitted because of the
absence of the conditions under which they are required or because the required
information is included in the consolidated financial statements or the notes
thereto.
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ---------------------- --------------------------------
<S> <C> <C>
2.1 Plan and Agreement of Incorporated by reference to our
Merger Form 10-Q for the quarter ended
September 30, 1997.
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<PAGE>
3.1 Articles of Incorporation Incorporated by reference to our
Form 10-Q for the quarter ended
September 30, 1997.
3.2 By-Laws, as amended Filed herewith.
10.1 Registration Rights Agreement Incorporated by reference to our
dated as of April 6, 1992 Report on Form 8-K dated
April 6, 1992.
10.2 Amended and Restated 1986 Incorporated by reference to our
Directors and Consultants Registration Statement on Form
Stock Option Plan S-8 filed September 9, 1992.
10.3 1992 Incentive Stock Incorporated by reference to our
Option Plan Proxy Statement for the Annual
Meeting of Shareholders held on
November 19, 1992.
10.4 Whitman Education Group, Inc. Incorporated by reference to our
1996 Stock Option Plan, as Form 10-Q for the quarter ended
amended June 30, 1997.
10.5 Form of Stock Purchase Warrant Incorporated by reference to our
to purchase 575,000 shares Report on Form 8-K dated
of common stock to be issued December 21, 1994.
by Whitman Medical Corp. in
favor of Frost-Nevada,
Limited Partnership
10.6 Stock Purchase Warrant to Incorporated by reference to our
purchase 650,000 shares of Report on Form 8-K dated
common stock issued by February 26, 1996.
Whitman Medical Corp. in
favor of Phillip Frost
10.7 Employment Agreement dated as Incorporated by reference to our
of March 29, 1996 by and Report on Form 8-K/A-1 dated
between M.D.J.B., Inc. and April 11, 1996.
David O'Donnell
10.8 Credit Agreement dated as of Incorporated by reference to our
April 11, 1996 among Barnett Report on Form 10-Q for the
Bank of South Florida, quarter ended June 30, 1996.
N.A., Whitman Education Group,
Inc. and Phillip Frost, M.D.
10.9 Second Amendment to Credit Incorporated by reference to our
Agreement dated October 31, Report on Form 10-Q for the
1996 among Barnett Bank, N.A., quarter ended September 30,1996.
Bank, N.A., Whitman Education
Group, Inc.and Phillip Frost, M.D.
10.10 Form of Third Amendment to Incorporated by reference to our
Credit Agreement dated Report on Form 10-K for the year
May 19, 1997 among
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<PAGE>
Barnett Bank, N.A., Whitman ended March 31, 1997.
Education Group, Inc. and
Phillip Frost, M.D.
10.11 Form of Restated and Incorporated by reference to our
Consolidated Renewal Revolver Report on Form 10-K for the
Note dated May 19, 1997 by year ended March 31, 1997.
Whitman Education Group, Inc.
in favor of Barnett Bank, N.A.
10.12 Loan Agreement dated August 5, Incorporated by reference to our
1996 between Colorado Technical Report on Form 10-K for the
University and Bank One, March 31, 1997.
Colorado, N.A.
10.13 Form of promissory note Incorporated by reference to our
and Schedule Of Promissory Report on Form 10-K for the
Notes by Colorado Technical year ended March 31, 1997.
University, Inc. in favor of
Bank One, Colorado, N.A.
10.14 Form of commercial security Incorporated by reference to our
agreement and Schedule of Report on Form 10-K for the
Commercial Security Agreements year ended March 31, 1997.
between Colorado Technical
University, Inc. and Bank
One, Colorado, N.A.
10.15 First Amendment to Loan Incorporated by reference to our
Agreement dated December 27, Report on Form 10-K for the
1996 between Bank One, year ended March 31, 1997.
Colorado, N.A. and Colorado
Technical University, Inc.
10.16 Commercial Guaranty by Incorporated by reference to our
M.D.J.B., Inc. in favor of Report on Form 10-K for the
Bank One, Colorado, N.A. year ended March 31, 1997.
10.17 Second Amendment to Loan Incorporated by reference to our
Agreement dated February 24, Report on Form 10-K for the
1997 between Bank One, year ended March 31, 1997.
Colorado, N.A. and Colorado
Technical University, Inc.
10.18 Third Amendment to Loan Incorporated by reference to our
Agreement dated June 13, 1997 Report on Form 10-K for the
between Bank One, Colorado, year ended March 31, 1997.
N.A. and Colorado Technical
University, Inc.
10.19 Commercial Guaranty by Whitman Incorporated by reference to our
Education Group, Inc. in favor Report on Form 10-K for the
of Bank One, Colorado, N.A. year ended March 31, 1997.
10.20 Promissory Note dated June 13, Incorporated by reference to our
1997
-36-
<PAGE>
by Colorado Technical Report on Form 10-K for the
University, Inc. in favor of year ended March 31, 1997.
The Pueblo Bank and Trust
Company
10.21 Form of Commercial Guaranty Incorporated by reference to our
given by Whitman Education Report on Form 10-K for the
Group, Inc. and M.D.J.B., year ended March 31, 1997.
Inc. in favor of The Pueblo
Bank and Trust Company
10.22 Commercial Security Agreement Incorporated by reference to our
dated June 13, 1997 between Report on Form 10-K for the
Colorado Technical University, year ended March 31, 1997.
Inc. and The Pueblo Bank and
Trust Company
10.23 Form of Registration Rights Incorporated by reference to our
Agreement among Whitman Report on Form 10-K for the
Education Group, Inc. and The year ended March 31, 1997.
Travelers Indemnity Company
10.24 Contribution Agreement, dated Incorporated by reference to our
February 3, 1999, by and among Report on Form 10-Q for the
Colorado Technical University, quarter ended December 31, 1998.
Inc., Huron University, Inc.,
Newco, Inc. and David O'Donnell
10.25 Amended and Restated Filed herewith.
Contribution Agreement, dated
June 2, 1999, by and among
Colorado Technical University,
Inc., Huron University, L.L.C.,
Newco, L.L.C. and David
O'Donnell*
10.26 Fourth Amendment to Credit Filed herewith.
Agreement, dated April 2, 1999,
by and among NationsBank, N.A.
(f/k/a Barnett Bank, N.A.),
Whitman Education Group, Inc.
and Phillip Frost, M.D.
10.27 Form of Amended, Restated and Filed herewith.
Consolidated Renewal Revolver
Note, dated April 2, 1999, by
Whitman Education Group, Inc.,
in favor of NationsBank, N.A.
10.28 Fifth Amendment to Credit Filed herewith.
Agreement, dated May 29, 1999,
by and among NationsBank, N.A.
(f/k/a Barnett Bank, N.A.),
Whitman Education
-37-
<PAGE>
Group, Inc. and Phillip
Frost, M.D.
10.29 Form of Security Agreement, Filed herewith.
dated May 20, 1999, by each
of Colorado Technical
University, Inc., MDJB,
Inc., Sanford-Brown College,
Inc. and Ultrasound Technical
Services, Inc. in favor of
Merrill Lynch Business
Financial Services, Inc.
10.30 Form of Unconditional Guaranty, Filed herewith.
dated May 20, 1999 by each of
Colorado Technical University,
Inc., MDJB, Inc., Sanford-Brown
College, Inc. and Ultrasound
Technical Services, Inc. in
favor of Merrill Lynch Business
Financial Services, Inc.
10.31 WCMA Loan and Security Filed herewith.
Agreement, dated May 20, 1999,
by and between Merrill Lynch
Business Financial Services,
Inc. and Whitman Education
Group, Inc.
21 Subsidiaries Incorporated by reference to our
Report on Form 10-K for the
year ended March 31, 1996.
23.1 Consent of Ernst & Young LLP Filed herewith.
27 Financial Data Schedule Filed herewith.
______________________
<FN>
* Certain exhibits and schedules to this document have not been filed. The
Registrant agrees to furnish a copy of any omitted schedule or exhibit to the
Securities and Exchange Commission upon request.
(b) We filed no reports on Form 8-K during the quarter ended March 31,
1999.
</FN>
</TABLE>
-38-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WHITMAN EDUCATION GROUP, INC.
By: /s/ RICHARD C. PFENNIGER, JR.
-----------------------------
Richard C. Pfenniger, Jr.
Chief Executive Officer and
Vice Chairman of the Board of
Directors
Dated: June 11, 1999
-------------
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------- --------------------------- -------------
<S> <C> <C>
/s/ PHILLIP FROST, M.D. Chairman of the Board June 11, 1999
- -----------------------------
Phillip Frost, M.D.
/s/ RICHARD C. PFENNIGER, JR. Vice Chairman of the Board June 11, 1999
- -----------------------------
Richard C. Pfenniger, Jr. and Chief Executive Officer
/s/ FERNANDO L. FERNANDEZ Chief Financial Officer June 11, 1999
- -----------------------------
Fernando L. Fernandez (Principal Financial
and Accounting Officer)
/s/ JACK R. BORSTING, Ph.D. Director June 11, 1999
- -----------------------------
Jack R. Borsting, Ph.D.
/s/ PETER S. KNIGHT Director June 11, 1999
- -----------------------------
Peter S. Knight
/s/ LOIS F. LIPSETT, Ph.D. Director June 11, 1999
- -----------------------------
Lois F. Lipsett, Ph.D.
/s/ RICHARD M. KRASNO, Ph.D. Director June 11, 1999
- -----------------------------
Richard M. Krasno, Ph.D.
/s/ PERCY A. PIERRE, Ph.D. Director June 11, 1999
- -----------------------------
Percy A. Pierre, Ph.D.
/s/ NEIL FLANZRAICH Director June 11, 1999
- -----------------------------
Neil Flanzraich
/s/ A. MARVIN STRAIT Director June 11, 1999
- -----------------------------
A. Marvin Strait
</TABLE>
-39-
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
CONTENTS
Page
-----
Report of Independent Certified Public Accountants....................... F- 2
Consolidated Balance Sheets.............................................. F- 3
Consolidated Statements of Operations.................................... F- 4
Consolidated Statements of Changes in Stockholders' Equity............... F- 5
Consolidated Statements of Cash Flows.................................... F- 6
Notes to Consolidated Financial Statements............................... F- 8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Whitman Education Group, Inc.
We have audited the accompanying consolidated balance sheets of Whitman
Education Group, Inc. and subsidiaries as of March 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Whitman Education Group, Inc. and subsidiaries at March 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Miami, Florida
May 28, 1999
- F 2 -
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
---------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ 4,267,110 $ 3,384,336
Accounts receivable, net................. 27,114,533 21,354,104
Inventories.............................. 1,450,815 1,614,455
Deferred tax assets, net................. 2,562,705 1,471,043
Other current assets..................... 1,504,878 1,158,841
-------------- ---------------
Total current assets................. 36,900,041 28,982,779
Property and equipment, net................. 14,002,764 12,925,177
Marketable securities....................... - 262,500
Deposits and other assets, net of
accumulated amortization of $1,437,088
in 1999 and $1,184,657 in 1998........... 1,761,220 1,431,188
Goodwill, net............................... 9,915,590 10,219,525
-------------- ---------------
Total assets......................... $ 62,579,615 $ 53,821,169
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 1,942,740 $ 1,268,306
Accrued expenses......................... 3,049,371 2,115,220
Income taxes payable..................... 898,664 107,133
Short-term notes payable................. - 156,018
Current portion of capitalized
lease obligations.................... 1,517,912 1,061,767
Current portion of long-term debt........ 472,994 354,401
Deferred tuition revenue................. 20,575,914 15,966,150
-------------- ---------------
Total current liabilities............ 28,457,595 21,028,995
Other liabilities........................... 474,842 609,708
Capitalized lease obligations............... 3,249,934 2,535,673
Long-term debt.............................. 8,772,496 11,813,639
Commitment and contingencies
Stockholders' equity:
Common stock, no par value, authorized
100,000,000 shares issued and
outstanding 13,423,212 shares in 1999
and 13,193,582 in 1998............... 21,907,546 21,183,554
Additional paid-in capital............... 671,536 671,536
Accumulated deficit...................... (954,334) (3,995,978)
Accumulated other comprehensive loss..... - (25,958)
-------------- ---------------
Total stockholders' equity........... 21,624,748 17,833,154
-------------- ---------------
Total liabilities and
stockholders' equity............... $ 62,579,615 $ 53,821,169
============== ===============
</TABLE>
See accompanying notes to financial statements.
- F 3 -
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Net revenues..................... $ 73,977,362 $ 60,306,460 $ 46,992,954
Costs and expenses:
Instructional and
educational support.......... 47,666,624 40,485,802 31,369,601
Selling and promotional........ 9,780,727 8,585,716 6,976,430
General and administrative..... 12,335,186 10,450,527 11,891,881
------------- -------------- --------------
Total costs and expenses......... 69,782,537 59,522,045 50,237,912
------------- -------------- --------------
Income (loss) from operations.... 4,194,825 784,415 (3,244,958)
Other (income) and expenses:
Interest expense............... 1,381,564 1,334,201 1,001,152
Interest income................ (281,081) (203,456) (130,162)
Realization of (gain)loss
on marketable securities..... (43,489) - 656,250
------------- -------------- --------------
Income (loss) before income
tax provision (benefit)........ 3,137,831 (346,330) (4,772,198)
Income tax provision (benefit)... 96,187 (489,474) (408,841)
------------- -------------- --------------
Net income (loss)................ $ 3,041,644 $ 143,144 $ (4,363,357)
============= ============== ==============
Net income (loss) per share:
Basic....................... $ .23 $ 0.01 $ (0.38)
============= ============== ==============
Diluted..................... $ .22 0.01 $ (0.38)
============= ============== ==============
Weighted average common
shares outstanding:
Basic....................... 13,246,796 12,866,045 11,404,862
============= ============== ==============
Diluted..................... 13,829,714 14,071,970 11,404,862
============= ============== ==============
</TABLE>
See accompanying notes to financial statements.
- F 4 -
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON ADDITIONAL RETAINED OTHER
SHARES COMMON PAID-IN EARNINGS COMPREHENSIVE
OUTSTANDING STOCK CAPITAL (DEFICIT) LOSS TOTAL
----------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 10,311,782 $ 6,816,020 $ 616,500 $ 62,040 $ (109,275) $ 7,385,285
Shares issued for exercise
of options 351,168 881,476 - - - 881,476
Value of stock options
issued for services
rendered - - 55,036 - - 55,036
Shares issued, previously
escrowed in connection
with purchase of SBC 1,021,612 5,632,126 - - - 5,632,126
Shares repurchased in
connection with exercise
of options (46,980) (437,500) - - - (437,500)
Shares issued in connection
with purchase of DFAS 40,000 203,000 - - - 203,000
Shares issued in connection
with a private placement 1,000,000 6,479,619 - - - 6,479,619
Comprehensive loss:
Realization of loss
on marketable securities - - - - 109,275 109,275
Net income for Colorado Tech
for the three months ended
March 31, 1996 - - - 162,195 - 162,195
Net loss - - - (4,363,357) - (4,363,357)
------------
Comprehensive loss (4,091,887)
----------- ------------ ---------- ----------- ----------- ------------
Balance at
March 31, 1997 12,677,582 19,574,741 671,536 (4,139,122) - 16,107,155
Shares issued in connection
with exercise of options 16,000 46,313 - - - 46,313
Shares issued in connection
with exercise of warrants 500,000 1,562,500 - - - 1,562,500
Comprehensive income:
Net unrealized loss on
non-current marketable
securities - - - - (25,958) (25,958)
Net income - - - 143,144 - 143,144
------------
Comprehensive income 117,186
----------- ------------ ---------- ----------- ----------- ------------
Balance at
March 31, 1998 13,193,582 21,183,554 671,536 (3,995,978) (25,958) 17,833,154
Shares issued in connection
with exercise of options 115,450 336,328 - - - 336,328
Shares issued in connection
with stock purchase plan 31,107 112,596 - - - 112,596
Shares issued in connection
with 401(K) employee match 83,073 275,068 - - - 275,068
Comprehensive income:
Realization of gain on
non-current marketable
securities - - - - 25,958 25,958
Net income - - - 3,041,644 - 3,041,644
------------
Comprehensive income - - - - - 3,067,602
----------- ------------ ---------- ----------- ----------- ------------
Balance at
March 31, 1999 13,423,212 $21,907,546 $ 671,536 $ (954,334) $ - $21,624,748
=========== =========== ========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
- F 5 -
<PAGE>
Whitman Education Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................... $ 3,041,644 $ 143,144 $(4,363,357)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization..... 3,958,553 3,365,544 2,772,520
Bad debt expense.................. 3,481,822 2,396,472 3,245,314
Deferred tax benefit.............. (1,091,662) (609,984) (408,841)
Realization of loss on
marketable securities........... - - 656,250
Changes in operating assets
and liabilities, net of effects
from purchase of SBC and Huron:
Restricted cash................. - 511,927 (169,481)
Accounts receivable............. (9,242,251) (5,591,193) (4,911,368)
Inventories..................... 163,640 (530,331) (199,634)
Other current assets............ (375,553) (244,931) (449,264)
Deposits and other assets....... (573,680) (160,766) (144,228)
Accounts payable................ 674,434 (1,121,977) 416,411
Accrued expenses................ 1,209,219 (758,703) 1,359,655
Income taxes payable............ 791,531 72,317 (163,980)
Deferred tuition revenue........ 4,609,764 2,966,802 243,393
Other liabilities............... (134,866) (312,151) (156,254)
------------ ------------ ------------
Net cash provided by (used in)
operating activities................ 6,512,595 126,170 (2,272,864)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (2,318,677) (3,722,988) (3,870,181)
Proceeds from sale of
marketable securities............... 288,458 - -
------------ ------------ ------------
Net cash used in
investing activities................ (2,030,219) (3,722,988) (3,870,181)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of
credit, long-term borrowings and
capital lease obligations........... 34,787,943 36,742,951 32,868,173
Principal payments on revolving line
of credit, long-term borrowings,
capital lease obligations and
other liabilities................... (38,680,451) (35,380,560) (33,742,193)
Principal (payments) proceeds from
short-term notes payable............ (156,018) 156,018 -
Proceeds from purchases in stock
purchase plan, exercise of options
and warrants........................ 448,924 1,608,813 443,976
Proceeds from sale of common stock.... - - 6,479,619
Proceeds from Huron acquisition....... - - 1,200,683
------------ ------------ ------------
Net cash (used in) provided by
financing activities................ (3,599,602) 3,127,222 7,250,258
------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents................ 882,774 (469,596) 1,107,213
Cash and cash equivalents at
beginning of year................... 3,384,336 3,853,932 2,762,141
CTU activity for the three-months
ended March 31, 1997................ - - (15,422)
------------ ------------ ------------
Cash and cash equivalents
at end of year...................... $ 4,267,110 $ 3,384,336 $ 3,853,932
============ ============ ============
</TABLE>
Continued on the following page.
See accompanying notes to financial statements.
- F 6 -
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING AND INVESTMENT ACTIVITIES:
<S> <C> <C> <C>
Equipment acquired under
capital leases...................... $ 2,140,364 $ 1,712,979 $ 1,181,153
============ ============ ============
Assets acquired in
Huron acquisition................... $ - $ - $ 1,467,220
============ ============ ============
Liabilities assumed in
Huron acquisition................... $ - $ - $ 2,667,903
============ ============ ============
Release of restricted cash previously
in escrow for SBC acquisition....... $ - $ - $ 2,400,000
============ ============ ============
Treasury stock issued
for purchase of DFAS................ $ - $ - $ 203,000
============ ============ ============
Value of stock options issued
for services rendered............... $ - $ - $ 55,036
============ ============ ============
Value of stock issued for
401(K) employee match............... $ 275,068 $ - $ -
============ ============ ============
Stock issued in connection
with acquisition of SBC............. $ - $ - $ 5,632,126
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid......................... $ 1,276,533 $ 1,234,201 $ 877,494
============ ============ ============
Income taxes paid..................... $ 422,852 $ - $ 211,479
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
- F 7 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The primary business of Whitman Education Group, Inc. and its Subsidiaries
("Whitman") is the operation of degree and non-degree granting proprietary
schools devoted to career training primarily in the medical, technical, and
business fields. Whitman's operations are conducted through its three
wholly-owned subsidiaries: Ultrasound Technical Services, Inc. ("UDS"), Sanford
Brown College, Inc. ("SBC") and M.D.J.B., Inc., the parent corporation of
Colorado Technical University ("CTU"). The revenues generated from these
subsidiaries primarily consist of tuition and fees paid by students. The
majority of students rely on funds received from federal financial aid programs
under Title IV of the Higher Education Act of 1965, as amended ("Title IV
Programs") to pay for a substantial portion of their tuition.
As an educational institution, Whitman is subject to licensure from various
accrediting and state authorities and other regulatory requirements of the
United States Department of Education ("Department of Education").
Principles of Consolidation
The consolidated financial statements include the accounts of Whitman
Education Group, Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
Whitman considers all highly liquid short-term investments purchased with
an original maturity of three months or less to be cash equivalents.
Revenues, Accounts Receivable and Deferred Tuition Revenue
Upon enrollment, Whitman bills the student for the full contract amount of
the course, the academic year, or the academic term, as applicable, 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 over the term of the relevant period being attended by
the student. If a student withdraws from a course or program, the unearned
portion of the program that the student has paid for is refunded generally on a
pro rata basis.
Inventory
Inventory consists primarily of books, uniforms and supplies and is valued
at the lower of cost or market using the first-in, first-out (FIFO) method.
- F 8 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Property and Equipment
Property and equipment is 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 property and equipment is computed principally by the
straight-line method over the estimated useful lives of the assets ranging from
one to ten years. Leasehold improvements are amortized over the term of the
related leases, which approximates the estimated useful lives.
Goodwill
Whitman 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 businesses. The analyses involve significant management judgment to
evaluate the capacity of an acquired business to perform within projections. As
of March 31, 1999 and 1998, accumulated amortization was $899,000 and $595,000,
respectively.
Impairment of Long-Lived Assets
In fiscal 1997, Whitman adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." SFAS No. 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The effect of adopting SFAS No. 121 was not material.
Net Income (Loss) Per Common Share
In fiscal 1998, Whitman retroactively adopted SFAS No. 128, Earnings Per
Share. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share (EPS) with basic and diluted EPS.
Basic net income per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed using the weighted average number of common and common
equivalent shares outstanding during the period.
- F 9 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Advertising
Whitman expenses advertising costs as incurred. Advertising expense which
is included in selling and promotional expenses amounted to approximately
$4,499,000, $3,957,000 and $3,223,000 for the years ended March 31, 1999, 1998
and 1997, respectively.
Income Taxes
Deferred income tax assets and liabilities are determined based on the
differences between the financial statements and income tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 encourages, but does not require, companies
to record compensation plans at fair value. Whitman has elected, in accordance
with provisions of SFAS 123, to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations treatment for its stock plan. Under APB 25, because the exercise
price of Whitman's employee stock options is equal to the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the fiscal
1999 presentation. These changes had no effect on previously reported net income
(loss).
- F 10 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1999, Whitman adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses on Whitman's available-for-sale securities, which prior to its adoption
were recorded separately in stockholders' equity, to be included in "other
comprehensive income." For the years ended March 31, 1999, 1998 and 1997,total
comprehensive income (loss) was $3,067,602, $117,186 and ($4,091,887),
respectively.
In fiscal 1999, Whitman adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers.
2. ACQUISITIONS
HURON UNIVERSITY
On December 30, 1996, CTU acquired the South Dakota operations and certain
assets at two campuses of Huron University. The purchase price consisted of $2.3
million of which approximately $2.0 million was paid in cash (of which $200,000
was placed in escrow for post- closing adjustments), acquisition costs of
$150,000 and the assumption of $1.4 million of net liabilities. In addition,
Whitman assigned the right to purchase the Huron real property to a third party,
Huron Education, Inc. ("HEI"), a South Dakota not-for-profit organization, in
exchange for $3.9 million and simultaneously leased the real property from HEI
upon the satisfaction of $757,000 in existing mortgages and after placing
$500,000 in escrow to be used for the satisfaction of assumed cash obligations
of Huron University. In connection with this transaction, the community of
Huron, South Dakota, through HEI paid to Whitman $527,000 (which is included in
the $3.9 million received from HEI) as an inducement for Whitman to acquire the
operations of Huron University. This inducement has been accounted for as a
deferred credit and wil be amortized over the lease period of nine years.
These transactions resulted in a net purchase price of $1,500,000 (comprised
of the receipt of cash totalling $1,200,000 and the assumption of current
liabilities totalling $2,700,000) which was allocated to current assets
totalling $1,500,000.
- F 11 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ACQUISITIONS - (CONTINUED)
HURON UNIVERSITY - CONTINUED
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the net liabilities acquired are included in Whitman's balance
sheets as of March 31, 1997 and operations have been included in Whitman's
operations beginning on January 1, 1997.
The following unaudited pro forma information combines the results of
operations of Whitman and Huron University for the fiscal year ended March 31,
1997 as if the transaction had occurred at April 1, 1996, after giving effect to
certain adjustments including additional rent expense and reductions in interest
and depreciation expense. This pro forma information does not purport to be
indicative of the results that actually would have occurred if the acquisition
had been effective on the dates indicated or which may be obtained in the
future.
<TABLE>
<CAPTION>
1997
-------------
<S> <C>
Net revenues................................. $ 49,727,000
Net loss....................................... (5,029,000)
Basic net loss per share....................... (.44)
Diluted net loss per share.................... (.44)
</TABLE>
At the date of acquisition, Huron University operated as a regionally
accredited degree granting institution with campuses in Huron and Sioux Falls,
South Dakota, enrolling approximately 600 students primarily in management,
health sciences, general studies and other programs. Huron University confers
degrees at the associate's, bachelor's and master's levels.
Effective December 30, 1996, CTU entered into a lease with HEI which
provides for a nine year term with an option to renew for an additional six year
term (see Note 14). The lease also provides CTU with an option to purchase the
property at any time during the lease term.
COLORADO TECHNICAL UNIVERSITY
On March 29, 1996, Whitman completed the merger with CTU, a regionally
accredited degree granting institution. CTU currently operates four campuses,
two in Colorado and two in South Dakota, and has approximately 3,000 students
enrolled primarily in computer science, engineering and management programs. CTU
confers degrees at the associate's, bachelor's, master's and doctoral levels.
- F 12 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ACQUISITIONS - (CONTINUED)
COLORADO TECHNICAL UNIVERSITY - CONTINUED
In connection with the merger, Whitman issued 2,499,870 shares of its
common stock in exchange for all of the issued and outstanding stock of CTU. The
merger was accounted for using the pooling of interests method of accounting
and, accordingly, Whitman's consolidated financial statements were previously
restated to include the accounts and operations of CTU for all periods prior to
the merger. Prior to the merger, CTU had reported its financial results on a
calendar year basis. The consolidated financial statements for the year ended
March 31, 1997 were previously adjusted to conform CTU's year end with that of
Whitman. The effect arising from the exclusion of net income of $162,195 for the
three month period ended March 31, 1996 in the accompanying consolidated
statements of operations and cash flows for the year ended March 31, 1997, is
presented in the accompanying consolidated statement of changes in stockholders'
equity as an adjustment to retained earnings for the change in fiscal year of
CTU. The consolidated financial statements for all periods prior to fiscal 1997
have not been restated for the change in fiscal year of CTU.
SANFORD-BROWN COLLEGE
On December 21, 1994, Whitman completed the purchase of SBC, a privately
held proprietary business and allied healthcare college. SBC was acquired for
$3.5 million cash and $500,000 (196,564 shares) in common stock and contingent
consideration of $2.4 million in cash and 1,021,612 shares of common stock held
in escrow. In the fourth quarter of fiscal 1997, the conditions for the release
of the cash and common stock held in escrow were satisfied. Accordingly, Whitman
released the funds and common stock held in escrow to the seller of SBC,
resulting in an increase in goodwill and equity of approximately $8.0 million
and $1.9 million, respectively, in the fourth quarter of fiscal 1997.
The acquisition of SBC has been accounted for as a purchase, and the net
assets and results of operations are included in Whitman's consolidated
financial statements since the date of acquisition. The purchase price has been
allocated to the assets and liabilities of SBC 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 SBC's net
assets by approximately $10.6 million which has been assigned to goodwill. In
connection with the acquisition, Whitman acquired
3. DISPOSITION OF HURON UNIVERSITY
On May 3, 1999, Colorado Technical University, Inc., an indirect
wholly-owned subsidiary of Whitman, entered into an Amended and Restated
Contribution Agreement pursuant to which the assets and certain liabilities of
its Huron University campus in Huron, South Dakota will be transferred to Newco,
LLC., a South Dakota limited liability company formed by existing members of
Huron University's management team. In connection with the transaction, Colorado
Technical University will contribute the operating assets of Huron University
and $500,000 to Newco, and Newco will issue Colorado Technical University, Inc.
membership interests equal to 19.9% of the membership interests of Newco and
assume the third party liabilities of Huron University. The membership interests
would have a liquidation preference equal to the net value of the assets and
cash contributed by Colorado Technical University.
Completion of the transaction is subject to various conditions, including
the obtaining of adequate financing by the new ownership group, the obtaining of
all necessary state and other governmental agency approvals, the attaining of
independent accreditation of Huron University by the North Central Association
of Colleges and Schools and Huron University independently qualifying for
participation in federal Title IV student financial assistance programs
administered by the United States Department of Education. Subject to the
occurrence of these conditions, the parties will seek to close the transaction
in the second half of calendar 1999. There can be no assurance, however, that
any of the foregoing conditions will be satisfied. Accordingly, there can be no
assurance that the proposed transaction will be consummated.
- F 13 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. FINANCIAL AID PROGRAMS
Approximately 71% of Whitman's net revenues were received from students who
participated in government sponsored financial aid programs under Title IV.
These programs are subject to program review by the Department of Education.
Disbursements under each program are subject to disallowance and repayment by
the schools. These programs also require that Whitman and certain of its
subsidiaries meet Standards of Financial Responsibility established by the
Department of Education. The standards require Whitman and certain of its
subsidiaries to maintain certain financial ratios and requirements, all of which
have been met at March 31, 1999.
5. ACCOUNTS RECEIVABLE
A summary of activity for the allowance for doubtful accounts is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Balance at beginning of year...... $ 4,208,777 $ 2,821,261 $ 1,314,631
Net activity of CTU for the three
months ended March 31, 1996..... - - 20,099
Acquisition of Huron.............. - - 40,000
Charged to expense................ 3,481,822 2,396,472 3,245,314
Accounts charged-off during the
year, net of recoveries......... (2,096,711) (1,008,956) (1,798,783)
------------- ------------- ------------
Balance at end of year............ $ 5,593,888 $ 4,208,777 $ 2,821,261
============= ============= ============
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31,
USEFUL LIVES ------------------------------
(IN YEARS) 1999 1998
------------ ------------- --------------
<S> <C> <C> <C>
Equipment...................... 2-5 $ 13,108,793 $ 11,061,621
Leasehold improvements......... 1-10 6,393,829 5,459,652
Furniture and fixtures......... 7-10 3,442,322 2,639,065
Other.......................... 5 3,100,080 2,554,939
------------- --------------
26,045,024 21,715,277
Less accumulated depreciation
and amortization............. (12,042,260) (8,790,100)
------------- --------------
$ 14,002,764 $ 12,925,177
============= ==============
</TABLE>
- F 14 -
<PAGE>
7. MARKETABLE SECURITIES
On December 16, 1998, Whitman sold its marketable equity securities and
realized a gain on the sale of $43,489. In fiscal 1998, an unrealized loss on
noncurrent marketable equity securities of $33,750 ($25,958 net of income taxes)
was recognized. During the fourth quarter of fiscal 1997, Whitman determined
that the marketable securities should be written down from its cost basis of
$952,500 to $296,250 as a result of an other than temporary decline in value.
The total write down in the fourth quarter of fiscal 1997 of $656,250 includes
$176,250 ($109,275 net of income taxes) which was previously reported as an
unrealized loss on noncurrent marketable securities in Whitman's March 31,1996
stockholders' equity.
8. Income Taxes
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
Current.................. $ 1,187,849 $ 120,510 $ -
Deferred................. (1,091,662) (609,984) (408,841)
------------- ------------ -----------
Total income tax
provision (benefit).... $ 96,187 $ (489,474) $ (408,841)
============= ============ ===========
</TABLE>
The differences between the federal statutory income tax rate and the
effective income tax rate are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
1999 1998 1997
----------- ------------ ----------
<S> <C> <C> <C>
Statutory tax rate................... 34.0 % (34.0)% (34.0)%
State income taxes, net.............. 5.66 30.3 (4.5)
Permanent differences................ 0.84 12.3 0.9
Change in valuation allowance........ (36.77) (147.6) 35.9
Other, net........................... (0.66) (2.3) (6.9)
----------- ------------- ----------
Effective tax rate................... 3.07 % (141.3)% (8.6)%
=========== ============= ==========
</TABLE>
- F 15 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. INCOME TAXES - (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Whitman's net deferred income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- ------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses................... $ 350,000 $ 407,000
Reserves and allowances............ 2,186,000 1,248,000
Tax credits........................ 298,000 55,000
Net operating loss carryforwards... 239,000 1,257,000
Capital loss carryforward.......... 231,000 -
Unrealized depreciation in
equity security................. - 279,000
Other (net)........................ 13,000 36,000
----------- ------------
Total deferred tax assets............... 3,317,000 3,282,000
Valuation allowances.................... (50,000) (1,204,000)
----------- ------------
Total deferred tax assets............... 3,267,000 2,078,000
Deferred tax liabilities:
Prepaid expenses and other......... (25,000) (17,000)
Depreciation and amortization...... (680,000) (590,000)
----------- -----------
Total deferred tax liabilities.......... (705,000) (607,000)
----------- -----------
Total deferred tax assets, net.......... $2,562,000 $1,471,000
=========== ===========
</TABLE>
SFAS 109 "Accounting for Income Taxes" requires a valuation allowance to
reduce the deferred tax assets reported if, based on the weight of the evidence,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. After consideration of all of the evidence, both positive
and negative, management has determined that a valuation allowance of $50,000 is
necessary at March 31, 1999. The valuation allowance decreased by $1,154,000 in
fiscal 1999, decreased by $510,000 in 1998, and increased by $1,714,000 in 1997.
At March 31, 1999 Whitman has available various state net operating loss
carryforwards approximating $6,600,000, expiring in the year 2010 through 2013.
Whitman has approximately $613,000 in capital loss carryforwards which begin to
expire in 2004. Whitman also has an alternative minimum tax credit of
approximately $259,000 which carries forward indefinitely.
- F 16 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
$7.5 million revolver note expiring
April 14, 1999 with interest at
LIBOR plus 1.10%, 6.05% at
March 31, 1999 and 6.79%
at March 31, 1998.................... $ 6,923,035 $ 7,248,837
$2.0 million revolving credit
facility expiring May 30, 1998,
with interest at prime
(floor of 6% and ceiling of 11%),
8.5% at March 31, 1998............... - 2,000,000
Notes payable in monthly installments
through 2002, interest rates ranging
from 8.875% to 9%.................... 210,005 519,203
Note payable in monthly installments
through June 13, 2002, with interest
at prime plus 1.25% (adjusted every
three years), 9.75% at March 31, 1999
and at March 31, 1998................ 1,267,821 1,500,000
Note payable due June 3, 1999, with
interest at 12%...................... 844,629 900,000
------------ ------------
Total.................................. 9,245,490 12,168,040
Less current portion................... (472,994) (354,401)
------------ ------------
$ 8,772,496 $11,813,639
============ ============
</TABLE>
The revolver note of $7.5 million is guaranteed by the Chairman of the
Board of Whitman.
The notes payable of $210,005 are secured by the furniture and equipment of
CTU.
The note payable of $844,629 is secured by equipment of SBC. The principal
balance and all unpaid interest was paid on May 28, 1999.
On June 13, 1997, Whitman entered into a $1.5 million loan agreement which
is secured by equipment at CTU and Huron. Under the terms of this agreement,
Whitman was required to draw down the $1.5 million on or before December 12,
1997 and is required to pay interest only through June 1998 and thereafter pay
monthly principal and interest installments through June 13, 2002 at prime plus
1.25%.
- F 17 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. DEBT - (CONTINUED)
On May 29, 1998, Whitman repaid the $2.0 million revolving credit facility
by drawing down on the $7.5 million revolver note.
On April 2, 1999, the expiration date on the $7.5 revolver note was
extended from April 14, 1999 to July 31, 1999.
On May 28, 1999, Whitman entered into an $8.5 million line of credit which
is secured by all of the assets of Whitman. The interest rate on the line of
credit is variable and is equal to the sum of 2.90% and the 30-day commercial
paper rate. The line of credit has an expiration date of June 30, 2000. One May
28, 1999, Whitman repaid the outstanding balances due on the $7.5 million
revolver note and the notes payable of $210,005 and $844,629.
Aggregate maturities of long-term debt at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
2000.................... $ 472,994
2001.................... 8,232,241
2002.................... 467,555
2003.................... 72,700
2004.................... -
------------
$ 9,245,490
============
</TABLE>
10. CAPITALIZED LEASE OBLIGATIONS
Whitman leases equipment under several lease agreements which are accounted
for as capital 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.
- F 18 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. CAPITALIZED LEASE OBLIGATIONS - (CONTINUED)
During 1999 and 1998, Whitman entered into leases totaling approximately
$2,140,000 and $1,713,000, respectively, in connection with the purchase of
equipment. The amortization of leased assets of $1,022,000 and $869,000 for the
years ended March 31, 1999 and 1998, respectively, is included in depreciation.
The following is a summary of assets held under capital leases which are
included in property and equipment at March 31:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Equipment...................... $6,283,003 $ 5,169,560
Furniture and fixtures......... 471,105 149,228
Automobiles.................... - 21,660
------------ -------------
6,754,108 5 ,340,448
Less accumulated amortization.. (2,923,865) (2,509,781)
------------ -------------
$ 3,830,243 $ 2,830,667
============ =============
</TABLE>
Future minimum lease payments under capital leases at March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000 $ 1,992,280
2001 1,468,616
2002 1,358,712
2003 843,476
2004 153,028
-------------
Total minimum lease payments 5,816,112
Less amount representing interest (8%-12%) (1,048,266)
Less amount classified as current (1,517,912)
-------------
$ 3,249,934
=============
</TABLE>
11. EMPLOYEE BENEFIT PLAN
Whitman has a 401(k) retirement savings plan covering all employees that
meet certain eligibility requirements. Eligible participating employees may
elect to contribute up to a maximum amount of tax deferred contribution allowed
by the Internal Revenue Code. Whitman matches a portion of such contributions up
to a maximum percentage of the employee's compensation. Whitman's contributions
to the plan were approximately $307,000, $125,000 and $97,000 for the years
ended March 31, 1999, 1998 and 1997, respectively.
- F 19 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. STOCK OPTION PLANS AND WARRANTS
Whitman has adopted stock option plans under which employees, directors and
consultants of Whitman may be issued options covering up to 4,352,450 shares of
common stock. Options are granted at the fair market value of the stock at the
date of the grant, with vesting ranging up to five years. A summary of stock
option activity related to Whitman's stock option plans is as follows:
<TABLE>
<CAPTION>
Weighted
Average Exercise Number
Price Per Share Of Shares
---------------- ---------
<S> <C> <C>
Outstanding March 31, 1996.............. 2.94 2,083,400
Granted................................. 5.83 993,750
Exercised............................... 2.51 (351,466)
Cancelled............................... 3.67 (98,584)
----------
Outstanding March 31, 1997.............. 4.07 2,627,100
Granted................................. 5.00 740,450
Exercised............................... 2.89 (16,000)
Cancelled............................... 5.29 (177,950)
----------
Outstanding March 31, 1998.............. 4.24 3,173,600
Granted................................. 4.84 699,200
Exercised............................... 2.91 (115,450)
Canceled................................ 5.36 (238,500)
----------
Outstanding March 31, 1999.............. 3,518,850
==========
</TABLE>
As required by FAS 123, pro forma information regarding net income and
earnings per share has been determined as if Whitman had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted-average assumptions for 1999
and 1998, respectively: risk-free rates of 5.2% and 6.1% ; no dividend yields
for both; volatility factors of the expected market price of Whitman's common
stock of 0.439 and 0.566; and a weighted-average expected life of the option of
7.0 for both years. The weighted-average fair value of the stock options for the
years 1999 and 1998 were $2.61 and $3.19, respectively.
- F 20 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. STOCK OPTION PLANS AND WARRANTS - (CONTINUED)
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Whitman's employee stock options have characteristics
significantly different from those traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Whitman's
fiscal 1999 and 1998 pro forma information follows:
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
Net income (loss)................. $ 567,518 $ (1,763,020)
Basic and diluted net income
(loss) per share............... .04 (.13)
</TABLE>
The 1999 and 1998 pro forma effect on net income (loss) is not necessarily
representative of the effect in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1997.
The exercise price of options outstanding for fiscal years 1999 and 1998
ranged as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE REMAINING
EXERCISE PRICE OF OPTIONS CONTRACTUAL LIFE (YEARS)
-------------- ---------- --------------------------
<S> <C> <C>
$3.31 - $4.97 664,800 5.97
$4.98 - $7.47 774,850 6.95
</TABLE>
Stock options totalling 2,087,692 and 1,679,649 were exercisable at the end
of fiscal 1999 and 1998, respectively. Common stock reserved for issuance under
the stock option plans and outstanding warrants aggregate 6,977,393 shares.
Whitman has 1,650,000 warrants outstanding at an average exercise price of
$4.01 maturing between January 2000 and February 2001.
- F 21 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. RELATED PARTY TRANSACTIONS
The seller of SBC is the beneficial owner of three buildings occupied by
SBC under lease agreements. In the fiscal years ended March 31, 1999, 1998 and
1997, Whitman's SBC subsidiary paid the seller rent totalling $396,000, $453,000
and $432,000, respectively.
Whitman purchases certain textbooks and materials for resale to its
students from an entity that is 40% owned by Whitman's president. In the fiscal
years ended March 31, 1999, 1998 and 1997, Whitman purchased $120,300, $120,300
and $78,900 in textbooks and materials from that entity.
In February 1996, Whitman moved its headquarters to Miami, Florida. Whitman
occupies office space in a building owned by IVAX Corporation. A director and
shareholder of Whitman is also Chairman of IVAX Corporation. In the fiscal years
ended March 31, 1999, 1998 and 1997 Whitman incurred rent expense in the amount
of $ 146,000, $141,000 and $125,000 respectively.
14. COMMITMENTS AND CONTINGENCIES
Whitman leases classroom and office space under operating leases in various
buildings where the schools are located. Certain of Whitman's operating leases
contain rent escalation clauses. Future minimum annual rental commitments under
noncancellable operating leases as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000............................................... $ 5,493,189
2001............................................... 4,465,890
2002............................................... 3,688,793
2003............................................... 3,411,488
2004............................................... 2,504,678
Thereafter......................................... 10,399,292
------------
Total minimum lease payments....................... $ 29,963,330
============
</TABLE>
Rent expense during fiscal 1999, 1998 and 1997 was approximately
$5,397,801, $4,750,000 and $3,766,000, respectively.
In fiscal 1999 Whitman entered into financing agreements to acquire capital
equipment totaling $2,140,000. In fiscal 1999, $2,140,000 of capital equipment
was financed under these agreements and are included under capitalized lease
obligations. At March 31, 1999, Whitman had $715,000 of letters of credit
outstanding.
- F 22 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
The Office of the Inspector General ("OIG") of the Department of Education
is currently conducting an audit of the SBC campus in Granite City, Illinois for
the fiscal year ended March 31, 1998. Although this audit has not yet been
completed and no audit report has been issued, the OIG representatives have
questioned the Granite City campus' inclusion of institutional scholarships as
non-Title IV funds in determining compliance with the 85/15 rule. The Company
has responded to the OIG. Although the Company believes that the Granite City
campus was in compliance with the 85/15 rule and that the OIG audit will be
resolved without any material adverse effect, as with any such audit, no
assurance can be given as to the final outcome since matters are not yet
resolved.
Whitman is a party to routine litigation incidental to its business,
including but not limited to, claims involving students or graduates and routine
employment matters. While there can be no assurance as to the ultimate outcome
of any litigation involving Whitman, management does not believe that any
pending proceeding will result in a settlement or an adverse judgment that will
have a material adverse effect on Whitman's financial condition or results of
operations.
In August 1998, three former students of the diagnostic medical ultrasound
program of the Philadelphia UDS school filed a lawsuit against Whitman, UDS,
certain of our current and former officers, directors and employees and a former
consultant, styled Cullen, et al. v. Whitman Education Group, Inc., in the
United States District Court for the Eastern District of Pennsylvania (Civil
Action No. 98-CV-4076). The complaint, as subsequently amended alleges, among
other things, certain state and federal statutory violations, breach of contract
and fraud and seeks to have the action certified as a class action encompassing
certain students who attended the general ultrasound program at any of the 15
UDS schools and received federal financial aid during the alleged class period.
The plaintiffs seek injunctive relief, compensatory, treble and punitive damages
and attorneys' fees and costs. No ruling on class certification has been issued.
Management believes the lawsuit is without merit and intends to vigorously
defend it. While the outcome cannot be predicted with certainty, if determined
adversely to the Company, it could have a material adverse effect on its
financial position and results of operations.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
notes payable and accounts payable and accrued expenses approximate fair value
because of their short duration to maturity. The carrying amounts of revolving
credit facilities approximate fair value because the interest rate is tied to a
quoted variable index.
-F 23-
<PAGE>
16. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. All earnings per
share amounts for all periods have been presented, and where necessary, related
to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
------------------------------------------
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Numerator:
Net income (loss)............. $ 3,041,644 $ 143,144 $ (4,363,357)
============ ============= =============
Denominator:
Denominator for basic
earnings per share -
weighted average shares... 13,246,796 12,866,045 11,404,862
Effect of dilutive securities:
Employee stock options........ 493,334 804,746 -
Warrants...................... 89,584 401,179 -
------------ ------------- -------------
Dilutive potential
common shares............... 582,918 1,205,925 -
Denominator for diluted
earnings per share -
adjusted weighted -
average shares and
assumed conversions... 13,829,714 14,071,970 11,404,862
============ ============= =============
Basic net income (loss) per share.. $ .23 $ 0.01 $ (0.38)
============ ============= =============
Diluted net income (loss)
per share........................ $ .22 $ 0.01 $ ( 0.38)
============ ============= =============
</TABLE>
- F 24 -
<PAGE>
WHITMAN EDUCATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SEGMENT AND RELATED INFORMATION
In fiscal 1999, Whitman adopted the provision of SFAS No. 131, "Disclosures
About Segments of an Enterprise." Whitman is organized by two reportable
segments, the University Degree Division and the Associate Degree Division
through three wholly-owned subsidiaries. The University Degree Division
primarily offers bachelors, masters and doctorate degrees through Colorado
Technical University. The Associates Degree Division offers associate degrees
and diplomas or certificates through Sanford-Brown College and Ultrasound
Technical Services.
Whitman's revenues are not materially dependent on a single customer or
small group of customers.
Summarized financial information concerning the Whitman reportable segments
is shown in the following table:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
---------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Net revenues:
Associate Degree Division...... $ 55,055,984 $ 44,319,376 $ 35,188,280
University Degree Division..... 18,921,378 15,987,084 11,804,674
Other.......................... - -
-------------- ------------- -------------
Total ......................... $ 73,977,362 $ 60,306,460 $ 46,992,954
============== ============= =============
Income (loss) before income taxes:
Associate Degree Division...... $ 6,496,891 $ 3,278,877 $ (2,156,666)
University Degree Division..... (1,097,029) (1,448,278) 15,662
Other.......................... $ (2,262,031) (2,176,929) (2,631,194)
-------------- ------------- -------------
Total.......................... $ 3,137,831 $ (346,330) $ (4,772,198)
============== ============= =============
Total assets:
Associate Degree Division...... $ 48,250,099 $ 41,113,240 $ 37,815,405
University Degree Division..... 13,341,559 12,072,072 9,518,904
Other.......................... 987,957 635,857 683,185
-------------- ------------- -------------
Total.......................... $ 62,579,615 $ 53,821,169 $ 48,017,494
============== ============= =============
Capital expenditures:
Associate Degree Division...... $ 3,325,791 $ 3,045,389 $ 3,224,843
University Degree Division..... 1,075,262 2,161,633 1,826,491
Other.......................... 57,988 228,945 -
-------------- ------------- -------------
Total.......................... $ 4,459,041 $ 5,435,967 $ 5,051,334
============== ============= =============
</TABLE>
- F 25 -
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
WHITMAN EDUCATION GROUP, INC.
a Florida corporation
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at the date and time designated
by the board of directors.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders shall be
called upon the written request of the chairman, the chief executive officer or
the board of directors by action at a meeting, a majority of directors acting
without a meeting, or (as provided by the Articles of Incorporation)
shareholders holding at least 50% of the Corporation's stock entitled to vote at
the meeting. The written request for the special meeting shall specify the
purpose or purposes of the meeting. Only business within the purposes described
in the notice required by Section 4 of this Article may be conducted at the
special meeting.
SECTION 3. PLACE OF MEETINGS. Meetings of the shareholders will be held at
the principal place of business of the Corporation or at such other place,
within or outside of Florida, as is designated by the board of directors.
SECTION 4. NOTICE OF MEETINGS. A written notice of each meeting of
shareholders, signed by the secretary or the persons authorized to call the
meeting, shall be mailed to each shareholder entitled to vote at the meeting at
the address as it appears on the records of the Corporation, not less than 10
nor more than 60 days before the date set for the meeting. The notice shall
state the time and place the meeting is to be held, and, if the notice relates
to a special meeting, shall also state the purposes for which the meeting is
called. The record date for determining shareholders entitled to notice of and
to vote at the meeting will be the date fixed by board of directors. A notice of
meeting shall be sufficient for the meeting and any adjournment of the meeting.
Any shareholder may waive notice of a meeting before, at or after the meeting.
SECTION 5. QUORUM. A majority of the shares
entitled to vote, represented in person or
- 1 -
<PAGE>
by proxy, shall constitute a quorum for the transaction of business at a meeting
of shareholders. A majority of shareholders represented in person or by proxy at
a meeting of shareholders, even if less than a quorum, may adjourn the meeting
form time to time and place to place without further notice until a quorum is
present.
SECTION 6. SHAREHOLDER VOTING. If a quorum is present at a meeting of
shareholders, the action on a matter is approved if the votes cast in favor of
the action exceed the votes cast opposing the action, except as otherwise
provided in Section 2 of Article II, the articles of incorporation or applicable
law. Each outstanding share shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders.
SECTION 7. RECORD DATE. The board of directors may fix a record date for
any lawful purpose, including, without limiting the generality of the foregoing,
the determination of shareholders entitled to (1) receive notice of or to vote
at any meeting of shareholders or any adjournment thereof or to express consent
to corporate action in writing without a meeting, (2) receive payment of any
dividend or other distribution or allotment of any rights, or (3) take any other
action. The record date shall not be more than 70 days preceding the date of
such meeting, the date fixed for the payment of any dividend or distribution, or
the action requiring a determination of shareholders.
SECTION 8. PROXIES. A shareholder entitled to vote at any meeting of
shareholders or any adjournment thereof (or another entitled to vote on behalf
of the shareholder as a matter of law) may vote in person or by proxy executed
in writing and signed by the shareholder or his attorney-in-fact. The
appointment of proxy will be effective when received by the Corporation's
secretary or other officer or agent authorized to tabulate votes. No proxy shall
be valid more than 11 months after the date of its execution unless a longer
term is expressly stated in the proxy.
SECTION 9. CONDUCT OF BUSINESS WITHOUT MEETING BY SHAREHOLDERS. Any action
of the shareholders may be taken without a meeting if written consents, setting
forth the action taken, are signed by at least a majority of shares entitled to
vote and are delivered to the Corporation's secretary, or other officer or agent
of the Corporation having custody of the Corporation's books within 60 days
after the date that the earliest written consent was delivered. Within 10 days
after obtaining an authorization of an action by written consent, notice shall
be given to those shareholders who have not consented in writing or who are not
entitled to vote on the action. The notice shall fairly summarize the material
features of the authorized action. If the action creates dissenters' rights, the
notice shall contain a clear statement of the right of dissenting shareholders
to be paid the fair value of their shares upon compliance with and as provided
for by the Florida Business Corporation Act. The written consents shall be filed
with the records of the meetings of shareholders.
SECTION 10. NOTICE OF NOMINATION OF DIRECTORS. Nominations for election to
the Board of Directors of the corporation at a meeting of shareholders may be
made by the Board of Directors or by any shareholder of
the corporation entitled to vote for the election of directors at such meeting
-2-
<PAGE>
who complies with the notice procedures set forth in this Section 10. Such
nominations, other than those made by or on behalf of the Board of Directors,
may be made only if notice in writing is personally delivered to, or mailed by
first class United States mail, postage prepaid, and received by, the secretary
not less than 60 days nor more than 90 days prior to such meeting; provided,
however,that if less than 70 days' notice or prior public disclosure of the date
of the meeting is given to shareholders, such nomination shall have been mailed
by first class United States mail, postage prepaid, and received by, or
personally delivered to, the secretary not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
meeting was mailed or such public disclosure was made, whichever occurs first.
Such notice shall set forth (a) as to each proposed nominee (i) the name, age,
business address and, if known, residence address of each such nominee, (ii) the
principal occupation or employment of each such nominee, (iii) the number of
shares, if any, of stock of the corporation that are beneficially owned by each
such nominee and (iv) any other information concerning the nominee that must be
disclosed in proxy solicitations pursuant to the proxy rules of the Securities
and Exchange Commission if such person had been nominated, or was intended to be
nominated, by the Board of Directors (including such person's written consent to
be named as a nominee and to serve as a director if elected); and (b) as to the
shareholder giving the notice (i) the name and address, as it appears on the
corporation's books, of such shareholder, (ii) a representation that such
shareholder is a holder of record of shares of stock of the corporation entitled
to vote at the meeting and the class and number of shares of the corporation
which are beneficially owned by such shareholder, (iii) a representation that
such shareholder intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice and (iv) a description of
all arrangements or understandings between such shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such shareholder. The
corporation also may require any proposed nominee to furnish such other
information as may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting,
and that the defective nomination shall be disregarded.
SECTION 11. NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of
the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors or (b
) otherwise properly brought before the meeting by or at the direction of the
Board of Directors or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, if such business relates to the election of directors of the
corporation, the procedures in Section 10 of this Article I must be complied
with. If such business relates to any other matter, the shareholder must have
given timely notice thereof in writing to the secretary. To be timely, a
shareholder's notice must be personally delivered to, or mailed by first class
United States mail, postage prepaid, and received by, the secretary not less
than 60 days nor more than 90 days prior to such meeting; provided,
however, that if less than 70 days' notice or prior public disclosure
of the date of the meeting is given to shareholders, such notice, to
-3-
<PAGE>
be timely, must have been mailed by first class United States mail, postage
prepaid, and received by, or personally delivered to, the secretary not later
than the close of business on the tenth (10th) day following the day on which
notice of the date of the meeting was mailed or such public disclosure was made,
whichever occurs first. A shareholder's notice to the secretary shall set forth
as to each matter the shareholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the corporation's books, of the
shareholder proposing such business, (iii) a representation that the shareholder
is a holder of record of shares of stock of the corporation entitled to vote at
the meting and the class and number of shares of the corporation which are
beneficially owned by the shareholder and (iv) any material interest of the
shareholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 11 and except that any
shareholder proposal which complies with Rule 14a-8 of the proxy rules (or any
successor provision) promulgated under the Securities Exchange Act of 1934, as
amended, as is to be included in the corporation's proxy statement for an annual
meeting of shareholders shall be deemed to comply with the requirements of this
Section 11. The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, he shall so declare to the meeting and the business not properly
brought before the meeting shall be disregarded.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The board of directors of the Corporation
shall consist of not less than one person, the exact number to be determined
from time to time by resolution adopted by the affirmative vote of a majority of
all directors of the Corporation then holding office at any special or regular
meeting. Any such resolution increasing or decreasing the number of directors
shall have the effect of creating or eliminating a vacancy or vacancies, as the
case may be, provided that no such resolution shall reduce the number of
directors below the number then holding office.
SECTION 2. ELECTION OF DIRECTORS AND CHAIRMAN AND VICE CHAIRMAN OF THE
BOARD. Directors shall be elected at the annual meeting of shareholders, but
when the annual meeting is not held or directors are not elected thereat, they
may be elected at a special meeting called and held for that purpose. Directors
shall be elected by a plurality of the votes cast by the share entitled to vote
in the election at a meeting at which a quorum is present. At the time of
election, a director must be at least 18 years of age, but need not be a
shareholder of the Corporation. The board of directors may elect from their
members a chairman and a vice chairman of the board. The chairman of the board,
if one be elected, shall preside at all meetings of the board of directors and
meetings of the shareholders and shall have such other powers and duties as may
be prescribed by the board of directors. The vice chairman, if any be
elected, shall have such powers and duties as may from time
-4-
<PAGE>
to time be assigned to him by the board of directors or the chairman, and in the
absence of the chairman, shall preside at all meetings of the board of
directors.
SECTION 3. TERM OF OFFICE. Each director shall hold office until the annual
meeting next succeeding his election and until his successor is elected and
qualified, or until his earlier resignation, removal from office or death.
SECTION 4. REMOVAL. Any director or the entire board of directors may be
removed, with or without cause, at a meeting of shareholders, provided the
notice of the meeting states that one of the purposes of the meeting is the
removal of the director. A director may be removed only if the number of votes
cast to remove him exceeds the number of votes cast against removal.
SECTION 5. VACANCIES. Any vacancy occurring in the board of directors,
including a vacancy created by an increase in the number of directors, may be
filled by the shareholders or by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the board of directors. A
director elected to fill a vacancy shall hold office only until the next
election of directors by the shareholders. If there are no remaining directors,
the vacancy shall be filled by the shareholders.
SECTION 6. QUORUM AND TRANSACTION OF BUSINESS. A majority of the number of
directors fixed pursuant to these bylaws shall constitute a quorum for the
transaction for business, except that a majority of the directors in office
shall constitute a quorum for filling a vacancy on the board. Whenever less than
a quorum is present at the time and place appointed for any meeting of the
board, a majority of those present may adjourn the meeting form time to time and
place to place, until a quorum shall be present. The act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors.
SECTION 7. REGULAR MEETINGS. Regular meetings of the board of directors
shall be held at such times and places, within or without the State of Florida,
as the board of directors may, by resolution, from time to time determine. The
secretary shall give notice of each such resolution to any director who was not
present at the time the resolution was adopted, but no further notice of such
regular meeting need be given.
SECTION 8. SPECIAL MEETINGS. Special meetings of the board of directors may
be called by the chairman, the vice-chairman, the chief executive officer, the
president or any two members of the board of directors, and shall be held at
such times and places, within or without the State of Florida, as may be
specified in such call.
SECTION 9. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of the time and
place of each annual or special meeting shall be given to each director by the
secretary or by the person or persons calling such meeting. Such notice need not
specify the purpose or purposes of the meeting and may be given in any manner or
method and at such time so that the director receiving it may have reasonable
opportunity to attend the meeting. Such notice shall, in all events,
be deemed to have been properly and duly given if mailed at
least 48 hours prior to the meeting and directed to the
-5-
<PAGE>
residence of each director as shown in the secretary's records. The giving of
notice shall be deemed to have been waived by any director who shall attend and
participate in such meeting and may be waived, in writing, by any director
either before or after such meeting.
SECTION 10. COMPENSATION. The directors, as such, shall be entitled to
receive such reasonable compensation for their services as may be fixed from
time to time by resolution of the board of directors. In addition, the directors
may be reimbursed for expenses of attending meetings of the board of directors
and committees thereof. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of the executive committee or of any standing or
special committee of the board of directors may by resolution of the board be
allowed such compensation for their services as the board of directors may deem
reasonable and additional compensation may be allowed to directors for special
services rendered.
SECTION 11. ACTION WITHOUT A MEETING. Any action required to be taken at a
meeting of the board of directors (or a committee of the board of directors),
and any action which may be taken at a meeting of the board of directors (or a
committee of the board of directors) may be taken without a meeting if a consent
in writing, setting forth the action to be taken and signed by all of the
directors (or members of the committee), is filed in the minutes of the
proceedings of the board of directors. The action taken shall be deemed
effective when the last director signs the consent, unless the consent specifies
otherwise.
ARTICLE III
COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE. The board of directors may from time to
time, by resolution passed by a majority of the whole board, create an executive
committee of three or more directors, the members of which shall be elected by
the board of directors to serve at the pleasure of the board. If the board of
directors does not designate a chairman of the executive committee, the
executive committee shall elect a chairman from its own number. Except as
otherwise provided herein and in the resolution creating an executive committee,
such committee shall, during the intervals between the meetings of the board of
directors, possess and may exercise all of the powers of the board of directors
in the management of the business and affairs of the Corporation, other than
that of filling vacancies among the directors or in any committee of the
directors and except as provided by law. The executive committee shall keep full
records and accounts of its proceedings and transactions. All action by the
executive committee shall be reported to the board of directors at its meeting
next succeeding such action and shall be subject to control, revision and
alteration by the board of directors, provided that no rights of third persons
shall be prejudicially affected thereby. Vacancies in the executive committee
shall be filled by the directors, and the directors may appoint one or more
directors as alternate members of the committee who may take the place of any
absent member or members at any meeting.
-6-
<PAGE>
SECTION 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the provisions of
these bylaws, the executive committee shall fix its own rules of procedure and
shall meet as provided by such rules or by resolutions of the board of
directors, and it shall also meet at the call of the chief executive officer,
the chairman of the executive committee or any two members of the committee.
Unless otherwise provided by such rules or by such resolutions, the provisions
of Section 10 of the Article II relating to the notice required to be given for
meetings of the board of directors shall also apply to meetings of the executive
committee. A majority of the executive committee shall be necessary to
constitute a quorum.
SECTION 3. OTHER COMMITTEES. The board of directors may by resolution
provide for such other standing or special committees as it deems desirable, and
discontinue the same at its pleasure. Each such committee shall have such powers
and perform such duties, not inconsistent with law, as may be delegated to it by
the board of directors. The provisions of Section 1 and Section 2 of this
Article shall govern the appointment and action of such committee so far as
consistent, unless otherwise provided by the board of directors. Vacancies in
such committees shall be filled by the board of directors or as the board of
directors may provide.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL PROVISIONS. The board of directors shall elect a senior
executive officer who shall hold the office of chief executive officer or
president or both, a senior financial officer who shall serve as a vice
president and who may also serve as treasurer, a secretary and such number of
vice presidents, if any, as the board may from time to time determine. The board
of directors may from time to time create such other offices and appoint such
other officers, subordinate officers and assistant officers as it may determine.
Any two of such offices, other than those of president and vice president, may
be held by the same person, but no officer shall execute, acknowledge or verify
an instrument in more than one capacity.
SECTION 2. TERM OF OFFICE. The officers of the Corporation shall hold
office at the pleasure of the board of directors, and, unless sooner removed by
the board of directors, until successors are chosen and qualified. The board of
directors may remove any officer at any time, with or without cause. A vacancy
in any office, however created, shall be filled by the board of directors.
ARTICLE V
DUTIES OF OFFICERS
SECTION 1. CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHIEF OPERATING OFFICER.
(A) The chief executive officer shall be the senior officer of the
-7-
<PAGE>
corporation and, subject to the control of the board of directors, shall
exercise supervision over the management of the business of the Corporation. In
the absence of the chairman of the board, he shall preside at meetings of the
shareholders. He shall have authority to sign all certificates for shares and
all deeds, mortgages, bonds, agreement, notices, and other instruments requiring
his signature; and shall have all the powers and duties prescribed by the
Florida Business Corporation Act and such others as the board of directors may
from time to time assign to him. In the event a president is not appointed, the
chief executive officer shall also have the duties set forth in Section 1(B)
below.
(B) The president shall exercise supervision over the business of the
Corporation and over its several officers, subject, however, to the oversight of
the chief executive officer, if one be elected. In the absence of the chairman
of the board and the chief executive officer, he shall preside at meetings of
the shareholders. He shall have authority to sign all certificates for shares
and all deeds, mortgages, bonds, agreements, notices, and other instruments
requiring his signature; and shall have all the powers and duties prescribed by
the Florida Business Corporation Act and such others as the board of directors
may from time to time assign to him.
(C) The chief operating officer, if one be elected, shall exercise
supervision over the business of the Corporation and over its several officers,
subject, however, to the oversight of the chief executive officer and the
president. In the absence of the chairman of the board, chief executive officer
and president, he shall preside at meetings of the shareholders. He shall have
authority to sign all deeds, mortgages, bonds, agreements, notices, and other
instruments requiring his signature; and shall have all the powers and duties
prescribed by the Florida Business Corporation Act and such others as the board
of directors may from time to time assign to him.
SECTION 3. VICE PRESIDENT. The vice presidents shall have such powers and
duties as may from time to time be assigned to them by the board of directors,
the chief executive officer or the president. At the request of the chief
executive officer or the president, or in the case of their absence or
disability, the vice president designated by the president (or in the absence of
such designation, the vice president designated by the board) shall perform all
the duties of the president and, when so acting, shall have all the power of the
president. The authority of vice president to sign in the name of the
Corporation certificates for shares and deeds, mortgages, bonds, agreements,
notices and other instruments shall be coordinate with like authority of the
chief executive officer and the president.
SECTION 4. SECRETARY. The secretary shall, keep minutes of all the
proceedings of the shareholders and the board of directors and shall make proper
record of the same, which shall be attested by him; shall have authority to
execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature;
shall give notice of meetings of shareholders and directors;
shall produce on request at each meeting of shareholders
a certified list of shareholders arranged in alphabetical order;
shall keep such books and records as may be required by law or by the board of
-8-
<PAGE>
directors; and, in general, shall perform all duties incident to the office of
secretary and such other duties as may from time to time be assigned to him by
the board of directors, the chief executive officer or the president.
SECTION 5. TREASURER. The treasurer shall have general supervision of all
finances of the Corporation; he shall be in charge of all money, bills, notes,
deeds, leases, mortgages and similar property belonging to the Corporation, and
shall do with the same as may from time to time be required by the board of
directors. He shall cause to be kept adequate and correct accounts of the
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, stated capital and shares,
together with such other accounts as may be required; and he shall have such
other powers and duties as may from time to time be assigned to him by the board
of directors, the chief executive officer or the president.
SECTION 6. ASSISTANT AND SUBORDINATE OFFICERS. The board of directors may
elect such assistant and subordinate officers as it may deem desirable. Each
such officer shall hold office at the pleasure of the board of directors and
perform such duties as the board of directors or the chief executive officer or
the president may prescribe. The board of directors may, from time to time,
authorize any officer to appoint and remove subordinate officers, to prescribe
their authority and duties, and to fix their compensation.
SECTION 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence of any
officer of the Corporation, or for any other reason the board of directors may
deem sufficient, the board of directors may delegate, for the time being, the
powers or duties, or any of them, of such officers to any other officer or to
any director.
SECTION 8. RESIGNATIONS AND REMOVALS. Any officer may resign at any time by
delivering his resignation in writing to the chairman of the board, if any, the
chief executive officer, or the secretary or to a meeting of the board of
directors. Such resignation shall be effective upon receipt unless specified to
be effective at some other time, and without in either case the necessity of its
being accepted unless the resignation shall so state. The board of directors may
at any time remove any officer either with or without cause. The board of
directors may at any time terminate or modify the authority of any agent. No
officer resigning and (except where a right to receive compensation shall be
expressly provided in a duly authorized written agreement with the Corporation)
no officer removed shall have any right to any compensation as such officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise; unless, in the case of a resignation, the directors, or, in the
case of removal, the body acting on the removal, shall in their or its
discretion provide for compensation.
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ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its officers and directors, and any former
officer or director, to the full extent permitted by law.
ARTICLE VII
CERTIFICATES FOR SHARES
SECTION 1. FORM AND EXECUTION. Certificates for shares, certifying the
number of fully- paid shares owned, shall be issued to each shareholder in such
form as shall be approved by the board of directors. Such certificates shall be
signed by the chairman or vice-chairman of the board of directors or the chief
executive officer, the president or a vice president and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer; provided,
however, that if such certificates are countersigned by a transfer agent and/or
registrar, the signatures of any of said officers and the seal of the
Corporation upon such certificates may be facsimiles, engraved, stamped or
printed. If any officer or officers who shall have signed, or whose facsimile
signature shall have been used, printed or stamped on any certificate or
certificates for shares, shall cease to be such officer or officers, because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates, if
authenticated by the endorsement thereon of the signature of a transfer agent or
registrar, shall nevertheless be conclusively deemed to have been adopted by the
Corporation by the use and delivery thereof and shall be as effective in all
respects as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
SECTION 2. REGISTRATION OF TRANSFER. Any certificate for Shares of the
Corporation shall be transferable in person or by attorney upon the surrender
thereof to the Corporation or any transfer agent therefor (for the class of
shares represented by the certificate surrendered) properly endorsed for
transfer and accompanied by such assurances as the Corporation or such transfer
agent may require as to the genuineness and effectiveness of each necessary
endorsement.
SECTION 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A new share certificate
or certificates may be issued in place of any certificate theretofore issued by
the Corporation which is alleged to have been lost, destroyed or wrongfully
taken upon (1) the execution and delivery to the Corporation by the person
claiming the certificate to have been lost, destroyed or wrongfully taken of an
affidavit of the fact, specifying whether or not, at the time of such alleged
loss, destruction or taking, the certificate was endorsed, and (2) the
furnishing to the Corporation an indemnity and other assurances satisfactory to
the Corporation and to all transfer agents and registrars of the class of shares
represented by the certificate against any and all losses, damages, costs,
expenses or liabilities to which they or any of them may be subjected by reason
of the issue and delivery of such new certificate or certificates or in respect
of the original certificate.
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SECTION 4. REGISTERED SHAREHOLDERS. A person in whose name shares are of
record on the books of the Corporation shall conclusively be deemed the
unqualified owner and holder thereof for all purposes and to have
capacity to exercise all rights of ownership. Neither the Corporation nor
any transfer agent of the Corporation shall be bound to recognize any equitable
interest in or claim to such shares on the part of any other person, whether
disclosed upon such certificate or otherwise, nor shall they be obliged to see
to the execution of any trust or obligation.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall commence on such date in each year
as shall be fixed from time to time by the board of directors.
ARTICLE IX
SEAL
The board of directors may provide a suitable seal containing the name of
the Corporation. If deemed advisable by the board of directors, duplicate seals
may be provided and kept for the purposes of the Corporation.
ARTICLE X
CORPORATE RECORDS; SHAREHOLDERS'
INSPECTION RIGHTS; FINANCIAL INFORMATION
SECTION 1. CORPORATE RECORDS.
(A) The Corporation shall keep as permanent records minutes of all
meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a
record of all actions taken by a committee of the board of directors on
behalf of the corporation.
(B) The Corporation shall maintain accurate accounting records and a
record of its shareholders in a form that permits preparation of a list of
the names and addresses of all shareholders in alphabetical order by class
of shares showing the number and series of shares held by each.
(C) The Corporation shall keep a copy of: its articles or restated
articles of incorporation and all amendments to them currently in effect; these
bylaws or restated bylaws and all amendments currently in effect; resolutions
adopted by the board of directors creating one or more classes or series of
shares and fixing their relative rights, preferences and limitations, if
shares issued pursuant to those resolutions are outstanding; the minutes of all
shareholders' meetings and records of all actions taken by shareholders without
a meeting for the past three years; written communications to all shareholders
generally for all shareholders of a class or series within the past
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three years, including the financial statements furnished for the last three
years; a list of names and business street address of its current directors and
officers; and its most recent annual report delivered to the Department of
State.
(D) The Corporation shall maintain its records in written
form or in another form capable of conversion into written form within
a reasonable time.
SECTION 2. SHAREHOLDERS' INSPECTION RIGHTS. A shareholder is entitled to
inspect and copy, during regular business hours at the Corporation's principal
officer, any of the corporate records described in Section 1(C) of this Article
if the shareholder gives the Corporation written notice of the demand at least
five business days before the date on which he wishes to inspect and copy the
records.
A shareholder is entitled to inspect and copy, during regular
business hours at a reasonable location specified by the Corporation, any
of the following records of the Corporation if the shareholder gives the
Corporation written notice of his demand at least five business days before
the date on which he wishes to inspect and copy provided: (1) the demand is
made in good faith and for a purpose reasonably related to such person's
interest as a shareholder; (2) the shareholder describes with reasonable
particularity the purpose and the records he desires to inspect; and (3) the
records are directly connected with the purpose: (a) excerpts from minutes
of any meeting of the board of directors, records of any action of a
committee of the board of directors while acting in place of the board of
behalf of the Corporation, minutes of any meeting of the shareholders,
and records of action taken by the shareholders or board without a meeting
(to the extent not subject to inspection under the preceding paragraph); (b)
accounting records; (c) the record of shareholders; and (d) any other books
and records of the Corporation.
The Corporation may deny any demand for inspection if the
demand was made for an improper purpose, or if the demanding shareholder has
within the two years preceding his demand, sold or offered for sale any list of
shareholders of the Corporation or of any other corporation, has aided or
abetted any person in procuring any list of shareholders for that purpose, or
has improperly used any information secured through any prior examination
of the records of the Corporation or any other corporation.
SECTION 3. FINANCIAL STATEMENTS OF SHAREHOLDERS. Unless modified by
resolution of the shareholders, within 120 days after the close of each fiscal
year, the Corporation shall furnish its shareholders with annual financial
statements which may be consolidated or combined statements of the Corporation
and one or more of its subsidiaries, as appropriate, that include a balance
sheet as of the end of the fiscal year, an income statement for that year, and a
statement of cash flows for that year. If financial statements are prepared for
the Corporation on the basis of generally accepted accounting principles, the
annual financial statements must also be prepared on that basis.
If the annual financial statements are reported
upon by a public accountant, his report must accompany
them. If not, the statements must be accompanied by a statement of the
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president or the person responsible for the Corporation's accounting records
stating his reasonable belief whether the statements were prepared on the basis
of generally accepted accounting principles and, if not, describing the basis of
preparation and describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
The Corporation shall mail the annual financial statements
to each shareholder within 120 days after the close of each fiscal year or
within such additional time thereafter as is reasonably necessary to enable the
Corporation to prepare its financial statements if, for reasons beyond
the Corporation's control, it is unable to prepare its financial statements
within the prescribed period. Thereafter, on written request from a shareholder
who was not mailed the statements, the Corporation shall mail him the
latest annual financial statements.
SECTION 4. OTHER REPORTS TO SHAREHOLDERS. If the Corporation indemnifies or
advances expenses to any director, officer, employee or agent otherwise than by
court order or action by the shareholders or by an insurance carrier pursuant to
insurance maintained by the Corporation, the Corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next annual shareholders' meeting, or prior to the meeting if the
indemnification or advance occurs after the giving of the notice but prior to
the time the annual meeting is held. This report shall include a statement
specifying the persons paid, the amounts paid, and the nature and status at the
time of such payment of the litigation or threatened litigation.
If the Corporation issues or authorities the issuance of
shares for promises to render services in the future, the Corporation shall
report in writing to the shareholders the number of shares authorized or issued,
and the consideration received by the Corporation, with or before the notice of
the next shareholders' meeting.
ARTICLE XI
AMENDMENTS
These bylaws may be altered, amended or repealed, and new bylaws adopted,
by the board of directors or shareholders.
I certify that the foregoing bylaws are the bylaws of Whitman Education
Group, Inc. a Florida corporation, as of November 6, 1998.
/s/ RICHARD B. SALZMAN,
-----------------------------
Richard B. Salzman, Secretary
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Exhibit 10.25
AMENDED AND RESTATED CONTRIBUTION AGREEMENT
AMENDED AND RESTATED CONTRIBUTION AGREEMENT dated as of June 2, 1999, by
and among Colorado Technical University, Inc., a Colorado corporation (CTU");
Huron University, L.L.C., a South Dakota limited liability company ("HUI");
Newco, L.L.C., a South Dakota limited liability company (Newco); and David
ODonnell, the sole member of Newco (Member). HUI, Newco and Member are
collectively referred to herein as the HUI Group.
RECITALS
A. CTU is a proprietary provider of career-oriented education to primarily
adult learners. Huron University, founded in 1883, was acquired by CTU in 1996.
Since that time, CTU has significantly improved Huron Universitys faculty and
staff and invested significant funds in upgrading Huron Universitys classrooms
and dormitories, all of which has resulted in increased student enrollment.
B. During this time, however, Member and CTU realized that there were
fundamental differences in the requirements of a campus, such as Colorado
Technical Universitys other three campuses, that serve working adults, and
Huron University that caters to more traditional younger adult students pursuing
degree-based higher education after high school.
C. As a result, Member and CTU have concluded that Colorado Technical
University, Huron University, its students, the City of Huron and the
surrounding region would be best served if Huron University were once again
independently owned and governed and thus better able to pursue its separate
mission.
D. To accomplish this, Member has formed Newco and HUI to own and operate
Huron University and CTU has agreed to contribute the operating assets and
liabilities relating to the business and operations of Huron University (the
Business) and cash to Newco, and Newco has agreed to accept such assets and
cash and assume such liabilities on the terms and conditions set forth herein.
E. Newco will then contribute the Business to HUI in exchange for a 100%
ownership interest in HUI.
F. For United States federal income tax purposes, it is intended that the
transactions contemplated by this Agreement qualify as a non-taxable transfer of
property described in Section 721 of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations thereunder.
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:
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ARTICLE I
DEFINITIONS
SECTION 1.01. 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, accounts receivable, other
receivables, contract rights, chattel paper, insurance claims and proceeds
and notes receivable of CTU as of the Closing Date relating exclusively to the
Business.
"ACCREDITATION" shall mean accreditation by the NCA and all
licenses, permits, certifications, approvals, and other governmental and
regulatory authorizations required under all laws, rules and regulations
applicable to or affecting the Business or the Institution, exclusive of
the Certification.
"ASSETS" shall mean all of CTU's right, title and interest in
and to all properties, assets and rights of any kind, whether tangible or
intangible, real or personal, owned by CTU or in which CTU has any interest
whatsoever, which are used primarily in the Business, including without
limitation, the following (except to the extent any of same are specifically
listed as Excluded Assets):
(a) Accounts, refunds or deposits and prepaid expenses relating
exclusively to the Assets, including without limitation, any prepaid insurance
premiums;
(b) all Contract Rights;
(c) all Fixtures and Equipment;
(d) all Inventory;
(e) all Books and Records;
(f) the Insurance Policies to the extent Newco desires
such policies to be assigned;
(g) all Permits;
(h) all Miscellaneous Assets;
(i) all Other Rights;
(j) all Leases;
(k) all goodwill of CTU related to the Business (including all
rights to the name Huron University);
(l) the Huron letter; and
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(m) the Software License, to the extent assignable to Huron without
cost to CTU and to the extent such assignment does not
prohibit CTU from utilizing the software at no cost for the
purpose of obtaining historical information.
"BOOKS AND RECORDS"shall mean all records pertaining to the Assets,
Assumed Liabilities, customers, or suppliers of the Business (but specifically
excluding the corporate minute books, corporate tax returns, stock ledger
and related items) provided that HUI and Newco shall make available to CTU
such Books and Records as CTU shall reasonably require after the Closing in
the event of an audit or similar matter.
"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.
"CLOSING DATE" shall be as defined in Section 3.01.
"CODE" shall mean the Internal Revenue Code of 1986, as the same
may be amended from
time to time.
"CONTRACT" shall mean with respect to CTU any of the agreements,
contracts, Leases, HEI Lease, notes, loans, evidences of indebtedness,
purchase orders, letters of credit, franchise agreements, undertakings,
covenants not to compete, employment agreements, licenses, instruments,
obligations, commitments to which CTU is a party and which relate exclusively
to the Business or to which any of the Assets are subject, whether oral
or written, express or implied.
"CONTRACT RIGHTS" shall mean with respect to CTU all of CTU's
rights and obligations under the Contracts.
"ED" shall mean the U.S. Department of Education.
"ENCUMBRANCES" shall mean any claim, lien, pledge, option, charge,
easement, security interest, right-of-way, encumbrance or other right of third
parties, other than (a) liens for taxes and other governmental charges and
assessments which are not yet due and payable and (b) liens of landlords and
liens of carriers, warehousemen, mechanics and materialmen and other like liens
arising in the ordinary course of business for sums not yet due and payable.
"EXCLUDED ASSETS" shall mean the following assets of CTU: (a) all
cash, cash equivalents and bank accounts; (b) all Tax files and returns, minute
books and corporate seals; (c) all assets of CTU of every kind and description,
tangible or intangible, which are not related exclusively to the Business; (d)
all Insurance Policies not assigned to Newco pursuant to this Agreement; (e) all
refunds of any Tax for which CTU is liable pursuant to Section 6.05; and (f)
CTUs employee benefit agreements, plans or arrangements maintained by CTU or
its affiliates on behalf of Persons employed by CTU or its affiliates.
"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 CTU and used exclusively in the Business.
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"HEI LEASE" shall mean that certain real property lease dated
December 30, 1996, between CTU and Huron Education, Inc.
"HURON LETTER" shall mean all of CTUs rights, to the extent
assignable, under that certain letter dated December 30, 1996, from the City of
Huron to CTU regarding the City of Hurons commitment to contribute funds for
the abatement of asbestos and environmental problems at the Real Property.
"HURON UNIVERSITY" OR "INSTITUTION" shall mean Huron University in
Huron, South Dakota.
"INSURANCE POLICIES" shall mean with respect to CTU the insurance
policies relating to the Assets and that certain key-man life insurance policy
on the life of David ODonnell.
"INVENTORY" shall mean all of CTUs inventory and supplies utilized
exclusively in the Business and all other materials utilized exclusively in
connection with the Assets.
"LEASES" shall mean all of the leases of CTU or other agreements or
rights under which CTU is a lessee of, or holds or operates, any machinery,
equipment, vehicle or other tangible personal property owned by a third Person
and used exclusively in the Business.
"MISCELLANEOUS ASSETS" shall mean all employee records relating to
those employees to be employed by Newco or HUI as of the Closing; all accounting
information pertaining to the continued operations of the Business and all media
in which or on which any of the information, knowledge, data or other records
relating to the Assets may be related or stored; all computer software relating
to accounting and operations systems; all office and other supplies; all
warranties, claims and causes of action (and the benefit of any and all
collateral or security given in connection therewith) inuring to the benefit of
CTU relating exclusively to the Assets; and all other assets used exclusively in
connection with the Business not otherwise described in this Agreement of any
character whatsoever, whether personal, tangible or intangible, wherever
located, owned by CTU and related exclusively to the Business.
"NCA" shall mean the North Central Association of Colleges and
Schools.
"OTHER RIGHTS" shall mean all assignable or conveyable rights under
licenses, permits, approvals, qualifications or the like relating directly to
the Business 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.
"PERMITS" shall mean all licenses, permits and other governmental
authorizations necessary to carry on the Business as presently conducted.
"PERSON" means any individuals, partnership, corporation, limited
liability company, business trust, joint stock company, unincorporated
association, joint venture, or other governmental authority or regulatory body.
"QUALIFIED PARTY" shall mean any Person that does not meet the
criteria set forth in 34 C.F.R. 668.15(c).
"REAL PROPERTY" shall mean the real property leased to CTU pursuant
to the HEI Lease.
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"SOFTWARE LICENSE" shall mean CTUs right to use the Solomon
general ledger software.
"SUBSIDIARY" shall mean any Person in which Newco directly or
indirectly owns any equity interest.
"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.
"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.
ARTICLE II
CONTRIBUTION OF ASSETS
SECTION 2.01. CONTRIBUTION OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES.
Upon the terms and subject to the conditions herein set forth, on the Closing
Date:
(a) CTU shall contribute, convey, transfer, assign, and deliver to
Newco, and Newco shall acquire from CTU, the Assets.
(b) Newco shall assume and agree to discharge the following
obligations and liabilities of CTU (the "Assumed Liabilities"):
(i) All liabilities, obligations and commitments of CTU
pursuant to the Contracts of CTU (including unearned tuition
and the obligation to teach), except to the extent a Contract
is not assignable pursuant to this Agreement;
(ii) all liabilities in respect of Taxes of CTU for which
Newco is liable pursuant to Section 6.05;
(iii) all liabilities and obligations related to, associated
with or arising out of the occupancy, operation, use or
control of the Real Property (including, without limitation,
all facilities, improvements, structures and equipment
thereon, surface water thereon or adjacent thereto and soil or
groundwater thereunder) or any conditions whatsoever on, in,
at, under or in the vicinity of such Real Property;
(iv) all Title IV liabilities assessed against Huron
University by ED as a result of CTUs operation of Title IV
Programs, including liabilities arising from financial aid
audits; and
(v) all obligations and liabilities of CTU under all
outstanding indebtedness of CTU relating to the Business,
including indebtedness outstanding under CTUs loan from
Pueblo Bank in the original principal amount of $1.5 million
and CTUs loan from BankOne in the orignial principal amount
of $200,000, and all trade payables of the Business; and
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(vi) all other obligations and liabilities of CTU related to
or arising out of the operation of the Business, whether
arising prior to the Closing Date or otherwise, whether direct
or indirect, known or unknown, absolute or contingent.
SECTION 2.02. EXCLUDED LIABILITIES. Newco shall not assume, or otherwise be
responsible for, any of the following liabilities or obligations of CTU (the
"Excluded Liabilities"):
(i) all liabilities in respect of Taxes for which CTU is
liable pursuant to Section 6.05;
(ii) all liabilities or obligations in respect of Excluded
Assets;
(iii) all intercompany payables and other liabilities or
obligations of the Business to any affiliates of CTU; and
(iv) Title IV liabilities owed by CTU to ED for the
administration of Title IV programs at the Institution in the
periods of 1994 through 1996 for which EIEA America, Inc.
and/or Lansdowne University, Ltd. have established a Letter of
Credit with Farmers and Merchants Bank to reimburse CTU.
SECTION 2.03. ADDITIONAL CAPITAL CONTRIBUTIONS. CTU shall contribute to
Newco as additional capital contributions: (i) Five Hundred Thousand Dollars
($500,000) in cash or bank check at the Closing (the Cash Amount), and (ii)
within forty-five days (45) after the Closing Date, an additional cash amount
(Pre-Paid Cash) equal to the difference between the amount of cash collected
from students of the Business which is unearned as of the Closing Date and the
amount of accounts receivable of the Business related to the term in progress
which have been earned by the Business through the Closing Date (the Cash Amount
and the Pre- Paid Cash being collectively referred to as the Capital
Contribution). CTU and Newco shall cooperate to determine the amount of
Pre-Paid Cash from the Books and Records of CTU. CTU shall receive a credit
against the Capital Contribution otherwise due pursuant to this Section 2.03 for
the full amount paid by CTU as Newco Fees (as defined herein).
SECTION 2.04. CONSIDERATION. Newco shall issue to CTU units of capital of
Newco which will represent 19.9% of the total outstanding limited liability
company interests in Newco on the Closing Date (the LLC Units). The LLC Units
will have a liquidation preference equal to the sum of $3.3 million and the
Capital Contribution, less the amount of assumed liabilities set forth on
Schedule 2.04 (the Liquidation Preference).
SECTION 2.05. ALLOCATION OF CONSIDERATION. At the Closing, the parties
hereto shall allocate the value of the LLC Units among the Assets in accordance
with Schedule 2.05 hereto. The parties hereto shall (a) prepare all required tax
returns and reports in a manner that is consistent with such allocation, (b)
file Internal Revenue Service Form 8594 in such manner, and (c) not voluntarily
take any position inconsistent therewith upon examination of any such tax
return, in any refund claim, in any litigation or otherwise with respect to such
income tax returns.
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ARTICLE III
CLOSING
SECTION 3.01. CLOSING. Upon the terms and subject to the conditions set
forth herein, the closing of the transactions contemplated herein (the
"Closing") shall be held [____________] at 10:00 a.m. local time or such other
day when all of the conditions set forth in Articles VII and VIII are satisfied
(the "Closing Date") at the offices of Churchill Manolis Freeman Kludt &
Shelton, 333 Dakota Avenue South, 2nd Floor, Huron, South Dakota, 57350 unless
the parties hereto otherwise agree.
SECTION 3.02. DELIVERIES AT CLOSING.
(a) INSTRUMENTS AND POSSESSION. To effect the transfer referred to
in Section 2.01 hereof, CTU shall, on the Closing Date, execute and deliver to
Newco:
(i) assignment documents, in form and substance satisfactory
to Newco,conveying in the aggregate all personal property
included in the Assets; and
(ii) such other instruments as shall be reasonably requested
by Newco to vest in Newco title in and to the Assets in
accordance with the provisions hereof.
(B) ASSUMPTION DOCUMENTS. Upon the terms and subject to the
conditions contained herein, on the Closing Date, Newco shall execute and
deliver to CTU instruments of assumption evidencing Newco's assumption of the
Assumed Liabilities.
(c) LLC CERTIFICATES. On the Closing Date, Newco shall deliver to
CTU a certificate or certificates representing the LLC Units.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CTU
CTU hereby represents and warrants to, and covenants with the HUI Group as
follows:
SECTION 4.01. ORGANIZATION AND CAPITALIZATION. CTU is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation.
SECTION 4.02. POWER AND AUTHORITY. CTU has all requisite corporate power
and authority to own, lease and operate its properties and to conduct its
business as presently 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.
section 4.03. authority for agreement. The Board of Directors of CTU has
approved this Agreement and has authorized the execution and delivery and
performance hereof. CTU has full corporate power, authority and legal right to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement is a legal, valid and binding obligation of CTU,
enforceable against CTU 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.
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SECTION 4.04. NO VIOLATION TO RESULT. Except as set forth on Schedule 4.04,
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 CTU or any Contract, note, debt instrument, security agreement or
mortgage, or any other contract or agreement, written or oral, to which CTU is a
party and which affects any of the Assets;
(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, Permit 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 CTU; and
(d) will not result in the creation or imposition of any new
Encumbrance in favor of any Person upon any of the Assets.
SECTION 4.05. TAXES. CTU has, with respect to the Business, 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 all 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 Taxes, if any, due to, or claimed to be due by, any taxing
authority. With respect to Taxes directly related to the Business, CTU has not
executed or filed with any taxing authority any agreement extending the period
for assessment or collection of such Taxes.
SECTION 4.07. TITLE TO ASSETS. CTU has good and marketable title to each of
the Assets purported to be owned by it, free and clear of any and all
Encumbrances other than those evidenced by the Assumed Liabilities. As of the
Closing Date, CTU will transfer to Newco good and marketable title to such
Assets purported to be owned by it, free and clear of any and all Encumbrances
other than Encumbrances evidenced by the Assumed Liabilities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE HUI GROUP
HUI, Newco and Member hereby, jointly and severally, represent and warrant
to, and covenant with, CTU as follows:
SECTION 5.01. ORGANIZATION AND CAPITALIZATION OF HUI. Each of HUI and Newco
is a limited liability company duly formed, validly existing and in good
standing under the laws of the state of South Dakota.
Section 5.02. Power and Authority. Each of HUI and Newco has all requisite
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.
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SECTION 5.03. AUTHORITY FOR AGREEMENT. The Managers of HUI and Newco have
approved this Agreement and have authorized the execution and delivery and
performance hereof, including Newcos obligation to issue and deliver the LLC
Units. Each of HUI and Newco has full power, authority and legal right to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement is a legal, valid and binding obligation of HUI, Newco and Member
enforceable against each of 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 5.04. 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 articles of organization
or operating agreement of HUI or Newco or any note, debt instrument, security
agreement or mortgage, or any other contract or agreement, written or oral, to
which HUI, Newco or Member is a party or by which HUI, Newco or Member 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 HUI, Newco or Member; and
(d) will not result in the creation or imposition of any
Encumbrance in favor of any Person upon any of the properties or assets of HUI
or Newco.
SECTION 5.05. CAPITALIZATION. As of the date hereof, all of the limited
liability company interests in Newco are owned and held, beneficially and of
record, by Member and all of the limited liability company interests in HUI are
owned and held beneficially and of record and at the Closing Date will be owned
and held, beneficially and of record, by Newco. The amount of cash and a
description and statement of the agreed value of the other property or services
contributed by Member and Newco and which Member and Newco have agreed to
contribute to Newco and HUI, respectively, is set forth on SCHEDULE 5.05. Except
as set forth on Schedule 5.05 or otherwise provided in this Agreement, (a) no
subscription, warrant, option, convertible security or other rights (contingent
or otherwise) or commitments of any character to purchase or acquire any limited
liability company interests of Newco or HUI is authorized or outstanding, (b)
neither Newco nor HUI has any obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any limited liability company interests any
evidences of indebtedness or assets of Newco or HUI, and (c) neither Newco nor
HUI has any obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its limited liability company interests or any other
interests therein or to pay any dividend or make any other distribution in
respect thereof. There are no outstanding or authorized equity appreciation,
phantom interests or similar rights with respect to Newco or HUI. All of the
issued and outstanding limited liability company interests of Newco and HUI have
been and will be offered, issued and sold by Newco and HUI
in compliance with applicable federal and state securities laws.
The consummation of the transactions contemplated in this
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agreement will not give rise to any preemptive rights or antidilution rights
exerciseable by any holder of interests of Newco.
SECTION 5.06. LLC UNITS. The LLC Units, when issued and delivered pursuant
to this Agreement will be duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. When issued and delivered pursuant
to this Agreement, CTU will receive good title to such LLC Units, free and clear
of all liens, security interests, pledges, charges, Encumbrances, members
agreements (other than the operating agreement delivered to CTU) and voting
trusts.
SECTION 5.07. SUBSIDIARIES. HUI is the only Subsidiary of Newco. Newco has
good and marketable title to all of the equity interests it purports to own of
HUI, free and clear in each case of any Encumbrance, and all such interests have
been duly issued and are fully paid and nonassessable. There are no outstanding
warrants, options, or other rights or commitments of any character to subscribe
for or purchase from Newco or HUI, or obligating HUI to issue, any additional
equity interests in HUI or any securities convertible into or exchangeable for
such equity interests.
SECTION 5.08. NO PRIOR ACTIVITIES. Neither Newco nor HUI have incurred any
liabilities or obligations, except those incurred in connection with their
organization or with the negotiation and consummation of this Agreement and the
transactions contemplated hereby. Neither Newco nor HUI have engaged in any
business or activities of any type or kind whatsoever, or entered into any
agreements with any Person, and are not subject to or bound by any obligations
or undertakings which are not contemplated by this Agreement or incurred in
connection with their incorporation.
SECTION 5.09. CHARTER AND BYLAWS. A true and complete copy of the articles
of organization and operating agreement of Newco and HUI have been delivered to
CTU.
ARTICLE VI
COVENANTS
SECTION 6.01. ACCESS TO PROPERTIES AND RECORDS. Member acknowledges that,
as President of CTU, he is familiar with the operations of the Business, the
value of the Assets and the status of the Assumed Liabilities and that he is
familiar with the financial condition and operating history of the Business.
Nevertheless, CTU hereby authorizes Member, in his capacity as President of CTU,
to afford to the other officers, employees, attorneys, accountants and other
authorized representatives of Newco, free and full access to all of CTUs
assets, properties, Books and Records, and employees relative to the Business in
order to afford Newco as full an opportunity of review, examination and
investigation as Newco shall desire to make of the affairs of the Business, and
Newco shall be permitted to make extracts from, or take copies of, such Books
and Records or other documentation as may be reasonably necessary; and CTU shall
furnish or cause to be furnished to Newco such reasonable financial and
operating data and other information about the Business, which any of Newco's
respective officers, employees, attorneys, accountants or other authorized
representatives may request; provided Newco and its agents shall not
unreasonably interfere with the operations of the Business.
SECTION 6.02. PUBLIC ANNOUNCEMENTS. Newco and CTU will consult with each
other with respect to any announcement to the public or
any statement to their employees (and students in the case of CTU)
generally concerning or relating to the transactions contemplated hereby.
Prior to the Closing Date neither Newco, HUI nor CTU will
make any announcement to the public without the prior written consent of the
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other, except for announcements which CTU believes to be required by or
advisable under applicable securities laws or stock exchange rules.
SECTION 6.03. TRANSFERRED EMPLOYEES. Effective as of the Closing Date,
Newco or HUI shall offer employment to all employees of the Business who are
employed on the Closing Date, including those who are on short-term disability
leave. CTU shall cooperate with Newco and HUI in the orderly transfer of the
Transferred Employees to Newco or HUI, as applicable. As of 11:59 p.m.
immediately prior to the Closing Date, CTU shall cease all benefit accruals in
any of its employee benefit plans attributed to Transferred Employees. In
administering employee benefit plans for the Transferred Employees after the
Closing Date, Newco or HUI, as applicable will credit each Transferred Employee
solely for vesting and eligibility purposes with all years of service of such
Transferred Employee credited for such purpose with the Business. Without
limiting the generality of the foregoing, no waiting period or exclusion from
coverage of any pre-existing medical condition shall apply to the Transferred
Employees' participation in any employee benefit plan of Newco or HUI, as
applicable, after the Closing Date if such Transferred Employee was a
participant in CTU's benefit plans for at least thirty days prior to the date of
employment of such Transferred Employee by Newco or HUI. The parties hereto
expressly acknowledge that CTU shall not be liable for (i) any claims arising
out of or accruing under any employee benefit plans of HUI or Newco or otherwise
to or in respect of any Transferred Employees terminated by HUI or Newco for any
reason on or after the Closing Date, including without limitation, any severance
benefits or termination payments or (ii) any liability triggered under any
unemployment compensation or other government-mandated benefits relating to the
termination of any Transferred Employee on or after the Closing Date.
SECTION 6.04. SECURITIES LAW COMPLIANCE. The HUI Group hereby jointly and
severally covenant and agree that all issuances and offers of limited liability
company interests or other securities of Newco and HUI have been and will be
conducted in compliance with applicable federal and state securities laws.
Member, Newco and HUI hereby jointly and severally indemnify and hold CTU and
its affiliates and agents harmless from and against any and all liabilities,
losses, damages, claims, costs and expenses arising out of or due to the
issuance of any limited liability company interests or other securities of Newco
or HUI.
SECTION 6.05. TAXES.
(a) CTU shall be liable for and shall pay all Taxes (whether
assessed or unassessed) applicable to the Business or the Assets, in each case
attributable to periods (or portions thereof) ending on or prior to the Closing
Date. Newco or HUI shall pay all Taxes (whether assessed or unassessed)
applicable to the Business or the Assets, in each case attributable to periods
(or portions thereof) beginning after the Closing Date. For purposes of this
Section 6.05(a), any period beginning before and ending after the Closing Date
shall be treated as two partial periods, one ending on the Closing Date and the
other beginning after the Closing Date.
(b) Notwithstanding Section 6.05(a), any Tax (including, without
limitation, a sales Tax, use Tax, real property transfer or gains Tax or
documentary stamp Tax) directly attributable to the sale or transfer of the
Assets shall be paid one-half by CTU and one-half by Newco. CTU and Newco agree
to timely sign and deliver such certificates or forms as may be necessary or
appropriate to establish an exemption from (or otherwise reduce), or make a
report with respect to, such Taxes.
(c) CTU or Newco, as the case may be, shall provide reimbursement
for any Tax paid by one party all or a portion of which
is the responsibility of the other party in accordance with the terms of
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this SECTION 6.05. Within a reasonable time prior to the payment of any said
Tax, the party paying such Tax shall give notice to the other party of the Tax
payable and the portion which is the liability of each party, although failure
to do so will not relieve the other party from its liability hereunder.
SECTION 6.06. CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS.
(a) Newco, HUI and CTU will use their best efforts to secure,
before the Closing Date, the consent, approval or waiver, from any party to a
Contract, to assign or transfer any such Contract to Newco or HUI or to
otherwise satisfy the conditions set forth in SECTION 7.04 and to obtain the
release of CTU from liability in respect thereof; provided that neither CTU,
Newco, nor HUI shall have any obligation to offer or pay any consideration in
order to obtain any such consents or approvals.
(b) During the period prior to the Closing Date, CTU, Newco and HUI
shall act diligently and reasonably, and shall cooperate with each other and use
their best efforts to secure any consents and approvals of any governmental or
regulatory authority required to be obtained by them in order to assign or
transfer any Permits to Newco or HUI or to permit the consummation of the
transactions contemplated by this Agreement.
SECTION 6.07. RESIGNATION OF MEMBER. Member shall resign, effective as of
the Closing Date, all positions he holds as either an officer or director of CTU
or MDJB, Inc., and shall serve as President of Newco or HUI and Chancellor of
Huron University.
SECTION 6.08. BEST EFFORTS TO OBTAIN CERTIFICATION AND ACCREDITATION. The
parties hereto shall use their best efforts to obtain Certification and
Accreditation for Huron University upon the Closing. In this regard, the parties
hereto shall diligently pursue Certification and Accreditation through prompt,
timely and complete filings of the requisite documents and properly and promptly
responding to inquiries of the ED and the NCA. CTU and the HUI Group shall
provide to the ED and the NCA, 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 CTU and the HUI Group shall use
their best efforts to satisfy promptly all requirements and demands of the ED,
the NCA or any such agency or body requisite to obtaining Certification and
Accreditation, whether absolute or provisional. With respect to the ED, HUI
shall, as soon as practicable after execution of this Agreement but in no event
later than June 1, 1999, submit a Preacquisition Review Application (PRA) to
the ED for a Preacquisition Review of HUI, as applicable. CTU shall cooperate in
the preparation and filing of the PRA and the parties shall jointly use their
best efforts to obtain from the ED the responsive letter described in SECTION
7.06 herein.
SECTION 6.09. BEST EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties shall use its best efforts in good faith to
take or cause to be taken as promptly as practicable all actions that are within
its power to cause to be fulfilled those conditions precedent to its obligations
or the obligations of the other parties to consummate the transactions
contemplated by this Agreement that are dependent upon its actions, including
with respect to the HUI Group, HUI Groups best efforts to cause the condition
set forth in SECTION 8.05 to be satisfied.
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ARTICLE VII
CONDITIONS TO THE HUI GROUP'S OBLIGATIONS
All obligations of the HUI Group 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 precedent, any one or
more of which may be waived by Newco in writing.
SECTION 7.01. REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE. At
the Closing Date, the representations and warranties of CTU contained in this
Agreement will be true and correct in all material respects at and as of such
time, and at the Closing Date, CTU shall have delivered to Newco a certificate
to such effect signed by the President of CTU.
SECTION 7.02. CTU'S PERFORMANCE. Each of the obligations of CTU to be
performed 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, CTU shall have delivered to Newco a certificate to such
effect signed by the President of CTU
SECTION 7.03. OPINION OF CTU'S COUNSEL. Newco shall have been furnished an
opinion or opinions of counsel to CTU, dated the Closing Date, in form
substantially as set forth on Schedule 7.03 hereto.
SECTION 7.04. ASSIGNMENT OF CONTRACTS. CTU shall have received consents
under all material Contracts comprising the Assets which require the consent of
any Person to the assignment thereof either by the terms thereof or as a matter
of law for their assumption or performance by Newco or HUI.
SECTION 7.05. NCA ACCREDITATION. Newco or HUI shall have received an
indication from NCA that it will grant institutional Accreditation for Huron
University upon the Closing.
SECTION 7.06. PREACQUISITION REVIEW. Newco or HUI shall have received an
indication from ED indicating that a Preacquisition Review has been completed
and in substance, indicating that there is nothing in the information submitted
which would prevent the Institution from being recertified following the
Closing.
ARTICLE VIII
CONDITIONS TO CTU'S OBLIGATIONS
All obligations of CTU 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 CTU.
SECTION 8.01. REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE. At
the Closing Date, the representations and warranties of the HUI Group contained
in this Agreement will be true and correct in all material respects at and as of
such time, and at the Closing Date, Newco shall have delivered to CTU a
certificate to such effect signed by the President and Manager of HUI and Newco.
SECTION 8.02. NEWCOS AND HUI'S PERFORMANCE. Each of the obligations
of Newco and HUI to be performed by either of them on or
before the Closing Date pursuant to the terms of this Agreement shall have
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been duly performed in all material respects at the Closing Date, and at the
Closing Date, the HUI Group shall have delivered to CTU a certificate to such
effect signed by the President of HUI and Newco.
SECTION 8.03. OPINION OF THE HUI GROUPS COUNSEL. CTU shall have been
furnished an opinion or opinions of counsel to the HUI Group, dated the Closing
Date, in form substantially as set forth on Schedule 8.03 hereto.
SECTION 8.04. EMPLOYMENT AGREEMENTS. Member shall have executed and
delivered to CTU an amendment to his existing employment agreement with CTU and
John Zing shall have executed and delivered to CTU an Employment Agreement with
CTU, substantially in the forms attached as Schedule 8.04A and 8.04B hereto,
providing for Member and Mr. Zing to assist CTU in its management transition and
other operational and strategic matters.
SECTION 8.05. ADDITIONAL CAPITAL. Newco shall have received commitments, in
form and substance satisfactory to CTU, to purchase limited liability company
interests in Newco in an amount of at least $1.85 million.
SECTION 8.06. HEI LEASE. CTU and its affiliates shall have been
unconditionally released from all obligations under the HEI Lease.
SECTION 8.07. NCA ACCREDITATION. Newco or HUI shall have received an
indication from NCA that it will grant institutional Accreditation for Huron
University upon the Closing.
SECTION 8.08. PREACQUISITION REVIEW. Newco or HUI shall have received an
indication from ED that a Preacquisition Review has been completed and in
substance, indicating that there is nothing in the information submitted which
would prevent the Institution from being recertified following the Closing.
SECTION 8.09. LIST OF MEMBERS. At the Closing Date, Newco shall deliver to
CTU a list, certified by the President and Manager of Newco, identifying (i) the
name and State of residence of each record and beneficial member of Newco, (ii)
the amount of limited liability company interests each member owns and (iii) the
amount of cash and a description and statement of the agreed value of the other
property or services contributed by each member and which each member has agreed
to contribute to Newco.
ARTICLE IX
PERFORMANCE SUBSEQUENT TO CLOSING
SECTION 9.01. COVENANTS OF NEWCO AND HUI PENDING EXPIRATION OF CONDITION
SUBSEQUENT. Each of Newco and HUI covenants and agrees with CTU that from and
after the Closing and until the satisfaction or expiration of the condition
subsequent described in SECTION 9.04 hereof (the Condition Subsequent) or the
exercise of the Recission Right (as defined in SECTION 9.04 below), unless
otherwise agreed in writing by CTU and except as set forth on SCHEDULE 9.01
hereto, it (i) shall not mortgage, pledge, assign, sell or otherwise transfer
any of the Assets other than in the ordinary course of HUI's business, (ii)
shall conduct the business, operations, activities and practices of the
Institution and the Business herein acquired in the usual and ordinary course,
consistent with past practices, (iii) shall use its best efforts to preserve the
business organization of the Business intact, keep available to itself and the
Business the services of the Transferred Employees, and preserve
for itself and CTU the goodwill of the suppliers, students and others
with whom CTU, with respect to the Business, Newc or HUI
has a buusiness relationship, (iv) shall maintain the tangible
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property in the same condition as it now exists, ordinary usage, wear and tear
excepted, (v) shall not breach any agreements necessary for its operations, and
(vi) 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 business, the terms of which are consistent with past
practice.
SECTION 9.02. FINANCIAL CONDITION. Until the satisfaction of the Condition
Subsequent or HUIs exercise of the Rescission Right, HUI and Newco 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 HUI and Newco shall
be financially capable of obtaining HUIs Accreditations and Certifications and
performing its obligations hereunder.
SECTION 9.03. ADMINISTRATION IN ACCORDANCE WITH REGULATIONS, ACCREDITATIONS
AND CERTIFICATIONS. Until the satisfaction of the Condition Subsequent or HUIs
exercise of the Rescission Right, HUI and Newco 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, each of HUI
and Newco shall use its best efforts 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 HUI or Newco the right and authority to administer and operate the
Institution and to verify HUI or Newco for participation in Title IV Programs in
the same manner and to the same extent as CTU with respect to the Business prior
to the transactions contemplated hereunder.
SECTION 9.04. CONDITION SUBSEQUENT TO OBLIGATIONS OF HUI. Notwithstanding
anything to the contrary contained in this Agreement, if within 90 calendar days
after the Closing Date, the ED fails to grant Certification, whether absolutely
or provisionally, for Huron University to participate in the Title IV Programs,
HUI may, at its option, terminate and rescind this Agreement (the Rescission
Right) by giving CTU written notice to such effect, within 5 days after the
expiration of such period; provided that such rescission can be and is effected
within 30 days of such notice and in a manner so as to restore CTUs use and
ownership of the Business and the Assets in the same state and in the same form
and character as it was immediately prior to the Closing Date (except for
transactions occurring since the Closing Date in accordance with the covenant
described in SECTION 9.01 and except that in the event the Real Property is
transferred to a different owner, the parties hereto acknowledge and understand
that there will be a different lessor of the Real Property, but that the terms
and provisions of any lease of the Real Property to CTU will be no less
favorable to CTU than those provided currently in the HEI Lease) and permit CTU
to operate the Business immediately after the Rescission Date in the same manner
as the Business was conducted by CTU immediately prior to the Closing Date. If
subsequent to such election the Institution is recertified, CTU shall reimburse
HUI for the Title IV Program funds attributable to and received for such period.
Immediately upon triggering the condition subsequent set forth in this Section,
the parties shall work cooperatively and in good faith to rescind the transfer
of the Assets and assumption of the Assumed Liabilities in the manner and to the
extent herein contemplated, including immediately seeking reinstitution of all
of CTU's Accreditations, prompt reconveyance of the Assets and Assumed
Liabilities to CTU, and preservation of the goodwill of the business of the
Institution. Without limiting the generality of the foregoing, upon any
rescission of the purchase of the Assets pursuant to this Section: (a) CTU shall
deliver to Newco the certificates representing the LLC Units; (b) HUI or Newco
shall pay to CTU cash in an amount equal to (i) the Cash Amount, plus
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(ii) an amount of cash equal to the difference between the amount of cash
collected from students of HUI and Newco which is unearned as of the date the
Assets and Assumed Liabilities are reconveyed (the Rescission Date) (including
Pre-Paid Cash which is unearned, if any) and the amount of accounts receivable
of HUI and Newco related to the term in progress which have been earned by HUI
or Newco through the Recission Date; and (c) HUI or Newco shall reconvey the
Assets to CTU.
SECTION 9.05. DISBURSEMENT OF TITLE IV FUNDS. CTU agrees that immediately
prior to the Closing Date, CTU will disburse Title IV funds in accordance with
34 C.F.R. 668.26. Each of Newco and HUI expressly acknowledges that
documentation establishing HUI's or Newcos eligibility and certification to
participate in the programs administered under Title IV must be issued by the
U.S. Department of Education before HUI or Newco may participate in the federal
student financial assistance programs under Title IV.
ARTICLE X
TERMINATION
SECTION 10.01. TERMINATION. Notwithstanding anything herein or elsewhere to
the contrary, this Agreement may be terminated at any time prior to Closing:
(a) by CTU or Newco if the Closing Date shall not have taken place
on or prior to December 31, 1999 (the Termination Date); or
(b) by CTU at any time in its sole discretion if any of the
representations or warranties of the HUI Group in this Agreement are not in all
material respects true, accurate and complete or if any of the HUI Group
breaches in any material respect any covenant contained in this Agreement,
provided that such misrepresentation or breach is not cured within ten business
days after notice thereof, but in any event prior to the Termination Date;
(c) by Newco at any time in its sole discretion if any of the
representations or warranties of CTU in this Agreement are not in all material
respects true, accurate and complete or if CTU breaches in any material respect
any covenant contained in this Agreement, provided that such misrepresentation
or breach is not cured within ten business days after notice thereof, but in any
event prior to the Termination Date;
(d) by CTU at any time after June 30, 1999, if CTU reasonably
believes that either the NCA or the ED will not certify or accredit the
Institution at any time or in a timely manner; or
(e) by CTU at any time after June 15, 1999, if Newco has not
received commitments, in form and substance satisfactory to CTU, to purchase
limited liability company interests in Newco in an amount of at least $1.85
million.
SECTION 10.02. NOTICE; EFFECT OF TERMINATION. If this Agreement is
terminated pursuant to Section 10.01, written notice thereof shall promptly be
given by the party electing such termination to the other party and, subject to
the expiration of the cure periods provided in clauses (b) and (c) of SECTION
10.01, if any, this Agreement shall terminate without further actions by the
parties and no party shall have any further obligations under this Agreement;
provided that any termination of this Agreement pursuant this Section shall not
relieve any party from any liability for the breach of any representation,
warranty or covenant contained in this Agreement or be deemed
to constitute a waiver of any remedy available for such breach.
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Notwithstanding the termination of this Agreement, the respective obligations of
the parties under SECTIONS 11.02, 11.06, 11.09 and 11.10 shall survive the
termination of this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. 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 provided that CTU may
trade or assign all or part of its interest in the LLC Units at any time to a
Qualified Party without the consent of any of the HUI Group; provided, however,
that in the event CTU desires to sell all or a portion of its interest in the
LLC Units to an unaffiliated Person (the Offeree) it shall first offer the HUI
Group the right, exercisable by written notice to CTU delivered within ten days
after receipt of notice from CTU, to purchase all, but not less than all, of the
offered LLC Units at the same price and on the same terms as those offered to
the Offeree; provided, that the HUI Group shall have thirty days from the
receipt of the above-referenced notice from CTU to complete the purchase of the
offered LLC Units. Except as provided herein, 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 11.02. 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 South Dakota, disregarding principles of
conflict of laws and the like.
SECTION 11.03. 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 and such unlawful provision shall be interpreted as
closely as possible to the manner in which it was written.
SECTION 11.04. 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. Whenever the word
"including" is used herein, it shall be deemed to be followed by the words
without limitation.
SECTION 11.05. 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:
(a) If to the HUI Group: Huron University
333 Ninth St. SW
Huron, South Dakota 57350
Attn: Mr. David O'Donnell
with a copy to: Churchill Manolis Freeman Kludt & Shelton
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P.O. Box 176
Huron, South Dakota 57350
Attn: George Manolis, Esq.
(b) If to CTU: Whitman Education Group
4000 Biscayne Boulevard, 6th Fl.
Miami, Florida 33137
Attn: Richard B. Salzman, Esq.
Vice President -
Legal Affairs and
General Counsel
with a copy to: Stearns Weaver Miller Weissler
Alhadeff & Sitterson, P.A.
150 West Flagler St., Suite 2200
Miami, Florida 33130
Attn: Steven D. Rubin, Esq.
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 11.06. EXPENSES. Except as otherwise provided in Article XI, 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; provided, however, that CTU shall pay reasonable attorneys fees
incurred by the HUI Group (the HUI Fees) in connection with this transaction.
SECTION 11.07. 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.
SECTION 11.08. 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 11.09. litigation; prevailing party. In the event of any litigation
with regard to this Agreement, the prevailing party shall be entitled to receive
from the non-prevailing party and the non-prevailing party shall pay upon demand
all reasonable fees and expenses of counsel for the prevailing
party.
SECTION 11.10. INJUNCTIVE RELIEF. It is possible that remedies at law may
be inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
SECTION 11.11. ENTIRE AGREEMENT. This Agreement contains every obligation
and understanding between the parties relating to the subject matter hereof and
merges all prior discussions, negotiations and agreements, if any, between them,
and none of the parties shall be bound by any representations, warranties,
covenants, or other understandings, other than as expressly provided or referred
to herein.
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<PAGE>
SECTION 11.12. WAIVER AND AMENDMENT. Any representation, warranty,
covenant, term or condition of this Agreement which may legally be waived, may
be waived, or the time of performance thereof extended, at any time by the party
hereto entitled to the benefit thereof, and any term, condition or covenant
hereof may be amended by the parties hereto at any time. Any such waiver,
extension or amendment shall be evidenced by an instrument in writing executed
on behalf of the appropriate party by a person who, to the extent applicable,
has been authorized by its Board of Directors to execute waivers, extensions or
amendments on its behalf. No waiver by any party hereto, whether express or
implied, of its rights under any provision of this Agreement shall constitute a
waiver of such party's rights under such provisions at any other time or a
waiver of such party's rights under any other provision of this Agreement. No
failure by any party hereto to take any action against any breach of this
Agreement or default by another party shall constitute a waiver of the former
party's right to enforce any provision of this Agreement or to take action
against such breach or default or any subsequent breach or default by such other
party.
IN WITNESS WHEREOF, the parties hereto have caused their signatures to be
affixed to this Agreement as of the date first above written.
COLORADO TECHNICAL UNIVERSITY, INC.,
A COLORADO CORPORATION
By: /s/ RANDY S. PROTO
-------------------------
Name: Randy S. Proto
Title: Vice President
HURON UNIVERSITY, LLC,
a South Dakota limited liability company
By: /s/ DAVID O'DONNELL
--------------------------
Name: David ODonnell
Title: President and Manager
NEWCO, LLC, A SOUTH DAKOTA LIMITED
LIABILITY COMPANY
By: /s/ DAVID O'DONNELL
--------------------------
Name: David O'Donnell
Title: President and Manager
/s/ DAVID O'DONNELL
--------------------------
DAVID O'DONNELL, Individually
-19-
Exhibit 10.26
FOURTH AMENDMENT
TO CREDIT AGREEMENT
This Fourth Amendment To Credit Agreement (the "Amendment") is entered
into this 2nd day of April, 1999, by and among NATIONSBANK, N.A., f/k/a Barnett
Bank, N.A., a national banking corporation ("Bank"); WHITMAN EDUCATION GROUP,
INC., f/k/a Whitman Medical Corp., a Florida corporation ("Borrower" or "You");
and PHILLIP FROST, M.D., an individual, (hereinafter referred to as the
"Guarantor").
WHEREAS, the parties hereto entered into a Credit Agreement dated
April 11, 1996, as amended by amendment dated August 14th, 1996, and as further
amended by amendment dated October 31, 1996 and amendment dated May 21, 1997
(collectively the Credit Agreement), pursuant to which the Bank provided to
You a Term Loan in the principal amount of $6,000,000 to refinance existing
obligations and a Revolving Loan in the principal amount of $7,500,000 to
finance working capital and for general corporate purposes; and
WHEREAS, the parties hereto wish to amend certain provisions of the
Credit Agreement effective as of April 2, 1999;
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Any capitalized terms not defined herein shall have the same
meaning as given those terms in the Credit Agreement.
2. Sections 2.1(b) (iii) and (iv) of the Credit Agreement, Revolving
Loan, are hereby amended in their entirety and shall read as follows:
(iii) PURPOSE. The proceeds of the REVOLVING LOAN shall be used
for general corporate purposes and to finance working capital, including for
letters of credit up to an aggregate amount of $1,000,000. Provided no Event of
Default has occurred and is continuing, the Borrower may borrow, repay and
reborrow up to an amount not to exceed at any time and from time to time
$7,500,000 until July 31, 1999.
(iv) REPAYMENT. The Borrower agrees to pay the principal
indebtedness evidenced by and outstanding under the Revolver Note in full on or
before July 31, 1999.
3. Section 2.4(a) (v) of the Credit Agreement, LIBOR RATE LOANS, is
hereby amended in its entirety and shall read as follows:
(v) no Interest Period for a Revolving Loan shall extend beyond
July 31,
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<PAGE>
1999;
4. Except as otherwise provided herein, all other terms and conditions
of the Credit Agreement are hereby restated, affirmed and incorporated by
reference in their entirety.
5. The Borrower hereby certifies that the representations and
warranties of th Borrower set forth in the Credit Agreement are true and correct
as of the date of this Amendment.
6. This Amendment shall be governed by and interpreted in accordance
with the laws of the State of Florida.
7. This Amendment may be executed by one or more of the parties to
this Amendment in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
8. In consideration of the amendment to the Credit Agreement
contemplated hereby, Borrower shall pay the reasonable fees and expenses of
Morgan, Lewis & Bockius LLP, Florida counsel to the Bank, incurred in connection
with the preparation of this Amendment, contemporaneously with the execution
thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by the proper and duly authorized officers as of
the day and year first above written.
BANK:
NATIONSBANK, N.A.
By: /S/ BARBARA BALTER
-----------------------------
Name: Barbara Balter
Title: Senior Vice President
BORROWER:
WHITMAN EDUCATION GROUP, INC.
By: /S/ RANDY S. PROTO
-----------------------------
Randy S. Proto
President
GUARANTOR hereby acknowledges and agrees that the Continuing Unlimited
Guarantee, dated April 23, 1996, executed by Guarantor for the benefit of Bank,
extends to the Credit Agreement, as amended hereby, and all indebtedness now or
hereafter outstanding under the Amended, Restated and Consolidated Renewal
Revolver Note dated April 2, 1999.
GUARANTOR:
/S/ PHILLIP FROST, M.D.
-------------------------------
PHILLIP FROST, M.D.
-3-
Exhibit 10.27
AMENDED, RESTATED AND CONSOLIDATED
RENEWAL REVOLVER NOTE
$7,500,000.00 April 2, 1999
FOR VALUE RECEIVED, WHITMAN EDUCATION GROUP, INC., f/k/a Whitman
Medical Corp., a Florida corporation ("Borrower"), promises to pay to the order
of
NATIONSBANK, N.A.
a national banking corporation ("Lender") (successor by merger), the principal
sum of
SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
and the Borrower further promises to pay to the Lender interest monthly, on the
30th day of each month, until repaid in full, on the principal amount evidenced
hereby and from time to time outstanding at a rate per annum determined in
accordance with the Credit Agreement (as defined below). The rate of interest to
be applied and the amount of interest to be paid on the daily outstanding
balance of principal evidenced hereby shall be calculated on an assumed year of
360 days for the number of days actually elapsed.
The Borrower agrees to pay the outstanding principal indebtedness
evidence by this note in full on July 31, 1999. All advances made hereunder by
the Lender to the Borrower and all payments made on account of principal hereof
shall be recorded by the Lender and, prior to transfer hereof, endorsed on the
grid attached hereto.
The Borrower further promises and agrees that:
1. This Note is the Revolver Note referred to in, and is entitled to
the benefits of, that certain Credit Agreement, dated as of April 11, 1996, as
amended by amendment dated August 14, 1996, as further amended by amendment
dated October 31, 1996 and amendment dated May 21, 1997, and as amended by
amendment of even date herewith (collectively, the Credit Agreement), among
the Lender, the Borrower and the Guarantor, the terms of which are incorporated
herein by this reference as if fully set forth herein. Provided no Event of
Default has occurred and is continuing, the Borrower may borrow, prepay and
reborrow provided the aggregate principal amount outstanding from time to time
and at any time does nor exceed $7,500,000.00.
2. This Borrower shall be in default under the terms of this note upon
the occurrence and continuation of an Event of Default as defined and described
in the Credit Agreement.
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<PAGE>
3. At any time after the occurrence and continuation of any Event of
Default, the indebtedness evidenced by this note and / or any note(s) or other
obligation(s) which may be taken in renewal, extension, substitution, or
modification of all or any part of the indebtedness evidenced thereby and all
other Obligations of the Borrower to the Lender, howsoever created and existing
under the Credit Agreement or otherwise, shall immediately become due and
payable without demand upon or notice to the Borrower, and the Lender shall be
entitled to exercise the other remedies set forth in the Credit Agreement or as
otherwise provided at law or in equity.
4. Upon the occurrence and during the continuance of any Event of
Default, the Lender is authorized, without further notice to the Borrower (the
giving of notice being expressly waived by the Borrower) to set off and apply
any indebtedness owing by the Lender to the Borrower against the indebtedness
evidenced by this note, although then contingent or unmatured. The Lender agrees
to notify the Borrower after any such setoff and application; provided, however,
the failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Lender under this Paragraph 4 are in addition to
any other rights and remedies which the Lender may have.
5. The Lender may transfer this note and the transferee(s) shall
thereupon become vested with all the powers, rights, and obligations herein
given to the Lender with respect thereto; and the Lender shall thereafter be
forever relieved and fully discharged from any liability or responsibility in
the matter.
6. The Borrower hereby waives presentment for payment, demand, notice
of dishonor and protest and agrees that (i) any right of setoff securing any
indebtedness evidenced by this note may, from time to time, in whole or in part,
be exchanged or released, and any person liable on or with respect to the
indebtedness evidenced by this note may be released -- all without notice to or
further reservations of rights against the Borrower, any indorser, surety or
guarantor and all without in any way affecting or releasing the liability of the
Borrower, any indorser, surety or guarantor; and (ii) none of the terms or
provisions of this note may be waived, altered, modified or amended except as
the Lender may consent thereto in writing.
7. In the event of any litigation involving this note, the prevailing
party shall be entitled to collect reasonable attorneys fees, out-of-pocket
expenses, and court costs. As used in this note, the term, attorneys fees,
shall mean reasonable charges and expenses for legal services at the trial
and/or appellate level and/or in pre- and post-judgment or bankruptcy
proceedings.
8. Both principal and interest of this note shall be payable in lawful
currency of the United States of America to the Lender at 701 Brickell Avenue,
Miami, Florida 33131 or at such other place or to such other person as may be
designated in writing by the Lender, in immediately available (same day) funds
without deduction for or on account of any present or future taxes levied or
imposed on this note, the proceeds hereof, or on the Borrower
or holder hereof by any government, or any instrumentality,
authority or political subdivision thereof. The Borrower agrees,
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<PAGE>
upon the request of the Lender, to pay all such taxes (other than taxes on or
measured by net income of the holder hereof) in addition to the principal and
interest evidenced by this note.
9. Any installment of principal and/or interest evidenced
by this note which is not paid on the day when such payment
is scheduled to be made, regardless of whether or not the
Lender has accelerated payment of any or all sums outstanding under this note,
shall bear interest from the day when due (including any grace period) until
said amount is paid in full, payable on demand, at a rate per annum equal at all
times to the sum of (i) the rate otherwise applicable hereunder plus (ii) four
percent (4%).
10. This note shall be deemed to have been made under and shall be
governed by the laws of the State of Florida in all respects except as to
interest rates and other terms of lending which, by virtue of a federal
preemption or, at the election of the Lender, are or may be governed by the laws
of the United States, including matters of construction, validity, and
performance. If any provision of this note shall be deemed unenforceable under
applicable law, such provision shall be ineffective, but only to the extent of
such unenforceability, without invalidating the remainder of such provision or
the remaining provisions of this note. If more than one person signs this note
as a maker, each shall be jointly and severally liable hereunder. All of the
terms and provisions of this note shall be applicable to and be binding upon
each and every maker, indorser, surety, guarantor, all other persons who are or
may become liable for the payment hereof and their heirs, personal
representatives, successors or assigns.
11. This note amends and restates that certain Amended, Restated and
Consolidated Renewal Revolver Note dated as of May 21, 1997, executed by
Borrower to the order of Lender, which previous note had amended, restated,
consolidated and renewed (a) that Revolver Note dated April 11, 1996, in the
principal amount of $2,500,000.00, executed by Borrower to the order of Barnett
Bank of South Florida, N.A., (b) that Revolver Note dated October 31, 1996, in
the principal amount of $3,000,000.00 executed by Borrower to the order of
Lender, and (c) that certain Revolver Note dated May 21, 1997 in the principal
amount of $2,000,000 executed by Borrower to the order of Lender.
12. THE BORROWER, AND THE LENDER IN ACCEPTING DELIVERY OF THIS NOTE,
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE
TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED ON THIS NOTE OR THE CREDIT
AGREEMENT OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE CREDIT
AGREEMENT OR ANY OTHER AGREEMENT SIGNED OR CONTEMPLATED TO BE SIGNED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER PARTY OR THE DIRECTORS, OFFICERS,
EMPLOYEES OR AGENTS THEREOF. THE INCLUDING OF THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE LENDER TO EXTEND CREDIT TO THE BORROWER.
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<PAGE>
WHITMAN EDUCATION GROUP, INC.
/s/ RICHARD B. SALZMAN
------------------------------
By: Richard B. Salzman
Title: Vice President
STATE OF ______ )
) SS.
COUNTY OF _______ )
The foregoing Amended, Restated and Consolidated Renewal Revolver Note
was acknowledged was before me this day of April, 1999 by , as of WHITMAN
EDUCATION GROUP, INC., a Florida _________________ corporation. He/She:
________ is personally known to me, or
________ produced as _______________ identification.
______________________________
NOTARY PUBLIC
My Commission Expires: Printed Name of Notary:
-4-
Exhibit 10.28
FIFTH AMENDMENT
TO CREDIT AGREEMENT
-------------------
This Fifth Amendment To Credit Agreement (the "Amendment") is entered
into this 28th day of May, 1999, by and among NATIONSBANK, N.A., f/k/a Barnett
Bank, N.A., a national banking corporation ("Bank"); WHITMAN EDUCATION GROUP,
INC., f/k/a Whitman Medical Corp., a Florida corporation ("Borrower" or "You");
and PHILLIP FROST, M.D., an individual, (hereinafter referred to as the
"Guarantor").
WHEREAS, the parties hereto entered into a Credit Agreement dated
April 11, 1996, as amended by amendment dated August 14th, 1996, and as further
amended by amendment dated October 31, 1996, amendment dated May 21, 1997, and
amendment dated April 2, 1999 (collectively the "Credit Agreement"), pursuant to
which the Bank provided to You a Term Loan in the principal amount of $6,000,000
to refinance existing obligations and a Revolving Loan in the principal amount
of $7,500,000 to finance working capital and for general corporate purposes; and
WHEREAS, the parties hereto wish to amend certain provisions of the
Credit Agreement effective as of May 28th, 1999;
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Any capitalized terms not defined herein shall have the same
meaning as given those terms in the Credit Agreement.
2. Sections 2.1(b)(iv) of the Credit Agreement, Revolving Loan, is
hereby amended in its entirety and shall read as follows:
(iv) REPAYMENT. The Borrower agrees to pay all revolving credit
advances outstanding under the Revolver Note in full on or before July 31, 1999.
Once all revolving credit advances have been paid in full, (1) the Borrower
shall have no liability hereunder except for reimbursement obligations in
connection with the letters of credit issued prior to the date hereof by the
Bank for the Borrower or its subsidiaries under this Credit Agreement, as set
forth on Schedule A hereto (the "Letters of Credit"), and (2) no additional
revolving credit advances shall be made hereunder except in connection with the
Letters of Credit. The Borrower agrees to reimburse to the Bank any amounts
drawn under the Letters of Credit on demand and otherwise in accordance with the
terms and conditions set forth herein. The Borrower may, at its option, provide
full cash collateral to the Bank for the full amount and term of the Letters of
Credit, in form and substance satisfactory to the Bank, in order to obtain a
release of the Guarantor from its obligations hereunder.
- 1 -
<PAGE>
3. Except as otherwise provided herein, all other terms and conditions
of the Credit Agreement are hereby restated, affirmed and incorporated by
reference in their entirety.
4. The Borrower hereby certifies that the representations and
warranties of the Borrower set forth in the Credit Agreement are true and
correct as of the date of this Amendment.
5. The Guarantor hereby acknowledges and agrees that the Continuing
Unlimited Guarantee, dated April 23, 1996, executed by Guarantor for the benefit
of Bank, extends to the Credit Agreement, as amended hereby, and all
indebtedness now or hereafter outstanding under the Amended, Restated and
Consolidated Renewal Revolver Note dated April 2, 1999, including any amounts
that are or will become due and payable to Bank in connection with the Letters
of Credit set forth on Schedule A hereto. The Bank agrees that it will release
the Guarantor from its obligations hereunder if the Borrower provides the Bank
with cash collateral, on terms and conditions satisfactory to the Bank, for the
full amount and term of the obligations under the Letters of Credit.
6. This Amendment shall be governed by and interpreted in accordance
with the laws of the State of Florida.
7. This Amendment may be executed by one or more of the parties to
this Amendment in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
8. In consideration of the amendment to the Credit Agreement
contemplated hereby, Borrower shall pay the reasonable fees and expenses of
Morgan, Lewis & Bockius LLP, Florida counsel to the Bank, incurred in connection
with the preparation of this Amendment, contemporaneously with the execution
thereof.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by the proper and duly authorized officers as of
the day and year first above written.
BANK:
NATIONSBANK, N.A.
By: /s/ CHERYL R. MONCURE
----------------------------
Name: Cheryl R. Moncure
Title: Senior Vice President
BORROWER:
WHITMAN EDUCATION GROUP, INC.
By: /s/ RANDY S. PROTO
----------------------------
Randy S. Proto
President
GUARANTOR:
/s/ PHILLIP FROST, M.D.
----------------------------
Phillip Frost, M.D.
- 3 -
<PAGE>
SCHEDULE A
----------
Letters of Credit issued by the Bank for the Borrower or its subsidiaries
-------------------------------------------------------------------------
(A) L/C Number M525917, dated May 13, 1998, in the amount of $65,116.28 for
beneficiary Aetna Real Estate Associates, L.P. (for applicant Whitman Education
Group),
(B) L/C Number 973442, dated October 30, 1998, in the amount of $27,000 for
beneficiary U.S. Department of Education (for applicant Ultrasound Technical
Services, Inc.),
(C) L/C Number 973443, dated October 30, 1998, in the amount of $135,000
for beneficiary U.S. Department of Education (for applicant Ultrasound Technical
Services, Inc.),
(D) L/C Number 973444, dated October 30, 1998, in the amount of $78,000 for
beneficiary U.S. Department of Education (for applicant Ultrasound Technical
Services, Inc.),
(E) L/C Number 973445, dated October 30, 1998, in the amount of $50,000 for
beneficiary U.S. Department of Education (for applicant Colorado Technical
University), and
(F) L/C Number 514222, dated April 8, 1996, in the amount of $465,000 for
beneficiary Maryland Higher Education Commission (for applicants Whitman
Education Group and Ultrasound Technical Services).
- 4 -
Exhibit 10.29
SECURITY AGREEMENT
------------------
Security Agreement ("Agreement") dated as of May 20, 1999, between ULTRASOUND
TECHNICAL SERVICES, INC. D/B/A ULTRASOUND DIAGNOSTIC SCHOOLS, a corporation
organized and existing under the laws of the State of New York having its
principal office at 4400 Biscayne Boulevard, 6th Floor, Miami, FL 33137
("Grantor"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation
organized and existing under the laws of the State of Delaware having its
principal office at 222 North LaSalle Street, Chicago, IL 60601 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to WHITMAN
EDUCATION GROUP, INC. D/B/A WHITMAN EDUCATION GROUP AND ALSO F/K/A WHITMAN
MEDICAL CORPORATION ("Customer"), under the Loan Agreement (as defined below) or
otherwise, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Grantor hereby agrees with MLBFS as
follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Grantor or
Customer; or (B) any such proceeding shall be filed against Grantor or Customer
and shall not be dismissed or withdrawn within sixty (60) days after filing; or
(C) Grantor or Customer shall make a general assignment for the benefit of
creditors; or (D) Grantor or Customer shall generally fail to pay or admit in
writing its inability to pay its debts as they become due; or (E) Grantor or
Customer shall be adjudicated a bankrupt or insolvent.
"Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iii) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Financial Assets and Investment Property of Grantor,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records (including
computer records) directly related thereto, all proceeds thereof (including,
without limitation, proceeds in the form of Accounts and insurance proceeds),
and the additional collateral described in Section 7 (b) hereof.
(iv) "Default" shall mean an "Event of Default", as defined in Section 6 hereof,
or any event which with the giving of notice, passage of time, or both, would
constitute such an Event of Default.
(v) "Loan Agreement" shall mean that certain WCMA LOAN AND SECURITY AGREEMENT
No. 79D-07257 between Customer and MLBFS, as the same may from time to time be
or have been amended, restated, extended or supplemented.
(vi) "Location of Tangible Collateral" shall mean the address of Grantor set
forth at the beginning of this Agreement, together with any other address or
addresses set forth on any exhibit hereto as being a Location of Tangible
Collateral.
"Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer or Grantor to MLBFS, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, due or to become due, primary
or secondary or joint or several, and, without limiting the foregoing, shall
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<PAGE>
include interest accruing after the filing of any petition in bankruptcy, and
all present and future liabilities, indebtedness and obligations of Customer
under the Loan Agreement and the agreements, instruments and documents executed
pursuant thereto, and of Grantor under this Agreement.
"Permitted Liens" shall mean with respect to the Collateral: (A) liens for
current taxes not delinquent, other non- consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being contested in good faith by appropriate proceedings; (B)
liens in favor of MLBFS; and (C) any other liens expressly permitted in writing
by MLBFS.
(b) OTHER TERMS. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC")
shall have the meanings set forth in the UCC.
2. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Grantor hereby pledges, assigns, transfers and sets over to MLBFS, and grants to
MLBFS a first lien and security interest in and upon all of the Collateral,
subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Grantor shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Grantor shall perform all of its obligations
owing on account of or with respect to the Collateral in all material respects;
it being understood that nothing herein, and no action or inaction by MLBFS,
under this Agreement or otherwise, shall be deemed an assumption by MLBFS of any
of Grantor's said obligations.
(d) NOTICE OF CERTAIN EVENTS. Grantor shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(e) INDEMNIFICATION. Grantor shall indemnify, defend and save MLBFS harmless
from and against any and all claims, losses, costs, expenses (including, without
limitation, reasonable attorneys' fees and expenses), demands, liabilities,
penalties, fines and forfeitures of any nature whatsoever which may be asserted
against or incurred by MLBFS arising out of or in any manner occasioned by (i)
the ownership, use, operation, condition or maintenance of any Collateral, or
(ii) any failure by Grantor to perform any of its obligations hereunder;
excluding, however, from said indemnity any such claims, losses, etc. arising
out of the willful wrongful act or active gross negligence of MLBFS. This
indemnity shall survive the expiration or termination of this Agreement as to
all matters arising or accruing prior to such expiration or termination.
(f) INSURANCE. Grantor shall insure all of the tangible Collateral with an
insurer or insurers reasonably acceptable to MLBFS, under a policy or policies
of physical damage insurance reasonably acceptable to MLBFS providing that (i)
losses will be payable to MLBFS as its interests may appear pursuant to a
Lender's Loss Payable endorsement, and (ii) MLBFS will receive not less than 10
days prior written notice of any cancellation; and containing such other
provisions as may be reasonably required by MLBFS. Grantor shall maintain such
other insurance as may be required by law or otherwise reasonably required by
MLBFS. Grantor shall furnish MLBFS with a copy or certificate of each such
policy or policies and, prior to any expiration or cancellation, each renewal or
replacement thereof.
(g) EVENT OF LOSS. Grantor shall at its expense promptly repair all reasonably
repairable damage to any tangible Collateral. In the event that any tangible
Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an
"Event of Loss") and such Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i) 90 days after
the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Grantor or MLBFS shall receive any proceeds of insurance on account
of such Event of Loss, or any underwriter of insurance on such tangible
Collateral shall advise either Grantor or MLBFS that it disclaims liability in
respect of such Event of Loss, Grantor shall, at Grantor's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Grantor shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or pay
to MLBFS on account of the Obligations an amount equal to the actual cash value
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of such Collateral as determined by either the applicable insurance company's
payment (plus any applicable deductible) or, in absence of insurance company
payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at
the time of occurrence of such Event of Loss or any time thereafter prior to
replacement or payment, as aforesaid, an Event of Default shall have occurred
and be continuing hereunder, then MLBFS may at its sole option, exercisable at
any time while such Event of Default shall be continuing, require Grantor to
either replace such Collateral or make a payment on account of the Obligations,
as aforesaid.
(h) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and be continuing, Grantor may in the ordinary course of its business: (i) sell
any Inventory normally held by Grantor for sale, (ii) use or consume any
materials and supplies normally held by Grantor for use or consumption, and
(iii) collect all of its Accounts. Grantor shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(i) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any time or
times hereafter, Grantor shall deliver to MLBFS, in addition to the other
information required hereunder, a schedule identifying, for each Account and all
Chattel Paper subject to MLBFS' security interests hereunder, each Account
Debtor by name and address and amount, invoice number and date of each invoice.
Grantor shall furnish to MLBFS such additional information with respect to the
Collateral, and amounts received by Grantor as proceeds of any of the
Collateral, as MLBFS may from time to time reasonably request.
(j) LOCATION. Except for movements in the ordinary course of its business,
Grantor shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Grantor cause or permit any tangible
Collateral to be removed from the United States without the express prior
written consent of MLBFS.
(k) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Grantor shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Grantor shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear obsolescence excepted, and shall pay or cause
to be paid all obligations arising from the repair and maintenance of such
Collateral, as well as all obligations with respect to each Location of Tangible
Collateral, except for any such obligations being contested by Grantor in good
faith by appropriate proceedings.
3. REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) GRANTOR. Grantor is a corporation, duly organized and validly existing in
good standing under the laws of the State of New York and is qualified to do
business and in good standing in each other state where the nature of its
business or the property owned by it make such qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Grantor of this Agreement have been duly authorized by all requisite action,
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
governed Grantor, and do not and will not breach or violate any of the
provisions of, and will not result in a default by Grantor under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
(c) NOTICE OR CONSENT. Except as may have been given or obtained, no notice to
or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Grantor of this
Agreement.
(d) VALID AND BINDING. This Agreement is the legal, valid and binding obligation
of Grantor, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Grantor's financial
statements, all financial statements of Grantor furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
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consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(f) LITIGATION. Except as previously disclosed to MLBFS throu Customer's SEC
filings, no litigation, arbitration, administrative or governmental proceedings,
are pending or, to the knowledge of Customer, threatened against Customer or any
Guarantor, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or any such Guarantor
or the continued operations of Customer or any Business Guarantor, and be
reasonably likely, in the opinion of MLBFS using its sile discretion, to succeed
on its merits.
(g) TAXES. All federal, state and local tax returns, reports and statements
required to be filed by Grantor have been filed with the appropriate
governmental agencies and all taxes due and payable by Grantor have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or the financial condition or continued operations of Grantor).
(h) COLLATERAL. Grantor has good and marketable title to the Collateral subject
to immaterial imperfections in title, and, except for any Permitted Liens: (i)
none of the Collateral is subject to any lien, encumbrance or security interest,
and (ii) upon the filing of all Uniform Commercial Code financing statements
executed by Grantor with respect to the Collateral or a copy of this Agreement
in the appropriate jurisdiction(s) and/or the completion of any other action
required by applicable law to perfect is lien and security interests, MLBFS will
have valid and perfected first liens and security interests upon all of the
Collateral.
Each of the foregoing representations and warranties has been and will be relied
upon as an inducement to MLBFS to advance funds or extend or continue to extend
credit to Customer, and is continuing and shall be deemed remade by Grantor
concurrently with each such advance or extension of credit by MLBFS to Customer.
4. FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause to be furnished
to MLBFS during the term of this Agreement such financial and other information
as may be required by the Loan Agreement or any other document evidencing the
Obligations or as MLBFS may from time to time reasonably request relating to
Grantor or the Collateral.
5. OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Grantor will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain all
of its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) TAXES. Grantor will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Grantor will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(d) NOTIFICATION BY GRANTOR. Grantor shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially
adverse change in the business, financial condition
or operations of Grantor; and (iii) any information
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which indicates that any financial statements of Grantor fail in any material
respect to present fairly the financial condition and results of operations
purported to be presented in such statements. Each notification by Grantor
pursuant hereto shall specify the event or information causing such
notification, and, to the extent applicable, shall specify the steps being taken
to rectify or remedy such event or information.
(e) NOTICE OF CHANGE. Grantor shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Grantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Grantor shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Grantor, or (B) a material adverse change in the financial condition or
operations of Grantor; (ii) Grantor shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Grantor
shall not engage in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business; (iv) Grantor shall not
cause or permit any other person or entity to assume or succeed to any material
business or operations of Grantor; and (iv) Grantor shall not cause or permit
any material change in its controlling ownership.
6. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) DEFAULT UNDER LOAN AGREEMENT. An Event of Default shall occur under the
terms of the Loan Agreement.
(b) FAILURE TO PERFORM. Grantor shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Agreement (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10 Business Days after
written notice thereof shall have been given by MLBFS to Grantor.
(c) BREACH OF WARRANTY. Any representation or warranty made by Grantor contained
in this Agreement shall at any time prove to have been incorrect in any material
respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Grantor
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") or any of their affiliates, and any required notice
shall have been given and required passage of time shall have elapsed.
(e) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Grantor has been materially impaired. The existence of such a material
impairment shall be determined in a manner consistent with the intent of Section
1-208 of the UCC.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Grantor to another creditor under any indenture, agreement, undertaking, or
otherwise.
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7. REMEDIES
(a) REMEDIES UPON DEFAULT Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) ACCELERATION. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest, notice
of dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all
Obligations shall automatically become due and payable without any action on the
part of MLBFS.
(ii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Agreement.
(iii) POSSESSION. MLBFS may require Grantor to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Grantor, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Grantor.
(iv) SALE. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper, and MLBFS
may purchase any Collateral at any such public sale; and the net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Grantor or whoever else may be entitled thereto,
and with Customer and each guarantor of Customer's obligations remaining jointly
and severally liable for any amount remaining unpaid after such application.
(v) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Grantor to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Grantor at any time in full or partial payment of any Collateral, and require
that Grantor not commingle any such items which may be so received by Grantor
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vi) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(vii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Grantor name on any item of payment on or proceeds of the
Collateral, and, in connection therewith, MLBFS may notify the postal
authorities to change the address for delivery of mail addressed to Grantor to
such address as MLBFS may designate.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credits, deposits, accounts,
financial assets, investment property, securities and any other property of
Grantor which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Grantor
hereby collaterally assigns and grants to MLBFS a security interest in all such
property as additional Collateral.
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(c) POWER OF ATTORNEy. Effective upon the occurrence and during the continuance
of an Event of Default, Grantor hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Grantor included in the
Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights and
remedies may be exercised simultaneously or successively. Any notice required
under this Agreement or under applicable law shall be deemed reasonably and
properly given to Grantor if given at the address and by any of the methods of
giving notice set forth in this Agreement at least 5 Business Days before taking
any action specified in such notice.
(e) NOTICES. To the fullest extent permitted by applicable law, Grantor hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Grantor waives all rights of redemption or reinstatement from any
such sale. MLBFS shall have the right to postpone or adjourn any sale or other
disposition of Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take possession of any
or all of the Collateral by court process, Grantor further irrevocably waives to
the fullest extent permitted by law any bonds and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession, and any demand for possession prior to the commencement of
any suit or action.
8. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this
Agreement, nor any consent to any departure by Grantor therefrom, shall be
effective unless the same shall be in writing and signed by MLBFS. Any waiver of
any provision of this Agreement and any consent to any departure by Grantor from
the terms of this Agreement shall be effective only in the specific instance and
for the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Grantor shall in any case entitle Grantor to
any other or further notice or demand in similar or other circumstances.
(b) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Agreement, and, in the case of facsimile transmission, to the
parties at their respective regular facsimile telephone number.
(c) COSTS, EXPENSES AND TAXES. Grantor shall pay or reimburse MLBFS upon demand
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and all
stamp, transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Agreement; and
(iii) all reasonable fees and out-of-pocket expenses (including, but not limited
to, reasonable fees and expenses of outside counsel) incurred by MLBFS in
connection with the enforcement of this Agreement or the protection of MLBFS'
rights hereunder, excluding, however, salaries and expenses of MLBFS' employees.
The obligations of Grantor under this paragraph shall survive the expiration or
termination of this Agreement and the discharge of the other Obligations.
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(d) RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to do any act or thing
which it has covenanted to do under this Agreement or any representation or
warranty on the part of Grantor contained in this Agreement shall be breached,
MLBFS may, in its sole discretion, after 5 Business Days written notice is sent
to Grantor (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Grantor upon demand,
with interest at the "Interest Rate" (as that term is defined in the Loan
Agreement or any document incorporated into the Loan Agreement) during the
period from and including the date funds are so expended by MLBFS to the date of
repayment, and any such amounts due and owing MLBFS shall be additional
Obligations. The payment or performance by MLBFS of any of Grantor's obligations
hereunder shall not relieve Grantor of said obligations or of the consequences
of having failed to pay or perform the same, and shall not waive or be deemed a
cure of any Default.
(e) FURTHER ASSURANCES. Grantor agrees to do such further acts and things and to
execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement , or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited to:
(i) executing financing statements or amendments thereto when and as reasonably
requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS it is
required by local law, causing the owners and/or mortgagees of the real property
on which any Collateral may be located to execute and deliver to MLBFS waivers
or subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(f) BINDING EFFECT. This Agreement shall be binding upon Grantor and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
(g) HEADINGS. Captions and section and paragraph headings in this Agreement are
inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) GOVERNING LAW. This Agreement shall be governed in all respects by the laws
of the State of Illinois.
(i) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(j) TERM. This Agreement shall become effective upon acceptance by MLBFS, and,
subject to the terms hereof, shall continue in effect so long thereafter as
either MLBFS shall be committed to advance funds or extend credit to Customer or
there shall be any Obligations outstanding.
(k) COUNTERPARTS. This Agreement may be executed in one or more counterparts
which, when taken together, constitute one and the same agreement.
(l) JURISDICTION; Waiver. GRANTOR acknowledges that this Agreement is being
accepted by MLBFS in partial consideration of MLBFS' right and option, in its
sole discretion, to enforce this Agreement in either the State of Illinois or in
any other jurisdiction where GRANTOR or any collateral for the Obligations may
be located. GRANTOR consents to jurisdiction in the State of Illinois and venue
in any State or Federal Court in the County of Cook for such purposes, and
GRANTOR waives any and all rights to contest said jurisdiction and venue.
GRANTOR further waives any rights to commence any action against MLBFS in any
jurisdiction except in the County of Cook and State of Illinois. MLBFS and
GRANTOR hereby each expressly waive any and all rights to a trial by jury in any
action, proceeding or counterclaim brought BY either of the parties against the
other party with respect to any matter relating to, arising out of or in any way
connected with the Loan Agreement, this Agreement and/or any of the transactions
which are the subject matter of the Loan Agreement or this Agreement.
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(m) INTEGRATION. This written Agreement constitutes the entire understanding and
represents the full and final agreement between the parties with respect to the
subject matter hereof, and may not be contradicted by evidence of prior written
agreements or prior, contemporaneous or subsequent oral agreements of the
parties. There are no unwritten oral agreements of the parties. No amendment or
modification of this Agreement shall be effective unless in a writing signed by
both MLBFS and GRANTOR.
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IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
ULTRASOUND TECHNICAL SERVICES, INC. D/B/A ULTRASOUND DIAGNOSTIC SCHOOLS
By: /s/ RICHARD B. SALZMAN
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Signature (1) Signature (2)
Richard B. Salzman
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Printed Name Printed Name
Vice President
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Title Title
STATE OF Pennsylvania }
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} SS.
COUNTY OF Pennsylvaina }
------------
The foregoing instrument was acknowledged before me this 21st day of May AD,
1999 by Richard B. Salzman of ULTRASOUND TECHNICAL SERVICES, INC. D/B/A
ULTRASOUND DIAGNOSTIC SCHOOLS, a New York corporation, on behalf of the
corporation. Said person is personally known to me or has produced Florida
Drivers License as identification.
/s/ MARLENE G. SCHLEIFER
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NOTARY PUBLIC
Marlene G. Schleifer
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PRINTED NAME OF NOTARY PUBLIC
My Commission Expires:
March 25, 2003
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[S E A L]
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: _______________________________________
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EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF SECURITY AGREEMENT NO. 79D-07257 BETWEEN
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND ULTRASOUND TECHNICAL
SERVICES, INC. D/B/A ULTRASOUND DIAGNOSTIC SCHOOLS
Locations of Tangible Collateral:
120 E. 16th Street, 2nd Floor
New York City, NY 10003
One Old Country Road, Suite LL1
Carle Place, NY 11514
2269 Saw Mill River Road
Elmsford, NY 10523
675 US Route 1, 2nd Floor
Iselin, NJ 08830
3 Neshaminy Interplex, Suite 117
Trevose, PA 19053
365 Cadwell Drive, First Floor
Springfield, MA 01104
4770 N. State Road 7
Lauderdale Lakes, FL 33319
9950 Princess Palm Avenue, Reg. II, Suite 120
Tampa, FL 33619
1140 Hammond Drive, Suite A-1150
Atlanta, GA 30328
6575 West Loop South, Suite 200
Bellaire, TX 77401
10199 Southside Boulevard, Suite 106
Jacksonville, FL 32256
1333 Corporate Drive, Suite 200
Irving, TX 75038
5830 Ellsworth Avenue, Suite 102
Pittsburgh, PA 15232
17535 Rosbough Drive
Middleburg Heights, OH 44130
Exhibit 10.30
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with WHITMAN EDUCATION
GROUP, INC. D/B/A WHITMAN EDUCATION GROUP AND ALSO F/K/A WHITMAN MEDICAL
CORPORATION, a corporation organized and existing under the laws of the State of
Florida (with any successor in interest, including, without limitation, any
successor by merger or by operation of law, herein collectively referred to as
"Customer") under: (a) that certain WCMA LOAN AND SECURITY AGREEMENT No.
79D-07257 between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional
Agreements", as that term is defined in the Loan Agreement, and (c) all present
and future amendments, restatements, supplements and other evidences of any
extensions, increases, renewals, modifications and other changes of or to the
Loan Agreement or any Additional Agreements (collectively, the "Guaranteed
Documents"), and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned, ULTRASOUND
TECHNICAL SERVICES, INC. D/B/A ULTRASOUND DIAGNOSTIC SCHOOLS, a corporation
organized and existing under the laws of the State of New York ("Guarantor"),
hereby unconditionally guarantees to MLBFS: (i) the prompt and full payment when
due, by acceleration or otherwise, of all sums now or any time hereafter due
from Customer to MLBFS under the Guaranteed Documents, (ii) the prompt, full and
faithful performance and discharge by Customer of each and every other covenant
and warranty of Customer set forth in the Guaranteed Documents, and (iii) the
prompt and full payment and performance of all other indebtedness, liabilities
and obligations of Customer to MLBFS, howsoever created or evidenced, and
whether now existing or hereafter arising (collectively, the "Obligations").
Guarantor further agrees to pay all reasonable costs and expenses (including,
but not limited to, court costs and reasonable attorneys' fees) paid or incurred
by MLBFS in endeavoring to collect or enforce performance of any of the
Obligations, or in enforcing this Guaranty. Guarantor acknowledges that MLBFS is
relying on the execution and delivery of this Guaranty in advancing moneys to or
extending or continuing to extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly paid,
performed and discharged. Upon the occurrence and during the continuance of any
default or Event of Default under any of the Guaranteed Documents, any or all of
the indebtedness hereby guaranteed then existing shall, at the option of MLBFS,
become immediately due and payable from Guarantor (it being understood, however,
that upon the occurrence of any "Bankruptcy Event", as defined in the Loan
Agreement, all such indebtedness shall automatically become due and payable
without action on the part of MLBFS). Notwithstanding the occurrence of any such
event, this Guaranty shall continue and remain in full force and effect. To the
extent MLBFS receives payment with respect to the Obligations, and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"),
this Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned Payment
shall be revived and continued in full force and effect as if said Returned
Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, restatements, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
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or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts, financial
assets, investment property, securities and any other property of Guarantor
which is in transit to or in the possession, custody or control of MLBFS or
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their
respective agents, bailees or affiliates. Guarantor hereby collaterally assigns
and grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there are more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
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This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has
authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor
hereunder.
Dated as of May 20, 1999.
ULTRASOUND TECHNICAL SERVICES, INC. D/B/A ULTRASOUND DIAGNOSTIC SCHOOLS
By: /s/ RICHARD B. SALZMAN
------------------------------------------------
Signature (1) Signature (2)
Richard B. Salzman
------------------------------------------------
Printed Name Printed Name
Vice President
------------------------------------------------
Title Title
Address of Guarantor:
4400 Biscayne Boulevard, 6th floor
Miami, FL 33137
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Exhibit 10.31
WCMA LOAN AND SECURITY AGREEMENT
WCMA LOAN and Security Agreement NO. 79D-07257 ("Loan Agreement") dated as of
May 20, 1999, between WHITMAN EDUCATION GROUP, INC. D/B/A WHITMAN EDUCATION
GROUP AND ALSO F/K/A WHITMAN MEDICAL CORPORATION, a corporation organized and
existing under the laws of the State of Florida having its principal office at
4400 Biscayne Boulevard, Miami, FL 33137 ("Customer"), and MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the
laws of the State of Delaware having its principal office at 222 North LaSalle
Street, Chicago, IL 60601 ("MLBFS").
In accordance with that certain Working Capital Management Account Agreement
No. 79D-07257 ("WCMA Agreement") between Customer and MLBFS' affiliate, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.
(iv) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (B) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (C) Customer or any Guarantor shall make a general assignment for the
benefit of creditors; or (D) Customer or any Guarantor shall generally fail to
pay or admit in writing its inability to pay its debts as they become due; or
(E) Customer or any Guarantor shall be adjudicated a bankrupt or insolvent. (v)
"Business Day" shall mean any day other than a Saturday, Sunday, federal holiday
or other day on which the New York Stock Exchange is regularly closed.
(vi) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Investment Property and Financial Assets of Customer,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records (including
computer records) directly related thereto, all proceeds thereof (including,
without limitation, proceeds in the form of Accounts and insurance proceeds),
and the additional collateral described in Section 9 (b) hereof.
(vii) "Commitment Expiration Date" shall mean June 19, 1999.
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(viii) "Default" shall mean either an "Event of Default" as defined in Section 8
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(ix) "General Funding Conditions" shall mean each of the following conditions to
any WCMA Loan by MLBFS hereunder: (A) no Default shall have occurred and be
continuing or would result from the making of any WCMA Loan hereunder by MLBFS;
(B) there shall not have occurred and be continuing any material adverse change
in the business or financial condition of Customer or any Guarantor; (C) all
representations and warranties of Customer or any Guarantor herein or in any
Additional Agreements shall then be true and correct in all material respects;
(D) MLBFS shall have received this Loan Agreement and all of the Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (E) MLBFS shall
have received evidence reasonably satisfactory to it as to the ownership of the
Collateral and the perfection and priority of MLBFS' liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (F) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (G) any additional
conditions specified in the "WCMA Line of Credit Approval" letter executed by
MLBFS with respect to the transactions contemplated hereby shall have been met
to the reasonable satisfaction of MLBFS.
(x) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity. (xi) "Initial Maturity Date" shall mean the first date upon
which the WCMA Line of Credit will expire (subject to renewal in accordance with
the terms hereof); to wit: June 30, 2000.
(xii) "Interest Due Date" shall mean the last Business Day of each calendar
month during the term hereof (or, if Customer makes special arrangements with
MLPF&S, the last Friday of each calendar month during the term hereof). (xiii)
"Interest Rate" shall mean a variable per annum rate of interest equal to the
sum of 2.90% and the 30-Day Commercial Paper Rate. The "30-Day Commercial Paper
Rate" shall mean, as of the date of any determination, the interest rate from
time to time published in the "Money Rates" section of The Wall Street Journal
for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate. (xiv) "Line Fee" shall mean a fee of $37,500.00
payable periodically by Customer to MLBFS in accordance with the provisions of
Section 3 (k) hereof.
(xv) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(xvi) "Maturity Date" shall mean the date of expiration of the WCMA Line of
Credit.
(xvii) "Maximum WCMA Line of Credit" shall mean $8,500,000.00.
(xviii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement.
(xix) "Permitted Liens" shall mean with respect to the Collateral: (A) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (B) liens in
favor of MLBFS; (C) liens which will be discharged with the proceeds of the
initial WCMA Loan; and (D) any other liens expressly permitted in writing by
MLBFS.
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(xx) "Renewal Year" shall mean and refer to the 12-month period immediately
following the Initial Maturity Date and each 12- month period thereafter.
(xxi) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 79D-07257 and any
successor Working Capital Management Account of Customer with MLPF&S.
(xxii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(xxiii) "WCMA Loan Balance" shall mean an amount equal the aggregate unpaid
principal amount of all WCMA Loans.
(b) OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, or if earlier, on the date of termination
of the WCMA Line of Credit, the WCMA Loan Balance; (b) interest at the Interest
Rate on the outstanding WCMA Loan Balance, from and including the date on which
the initial WCMA Loan is made until the date of payment of all WCMA Loans in
full; and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the periodic Line Fee and any late charges.
Except as otherwise expressly set forth herein, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this WCMA Promissory Note and this
Loan Agreement.
3. WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof. Customer hereby authorizes MLBFS to pay out of and charge to
Customer's WCMA Account on the Activation Date any and all amounts necessary to
fully pay off any bank or other financial institution having a lien upon any of
the Collateral other than a Permitted Lien.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the first to occur of the Maturity Date or
the date of termination of the WCMA Line of Credit pursuant to the terms hereof,
and in addition to WCMA Loans automatically made to pay accrued interest, as
hereafter provided: (i) MLBFS will make WCMA Loans to Customer in such amounts
as Customer may from time to time request in accordance with the terms hereof,
up to an aggregate outstanding amount not to exceed the Maximum WCMA Line of
Credit, and (ii) Customer may repay any WCMA Loans in whole or in part at any
time, and request a re-borrowing of amounts repaid on a revolving basis.
Customer may request such WCMA Loans by use of WCMA Checks, FTS, Visa charges,
wire transfers, or such other means of access to the WCMA Line of Credit as may
be permitted by MLBFS from time to time; it being understood that so long as the
WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account
which but for the WCMA Line of Credit would under the terms of the WCMA
Agreement result in an overdraft, shall be deemed a request by Customer for a
WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and be continuing which
shall have caused any of the General Funding Conditions to not
then be met or satisfied to the reasonable satisfaction of MLBFS.
The making by MLBFS of any WCMA Loan at a time when any
one or more of said conditions shall not have been met
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shall not in any event be construed as a waiver of said condition or conditions
or of any Default, and shall not prevent MLBFS at any time thereafter while any
condition shall not have been met from refusing to honor any request by Customer
for a WCMA Loan.
(d) LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) INTEREST. (i) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Activation
Date shall occur. Unless otherwise hereafter directed in writing by MLBFS on or
after the first to occur of the Maturity Date or the date of termination of the
WCMA Line of Credit pursuant to the terms hereof, such interest will be
automatically charged to the WCMA Account on the applicable Interest Due Date,
and, to the extent not paid with free credit balances or the proceeds of sales
of any Money Accounts then in the WCMA Account, as hereafter provided, paid by a
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
(ii) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (A) Customer shall not be obligated to pay any Excess
Interest; and (B) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be: (1)
applied as a credit against the then unpaid WCMA Loan Balance, (2) refunded to
the payer thereof, or (3) any combination of the foregoing.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.
(g) IRREVOCABLE INSTRUCTIONS TO MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Activation Date and continuing thereafter so long as this Agreement shall be
in effect: (i) to immediately and prior to application for any other purpose pay
to MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (ii) if such available free credit balances are insufficient
to pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.
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(h) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(i) USE OF WCMA LOAN PROCEEDS. The proceeds of each WCMA Loan initiated by
Customer shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLBFS, for other
lawful business purposes of Customer not prohibited hereby. Customer agrees that
under no circumstances will funds borrowed from MLBFS through the WCMA Line of
Credit be used: (i) for personal, family or household purposes of any person
whatsoever, or (ii) to purchase, carry or trade in securities, or repay debt
incurred to purchase, carry or trade in securities, whether in or in connection
with the WCMA Account, another account of Customer with MLPF&S or an account of
Customer at any other broker or dealer in securities, or (iii) unless otherwise
consented to in writing by MLBFS, to repay any debt to Merrill Lynch and Co.,
Inc. or any of its subsidiaries.
(j) RENEWAL AT OPTION OF MLBFS; RIGHT OF CUSTOMER TO TERMINATE. MLBFS may at any
time, in its sole discretion and at its sole option, renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal shall be effective unless set forth in a writing executed by a duly
authorized representative of MLBFS and delivered to Customer. Unless any such
renewal is accompanied by a proposed change in the terms of the WCMA Line of
Credit (other than the extension of the Maturity Date), no such renewal shall
require Customer's approval. Customer shall, however, have the right to
terminate the WCMA Line of Credit at any time upon written notice to MLBFS.
(k) LINE FEES. (i) In consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer during the period from the Activation Date to the Initial
Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If the Line
Fee has not heretofore been paid by Customer, Customer hereby authorizes MLBFS,
at its option, to either cause the Line Fee to be paid on the Activation Date
with a WCMA Loan, or invoice Customer for such Line Fee (in which event Customer
shall pay said fee within 5 Business Days after receipt of such invoice). No
delay in the Activation Date, howsoever caused, shall entitle Customer to any
rebate or reduction in the Line Fee or to any extension of the Initial Maturity
Date.
(ii) CUSTOMER SHALL PAY AN ADDITIONAL LINE FEE FOR EACH RENEWAL YEAR. In
connection therewith, Customer hereby authorizes MLBFS, at its option, to either
cause each such additional Line Fee to be paid with a WCMA Loan on or at any
time after the first Business Day of such Renewal Year or invoiced to Customer
at such time (in which event Customer shall pay such Line Fee within 5 Business
Days after receipt of such invoice). Each Line Fee shall be deemed fully earned
by MLBFS on the date payable by Customer, and no termination of the WCMA Line of
Credit, howsoever caused, shall entitle Customer to any rebate or refund of any
portion of such Line Fee; provided, however, that if Customer shall terminate
the WCMA Line of Credit not later than 5 Business Days after the receipt by
Customer of notice from MLBFS of a renewal of the WCMA Line of Credit, Customer
shall be entitled to a refund of any Line Fee charged by MLBFS for the ensuing
Renewal Year.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Florida and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary. (b) Execution, Delivery and Performance. The execution,
delivery and performance by Customer of this Loan Agreement and by Customer and
each Guarantor of such of the Additional Agreements to which it is a party: (i)
have been duly authorized by all requisite action, (ii) do not and will not
violate or conflict with any law or other governmental requirement, or any of
the agreements, instruments or documents which formed or govern Customer or any
such Guarantor, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer or any such
Guarantor under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
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(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement and the Additional Agreements to which
it is a party.
(d) Enforceability. This Loan Agreement and such of the Additional Agreements to
which Customer or any Guarantor is a party are the respective legal, valid and
binding obligations of Customer and such Guarantor, enforceable against it or
them, as the case may be, in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) Collateral. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral subject to immaterial imperfections in title,
(ii) none of the Collateral is subject to any lien, encumbrance or security
interest, and (iii) upon the filing of all Uniform Commercial Code financing
statements executed by Customer with respect to the Collateral in the
appropriate jurisdiction(s) and/or the completion of any other action required
by applicable law to perfect its liens and security interests, MLBFS will have
valid and perfected first liens and security interests upon all of the
Collateral.
(f) Financial Statements. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct in all material respects, and fairly present the financial condition
of it as at such dates and the results of its operations for the periods then
ended (subject, in the case of interim unaudited financial statements, to normal
year-end adjustments); and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to MLBFS of any
Guarantor other than a Business Guarantor are true and correct in all material
respects and fairly represent such Guarantor's financial condition as of the
date of such financial statements (subject, in the case of interim unaudited
financial statements of a Business Guarantor, to normal year-end adjustments),
and since the most recent date of such financial statements, there has been no
material adverse change in such financial condition.
(g) Litigation. Except as previously disclosed to MLBFS through Customer's SEC
filings, no litigation, arbitration, administrative or governmental proceedings,
are pending or, to the knowledge of Customer, threatened against Customer or any
Guarantor, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or any such Guarantor
or the continued operations of Customer or any Business Guarantor, and be
reasonably likely, in the opinion of MLBFS using its sile discretion, to succeed
on its merits.
(h) Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(i) Collateral Location. All of the tangible Collateral is located at a Location
of Tangible Collateral.
(j) No Outside Broker. Except for employees of MLBFS, MLPF&S or one of their
affiliates, Customer has not in connection with the transactions contemplated
hereby directly or indirectly engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
(a) Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:
(i) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer and each Business Guarantor, a copy of the
annual certified financial statements of Customer, including, in each
case, in reasonable detail, a balance sheet and statement of
retained earnings as at the close of such fiscal year and
statements of profit and loss and cash flow for such fiscal year;
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(ii) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer and each Business Guarantor, a copy of the interim financial
statements (including in reasonable detail both a balance sheet as of the close
of such fiscal period, and statement of profit and loss for the applicable
fiscal period) of Customer and each Business Guarantor for such fiscal quarter;
(iii) A/R AGINGS. Within 45 days after the close of each fiscal quarter of
Customer, a copy of the Accounts Receivable Aging of Customer and each Business
Guarantor as of the end of such fiscal quarter;
(iv) ENROLLMENT REPORTS. Within 45 days after the close of each fiscal quarter
of Customer and each Business Guarantor, Customer shall furnish or cause to be
furnished to MLBFS: a copy of Customer's and each Business Guarantor's
Enrollment report;
(v) SEC REPORTS. Customer shall furnish or cause to be furnished to MLBFS not
later than 10 days after the date of filing with the Securities and Exchange
Commission ("SEC"), a copy of each 10-K, 10-Q and other report required to be
filed with the SEC during the term hereof by Customer; and
(vi) OTHER INFORMATION. Such other information as MLBFS may from time to time
reasonably request relating to Customer, any Guarantor or the Collateral.
(b) GENERAL AGREEMENTS WITH RESPECT TO FINANCIAL INFORMATION. Customer agrees
that except as otherwise specified herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial statements required to be furnished by Customer
to MLBFS hereunder will be prepared by either the current independent
accountants for Customer or other independent accountants reasonably acceptable
to MLBFS, and (ii) all other financial information required to be furnished by
Customer to MLBFS hereunder will be certified as correct by the party who has
prepared such information, and, in the case of internally prepared information
with respect to Customer or any Business Guarantor, certified as correct by
their respective chief financial officer.
6. OTHER COVENANTS
Customer further covenants and agrees during the term of this Loan Agreement
that:
(a) FINANCIAL RECORDS; INSPECTION. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor or the continued operations of Customer or any
Business Guarantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either the liens and
security interests of MLBFS hereunder or under any of the Additional Agreements,
the financial condition of Customer or any Guarantor, or the continued
operations of Customer or any Business Guarantor.
(d) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or any Business
Guarantor; and (iii) any information which indicates that any financial
statements of Customer or any Guarantor fail in any material respect to present
fairly the financial condition and results of operations purported to be
presented in such statements. Each notification by Customer pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy such
event or information.
(e) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
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(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets, if
any such action would result in either: (A) a material change in the principal
business, ownership or control of Customer or such Business Guarantor, or (B) a
material adverse change in the financial condition or operations of Customer or
such Business Guarantor; (ii) Customer and each Business Guarantor shall
preserve their respective existence and good standing in the jurisdiction(s) of
establishment and operation; (iii) neither Customer nor any Business Guarantor
shall engage in any material business substantially different from their
respective business in effect as of the date of application by Customer for
credit from MLBFS, or cease operating any such material business; (iv) neither
Customer nor any Business Guarantor shall cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer
or such Business Guarantor; and (v) neither Customer nor any Business Guarantor
shall cause or permit any material change in its controlling ownership.
(g) MINIMUM TANGIBLE NET WORTH. Customer's "tangible net worth" shall at all
times exceed $7,000,000.00. For the purposes hereof, the term "tangible net
worth" shall mean Customer's net worth as shown on Customer's regular financial
statements prepared in a manner consistent with the terms hereof, but excluding
an amount equal to: (i) any assets which are ordinarily classified as
"intangible" in accordance with generally accepted accounting principles, and
(ii) any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer.
(h) MINIMUM NET CASH FLOW. The "Net Cash Flow" of Customer as of the end of each
of its fiscal years shall not be less than $1,500,000.00. As used herein, "Net
Cash Flow" shall mean the excess of (i) the sum of Customer's annual net
after-tax income, non-recurring expenses and depreciation and similar non-cash
charges, over (ii) the sum of the current portion of Customer's long term debt
non-recurring income, and any dividends or other distributions to its owners;
all as set forth on Customer's regular annual financial statements prepared in a
manner consistent with the terms hereof.
(i) ACQUISITION OF ASSETS OR STOCK. Customer agrees that it will not without the
prior written consent of MLBFS directly or indirectly acquire all or
substantially all of the assets or stock of any other entity if the aggregate
cost thereof is in excess of $1,500,000.00. Further, Customer agrees that it
will give not less than 30 days written notice to MLBFS prior to the direct or
indirect acquisition by Customer of all or substantially all of the assets or
stock of any other entity if the aggregate cost thereof is less than
$1,500,000.00.
7. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral in all material respects;
it being understood that nothing herein, and no action or inaction by MLBFS,
under this Loan Agreement or otherwise, shall be deemed an assumption by MLBFS
of any of Customer's said obligations.
(d) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
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(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear and obsolescence excepted, and shall pay or
cause to be paid all obligations arising from the repair and maintenance of such
Collateral, as well as all obligations with respect to any Location of Tangible
Collateral, except for any such obligations being contested by Customer in good
faith by appropriate proceedings.
(g) LOCATION. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer and each Business Guarantor shall maintain such other
insurance as may be required by law or is customarily maintained by companies in
a similar business or otherwise reasonably required by MLBFS. All such insurance
policies shall provide that MLBFS will receive not less than 10 days prior
written notice of any cancellation, and shall otherwise be in form and amount
and with an insurer or insurers reasonably acceptable to MLBFS. Customer shall
furnish MLBFS with a copy or certificate of each such policy or policies and,
prior to any expiration or cancellation, each renewal or replacement thereof.
(i) EVENT OF LOSS. Customer shall at its expense promptly repair all reasonably
repairable damage to any tangible Collateral. In the event that any tangible
Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an
"Event of Loss") and such Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i) 90 days after
the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
deposit into the WCMA Account an amount equal to the actual cash value of such
Collateral as determined by either the insurance company's payment (plus any
applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS; it being further understood that any such
deposit shall be accompanied by a like permanent reduction in the Maximum WCMA
Line of Credit. Notwithstanding the foregoing, if at the time of occurrence of
such Event of Loss or any time thereafter prior to replacement or line
reduction, as aforesaid, an Event of Default shall have occurred and be
continuing hereunder, then MLBFS may at its sole option, exercisable at any time
while such Event of Default shall be continuing, require Customer to either
replace such Collateral or make a deposit into the WCMA Account and reduce the
Maximum WCMA Line of Credit, as aforesaid.
(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
8. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. If the WCMA Loan Balance shall at
any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan
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Balance below the Maximum WCMA Line of Credit within five (5) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(b) OTHER FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement, or shall fail to pay when due
any other Obligations, and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(c) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(d) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the Additional Agreements
shall at any time prove to have been incorrect in any material respect when
made.
(e) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired. The
existence of such a material impairment shall be determined in a manner
consistent with the intent of Section 1-208 of the UCC.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
(i) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.
9. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer (it being understood, however, that
upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations shall automatically terminate without any action on the part of
MLBFS); and upon any such termination MLBFS shall be relieved of all such
obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.
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(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer and each Guarantor remaining jointly and severally liable for
any amount remaining unpaid after such application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security interest
in all such property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Customer included in the
Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(e) Notices. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral
at any time without giving notice of any such postponed or adjourned
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date. In the event MLBFS seeks to take possession of any or all of the
Collateral by court process, Customer further irrevocably waives to the fullest
extent permitted by law any bonds and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession, and any demand for possession prior to the commencement of any suit
or action.
10. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or any of the
Additional Agreements shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the collection of any sum payable hereunder or under
any of the Additional Agreements not paid when due, the enforcement of this Loan
Agreement or any of the Additional Agreements and the protection of MLBFS'
rights hereunder or thereunder, excluding, however, salaries and normal overhead
attributable to MLBFS' employees. The obligations of Customer under this
paragraph shall survive the expiration or termination of this Loan Agreement and
the discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within ten (10) days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the
-12-
<PAGE>
sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan
Balance in the same manner as provided herein for accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.
(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.
(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
(o) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE
FOREGOING, CUSTOMER ACKNOWLEDGES THAT EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED HEREIN: (I) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS,
-13-
<PAGE>
MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND
THE AVAILABILITY OF THE WCMA LINE OF CREDIT OR THE MATURITY DATE, OR TO INCREASE
THE MAXIMUM WCMA LINE OF CREDIT, OR OTHERWISE EXTEND ANY OTHER CREDIT TO
CUSTOMER OR ANY OTHER PARTY; (II) NO PURPORTED EXTENSION OF THE MATURITY DATE,
INCREASE IN THE MAXIMUM WCMA LINE OF CREDIT OR OTHER EXTENSION OR AGREEMENT TO
EXTEND CREDIT SHALL BE VALID OR BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN
INSTRUMENT SIGNED BY MLBFS; AND (III) THIS LOAN AGREEMENT SUPERSEDES AND
REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT
LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL
AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF THE
ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN
A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
-14-
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written. WHITMAN EDUCATION GROUP, INC. D/B/A WHITMAN EDUCATION GROUP
AND ALSO F/K/A WHITMAN MEDICAL CORPORATION
By: /s/ Richard B. Salzman
----------------------------------------------------
Signature (1) Signature (2)
Richard B. Salzman
----------------------------------------------------
Printed Name Printed Name
Vice President
-----------------------------------------------------
Title Title
STATE OF Pennsylvania }
} SS.
COUNTY OF Philadelphia }
The foregoing instrument was acknowledged before me this 21st day of May AD,
1999 by Richard B. Salzman of WHITMAN EDUCATION GROUP, INC. D/B/A WHITMAN
EDUCATION GROUP AND ALSO F/K/A WHITMAN MEDICAL CORPORATION, a Florida
corporation, on behalf of the corporation. Said person is personally known to me
or has produced Florida Drivers License as identification.
/s/ Marlene G. Schleifer
-------------------------------
NOTARY PUBLIC
Marlene G. Schleifer
-------------------------------
PRINTED NAME OF NOTARY PUBLIC
My Commission Expires:
March 25, 2003
---------------
[S E A L]
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:____________________________________
-15-
<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF WCMA LOAN AND SECURITY AGREEMENT NO.
79D-07257 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND WHITMAN
EDUCATION GROUP, INC. D/B/A WHITMAN EDUCATION GROUP AND ALSO F/K/A WHITMAN
MEDICAL CORPORATION
Additional Locations of Tangible Collateral:
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 000-16007 and Form S-8 No. 333-67477) pertaining to the 1996 Stock
Option Plan, Registration Statement (Form S-8 No. 333-42109) pertaining to the
Employee Stock Purchase Plan, and Registration Statement (Form S-8 No.
333-67473) pertaining to the Richard C. Pfenniger, Jr. Stock Option Plan of
Whitman Education Group, Inc. and in the related Prospectuses, of our report
dated May 28, 1999, with respect to the consolidated financial statements of
Whitman Education Group, Inc. included in this Annual Report (Form 10-K) for the
year ended March 31, 1999.
/s/ ERNST & YOUNG LLP
Miami, Florida
June 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,267,110
<SECURITIES> 0
<RECEIVABLES> 32,708,421
<ALLOWANCES> (5,593,888)
<INVENTORY> 1,450,815
<CURRENT-ASSETS> 36,900,041
<PP&E> 26,045,024
<DEPRECIATION> (12,042,260)
<TOTAL-ASSETS> 62,579,615
<CURRENT-LIABILITIES> 28,457,595
<BONDS> 0
0
0
<COMMON> 21,907,546
<OTHER-SE> (282,798)
<TOTAL-LIABILITY-AND-EQUITY> 62,579,615
<SALES> 73,977,362
<TOTAL-REVENUES> 73,977,362
<CGS> 47,666,624
<TOTAL-COSTS> 57,447,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,100,483
<INCOME-PRETAX> 3,137,831
<INCOME-TAX> 96,187
<INCOME-CONTINUING> 3,041,644
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,041,644
<EPS-BASIC> .23
<EPS-DILUTED> .22
</TABLE>
