SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) August 27, 1999
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WHITMAN EDUCATION GROUP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Florida
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(State or Other Jurisdiction of Incorporation)
1-13722 22-2246554
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(Commission File No.) (IRS Employer Identification No.)
4400 Biscayne Boulevard, 6th Floor, Miami, Florida 33137
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(Address of Principal Executive Offices) (Zip Code)
(305) 575-6510
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, If Changed Since Last Report)
<PAGE>
ITEM 2. DISPOSITION OF ASSETS
On August 27, 1999, Colorado Technical University, Inc., an indirect
wholly-owned subsidiary of Whitman Education Group, Inc. (the Company"),
completed the previously announced divestiture of its Huron University campus
("Huron") in Huron, South Dakota to a newly formed entity capitalized by several
investors and members of Huron's existing management pursuant to an Amended and
Restated Contribution Agreement, dated June 2, 1999, as amended. In connection
with the transaction, Colorado Technical University contributed the operating
assets of Huron and $550,000 to the purchaser, and the purchaser issued to
Colorado Technical University units of limited liability company membership
interests and assumed certain liabilities of Huron. Under the terms of the
transaction, the units of limited liability company membership interests equal
19.9% of the total outstanding limited liability company membership interests in
the purchaser. Additionally, the Company purchased for $110,000 a warrant to
acquire 20 units of limited liability company interests in the purchaser, which
would represent approximately 4% of the total outstanding limited liability
company membership interests in the purchaser upon exercise. The warrant has a
term of five years and has an exercise price of $10,000 per unit. The effective
date of the transactions for accounting, tax and financial statement purposes is
September 1, 1999. The terms of the transaction were established through arm's
length negotiation.
The foregoing description of the transaction is qualified in its
entirety by the full text of the Amended and Restated Contribution Agreement
which is included in Exhibit 2.1 and Exhibit 2.2 to this Current Report on Form
8-K and incorporated herein by reference.
Except for historical matters contained herein, statements made in this
Current Report on Form 8-K are forward-looking and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors and others are cautioned that forward-looking statements include risks
and uncertainties which may affect the Company's business and prospects.
Forward-looking statements may relate to our future operating results. Risks
associated with these statements include the risk that actual results could
differ materially from the Company's statements in this Current Report on
Form 8-K. Factors that may affect future results include: the risk that the
newly independent Huron may not qualify to participate in student financial aid
programs and the purchaser may elect to rescind the transaction; the possibility
that the Company may experience unanticipated attrition or reductions in
student enrollment; the risk that marketing efforts may not achieve anticipated
results; the ultimate resolution of the Company's legal proceedings; the
Company's ability to assess and meet the educational needs and demands of its
customers and employers; the impact of Year 2000 issues; the Company's
ability to maintain or renew required regulatory approvals, accreditation or
state authorizations and the Company's eligibility to continue to participate
in student financial aid programs; business conditions and growth in the
post-secondary education industry and the economy generally; and certain
economic, competitive, regulatory and other factors identified in our filings
with the Securities and Exchange Commission.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(B) PRO FORMA FINANCIAL INFORMATION
1. Introduction to Unaudited Pro Forma Condensed
Financial Statements.
2. Unaudited Pro Forma Condensed Balance Sheet as of
June 30, 1999.
3. Unaudited Pro Forma Condensed Statement of Operations
for the three months ended June 30, 1999.
4. Unaudited Pro Forma Condensed Statement of Operations
for the year ended March 31, 1999.
(C) EXHIBITS
2.1. Amended and Restated Contribution Agreement, dated
June 2, 1999, by and between Colorado Technical
University, Inc., Huron University, L.L.C., Newco,
L.L.C., and David O'Donnell.
2.2. Amendment to Amended and Restated Contribution
Agreement, dated August 27, 1999, by and between
Colorado Technical University, Inc., Huron
University, L.L.C., Newco, L.L.C., and David
O'Donnell.
2.3. Warrant to purchase 20 Units of Membership Interests
in Newco, L.L.C.
99. Press Release of Whitman Education Group, Inc.,
relating to the disposition of Huron University.
3
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements
reflect the Company after giving effect to the sale of Huron as if it had been
consummated, with respect to the statement of operations data, at the beginning
of the periods presented, or, with respect to the balance sheet data, as of the
date presented.
The unaudited pro forma condensed financial statements are derived
from, should be read in conjunction with, and are qualified in their entirety by
reference to, the separate financial statements and notes thereto of the Company
included in its most recent Annual Report on Form 10-K and Quarterly Report on
Form 10-Q, as filed with the Securities and Exchange Commission.
The unaudited pro forma condensed financial data have been included for
comparative purposes only and do not purport to be indicative of the results of
operations or financial position which actually would have been obtained if the
sale of Huron had occurred at the beginning of the periods presented or as of
the date indicated or of the results of operations or financial position which
may be obtained in the future.
4
<PAGE>
<TABLE>
<CAPTION>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1999
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PRO FORMA
ADJUSTMENTS TO OTHER PRO FORMA
HISTORICAL ELIMINATE PRO FORMA CONSOLIDATED
CONSOLIDATED HURON ADJUSTMENTS WITHOUT HURON
------------ ----- ----------- -------------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 1,469,515 $ 124,121 $(1,213,604) (1),(3) $ 131,790
Accounts receivable, net 21,946,062 165,990 21,780,072
Inventories 1,348,380 115,331 1,233,049
Deferred income taxes 2,871,210 - 2,871,210
Other current assets 1,933,093 122,093 1,811,000
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Total current assets 29,568,260 527,535 (1,213,604) 27,827,121
Property and equipment, net 13,643,668 1,766,733 11,876,935
Investment - - 884,021 (2) 884,021
Deposits and other assets, net 1,865,396 - 500,000 (3) 2,365,396
Goodwill, net 9,835,154 - 9,835,154
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Total assets $54,912,478 $2,294,268 $ 170,417 $52,788,627
==============================================================================
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 1,963,829 $ 116,718 $ 1,847,111
Accrued expenses 3,454,187 26,935 3,427,252
Current portion of capitalized
lease obligations 1,503,628 - 1,503,628
Deferred tuition revenue 16,192,210 276,258 15,915,952
Current portion of long-term debt 356,189 356,189 -
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Total current liabilities 23,470,043 776,100 22,693,943
Other liabilities 409,989 409,989 -
Capitalized lease obligations 3,286,590 - 3,286,590
Long-term debt 6,586,963 937,762 5,649,201
Commitments and contingencies
Stockholders' equity:
Common stock 21,907,546 - 21,907,546
Additional paid-in capital 671,536 3,283,814 (2,612,278)
Retained earnings (deficit) (1,420,189) (3,113,397) 170,417 (4) 1,863,625
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Total stockholders' equity 21,158,893 170,417 170,417 21,158,893
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Total liabilities and stockholders' equity $54,912,478 $ 2,294,268 $ 170,417 $52,788,627
==============================================================================
<FN>
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(1) To reflect cash contribution of $550,000, purchase of a warrant for
$110,000 and reimbursement of $53,604 for unearned cash received, made
in conjunction with the sale of Huron.
(2) To reflect 19.9% investment in the purchaser.
(3) To reflect long-term note receivable for a loan to a continuing
investor in Huron, made in conjunction with the sale of Huron.
(4) To adjust stockholders' equity for the transactions noted in (1) and
(2) above.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
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PRO FORMA
ADJUSTMENTS TO PRO FORMA
HISTORICAL ELIMINATE CONSOLIDATED
CONSOLIDATED HURON WITHOUT HURON
------------ ----- -------------
<S> <C> <C> <C>
Net revenues $17,990,547 $ 634,726 $17,355,821
Costs and expenses:
Instructional and educational support 12,586,967 1,188,156 11,398,811
Selling and promotional 2,628,693 166,369 2,462,324
General and administrative 3,337,164 14,386 3,322,778
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Total costs and expenses 18,552,824 1,368,911 17,183,913
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Income (loss) from operations (562,277) (734,185) 171,908
Other (income) and expense:
Interest expense 284,380 39,788 244,592
Interest income (72,297) - (72,297)
-------------------------------------------------------------
Loss before income tax benefit (774,360) (773,973) (387)
Income tax benefit 308,505 308,351 154
-------------------------------------------------------------
Net loss $ (465,855) $ (465,622) $ (233)
=============================================================
Basic and diluted net loss per share $ (0.03) $ - $ (0.00)
=============================================================
Basic and diluted weighted average
common shares outstanding 13,427,663 - 13,427,663
=============================================================
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
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PRO FORMA
ADJUSTMENTS TO PRO FORMA
HISTORICAL ELIMINATE CONSOLIDATED
CONSOLIDATED HURON WITHOUT HURON
------------ ----- -------------
<S> <C> <C> <C>
Net revenues $73,977,362 $ 3,462,232 $70,515,130
Costs and expenses:
Instructional and educational support 47,666,624 5,148,548 42,518,076
Selling and promotional 9,780,727 715,077 9,065,650
General and administrative 12,335,186 70,266 12,264,920
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Total costs and expenses 69,782,537 5,933,891 63,848,646
------------------------------------------------------------
Income (loss) from operations 4,194,825 (2,471,659) 6,666,484
Other (income) and expense:
Interest expense 1,381,564 167,174 1,214,390
Interest income (281,081) - (281,081)
Realization of gain on
marketable securities (43,489) - (43,489)
------------------------------------------------------------
Income (loss) before income tax benefit 3,137,831 (2,638,833) 5,776,664
Income tax benefit (provision) (96,187) 1,067,936 (1,164,123)
------------------------------------------------------------
Net income (loss) $ 3,041,644 $(1,570,897) 4,612,541
============================================================
Net income per share:
Basic $ 0.23 $ - $ 0.35
============================================================
Diluted $ 0.22 $ - $ 0.33
============================================================
Weighted average common shares outstanding:
Basic 13,246,796 - 13,246,796
============================================================
Diluted 13,829,714 - 13,829,714
============================================================
</TABLE>
7
<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 hereunto duly authorized.
WHITMAN EDUCATION GROUP, INC.
By: /S/ FERNANDO L. FERNANDEZ
------------------------------------
FERNANDO L. FERNANDEZ,
VICE PRESIDENT OF FINANCE AND
CHIEF FINANCIAL OFFICER
Date: September 1, 1999
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8
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1. Amended and Restated Contribution Agreement,
dated June 2, 1999, by and between Colorado
Technical University, Inc., Huron
University, L.L.C., Newco, L.L.C., and David
O'Donnell.
2.2. Amendment to Amended and Restated
Contribution Agreement, dated August 27,
1999, by and between Colorado Technical
University, Inc., Huron University, L.L.C.,
Newco, L.L.C., and David O'Donnell.
2.3. Warrant to purchase 20 Units of Membership
Interests in Newco, L.L.C.
99. Press Release of Whitman Education Group,
Inc., relating to the disposition of Huron
University.
9
EXHIBIT 2.1
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 O'Donnell, 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 University's
faculty and staff and invested significant funds in upgrading Huron University's
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 University's 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:
<PAGE>
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;
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<PAGE>
(k) all goodwill of CTU related to the Business
(including all rights to the name "Huron
University");
(l) the Huron letter; and
(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)
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<PAGE>
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) CTU's 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.
"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 CTU's rights, to the extent
assignable, under that certain letter dated December 30, 1996, from the City of
Huron to CTU regarding the City of Huron's 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 O'Donnell.
"INVENTORY" shall mean all of CTU's 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.
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<PAGE>
"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. section 668.15(c).
"REAL PROPERTY" shall mean the real property leased to CTU
pursuant to the HEI Lease.
"SOFTWARE LICENSE" shall mean CTU's 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"):
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(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 CTU's 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 CTU's loan from
Pueblo Bank in the original principal amount of $1.5 million
and CTU's loan from BankOne in the original principal amount
of $200,000, and all trade payables of the Business; and
(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.
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<PAGE>
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.
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
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(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.
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;
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(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.
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 Newco's 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
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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
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by Newco and HUI in compliance with applicable federal and state securities
laws. The consummation of the transactions contemplated in this 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 CTU's
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
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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 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
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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 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
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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 Group's best efforts to cause the
condition set forth in SECTION 8.05 to be satisfied.
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.
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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. NEWCO'S 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 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 GROUP'S 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.
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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, Newco or HUI has a business relationship,
(iv) shall maintain the tangible 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 HUI's 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 HUI's Accreditations and
Certifications and performing its obligations hereunder.
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SECTION 9.03. ADMINISTRATION IN ACCORDANCE WITH REGULATIONS,
ACCREDITATIONS AND CERTIFICATIONS. Until the satisfaction of the Condition
Subsequent or HUI's 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
CTU's 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 (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.
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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. section 668.26. Each of Newco and HUI expressly
acknowledges that documentation establishing HUI's or Newco's 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. Notwithstanding the termination
of this Agreement,
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<PAGE>
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:
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<PAGE>
(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
P.O. Box 176
Huron, South Dakota 57350
Attn: George Manolis, Esq.
(b) If to CTU: Whitman Education Group
4000 Biscayne Boulevard, 6th Floor
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 attorney's 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.
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<PAGE>
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.
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.
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<PAGE>
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 O'Donnell
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
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<PAGE>
SCHEDULE 2.04
LIQUIDATION PREFERENCE ASSUMED LIABILITIES
1. Principal amount plus accrued interest on Pueblo Bank and BankOne loans
as of the Closing Date.
2. All trade payables of the Business as of the Closing Date.
<PAGE>
SCHEDULE 4.04
HEI Lease
Software License
Pueblo Bank indebtedness
BankOne indebtedness
Huron Letter
Accreditation and Certification for Huron University
<PAGE>
SCHEDULE 9.01
EXCEPTIONS TO COVENANTS
1. Purchase of the Real Property from Huron Education, Inc., and the
incurrence of mortgage indebtedness on such Real Property in connection with the
acquisition.
2. Sale and leaseback of certain boiler equipment to Northwest Public
Service.
EXHIBIT 2.2
AMENDMENT TO
AMENDED AND RESTATED CONTRIBUTION AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED CONTRIBUTION AGREEMENT (the
"Amendment") is made as of the 27th day of August, 1999, by and between
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 O'Donnell,
the sole member of Newco ("Member").
WHEREAS, CTU, HUI, Newco and Member (collectively, the "Parties") are
parties to that certain Amended and Restated Contribution Agreement, dated as of
June 2, 1999, which has been amended by the Parties pursuant to that certain
Letter Agreement, dated as of June 18, 1999 (collectively, the "Agreement");
WHEREAS, certain conditions precedent to the obligations of the parties
under this Agreement have been satisfied;
WHEREAS, as part of a refinancing transaction, CTU has prepaid the
indebtedness outstanding under the loan from BankOne in the original principal
amount of $200,000 (the "BankOne Loan"); and
WHEREAS, CTU, HUI, Newco and Member desire to amend certain provisions
of the 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 mutually agree as
follows:
1. CERTAIN TERMS. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
2. AMENDMENTS.
a. ASSUMPTION OF CERTAIN LIABILITIES. Subsection 2.01(b) of the
Agreement shall be deleted in its entirety and shall be substituted in its stead
the following:
"(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;
<PAGE>
(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 CTU's operation of Title IV
Programs, including liabilities arising from financial aid
audits;
(v) all obligations and liabilities of CTU under all
outstanding indebtedness of CTU relating to the Business,
including (A) any obligations for borrowed money, (B)
indebtedness outstanding under CTU's loan from Pueblo Bank &
Trust in the original principal amount of $1.5 million (the
"Pueblo Loan"), and (C) all trade payables of the Business due
on or after sixty (60) days prior to the Closing Date (as
hereinafter defined) other than those accounts payables set
forth on Schedule 2.01-B hereof (the "Designated Payables");
(vi) all obligations and liabilities of CTU for the
Severance Benefits (as defined in Section 6.03); and
(vii) 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."
b. EXCLUDED LIABILITIES. Section 2.02 of the Agreement shall be deleted
in its entirety and shall be substituted in its stead the following:
"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;
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<PAGE>
(iv) all obligations and liabilities of CTU under all trade
payables of the Business due before sixty (60) days prior to
the Closing Date and under the Designated Payables;
(v) all obligations and liabilities for interest and principal
due and payable under the Pueblo Loan on or prior to the
Closing Date; and
(vi) 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."
c. ADDITIONAL CAPITAL CONTRIBUTIONS. Section 2.03 of the Agreement
shall be deleted in its entirety and shall be substituted in its stead the
following:
"SECTION 2.03. ADDITIONAL CAPITAL CONTRIBUTIONS. CTU shall
contribute to Newco as additional capital contributions: (i)
Five Hundred Fifty Thousand Dollars ($550,000) 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 or its
affiliates as (i) HUI Fees (as defined herein), (ii) advances
made on behalf of Huron University for certain systems and
equipment as described in that certain reimbursement letter
agreement, dated July 12, 1999, from Whitman Education Group,
Inc. to Member, (iv) prepayment of the BankOne Loan, and (v)
any other payments on behalf of any of the HUI Group prior to
the Closing, including payment of any amounts which would be
Assumed Liabilities under this Agreement."
d. CLOSING. Section 3.01 of the Agreement shall have added to the end
of such Section 3.01 the following:
"The effective date of the Closing, solely for accounting, tax
and financial statement purposes, shall in all cases be deemed
to be 12:01 a.m. on September 1, 1999, even if the Closing
itself is held on another day."
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<PAGE>
e. TRANSFERRED EMPLOYEES. Section 6.03 of the Agreement shall be
deleted in its entirety and shall be substituted in its stead the following:
"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
(the "Transferred Employees"). CTU shall cooperate with Newco
and HUI in the orderly transfer of the Transferred Employees
to Newco or HUI, as applicable. CTU shall have no
responsibility or liability for the payment of any employee
benefits or entitlements, including severance pay, accrued
vacation, sick or holiday pay, to any Transferred Employee
(regardless of whether any such employee commences employment
with Newco or HUI) pursuant to any employee benefit plan,
fund, program, contract policy or arrangement of CTU or
applicable law or regulation, including all such payments due
as a result of the consummation of the transactions
contemplated hereby (collectively, the "Severance Benefits")."
f. REIMBURSEMENT AGREEMENT; SECURITY AGREEMENT; PAYABLES. The following
shall be added to the Agreement:
"SECTION 6.10. REIMBURSEMENT OF AMOUNTS PAID UNDER THE PUEBLO
LOAN. HUI and Newco shall execute and deliver to CTU a Pueblo
Reimbursement Agreement (the "Pueblo Reimbursement Agreement")
in the form attached hereto as Exhibit A providing for, among
other things, the prompt reimbursement to CTU of any and all
amounts which CTU pays after the Closing Date under the Pueblo
Loan.
SECTION 6.11. SECURITY AGREEMENT. Newco shall execute and
deliver to CTU a Security Agreement (the "Security
Agreement"), in the form attached hereto as Exhibit B. HUI's
and Newco's obligations under the Pueblo Reimbursement
Agreement shall be secured by the first priority security
interest and lien granted under the Security Agreement.
SECTION 6.12. PAYABLES. If, after the Closing Date, any party
hereto shall receive any invoice from any account creditors
with respect to any accounts payables for which any other
party is responsible pursuant to the provisions of Sections
2.01 and 2.02 hereof, then such party shall (a) promptly
forward such invoice to the responsible party, or (b) pay
directly to the account creditor the amount of such invoice.
In the event a party pays an account creditor on behalf of a
responsible party in accordance with this Section 6.12, such
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<PAGE>
responsible party shall reimburse the paying party within
fifteen (15) days after receipt of written notice from such
paying party setting forth a copy of such invoice and
evidencing the amount paid to the account creditor."
g. Because the conditions have been satisfied and the appropriate
indications received, Sections 7.05, 7.06, 8.07 and 8.08 of the Agreement shall
be deleted in their entirety.
h. ADDITIONAL CAPITAL. Section 8.05 of the Agreement shall be deleted
in its entirety and shall be substituted in its stead the following:
"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 $1.65 million."
i. TERMINATION. Section 10.01(d) of the Agreement shall be deleted in
its entirety. Section 10.01(e) of the Agreement shall be deleted in its entirety
and shall be substituted in its stead the following:
"(e) by CTU at any time after September 10, 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 $1.65 million."
3. EFFECT ON THE AGREEMENT. The parties hereto agree and acknowledge that except
as specifically waived or amended herein, the Agreement shall remain in full
force and effect and nothing herein shall operate as a waiver by any party of
any right or remedy it may have under the Agreement.
4. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute the
same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their authorized
representatives to execute this Amendment as of the date first written above.
COLORADO TECHNICAL UNIVERSITY, INC.,
A COLORADO CORPORATION
By: *
------------------------------------------
Name: Fernando L. Fernandez
----------------------------------------
Title: Treasurer
---------------------------------------
HURON UNIVERSITY, LLC,
A SOUTH DAKOTA LIMITED LIABILITY COMPANY
By: /s/ David O'Donnell
------------------------------------------
Name: David O'Donnell
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
DAVID O'DONNELL, INDIVIDUALLY
/s/ David O'Donnell
---------------------------------------------
DAVID O'DONNELL, INDIVIDUALLY
* By: /s/ Richard C. Pfenniger, Jr.
------------------------------------------
Name: Richard C. Pfenniger, Jr.
----------------------------------------
Title: Attorney - in - Fact
---------------------------------------
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EXHIBIT 2.3
THIS WARRANT AND THE UNITS REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
WARRANT
To Purchase 20 Units of Membership Interests in
NEWCO, L.L.C.
FOR VALUE RECEIVED, Newco, L.L.C., a South Dakota limited liability
company (the "Company") hereby certifies that Whitman Education Group, Inc., a
Florida corporation, or assigns (the "Holder"), is entitled, subject to the
provisions of this Warrant (the "Warrant"), to purchase from the Company, at any
time, or from time to time during the period commencing on the day hereof, and
expiring at 5:00 p.m. Huron, South Dakota local time on August 27, 2004, up to
20 fully paid and non-assessable units of Membership Interests in the Company at
a price of $10,000 per unit (such exercise price per unit, as adjusted pursuant
to Section 7.1, being hereinafter referred to as the "Exercise Price").
The term "Membership Interests" means the entire interests of the
members holding Units of Class A Ordinary Membership Interests in the Company as
constituted on August 27, 1999, together with any other forms of membership
interests that may be issued by the Company in substitution therefor. The number
of units of Membership Interests to be received upon the exercise of this
Warrant may be adjusted from time to time as hereinafter set forth. The units of
Membership Interests deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Units."
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time, or from time to time, during the period commencing on the day
hereof and expiring 5:00 p.m. Huron, South Dakota local time on August 27, 2004
or, if such day is a day on which banking institutions in the City of Huron are
authorized by law to close, then on the next succeeding day that shall not be
such a day, by presentation and surrender hereof to the Company at its principal
office, with the Warrant Exercise Form attached hereto duly executed and
accompanied by payment (either in cash or by certified or official bank check,
payable to the order of the Company) of the Exercise Price for
<PAGE>
the number of units specified in such Form and instruments of transfer, if
appropriate, duly executed by the Holder or his or her duly authorized attorney.
If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the units
purchasable hereunder. Upon receipt by the Company of this Warrant, together
with the Exercise Price, at its office, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the units of Membership Interests
issuable upon such exercise, notwithstanding that the books of the Company shall
then be closed or that certificates representing such units of Membership
Interests shall not then be actually delivered to the Holder. The Company shall
pay any and all documentary stamp or similar issue taxes payable in respect of
the issue or delivery of units of Membership Interests on exercise of this
Warrant.
2. RESERVATION OF UNITS. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all units of Membership
Interests or other forms of membership interests in the Company (and other
securities and property) from time to time receivable upon exercise of this
Warrant. All such units of Membership Interests (and other securities and
property) shall be duly authorized and, when issued upon such exercise, shall be
validly issued, fully paid and non-assessable and free of all preemptive rights.
3. FRACTIONAL UNITS. No fractional units or scrip representing
fractional units of Membership Interests shall be issued upon the exercise of
this Warrant. With respect to any fraction of a unit of Membership Interests
otherwise called for upon any exercise of this Warrant, the Company shall pay to
the Holder an amount in cash equal to such fraction multiplied by the then
current market price per unit of Membership Interests on the day of exercise, as
reasonably determined in good faith by the Company's managers.
4. EXCHANGE, TRANSFERS, ASSIGNMENT OF WARRANT. Upon surrender of this
Warrant to the Company with the Assignment Form annexed hereto duly executed and
funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment and this Warrant shall promptly be canceled. At the
election of the Holder of this Warrant, the Company shall, subdivide this
Warrant into a number of warrants which, collectively, shall then evidence the
purchase rights represented by this Warrant and corresponding amendments thereto
shall be made in the form of this Warrant.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a member of the Company, either at law or in equity,
and the rights of the Holder are limited to those expressed in this Warrant.
6. LOSS OF WARRANT CERTIFICATE. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall not
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at
any time enforceable by anyone.
2
<PAGE>
7. ANTI-DILUTION PROVISIONS.
7.1 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF UNITS OF
MEMBERSHIP INTERESTS. The number and kind of units of Membership Interests
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time as follows:
(a) If the Company shall (i) make any distribution in
cash, property, units of Membership Interests or otherwise, (ii) subdivide its
outstanding units of Membership Interests, (iii) combine its outstanding units
of Membership Interests into a smaller number of units of Membership Interests,
or (iv) issue by reclassification of its units of Membership Interests any units
of Membership Interests or other forms of membership interests in the Company,
then, in each such event, the number of units of Membership Interests
purchasable upon exercise of this Warrant immediately prior thereto, shall be
adjusted so that the Holder shall be entitled to receive the kind and number of
units of Membership Interests or other forms of membership interests of the
Company which the Holder would have owned or have been entitled to receive after
the happening of any of the events described above, had this Warrant been
exercised immediately prior to the happening of such event (or any record date
with respect thereto). Such adjustment shall be made whenever any of the events
listed above shall occur.
(b) In the event the Company shall issue or sell any
units of Membership Interests without consideration or for consideration in an
amount per unit of Membership Interests less than the Exercise Price in effect
immediately prior to the time of such issuance or sale, then the Exercise Price
shall be adjusted to a price determined by dividing (i) the sum of (x) the total
number of units of Membership Interests outstanding immediately prior to such
issuance or sale, multiplied by the Exercise Price in effect immediately prior
to such issuance or sale, plus (y) the consideration, if any, received by the
Company upon such issuance or sale, by (ii) the total number of units of
Membership Interests outstanding immediately after such issuance or sale.
(c) In the event that at any time hereafter the
Company shall in any manner grant any right to subscribe for or to purchase, or
issue or sell, or any option for the purchase of units of Membership Interests
or any other form of membership interests or other securities convertible into
or exchangeable for units of Membership Interests (such convertible or
exchangeable membership interests or securities being hereinafter referred to as
"Convertible Securities"), and the minimum price per unit of Membership
Interests for which units of Membership Interests are issuable pursuant to such
rights or options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such rights or options, or
issuance or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
such rights or options, plus, in the case of such Convertible Securities , the
minimum aggregate amount of additional consideration, if any, payable upon the
conversion or exchange thereof, by (ii) the total maximum number of units of
Membership Interests issuable pursuant to such rights or options or upon the
conversion or exchange of the total maximum amount of such Convertible
Securities) shall be less than the Exercise Price in effect immediately prior to
the time of the granting of such rights or options or issuance or sale of such
rights, options or Convertible Securities, then the total maximum number of
units of Membership Interests issuable
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<PAGE>
pursuant to such rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issued or issuable upon the
exercise of such rights or options shall (as of the date of the granting of such
rights or options or issuance or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued or sold for purposes of paragraph (b)
hereof for the price per unit of Membership Interests as so determined;
PROVIDED, that no further adjustment of the Exercise Price shall be made upon
the actual issue of units of Membership Interests so deemed to have been issued;
and FURTHER PROVIDED, that, upon the expiration or termination of any
unexercised rights, options, warrants or conversion or exchange privileges for
which any adjustment was made pursuant to this paragraph (c), the Exercise Price
shall be readjusted, and shall thereafter be such price as would have prevailed
had the Exercise Price been originally adjusted (or had the original adjustment
not been required, as the case may be) on the basis of (A) the units of
Membership Interests, if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion or exchange rights and (B) the
consideration actually received by the Company upon such exercise plus the
consideration, if any, actually received by the Company for the issuance, sale,
or grant of all such rights, options, warrants or Convertible Securities whether
or not exercise; PROVIDED, HOWEVER, that no such readjustment shall have the
effect of increasing the Exercise Price by an amount in excess of the amount of
the adjustment initially made for the issuance, sale or grant of such rights,
options, warrants, or Convertible Securities.
(d) No adjustment in the number of units of
Membership Interests purchasable under the Warrants shall be required unless the
adjustment would require an increase or decrease of at least one tenth of one
percent in the number of units of Membership Interests purchasable upon the
exercise of this Warrant. Any adjustments which by reason of this paragraph (d)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 7.1 shall be made
to the nearest one-hundredth of a unit of Membership Interests or to the nearest
cent, as the case may be.
(e) Whenever the number of units of Membership
Interests purchasable upon the exercise of this Warrant is adjusted, the
Exercise Price per unit of Membership Interests payable upon exercise of this
Warrant shall be adjusted by multiplying the Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
units of Membership Interests purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of units of Membership Interests purchasable immediately after such
adjustment.
(f) In case of any capital reorganization, or any
reclassification of the units of Membership Interests (other than a
reclassification outlined by paragraph (a)(iv) above) of the Company, or in case
of the consolidation or merger of the Company with or into any other limited
liability company, corporation or other entity or the sale, lease, conveyance or
other disposition of all or substantially all of the properties and assets of
the Company to any other limited liability company, corporation or other entity,
the Company or such successor or purchasing entity, as the case may be, shall
execute with the Holder an agreement to the effect that this Warrant shall,
after such capital reorganization, reclassification, consolidation, merger or
sale, lease, conveyance or other disposition, be exercisable into the kind and
amount of units or other forms of membership interests or shares of stock or
other securities or property (including cash) to which the Holder of the
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<PAGE>
number of units of Membership Interests deliverable (immediately prior to the
happening of such capital reorganization, reclassification, consolidation,
merger, sale, lease, conveyance or other disposition) upon exercise of a Warrant
would have been entitled upon the happening of such event; and, in any case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section 7.1 with respect to the rights and
interests thereafter of the Holder, to the end that the provisions set forth in
this Section 7.1 shall thereafter correspondingly be made applicable, as may be
reasonable, to the units or shares or securities or property thereafter
deliverable on exercise of the Warrants. The Company shall mail by first class
mail, postage prepaid, to the Holder, a notice of any event requiring such
agreement at least 30 days prior to the effective date of such event. Such
agreement shall provide for all appropriate adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 7.1. The provisions of this paragraph (f) shall also apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, leases,
conveyances and other dispositions.
7.2 CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment in the number of units of Membership Interests receivable on the
exercise of the Warrant, the Company at its expense will promptly compute such
adjustment in accordance with the terms of the Warrant and prepare a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based. The Company will forthwith mail a copy of each such
certificate to each holder of the Warrant.
7.3 NOTICES OF RECORD DATE, ETC.
In case:
(a) the Company shall take a record of the Holders of
its Membership Interests (or other forms of membership interests at the time
receivable upon the exercise of the Warrant) for the purpose of entitling them
to receive any dividend (other than a cash dividend) or other distribution, or
any right to subscribe for, purchase or otherwise acquire any units of
Membership Interests of any class or any other forms of membership interests, or
to receive any other right; or
(b) of any capital reorganization of the Company
(other than a forward split of units or reverse split of units), any
reclassification of the Membership Interests of the Company, any consolidation
or merger of the Company with or into another corporation (other than a merger
for purposes of change of domicile) or any conveyance of all or substantially
all of the assets of the Company to another corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, and in each such case, the Company shall mail
or cause to be mailed to each Holder of the Warrant at the time outstanding a
notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the date
on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or
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<PAGE>
winding-up is to take place, and the time, if any, is to be fixed, as to which
the Holders of record of units of Membership Interests (or such other forms of
membership interests at the time receivable upon the exercise of the Warrant)
shall be entitled to exchange their units of Membership Interests (or such other
forms of membership interests) for membership interests or securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be
mailed at least twenty days prior to the date therein specified and the Warrant
may be exercised prior to said date during the term of the Warrant no later than
five days prior to said date.
8. APPLICABLE LAW. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of South Dakota.
9. NOTICE. Notices and other communications to be given to the Holder
of the Warrant evidenced by this Certificate shall be deemed to have been
sufficiently given, if delivered or mailed, addressed in the name and at the
address of such owner appearing on the records of the Company, and if mailed,
sent registered or certified mail, postage prepaid. Notices or other
communications to the Company shall be deemed to have been sufficiently given if
delivered by hand or mailed, by registered or certified mail, postage prepaid,
to the Company at Newco, L.L.C., 333 Ninth Street S.W., Huron, South Dakota
57350, Attn: President and Manager, or at such other address as the Company
shall have designated by written notice to such registered owner as herein
provided. Notice by mail shall be deemed given three days after deposit in the
United States mail as herein provided,
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its name, by its duly authorized officer and manager, all as of
the day and year first above written.
NEWCO, L.L.C.
By: /s/ David O'Donnell
------------------------------------
Name: David O'Donnell
----------------------------------
Title: President and Manager
---------------------------------
Attest:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
EXHIBIT A
EXERCISE FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ units of Membership Interests
of Newco, L.L.C. and herewith makes payment therefor, all at the price and on
the terms and conditions specified in this Warrant and requests that
certificates for the units of Membership Interests hereby purchased (and any
other forms of membership interests or securities or other property issuable
upon such exercise) be issued in the name of and delivered to _____________
whose address is ________________ and, if such units of Membership Interests
shall not include all of the units of Membership Interests issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the units of Membership Interests issuable hereunder be delivered to the
undersigned.
-----------------------------------------
(Name of Registered Owner)
-----------------------------------------
(Signature of Registered Owner)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
units of Membership Interests set forth below:
NAME AND ADDRESS OF ASSIGNEE NO. OF UNITS OF MEMBERSHIP INTERESTS
- ---------------------------- ------------------------------------
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of Newco, L.L.C.
maintained for the purpose, with full power of substitution in the premises.
Dated:_______________ Print Name:________________________
Signature:_________________________
Witness:___________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
EXHIBIT 99
FOR: Whitman Education Group, Inc.
APPROVED BY: Fernando L. Fernandez
Chief Financial Officer
Whitman Education Group, Inc.
(305) 575-6510
FOR IMMEDIATE RELEASE
CONTACT: Investor Relations:
Cheryl Schneider, John Blackwell
Press: Michael McMullan, David Nugent
Morgen-Walke Associates, Inc.
(212) 850-5600
WHITMAN EDUCATION GROUP, INC.
COMPLETES SALE OF HURON UNIVERSITY
Miami, FL, August 30, 1999 - Whitman Education Group, Inc. (AMEX: WIX)
today announced that it has completed the sale of Huron University to a group
led by that school's chancellor. Under the terms of the agreement, Whitman has
contributed substantially all of the assets and liabilities of Huron University
together with $660,000 to a newly formed acquiring entity, and received a 19.9%
equity interest in that entity which will be funded with additional capital from
the acquiring group.
Richard C. Pfenniger Jr., Chief Executive Officer of Whitman Education
Group, commented, "The completion of this transaction marks an important step
forward for Whitman. With the disposition of Huron University, we will now be
able to sharpen our strategic and operational focus on our core customer - the
adult learner - and on a successful, highly replicable business model practiced
at our other 23 campuses."
Mr. Pfenniger continued, "Although Huron University is focused on
younger, more traditional college students, and does not fit within our
long-term growth strategy, it has provided us with some important assets, which
will be retained. These assets include an adult learner focused campus in Sioux
Falls, which now operates under the Colorado Technical University name, as well
as a Master of Business Administration program, which is now offered by Colorado
Technical University."
Mr. Pfenniger concluded, "In addition to sharpening our strategic
focus, the disposition of Huron University will also serve to improve our
operating results. Although Huron University has been in the process of turning
its business around, operating losses incurred during this turnaround period
have masked the otherwise solid improvement in our business."
<PAGE>
Whitman Education Group, Inc. is a proprietary provider of
career-oriented post-secondary education. Through three wholly-owned
subsidiaries, Whitman currently operates 23 schools in 13 states offering a
range of graduate, undergraduate and non-degree certificate and diploma programs
primarily in the fields of information technology, healthcare and business, to
over 7,000 students.
EXCEPT FOR HISTORICAL MATTERS CONTAINED HEREIN, STATEMENTS MADE IN THIS
PRESS RELEASE ARE FORWARD-LOOKING AND ARE MADE PURSUANT TO THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. INVESTORS
AND OTHERS ARE CAUTIONED THAT FORWARD-LOOKING STATEMENTS INCLUDE RISKS AND
UNCERTAINTIES, WHICH MAY AFFECT OUR BUSINESS AND PROSPECTS. FORWARD-LOOKING
STATEMENTS MAY RELATE TO OUR FUTURE OPERATING RESULTS. RISKS ASSOCIATED WITH
THESE STATEMENTS INCLUDE THE RISK THAT ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE COMPANY'S STATEMENTS IN THIS RELEASE. FACTORS THAT MAY AFFECT FUTURE
RESULTS INCLUDE THE RISK THAT THE NEWLY INDEPENDENT HURON UNIVERSITY MAY NOT
QUALIFY TO PARTICIPATE IN STUDENT FINANCIAL AID PROGRAMS AND THE PURCHASER MAY
ELECT TO RESCIND THE TRANSACTION, THE POSSIBILITY THAT WE MAY EXPERIENCE
UNANTICIPATED ATTRITION OR REDUCTIONS IN STUDENT ENROLLMENT, THE RISK THAT
MARKETING EFFORTS MAY NOT ACHIEVE ANTICIPATED RESULTS, THE ULTIMATE RESOLUTION
OF OUR LEGAL PROCEEDINGS, OUR ABILITY TO ASSESS AND MEET THE EDUCATIONAL NEEDS
AND DEMANDS OF OUR CUSTOMERS AND EMPLOYERS, THE IMPACT OF YEAR 2000 ISSUES, OUR
ABILITY TO MAINTAIN OR RENEW REQUIRED REGULATORY APPROVALS, ACCREDITATION OR
STATE AUTHORIZATIONS AND OUR ELIGIBILITY TO CONTINUE TO PARTICIPATE IN STUDENT
FINANCIAL AID PROGRAMS, BUSINESS CONDITIONS AND GROWTH IN THE POSTSECONDARY
EDUCATION INDUSTRY AND THE ECONOMY GENERALLY, AND CERTAIN ECONOMIC, COMPETITIVE,
REGULATORY, AND OTHER FACTORS IDENTIFIED IN OUR FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
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