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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
Commission file number 0-16992
CONCORDE CAREER COLLEGES, INC.
(Exact name of registrant as specified in its charter)
12TH & BALTIMORE, CITY CENTER SQUARE
P. O. BOX 26610
KANSAS CITY, MISSOURI 64196
TELEPHONE: (816) 474-8002
INCORPORATED IN THE STATE OF DELAWARE
43-1440321
(I.R.S. Employer Identification No.)
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
--------------
COMMON STOCK, $.10 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate the number of outstanding shares of the Registrant's Common Stock, as
of March 25, 1997:
6,966,576 SHARES OF COMMON STOCK, $.10 PAR VALUE
The aggregate market value of Voting Securities (including Common Stock and
Class B Voting Convertible Preferred Stock), held by non-affiliates of the
Registrant was approximately $6,050,000 as of March 25, 1997. Part III
incorporates information by reference to the Registrant's definitive proxy
statement for Annual Meeting of Stockholders to be held May 22, 1997.
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CONCORDE CAREER COLLEGES, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1996
INDEX
Item Page
- ---- ----
PART I
1. Business............................................................ I-1
2. Properties.......................................................... I-8
3. Legal Proceedings................................................... I-9
4. Submission of Matters to a Vote of Security Holders................. I-10
PART II
5. Market for the Registrant's Common Stock and Related Stockholder
Matters........................................................... II-1
6. Selected Financial Data............................................. II-1
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. II-3
8. Financial Statements and Supplementary Data......................... II-12
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ II-32
PART III
10. Directors, Executive Officers, Promoters and Control Persons of the
Registrant (Incorporated by Reference)............................ III-1
11. Executive Compensation (Incorporated by Reference).................. III-1
12. Security Ownership of Certain Beneficial Owners and Management
(Incorporated by Reference)....................................... III-1
13. Certain Relationships and Related Transactions (Incorporated by
Reference)........................................................ III-1
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... IV-1
Signatures........................................................... IV-5
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
The discussion set forth below, as well as other portions of this Form
10-K, may contain forward-looking comments. Such comments are based upon
information currently available to management and management's perception
thereof as of the date of this Form 10-K. Actual results of the Company's
operations could materially differ from those forward-looking comments. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, potential adverse effects of regulations;
impairment of federal funding; adverse legislative action; student loan default;
changes in federal or state authorization; or accreditation; changes in market
needs and technology; changes in competition and the effects of such changes;
changes in the economic, political or regulatory environments; litigation
involving the Company; changes in the availability of a stable labor force; or
changes in management strategies. Readers should take these factors into
account in evaluating any such forward-looking comments.
THE COMPANY
The Company owns and operates proprietary, postsecondary schools which
offer career vocational training programs primarily in the allied health field.
As of December 31, 1996, the Company owned and operated resident training
schools at 12 locations in six states (the "Schools"). Prior to August 2, 1996,
the Company also offered Review Courses for the CPA Examination. For a
comparison of the revenues generated by the Schools and the CPA Review Courses,
see Item 7, "Management's Discussion and Analysis."
The Company was formed in 1988 as a Delaware corporation, and its
principal office is located at 12th and Baltimore, City Center Square, P.O. Box
26610, Kansas City, Missouri 64196 (telephone: 816/474-8002). Unless otherwise
indicated, the term "Company" refers to Concorde Career Colleges, Inc. and its
direct and indirect wholly-owned subsidiaries.
RECENT DEVELOPMENTS
On August 2, 1996 the Company sold the assets of Person/Wolinsky
Associates, a subsidiary which offered review courses for the CPA exam. As a
result of the sale the Company received proceeds of $879,000 (the
"Person/Wolinsky Sale"). On August 30, 1996, the Company sold the assets of the
San Jose, California School for $350,000. The Company realized a net gain of
$190,000 before income taxes, as a result of the sales. CenCor, Inc.
("CenCor"), which agreed to release its security interest in these assets and
consent to both sales, received approximately $378,000 for redemption of 33,000
shares of Class A Redeemable Preferred Stock (the "Class A Preferred Stock") and
$46,000 of accumulated dividends on the Class A Preferred Stock..
On January 31, 1997 the Company sold its Warren, Michigan building for
approximately $725,000 (the "Warren Sale"). Proceeds of $310,000 were paid to
CenCor for redemption of approximately 27,000 shares of Class A Preferred Stock
it then held and $45,000 of accumulated dividends on the Class A Preferred
Stock. The Company realized a gain of $313,000 before income taxes in 1997 as a
result of the Warren Sale.
On December 30, 1996 CenCor and the Company amended the Restructuring,
Security, and Guaranty Agreement (the "Fourth Amendment"). The Fourth Amendment
extended the due date of the $2.4 million junior secured debenture held by
CenCor (the "Old Debenture") and approximately $245,000 of unsecured obligations
held by CenCor (the "Unsecured Debt") to January 1, 1998, increased quarterly
principal payments on the Old Debenture approximately $30,000 to $100,000 and
waived the Old Debenture's capital expenditures limitations with respect to the
Company's North Hollywood, California lease. In addition, the Company agreed
to pay CenCor $1,333 per day for the number of days the refinancing closing date
extended beyond December 20, 1996.
On February 25, 1997, the Company entered into agreements, which soon
thereafter closed, with Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P., affiliated Baltimore-based venture capital funds
("Cahill-Warnock"), for the issuance by the Company and purchase by Cahill-
Warnock of (i) 55,147 shares of the Company's new Class B Voting Convertible
Preferred Stock ("Voting Preferred Stock") for $1.5 million and (ii) 5%
Debentures due 2003 ("New Debentures") for $3.5 million (collectively, the
"Cahill Transaction"). Cahill-Warnock subsequently assigned (with the Company's
consent) its rights and
Part I - Page 1
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obligations to acquire 1,838 shares of Voting Preferred Stock to James Seward, a
Director of the Company, and Mr. Seward purchased such shares for their purchase
price of approximately $50,000. The New Debentures have nondetachable warrants
("Warrants") for approximately 2,573,529 shares of Common Stock, exercisable
beginning August 25, 1998 at an exercise price of $1.36 per share of Common
Stock.
The Voting Preferred Stock has the right to vote as a class with the Common
Stock (with each share of Voting Preferred Stock having the equivalent voting
power of 20 shares of Common Stock), on all matters presented to holders of
Common Stock. Each share of Voting Preferred Stock is convertible into 20 shares
of Common Stock at the election of the holder for no additional consideration.
The Voting Preferred Stock is entitled to a 12% annual dividend beginning
February 25, 2001 and a 15% annual dividend beginning February 25, 2003. The
Voting Preferred Stock is mandatorily convertible into Common Stock upon the
successful completion by the Company of a common equity offering greater than
$20 million at a price greater than $4 per share of Common Stock. Cahill-Warnock
also has certain preemptive rights in future issuances of stock by the Company.
The New Debentures bear an interest rate of 5% per annum, payable
quarterly, with principal due in February 2003, when the attached Warrants
expire. The Warrants are not exercisable until August 25, 1998, subject to
earlier conversion (at the holder's election) in the event of the successful
completion by the Company of a common equity offering greater than $20 million
at a price greater than $4 per share of Common Stock.
The Voting Preferred Stock and the Warrants are also entitled to certain
registration rights (with respect to the underlying Common Stock).
As part of the Cahill Transaction, the Board of Directors of the Company
was increased from three to six members, with Cahill-Warnock having the right to
nominate two Directors. The sixth Director is Dr. Robert Roehrich, the Company's
new President and Chief Executive Officer effective April 7, 1997.
Pursuant to a Stockholders' Agreement among Cahill-Warnock, Messrs. Brozman
and Seward, the Robert F. Brozman Trust (who, together, hold an aggregate of
52.8% of the outstanding voting securities of the Company and options to
purchase 1,000,000 shares of Common Stock) and the Company, such holders have
agreed to certain restrictions on the transfer and voting of voting securities
held by them.
Pursuant to the Fourth Amendment with CenCor, the Company used
approximately $4.4 million of the funds from the Cahill Transaction to redeem
the 260,385 outstanding shares of its Class A Preferred Stock, the Old Debenture
and Unsecured Debt which were held by CenCor (the "CenCor Repayment"). As part
of the CenCor Repayment, CenCor waived its right to a payment from the Company
equal to 25% of the amount by which the Company's market capitalization exceeds
$3.5 million on August 31, 1997. At September 30, 1996, the Company had accrued
$457,000 for this purpose. After the CenCor Repayment, the only outstanding
obligation of the Company to CenCor is to continue to replace written-off
receivables of the Company which had been conveyed to CenCor to discharge
interest that had accrued but was unpaid on the Old Debenture until such time as
CenCor recovers all discharged interest. At December 31, 1996, the amount
remaining to be recovered by CenCor was approximately $382,000. Jack L. Brozman,
the Chairman of the Board of the Company, is the Chairman of the Board,
President, and Treasurer of CenCor.
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Current Trends and Recent Events."
THE SCHOOLS
As of December 31, 1996, the Company operated schools located in the
following cities: North Hollywood, Anaheim, San Bernardino, and San Diego,
California; Denver, Colorado; Lauderdale Lakes, Jacksonville, Miami (an
additional location of the Tampa School) and Tampa, Florida; Kansas City,
Missouri; Portland, Oregon; and Memphis, Tennessee.
In order to increase name recognition of its Schools, the Company has
designated each of the Schools as a "Concorde Career Institute."
Part I - Page 2
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ALLIED HEALTH CURRICULUM
The Company's Schools' allied health programs of study are:
Vocational/Practical Nursing, Respiratory Therapy Technician, Surgical
Technician, Pharmacy Technician, Radiology Technician, Medical Secretary,
Medical Assistant, and Dental Assistant. Not all programs are offered at all
Schools. Some Schools utilize different program titles pursuant to state
regulations. In addition, certain Schools offer selected short term courses,
including Limited X-Ray, Expanded Duties for Dental Assistants, Medical
Insurance Billing, and various certification test preparations in allied health
occupations. Elkins Interactive Training Network (EITN), a satellite delivery
system of educational programs and seminars, is currently offered on-line in two
of the Company's Schools. EITN is not affiliated with the Company.
The Schools are on a non-traditional academic calendar with starting dates
for programs varying by location and type of program. Programs typically
commence monthly at each School. The Schools' programs of study usually range
from eight to twenty months and include from 720 to 2,985 hours of instruction.
While most programs are taught in a classroom atmosphere, hands-on
clinical/laboratory experience is an integral part of the curriculum at the
Schools. Most programs of study at the Schools include an externship immediately
prior to graduation, varying in duration from four to twelve weeks, depending on
the particular program.
RECRUITMENT AND ADMISSIONS
A School's typical student is either (i) unemployed and enrolls in order to
learn new skills and obtain employment or (ii) underemployed and enrolls in
order to acquire new skills or to update existing skills to increase his/her
earning capacity. The Company recruits students through advertising in various
media, including television, radio, newspapers and direct mail. The Company also
recruits students by presenting seminars and lectures to graduating seniors at
local high schools. Management estimates that approximately 25% of all
enrollments are the result of referrals from the Schools' students and
graduates.
Each School maintains an Admissions Department which is responsible for
conducting admissions interviews with potential applicants to provide
information regarding the Schools' programs and to assist with the application
process. In addition, each applicant for enrollment must take and pass an
entrance examination(s) administered by a person other than admissions
personnel. The entrance examination and interview are designed to determine the
student's ability to benefit from the instruction provided by the School and the
student's level of motivation to complete the program.
The admissions criteria for the Schools vary according to the program of
study. Each applicant for enrollment must have a high school diploma, the
equivalent of a high school diploma or must demonstrate the ability to benefit
from the program sought before admission into the School is granted. All
students must be beyond the age of compulsory high school attendance. The
Company performs credit checks and/or utilizes a data base maintained by the
United States Department of Education ("ED") before applicant admission to
identify applicants who may be in default on a prior student loan.
The following table sets forth the number of applicants and the student
enrollments (net of cancellations) at the Schools for the periods indicated.
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Applicants Interviewed............... 22,377 23,158 23,175
Student Enrollments.................. 6,855 7,121 6,701
Admissions........................... 30.6% 30.7% 28.9%
</TABLE>
At December 31, 1996, the Company had approximately 4,000 students in
attendance at the Schools, including approximately 600 students on externship.
STUDENT RETENTION
The Company strives to help students complete their program of study
through admissions screening policies, financial aid planning and student
services. Each School has a staff member whose function is to provide student
services concerning academic and personal problems which might disrupt or result
in a premature end to a student's studies. Programs of study are offered in the
morning, afternoon, and evening to meet the students' scheduling needs.
If a student terminates prior to completing a program, federal and state
regulations and accreditation criteria permit the Company to retain only a
certain percentage of the total tuition, which varies with, but equals or
exceeds, the percentage of the
Part I - Page 3
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program completed. Amounts received by the Company in excess of such set
percentage of tuition are refunded to the student or the appropriate funding
source. See "Financing Student Education," below.
Approximately 35% of all students terminate their program of study prior to
completion. This includes approximately 10% of the student body who are required
by the Schools to discontinue their training due to unsatisfactory academic
performance or poor attendance.
STUDENT PLACEMENT
The Company, through the placement personnel at each School, provides job
placement assistance services for its graduates. The placement personnel
establish and maintain contact with local employers and other sources of
information on positions available in the local area. Additionally, the School's
Director of Graduate Services works with students on preparing resumes and
interviewing techniques. Postgraduate placement assistance is also provided,
including referral to other cities in which the Schools are located. A number of
graduates do not require placement services. Frequently, the externship programs
at the Health Vocation Schools result in placement of students with the
practitioners participating in the externship.
SCHOOL ADMINISTRATION
The Senior Vice President of Operations is responsible for the overall
performance of the Schools. Reporting to him are: the Vice President of
Compliance/Financial Aid, the Vice President of Education, the Vice President of
Operations, and the National Director of Marketing and Admissions.
Each School is operated independently and is managed on site by a School
Director reporting to the Vice President of Operations. The Vice President of
Operations is assisted by Corporate Specialists. In addition, each School is
staffed with a Financial Aid Director, a Director of Admissions, a Director of
Education, a Director of Graduate Services, a Director of Business Services, and
several other support staff. Instruction at each school is conducted by
professional educators in the field or by former and current members of the
business or medical community on a full-time or part-time basis. Instructional
staff are selected based upon academic and professional qualifications, and
experience level.
ACCREDITATION AND LICENSING
All the Schools are accredited through various accrediting associations
recognized by the ED. These associations are the Accrediting Commission of
Career Schools and Colleges of Technology ("ACCSCT") formerly (prior to July 1,
1993) the Accrediting Commission For Trade and Technical Schools of The Career
College Association ("CCA"), and the Council on Occupational Education, formerly
(prior to July 1, 1995) the Commission on Occupational Education Institutes
("COEI"). Accreditation by a nationally recognized accrediting body is necessary
in order for a school to be eligible to participate in federally sponsored
financial aid programs for students. See "Financing Student Education."
Additionally, certain Schools have received accreditation or approval for
specific programs from certain of the following accrediting agencies: The
American Society of Health Systems Pharmacists, American Association of Medical
Assistants Endowment Commission, Committee on Allied Health Education and
Accreditation, the Joint Review Committee for Respiratory Therapy Education, the
American Dental Association, the California Board of Dental Examiners, and the
Board of Vocational Nurse and Psychiatric Technician Examiners. While such
programmatic accreditation/approvals are not necessary for participation in
federally sponsored financial aid programs, they are required for certification
and/or licensure of graduates from some of the programs offered by certain of
the Schools, such as the Vocational or Practical Nurse program offered at the
San Bernardino, San Diego, Denver, North Hollywood and Anaheim Schools.
Additionally, such accreditation or approvals have been obtained because
management believes they enhance the students' employment opportunities in those
states that recognize these accrediting agencies.
The qualifications of faculty members are regulated by applicable
accrediting bodies. These accrediting bodies have certain faculty standards
which must be met before the Schools are given their accreditation renewal. In
addition, depending upon the curriculum being taught, faculty members must meet
certain standards set by applicable state licensing laws before annual licensing
of the Schools.
Part I - Page 4
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Each School is also licensed as an educational institution under applicable
state and local licensing laws, and is subject to a variety of state and local
regulations. Such regulations may include approval of the curriculum, faculty
and general operations.
FINANCING STUDENT EDUCATION
Tuition and other ancillary fees at the Schools vary from program to
program, depending on the subject matter and length of the program. The total
cost per program ranges from approximately $5,925 to $12,975.
Most students attending the Schools utilize federal government grants
and/or the Federal Family Education loan programs available under the Higher
Education Act of 1965, as amended (the "Act"), and various programs administered
thereunder to finance their tuition. Each School has at least one financial aid
officer who assists students in making application for such federal grants and
federal loans. Management estimates that during 1996, 82% of School's cash
receipts were derived from funds obtained by students through these programs.
The Act and the programs administered thereunder were reauthorized by Congress
in July of 1992.
Currently, each of the Schools is an eligible institution for some or all
of the following additional federally funded programs: Federal Pell Grant,
Federal Supplemental Education Opportunity Grant, Federal Perkins Loan Program,
Federal Parent Loan for Undergraduate Students, Federal Stafford Loan, Federal
Unsubsidized Stafford Loan, and Veterans Administration Assistance. Also, some
students are eligible for assistance under the Department of Labor's Job
Training Partnership Act.
Additionally, the states of California, Colorado, and Oregon each offer
state grants for educational programs of the type offered by the Schools.
Typically, many restrictions apply in qualifying and maintaining eligibility for
participation in these state programs. The Company currently participates only
in the Colorado State Grant Program.
Students at the Schools principally rely on a combination of two Federal
programs: Federal Pell Grants and Federal Family Education Loans ("FFELs"), also
referred to as Federal Subsidized and Unsubsidized Stafford loans. Federal
Family Education Loans and Federal Pell Grants are awarded annually to needy
students studying at least half-time at an approved postsecondary educational
institution. Federal Pell Grants need not be repaid by the student. The maximum
Pell Grant a student may receive for the 1996-97 award year is $2,470, with the
amount a student actually receives being based on a federal regulatory formula
devised by the ED.
FFELs are low interest federal student loans provided by banks and other
lending institutions, the repayment of which is fully guaranteed as to principal
and interest by the federal government through a guarantee agency. On subsidized
loans, the student pays no interest on the Subsidized Stafford Loan while in
school and for a grace period (up to six months) thereafter; on unsubsidized
loans, interest accrues but is capitalized and added to the principal. For both
subsidized and unsubsidized loans, students do not need to begin payment until
expiration of a six month grace period following last day of attendance. After
such time, repayment is required in monthly installments, including a variable
interest rate with a cap at 9%. The lenders making subsidized FFELs receive
interest subsidies during the term of the loan from the federal government,
which also pays all interest on the FFEL while the student attends school and
during the grace period. In the event of default, all FFELs are fully guaranteed
as to principal and interest by state or private guarantee agencies which, in
turn, are reimbursed by the federal government according to the guarantee agency
reinsurance provisions contained in the Act.
Beginning with the fourth quarter of 1995 the Company instituted a plan to
decrease its reliance on Title IV funding. In addition to seeking alternative
sources of financing for its students, the Schools began financing a larger
portion of the tuition for most students with promissory notes. Beginning in
1996, promissory notes issued to the students by the Schools are generally due
over 24 months, bearing interest of seven percent, with payments beginning when
the student starts class.
REGULATION
Both federal and state financial aid programs contain numerous and complex
regulations which require compliance not only by the recipient student but also
by the institution which the student attends. Because of the importance of
compliance with these regulations, the Company monitors the Schools' compliance
through periodic visits to the individual Schools by Corporate Specialists. If
the Company should fail to materially comply with such regulations at any of the
Schools, such failure could have serious consequences, including limitation,
suspension, or termination of the eligibility of that School to participate in
the funding programs. Audits by independent certified public accountants of the
Schools' administration of federal funds are mandated by federal regulations.
Part I - Page 5
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Additionally, these aid programs require maintaining certain accreditation by
the Schools. See "Accreditation and Licensing" and "Financing Student
Education."
One of the ED's principal criteria for assessing a School's eligibility to
participate in student loan programs is the cohort default rate threshold
percentage requirements (the "Cohort Default Rate") enacted in the Student Loan
Default Prevention Initiative Act of 1990. Due to concerns about default rates,
the ED has promulgated regulations affecting FFEL, Federal Unsubsidized
Stafford, Federal Supplemental Loans for Students ("FSLS") and Federal Perkins
Loan Program loans (collectively, the "Federal Loan Programs"). Cohort Default
Rates are calculated by the Secretary of Education and are designed to reflect
the percentage of current and former students entering repayment in the cohort
year, the fiscal year of the federal government -- October 1 to September 30,
who default on their loans during that year or the following cohort year. This
calculation includes only those defaulted loans on which federal guaranty claims
have been paid. The 1992 Cohort Default Rates were published in August 1994. The
final 1993 Cohort Default Rates were published in February 1996 and the final
1994 Cohort Default Rates were published in January 1997.
After January 1, 1991, the Secretary of Education was authorized to
initiate proceedings to limit, suspend or terminate the eligibility of a school
to participate in the Federal Loan Programs if the Cohort Default Rate for three
successive years exceeds the prescribed threshold. Beginning with the release of
1992 Cohort Default Rates in the summer of 1994, a Cohort Default Rate equal to
or exceeding 25% for each of the three most recent fiscal years may be used as
grounds for terminating Federal Family Education Loan Program ("FFELP")
eligibility.
The following table sets forth the 1992, 1993, and 1994 Cohort Default
Rates for each of the Schools that were in operation at the time the Cohort
Default Rates were published. Publication of the Cohort Default Rates for 1990
and 1991 has been suspended due to two injunctions obtained by the Company to
preclude the ED from using 1990 and 1991 Cohort Default Rates as grounds to
limit, suspend, or terminate the School's eligibility for Federal Loan Programs.
See Item 3, "Legal Proceedings."
<TABLE>
<CAPTION>
COHORT DEFAULT COHORT DEFAULT
RATES RATES
SCHOOL 1992 1993 1994(3) 1992 1993 1994(3)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Anaheim, CA 33.1 25.7 25.7 North Hollywood, CA 22.1 23.7 19.9
Denver, CO 33.5 20.4 18.7 Portland, OR 33.0 28.8 20.2
Jacksonville, FL 38.0 31.1 17.6 San Bernardino, CA 27.6 31.2 (2)
Kansas City, MO 15.4 20.0 14.7 San Diego, CA 27.0 32.3 28.9
Lauderdale Lakes, FL 35.2 18.2 21.4 Tampa, FL 33.8 24.5 14.8
Miami, FL (1) 33.8 24.5 14.8
Memphis, TN 24.1 16.2 22.1
</TABLE>
(1) The Miami campus is an additional location of the Tampa School.
(2) Final 1994 rate has not yet been received. The preliminary rate was 26.8.
(3) Pre-appeal rates.
The Company had previously appealed certain of the 1993 default rates, and
the above rates reflect any adjustments made by the ED. The ED decided to not
review some of the appeals. The Company may decide to request the ED to review
these appeals.
The Company is challenging the ED's authority to enforce the 1992 Cohort
Default Rates applicable to the Company in light of the ED's rate correction
regulations applicable to such rates adopted on April 25, 1994 and November 29,
1994, which the Company contends are invalid. The Company had requested the
court to officially suspend the 1992 Cohort Default Rates, but the court has
declined to enter a temporary restraining order or a preliminary injunction
prohibiting publication of the 1992 Cohort Default Rates. The Company, however,
intends to pursue its claims for declaratory and injunctive relief concerning
1992 rate correction regulations and the Schools' recent default rates.
The Company is also pursuing administrative appeals seeking a reduction of
its recently published 1994 rates. These appeals are being pursued under a rate
correction appeal process established by Congress in late 1993 for the
correction of Cohort Default Rates for demonstrated occurrences of improper loan
servicing and collections. The Company's appeals were commenced early in 1997,
and no ruling has yet been issued. See Item 3, "Legal Proceedings."
Part I - Page 6
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Two Schools, Anaheim and San Diego, California, have official published
Cohort Default Rates which exceed 25% for three consecutive years. In addition,
the San Bernardino, California School has official published Cohort Default
Rates for two consecutive years which exceed 25% and a preliminary 1994 rate
which exceeds 25%. Currently San Bernardino has not received a final 1994 Cohort
Default Rate, however the Company believes it will exceed 25%. The Company
believes that the 1994 Cohort Default Rates for the three Schools should be
lowered below 25% through appeals, but it is possible that the ED will not
agree. All three Schools could be in jeopardy of loss of loan eligibility if the
Cohort Default Rates for one of the three consecutive years is not lowered, but
in that event the Company may challenge the ED's rate determinations in the
pending litigation filed in late 1992.
The Company intends to vigorously defend the Schools against any
proceeding by the ED to limit, suspend, or terminate FFELP eligibility. If any
of the Schools loses its eligibility to participate in Federal Loan Programs,
the continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and mitigate the effect on any School of the loss
of its eligibility to participate in loan programs. One option would be to
restructure the School to use grant funding and alternative third party
financing. This action is expected to result in a short-term decline in
enrollment and profitability during the period of transition.
Currently students at all of the Schools have access to lenders. Even
though a School is eligible to participate in Title IV programs, it must also
have access to lending institutions such as banks which are willing to act as
lenders for the Schools' students.
In 1994, ED established a policy of recertifying all schools participating
in Title IV programs every five years. The Company recently completed the
process of recertifying the Schools. Full certification has been approved for
Anaheim, North Hollywood, San Bernardino and San Diego, California, Kansas City,
Missouri, Portland, Oregon, Memphis, Tennessee, Tampa, and Miami, Florida (Miami
is an additional location of the Tampa School). Denver, Colorado, Jacksonville
and Lauderdale Lakes, Florida have received provisional certification.
Provisional certification limits the School's ability to add programs and change
the level of educational award. In addition, the School forfeits its right to
due process under ED guidelines. The provisional certifications expire in 1998,
at which time the Schools will again go through the process of recertification.
The Company does not believe provisional certification will have a material
impact on its liquidity, results of operations or financial position.
ED also has established certain "Factors of Financial Responsibility" which
the Schools are required to meet to be eligible to receive Title IV Funds.
Although these factors change regularly, the Company believes its Schools
currently meet all applicable factors.
The Company is not aware of any material violation by the Company of
applicable local, state and federal laws.
CPA REVIEW COURSES
Person/Wolinsky Associates, Inc. ("Person/Wolinsky"), a subsidiary of the
Company, offered review courses in the Spring and Fall for candidates preparing
for the CPA Examination administered by the American Institute of Certified
Public Accountants ("AICPA"). The assets of the CPA Review Courses were sold
August 2, 1996 to a group of educators and editorial writers associated with
Person/Wolinsky. Samuel Person, who started the business in 1967 and created the
study materials retired in 1996.
COMPETITION
The Schools are subject to intense competition from public educational
institutions in addition to a large number of other public and private companies
providing postsecondary education, many of which are older, larger and have
greater financial resources than the Company.
Management believes that the educational programs offered, the School's
reputation and marketing efforts are the principal factors in a student's choice
to enroll in a School. Additionally, the cost of tuition and availability of its
financing, the location and quality of the School's facilities and job placement
assistance offered are important. The specific nature and extent of competition
varies from School to School, depending on the location and type of curriculum
offered. The Company competes principally through advertising and other forms of
marketing, coupled with specialized curricula offered at competitive prices.
Part I - Page 7
<PAGE>
EMPLOYEES
As of February 21, 1997, the Company had approximately 699 full and part-
time employees, of which approximately 397 were faculty members at its Schools.
There are 236 management and administrative staff members, of which 202 are
employed at the Schools, and 34 are employed at corporate headquarters. The
remaining 66 employees are admissions personnel at the Company's Schools.
Management and supervisory members of the administrative staff and
administrative faculty are salaried. All other faculty and employees are paid on
an hourly basis. The Company employs on both a full-time and part-time basis, as
well as on a substitute/on-call basis. The Company does not have an agreement
with any labor union representing its employees and has not been the subject of
any union organization efforts.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Kansas City, Missouri.
All the Schools' facilities are leased. The Company owned a building in Warren,
Michigan, which was sold January 31, 1997. See "Business -- Recent
Developments."
The following table sets forth the location, approximate square footage and
expiration of lease terms for each of the Schools as of December 31, 1996:
<TABLE>
<CAPTION>
Square
Locations Footage Expiration (1)
---------------- ------- --------------
<S> <C> <C>
Anaheim, CA......................... 17,989 1-31-98
North Hollywood, CA................. 12,269 5-31-97
North Hollywood, CA (new location).. 35,155 12-31-11
San Bernardino, CA.................. 16,950 9-30-98
San Diego, CA....................... 12,244 11-21-98
Denver, CO.......................... 14,860 1-31-98
Lauderdale Lakes, FL................ 10,905 5-31-00
Jacksonville, FL.................... 12,305 7-31-98
Miami, FL........................... 8,000 4-30-99
Tampa, FL........................... 14,200 12-31-00
Kansas City, MO..................... 16,000 3-01-01
Kansas City, MO (Home Office) (2).. 7,227 10-31-98
Portland, OR........................ 15,246 11-01-06
Memphis, TN......................... 17,951 1-31-00
- ----------
</TABLE>
(1) Several of the leases provide renewal options, although renewals may be at
increased rental rates.
(2) Does not include subleased space -- see notes to consolidated financial
statements.
The Company also rents various equipment under leases which are generally
cancelable within 30 days.
Part I - Page 8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company's Schools are sued from time to time by a student or students
who claim to be dissatisfied with the results of their program of study.
Typically, the claims allege a breach of contract, deceptive advertising and
misrepresentation and the student or students seek reimbursement of tuition.
Punitive damages sometimes are also sought. In addition, the ED may allege
regulatory violations found during routine program reviews. The Company has, and
will continue to dispute these findings as appropriate in the normal course of
business. In the opinion of the Company's management such pending litigation and
disputed findings are not material to the Company's financial condition or its
results of operations.
On November 19, 1992, in a suit styled Concorde Career Colleges, Inc. et al
v. Lamar Alexander, Secretary of the United States Department of Education filed
in the United States District Court Western District of Missouri (Case No. 92-
1064-CV-W.6), the Company initiated a suit against the ED and, on December 23,
1992, obtained a preliminary injunction, which suspends publication of the
Company's 1990 Cohort Default Rates due to apparent inaccuracies and which
requires the ED to discontinue publication of those rates. The order also
requires that no substitute Cohort Default Rates for 1990 can be published by
the ED without prior approval of the court. This order remains in effect and the
ED has not sought any further hearing, nor has it taken any discovery in this
matter. On July 16, 1993, a second injunction was issued against the ED
suspending publication of the Company's 1991 Cohort Default Rates. This order
remains in effect by agreement of the ED. Although the ED has the right to
request a further hearing on this order, it has not done so, nor has it taken
any discovery in this matter. The effect of these two injunctions is to preclude
the ED from using 1990 and 1991 Cohort Default Rates as grounds to limit,
suspend, or terminate the Company's eligibility for Federal Loan Programs.
The Company is currently engaged in proceedings against the ED challenging
the 1992, 1993, and 1994 Cohort Default Rates and the rate correction
regulations which the ED adopted in 1994. The ED's rate correction regulations
contain a very restrictive standard for removal of defaulted loans from a
school's Cohort Default Rate due to improper servicing and collection, and the
Company contends that the regulations are unlawful because they contravene
provisions of the Higher Education Act of 1965 (as amended) and are arbitrary
and capricious. If the ED's rate correction regulations are upheld, the
Company's Schools, along with many other postsecondary institutions, probably
will not be able to obtain any appreciable reduction in the level of their
previously published Cohort Default Rates. These proceedings may extend
throughout the remainder of 1997. For more information on these regulations see
Item 1, "Business -- Regulation."
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate FFELP eligibility. If any of the
Schools loses its eligibility to participate in Federal Loan Programs, the
continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and will evaluate alternatives to mitigate the
effect on any School of the loss of its eligibility to participate in loan
programs. Among the options available to the Company, one option would be to
restructure the School to use grant funding and alternative third party
financing. This action, if necessary, would be expected to result in a short-
term decline in enrollment and profitability during the period of transition.
During July 1993, nine former students of the Jacksonville, Florida School
filed individual lawsuits against the School, alleging deceptive trade
practices, breach of contract, and fraud and misrepresentation. These suits have
since been dismissed, and these and additional former students have been added
to another complaint which was filed in the Circuit Court, Fourth Judicial
District, Duval County, Florida (Case 93-04005-CA). The latter case was served
on August 26, 1993, and was amended to comprise 69 plaintiffs. Concorde Careers-
Florida, Inc. doing business as ConCorde Career Institute in Jacksonville,
Florida ("the Jacksonville School") a wholly owned subsidiary of the Company,
filed various objections and motions, including Motions to Dismiss and Motions
to Strike. After hearings, the trial court dismissed the lawsuit, but allowed
the lawsuit to be amended on behalf of one plaintiff, and authorized the
remaining plaintiffs to file individual suits if they so desired. The order of
dismissal was appealed and reversed. During the appeal process, two additional
suits making essentially the same claims were filed. In May 1995, plaintiffs
requested permission to amend the complaint by the 69 plaintiffs to convert the
case to a class action, which class would include the plaintiffs in all three
cases. The Jacksonville School opposed the motion, and the proposed class action
complaint was dismissed in August 1995, with permission to amend again. The
amended class action complaint was filed in August 1995, and the Jacksonville
School again moved to dismiss the complaint, and to strike portions from the
complaint. The motion to dismiss was denied November 7, 1995; the motion to
strike was granted in part and denied in part. The Jacksonville School has
answered the complaint, and filed numerous affirmative defenses. Discovery
restricted to class certification issues was completed in late Fall 1996. A two-
day hearing to determine whether or not the class should be certified was
conducted during mid-January 1997. A decision by the Court is expected in the
near future.
Part I - Page 9
<PAGE>
In the meantime, all activity and progress in the other suits have been stayed.
The Company believes these suits are without merit, and will continue to
strongly oppose class certification, and to defend against them vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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Part I - Page 10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock ("Common Stock") is currently traded under the
symbol "CCDC" on the over-the-counter bulletin board (the "OTCBB"). The
following table sets forth the high and low bid information, for the periods
indicated as reported by the OTCBB.
<TABLE>
<CAPTION>
1995 High Low
---- ----- -----
<S> <C> <C>
First Quarter.................................... $0.38 $0.25
Second Quarter................................... $0.56 $0.38
Third Quarter.................................... $0.41 $0.38
Fourth Quarter................................... $0.63 $0.30
1996 High Low
---- ----- -----
First Quarter.................................... $0.94 $0.44
Second Quarter................................... $1.06 $0.88
Third Quarter.................................... $1.06 $0.55
Fourth Quarter................................... $1.06 $0.88
</TABLE>
At December 31, 1996, there were 298 holders of record of the Common Stock.
On March 20, 1997, the bid and asked prices of the Company's Common Stock
on the OTCBB were $1.625 and $1.625 per share, respectively.
No cash dividends have been paid on the Common Stock and the Company does
not presently intend to pay cash dividends on Common Stock in the future. Class
A Preferred Stock dividends of $56,349 were paid in 1996 pursuant to the
Restructuring, Security and Guaranty Agreement, as amended with CenCor. See Item
7, "Liquidity and Capital Resources -- CenCor Agreement."
ITEM 6. SELECTED FINANCIAL DATA
The following data should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
Item 8, "Financial Statements and Supplementary Data."
The following selected financial data has been derived from the Company's
Audited Financial Statements for the years ended 1996 through 1992.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues....................... $40,097 $39,274 $35,032 $34,781 $ 42,648
Operating expenses............. 39,254 36,835 34,173 33,066 54,036
Operating income (loss)....... 843 2,439 859 1,715 (11,388)
Interest expense............... 371 659 1,065 1,152 1,619
Gain on sale of assets......... 190
Net income (loss).............. 792 1,599 (6) 413 (9,626)
Earnings (loss) per share (1).. $.07 $.18 $(.00) $.06 $(1.38)
BALANCE SHEET DATA:
Total assets................... $30,867 $30,820 $30,477 $30,173 $ 36,664
Long-term debt (2)............. 2,419 4,066 3,954 10,385 12,281
Stockholders' equity........... 7,015 6,674 5,075 2,081 1,668
</TABLE>
Part II - Page 1
<PAGE>
<TABLE>
<CAPTION>
(continued)
December 31,
------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Number of locations (3):
Health Vocation................ 12 13 13 15 15
Travel Service................. 1 1
------- ------- ------- ------- --------
Total........................ 12 13 13 16 16
Net enrollments (4)............ 6,855 7,121 6,701 6,532 10,400
</TABLE>
(1) See Note 9 of Notes to Consolidated Financial Statements for the basis of
presentation of earnings per share.
(2) Consists of long term debt and debt due to related party -- see Note 7 of
Notes to Consolidated Financial Statements.
(3) Includes only Schools open at December 31.
(4) "Net enrollments" are student enrollments net of cancellations prior to
commencement of the program. The table does not include data for the CPA
Review Courses. The table does include net enrollments for Schools sold or
closed during the year.
(The remainder of this page was left blank intentionally.)
Part II - Page 2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table presents the revenue for each category of School and
CPA Review Courses for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
(In thousands)
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Health Vocational and Computer Programs.. $38,819 $36,360 $31,169
CPA Review Courses....................... 1,278 2,914 3,572
Travel Service Program................... 291
------- ------- -------
Total.................................. $40,097 $39,274 $35,032
======= ======= =======
</TABLE>
The following table presents the relative percentage of revenues derived
from each category of School and CPA Review Courses and certain consolidated
statement of operations items as a percentage of total revenues for the periods
indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Health Vocational and Computer Programs.............. 96.8% 92.6% 89.0%
CPA Review Courses................................... 3.2 7.4 10.2
Travel Service Program............................... 0.8
----- ----- -----
Total............................................ 100.0 100.0 100.0
Operating expenses:
Payroll............................................ 45.1 45.1 45.0
Occupancy.......................................... 12.3 13.2 15.5
Material and supplies.............................. 8.8 9.3 9.4
Advertising........................................ 7.6 7.2 7.4
Other general and administrative................... 16.0 15.0 15.0
Provision for uncollectible accounts............... 8.1 4.0 5.2
----- ----- -----
Total............................................ 97.9 93.8 97.5
Operating income..................................... 2.1 6.2 2.5
Interest expense..................................... .9 1.7 3.1
----- ----- -----
Income (loss) before income taxes and gain on sales.. 1.2 4.5 (0.6)
Gain on sale of assets............................... .5
----- ----- -----
Income (loss) before income tax...................... 1.7 4.5 (0.6)
Provision (benefit) for income tax................... (.3) 0.5 (0.6)
----- ----- -----
Net income (loss).................................... 2.0% 4.0% (0.0)%
===== ===== =====
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 3
<PAGE>
CURRENT TRENDS AND RECENT EVENTS
On August 2, 1996 the Company sold the assets of Person/Wolinsky
Associates, which offered review courses for the CPA exam. In addition, the
Company sold the assets of the San Jose California School on August 30, 1996.
The Company realized a net gain of $190,000 before income taxes as a result of
the sales.
On January 31, 1997 the Company sold its Warren, Michigan building for
approximately $725,000 (the "Warren Sale"). Proceeds of $310,000 were paid to
CenCor for redemption of approximately 27,000 shares of Class A Preferred Stock
then held by CenCor and $45,000 of accumulated preferred dividends on the Class
A Preferred Stock. The Company realized a gain of $313,000 before income taxes
in 1997 as a result of the Warren Sale.
On February 25, 1997 the Company entered into the Cahill Transaction
whereby it issued Voting Preferred Stock, New Debentures, and Warrants to
Cahill-Warnock, a new investor, for an aggregate purchase price of $5,000,000.
Proceeds of $4,409,000 from the Cahill Transaction were used to redeem from
CenCor the principal and accrued interest of the Old Debenture, principal and
accrued interest of the Unsecured Debt, the Class A Preferred Stock, and the
related accumulated preferred dividends. See "Liquidity and Capital Resources."
Payroll cost is the Company's primary expense. As the Company continues to
strengthen its staff and increase program offerings in the future, especially
more technical programs, this expense will continue to increase. Beginning with
the fourth quarter of 1995 the Company instituted a plan to decrease its
reliance on Title IV funding. In addition to seeking alternative sources of
financing for its students, the Company's Schools began financing a larger
portion of student tuition with promissory notes. Management cannot predict the
factors, if any, that may change the present student loan lending climate for
the Company.
Each year from 1991 through 1993, total enrollment in the Schools declined.
In 1993, management announced it intended to sell or close any School that does
not fit its strategy to concentrate on programs in the field of allied health
education or has no future as a viable contributor to the Company. During 1994,
the Company closed its Health Vocation Schools at Van Nuys, California and
Minneapolis, Minnesota and sold the Travel Operations School in Santa Ana,
California. Even with these actions total student population increased in 1995
compared to 1994. The Schools in San Bernardino and San Diego, California moved
to more attractive locations in 1994. During 1996 the Company sold its School in
San Jose, California. Although the various Schools show an individual increase
or decrease in population, total population, excluding the San Jose School, was
down approximately one percent. Management of the Company currently believes
that it can maintain its profitability and cash position as long as there is no
disruption in the Company's participation in the Title IV student financial
assistance programs or other unanticipated set-backs. However, the Company
cannot predict the activities which may or may not occur in the uncertain
regulatory environment in which the proprietary vocational training School
industry operates. See Item 1, "Business -- Financing Student Education," and
"Business -- Regulation."
OPERATING RESULTS
1996 compared to 1995
Net income of the Company decreased $807,000 to $792,000 for the twelve
months ended December 31, 1996 compared to $1,599,000 for the same period in
1995. Net income available to common shareholders, after cumulative preferred
dividends (not declared) was $576,000 in 1996 compared to $1,351,000 in 1995.
Total revenue increased 2.1% or $823,000 to $40,097,000 from $39,274,000 in
1995. The Company did not receive any revenue from the Fall CPA Review Courses.
Revenue from the CPA Review Courses decreased $1,636,000 to $1,278,000 in 1996
compared to revenue of $2,914,000 in 1995. Revenue for the San Jose School
decreased $809,000 to $1,111,000 in 1996 from $1,920,000 in 1995. The assets of
the CPA Review Courses and the San Jose School were sold in 1996 (the "Asset
Sales"). Revenue from the twelve remaining schools increased $3,268,000 or 9.5%
as a result of price increases in May 1995 and January 1996.
Total operating expenses increased $2,419,000 or 6.6% to $39,254,000
compared to $36,835,000 in 1995. The Asset Sales resulted in a decrease of
$1,914,000 in operating expenses.
Part II - Page 4
<PAGE>
PAYROLL - increased $355,000 or 2.0% to $18,080,000 compared to $17,725,000
in 1995. Payroll decreased $984,000 as a result of the Asset Sales. The Schools'
payroll increased $1,339,000 or 8.5% from the prior year due to increased wages
and increased staff and faculty.
OCCUPANCY - decreased $249,000 or 4.8% to $4,948,000 from $5,197,000 in
1995. Occupancy decreased $350,000 due to the Asset Sales. The off-setting
increase of $101,000 is due primarily to increased rent expense.
MATERIAL AND SUPPLIES - decreased $106,000 or 2.9% to $3,531,000 compared
to $3,637,000 in 1995. Material and supplies decreased $350,000 due to the Asset
Sales while the Schools increased $244,000 or 8.4%. The Schools' increase is
primarily due to increased textbook expense.
ADVERTISING - increased $217,000 or 7.7% to $3,037,000 from $2,820,000 in
1995. The Asset Sales resulted in an advertising decrease of $98,000. The
Schools advertising increased $315,000 or 12.6%. Television and newspaper
advertising have both increased in 1996.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES - increased $546,000 or 9.3% to
$6,425,000 from $5,879,000 in 1995. The Asset Sales accounted for a $251,000
decrease. The resulting increase is due to increased group health insurance,
scholarships, office expense, local printing and seminar expense. In 1995 a one-
time charge of $282,000 was incurred at the Lauderdale Lakes, Florida School for
Title IV Refund liabilities.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS - increased $1,656,000 or 105.0% to
$3,233,000 from $1,577,000 in 1995. In the fourth quarter of 1995 a favorable
adjustment of $315,000 to the bad debt reserve was made as a result of favorable
litigation against the ED brought by other plaintiffs in this industry. The
remaining increase is due to additional financing provided by the Company's
Schools for their students since the fourth quarter of 1995. As a result, the
gross value of notes receivable increased $1,043,000 from the same period in
1995. The provision for bad debts also includes an increase of approximately
$559,000 due to a greater number of student promissory notes being collected by
the Schools instead of a professional note servicing agency. The Company's
recently adopted policy that all new student notes will be serviced by a
professional agency is expected to reduce future risk and required reserve
ratios. See discussion in "Liquidity and Resources".
INTEREST EXPENSE - decreased $288,000 to $371,000 from $659,000 in 1995.
Reductions in debt and the related expense were responsible for the decrease.
GAIN FROM SALE - The gain from the Person/Wolinsky sale was $283,000. The
loss from the sale of the San Jose School was $93,000 resulting in a net gain of
$190,000 from both sales. Both transactions were accounted for as sales of
assets.
PROVISION FOR INCOME TAXES - The Company recorded a tax benefit of $130,000
in 1996 compared to a provision of $181,000 in 1995. During 1996 the Company
reduced its valuation allowance related to deferred tax assets by $667,000 as it
became more likely than not the Company would realize the benefit of these
deferred tax assets.
WEIGHTED COMMON SHARES - Weighted average common and common share
equivalents outstanding increased to 7,839,000 at December 31, 1996 from
7,642,000 in 1995. This increase is due to the dilutive effect of the Company's
incentive stock option plan. Earnings per weighted average common and common
share equivalent (EPS) was $.07 in 1996 compared to $.18 in 1995. EPS is shown
net of preferred stock dividends (not declared) of $216,000 in 1996 and $248,000
in 1995. Cumulative dividends in arrears on the preferred stock were $438,000 as
of December 31, 1996.
1995 compared to 1994
Net income increased $1,605,000 to $1,599,000 for the twelve months ended
December 31, 1995 compared to a net loss of $6,000 in 1994. After considering
the cumulative preferred stock dividends (not declared) in 1995 the results
would be a net income available to common shareholders of $1,351,000 for the
year ended December 31, 1995. For a description of the Preferred Stock see "--
Liquidity and Capital Resources."
Total revenue increased 12.1% or $4,242,000, to $39,274,000 from
$35,032,000 in 1994.
Part II - Page 5
<PAGE>
The 1994 revenue includes $1,135,000 for three Schools closed or sold
during 1994. Revenue for the CPA Review Course decreased 18.4% or $658,000 in
1995 to $2,914,000 from $3,572,000 in 1994. This decrease is the result of a
non-recurring enrollment increase in the 1994 Spring session and downward market
conditions in 1995. Revenue from the 13 Schools increased 20.2% or $6,066,000 in
1995 as compared to 1994. This increase was the result of enrollment increases
coupled with a modest price increase.
Total operating expenses increased 7.8% or $2,662,000, to $36,835,000 in
1995 from $34,173,000 in 1994.
PAYROLL - Increased 12.5% or $1,966,000 to $17,725,000 in 1995 from
$15,759,000 in 1994. The Company has added additional staff as enrollments
increased. In addition, the Company continues to upgrade the quality of the
staff and faculty.
OCCUPANCY - Decreased 4.4% or $237,000 to $5,197,000 in 1995 from
$5,434,000 in 1994. The decrease is primarily due to the closing and sale of
three Schools during 1994.
MATERIALS AND SUPPLIES - Increased 10.4% or $342,000 to $3,637,000 in 1995
from $3,295,000 in 1994. Textbook expense has increased as curriculum is
continually updated and improved.
ADVERTISING - Increased 7.7% or $202,000 to $2,820,000 in 1995 from
$2,618,000 in 1994. The increase is primarily due to increased advertising, not
the mix or cost of advertising.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES - Increased 11.8% or $620,000 to
$5,879,000 in 1995 from $5,259,000 in 1994. A $249,000 loss due to the
revaluation of assets relating to the closing of the Minnesota School was
incurred in 1994. A provision of $282,000 was established in the first quarter
of 1995 when the Company was informed that its Lauderdale Lakes, Florida School
will be required to refund Title IV funds to government agencies. Those funds
had been previously disbursed to the School's students. In the fourth quarter of
1995 the Company reevaluated the carrying amount of the intangibles for its San
Jose, California school, resulting in additional amortization expense of $95,000
in 1995. Group health insurance increased $247,000 due to increased Company
contribution to the Health Care Plan. Outside services increased $326,000 as the
Company increased its utilization of an outside servicer for Default Management.
In addition, decreases in professional fees were somewhat offset by increased
office and general corporate expense.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS - Decreased 12.8% or $231,000 to
$1,577,000 from $1,808,000 in 1994. In the fourth quarter of 1995 a favorable
adjustment of $315,000 to the bad debt reserve was made as a result of favorable
litigation against the ED brought by other plaintiffs in this industry. This
adjustment reverses reserves established during 1994 relating to refund
calculation made during 1994. The 1994 provision was favorably impacted by the
recovery of approximately $495,000 of previously written off accounts. See
"-- Liquidity and Capital Resources."
INTEREST EXPENSE - Decreased 38.1% or $406,000 to $659,000 in 1995 from
$1,065,000 in 1994. This decrease is due to the reduction in debt and the
related debt expense. Debt was reduced in part by conversion of $3,000,000 debt
to equity in 1994. See "-- Liquidity and Capital Resources."
PROVISION FOR INCOME TAXES - The Company recorded a tax provision of
$181,000 in 1995 as compared to a tax benefit of $200,000 in 1994. During 1995,
the Company reduced the valuation allowance related to deferred tax assets by
$360,000. A valuation allowance of $667,000 remains against the portion of
deferred tax assets that, using a more likely than not criteria, may not be
realizable.
1994 compared to 1993
The Company incurred a net loss of $6,000 for 1994 compared to a net income
of $413,000 in 1993. After considering the cumulative preferred stock dividends
(not declared), in 1994 the results would be a net loss to common shareholders
of $36,000 for the year ended December 31, 1994.
Part II - Page 6
<PAGE>
Total revenue increased by 0.7 percent, or $251,000, to $35,032,000 in 1994
from $34,781,000 in 1993. The closure of two Schools and the sale of a third
School during 1994 resulted in a decrease in revenues of $2,165,000. Revenue for
the CPA Review Course increased 5.8% or $196,000 to $3,572,000 in 1994 from
$3,376,000 in 1993. This increase was a result of a non-recurring enrollment
increase in the Spring session. Revenue from the remaining 13 Schools increased
8.2% or $2,220,000 in 1994 as compared to 1993. This increase was a result of
increased enrollments. The three Schools closed or sold in 1994 had a combined
operating loss before corporate allocations of $1,009,000.
Total operating expenses increased 3.3% or $1,077,000, to $34,173,000 in
1994 from $33,066,000 in 1993.
PAYROLL - Decreased 0.9% or $136,000 to $15,759,000 in 1994 from
$15,895,000 in 1993. Decreased payroll expenses from the closure of two Schools
and the sale of a third School were offset by increasing costs as the Company
continued to upgrade the quality of the staff and faculty.
OCCUPANCY - Increased 23.5% or $1,034,000 to $5,434,000 in 1994 as compared
to $4,400,000 in 1993. The principal reason for this change relates to a credit
in 1993. Four Schools were closed during 1992 and the Company recognized
approximately $1,051,000 of future lease costs. During 1993 a credit to expenses
of approximately $970,000 was recorded when settlement was made for these leases
for less than the amount accrued. In December 1993, an expense of $150,000 was
recognized to revalue fixed assets based on the sale of assets of the Travel
Operations School.
MATERIALS AND SUPPLIES - Increased by 28.2% or $725,000 to $3,295,000 in
1994 from $2,570,000 in 1993. A non recurring credit of $349,000 was taken in
1993. Also textbooks expense has increased as curriculum has been updated and
improved. Uniform expense increased in 1994 due to additional uniforms being
provided to students.
ADVERTISING - Decreased 7.9% or $224,000 to $2,618,000 in 1994 as compared
to $2,842,000 in 1993. This decrease is directly attributable to the closing of
two Schools and the sale of a third School.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES - Increased 34.7% or $1,354,000
to $5,259,000 in 1994 as compared to $3,905,000 in 1993. In 1993 a one time
reduction of $500,000 was taken in accrued legal and accounting fees. Also a
$249,000 loss due to the revaluation of assets relating to the closing of the
Minnesota School was incurred in 1994. The Company participates in a the
Supplemental Educational Opportunity Grant ("SEOG") and the Federal Perkins Loan
programs in which it matches a portion of the awarded amount. Due to a change in
the timing and matching percentage an additional expense of $157,000 was
recognized in 1994. Increases in equipment repair and maintenance, employee
procurement expense, and dues and subscriptions accounted for much of the
remaining increase.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS - Decreased by 47.7% or $1,646,000 to
$1,808,000 in 1994 from $3,454,000 in 1993. The reason for this decrease was
that during 1992 the Company financed a substantial portion of student tuition
through promissory notes because many of its schools were without loan lending
banks for much of the year. The losses relating to these notes were generally
recognized in 1992 but continued into 1993. Improved collection efforts, higher
admission standards, and availability of lenders during 1993 and 1994 led to the
reduction in the provision.
INTEREST EXPENSE - Decreased by 7.6% or $87,000 to $1,065,000 in 1994 from
$1,152,000 in 1993. This decrease is due to the reduction in debt and the
related interest expense.
PROVISION FOR INCOME TAXES - The Company recorded a tax benefit in 1994 of
$200,000. This benefit is a result of evaluating the Company's needs as it
relates to provision for assessment of taxes.
(The remainder of this page was left blank intentionally.)
Part II - Page 7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Asset Sales
On August 2, 1996 the assets of Person/Wolinsky Associates, a wholly owned
subsidiary of the Company, were sold. As a result of the sale the Company
received proceeds of $879,000. In addition, a $750,000 non-compete agreement is
payable to the Company in ten equal annual installments commencing December 15,
1996. On December 17, 1996 the Company received the first $75,000 non-compete
payment in connection with the sale of Person/Wolinsky assets.
On August 30, 1996 the Company sold the assets of its Allied Health School
located in San Jose, California. The Company received proceeds of $50,000 and a
$300,000 promissory note due and paid on February 28, 1997 for the School's
assets.
CenCor, which agreed to release its security interest in the
Person/Wolinsky and San Jose assets and consented to such sales, received
approximately $378,000 from the sales and $75,000 from the non-compete payment
in the form of redemption of approximately 40,000 shares of Class A Preferred
Stock and $56,000 of accumulated dividends as a result of these transactions.
On January 31, 1997 the Company sold its Michigan building and land for
$725,000. Proceeds of $310,000 from the sale were used to redeem 26,568 shares
of Class A Preferred Stock held by CenCor and $45,000 of accumulated dividends.
CenCor, Inc. Agreement
The Restructuring Agreement discussed below was effective for the period
between October 30, 1992 and February 25, 1997.
Effective October 30, 1992, the Company and CenCor, Inc. ("CenCor") entered
into a Restructuring, Security and Guaranty Agreement ("Restructuring
Agreement") pursuant to which the Company was released from its obligations
relating to assumed subordinated indebtedness issued by CenCor. As consideration
for the release, the Company issued to CenCor the Old Debenture in the original
principal amount of $5,422,307, representing the full principal amount of the
assumed subordinated debt and accrued interest through October 30, 1992.
Interest on the Old Debenture accrued from October 30, 1992. The first principal
and interest payment was made June 30, 1996. In addition to compounded quarterly
interest, initially at 1% over the effective rate charged by the Company's bank
lender, at August 31, 1997 CenCor was entitled to an amount equal to 25% of the
amount by which the "market capitalization" of the Company exceeds $3,500,000
("Additional Payment").
In December 1993, the Restructuring Agreement was amended to provide for
the assignment by the Company to CenCor of approximately $8,400,000 of accounts
and notes receivable written-off by the Company in the normal course of business
and thereby discharged $559,000 of interest that had accrued on the Old
Debenture through December 31, 1993.
In November 1994, CenCor exchanged $3,000,000 face value of the Debenture
for 300,000 shares of Class A Preferred Stock of the Company (the "Class A
Preferred Stock"). The Class A Preferred Stock, had a share liquidation
preference of $10.00 per share. Cumulative quarterly dividends accrued at a rate
equal to 73% of the then current interest rate on the Old Debenture. The
exchange reduced the long-term debt and increased the equity of the Company by
$3,000,000. The Company also assigned to CenCor additional accounts and notes
receivable with a face value of approximately $15,000,000 that had been written-
off by the Company in the normal course of business and included the discharge
of approximately $495,000 of interest representing interest accrued on the Old
Debenture through December 31, 1994. Management believed at that time that the
amount of receivables assigned to CenCor in 1994 and 1993 were reflective of the
estimated collectibility of the related receivables.
On December 30, 1996 CenCor, Inc. and the Company amended the Restructuring
Agreement (the "Fourth Amendment"). The Fourth Amendment extended the due date
of the Old Debenture and Unsecured Debt to January 1, 1998, increased quarterly
principal payments approximately $30,000 to $100,000 and waived the capital
expenditures limitations with respect to the Company's North Hollywood,
California lease. Contingent upon the successful closing of refinancing
agreements, the Fourth Amendment also reduced the Additional Payment to $10 and
provided for terms and allocation of the CenCor Repayment. In addition, the
Company agreed to pay CenCor $1,333 per day for the number of days the closing
date extends beyond December 20, 1996.
Part II - Page 8
<PAGE>
As a result of the Cahill Transaction entered into on February 25, 1997,
discussed below, all obligations due CenCor were paid, redeemed, or otherwise
satisfied on that date, except for a continuing obligation to convey written-off
receivables in connection with interest discharged in the 1993 and 1994
agreements. As of December 31, 1996 the remaining commitment was $382,000.
Cahill, Warnock Transactions
On February 25, 1997, the Company entered into agreements, which soon
thereafter closed, with Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P., affiliated Baltimore-based venture capital funds
("Cahill-Warnock"), for the issuance by the Company and purchase by Cahill-
Warnock of (i) 55,147 shares of the Company's new Class B Voting Convertible
Preferred Stock ("Voting Preferred Stock") for $1.5 million and (ii) 5%
Debentures due 2003 ("New Debentures") for $3.5 million (collectively, the
"Cahill Transaction"). Cahill-Warnock subsequently assigned (with the Company's
consent) its rights and obligations to acquire 1,838 shares of Voting Preferred
Stock to James Seward, a Director of the Company, and Mr. Seward purchased such
shares for their purchase price of approximately $50,000. The New Debentures
have nondetachable warrants ("Warrants") for approximately 2,573,529 shares of
Common Stock, exercisable beginning August 25, 1998 at an exercise price of
$1.36 per share of Common Stock. See "Business -- Recent Developments."
The following presents the capitalization of the Company as it existed at
December 31, 1996 adjusted to reflect the unaudited pro forma effect of the
Refinancing and associated transactions as if these transactions occurred on
December 31, 1996:
<TABLE>
<CAPTION>
DEBT Historical Adjustment Pro Forma
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Current debt due related party............................... $ 400,000 $ (400,000)
Subordinated debt due related party.......................... 2,419,000 (2,419,000)
Debentures, 5%, due 2003..................................... 3,500,000 $ 3,500,000
----------- -----------
Total debt............................................... $ 2,819,000 $ 3,500,000
=========== ===========
STOCKHOLDERS' EQUITY
Preferred Stock ($.10 par value, 600,000 shares authorized)
Class A, 260,385 shares issued and outstanding............. $ 26,000 $ (26,000)
Class B, 55,147 shares issued and outstanding.............. 6,000 $ 6,000
Common Stock ($.10 par value, 19,400,000 shares authorized,
6,993,376 shares issued and 6,966,576 shares outstanding).. 699,000 699,000
Capital in excess of par..................................... 7,736,000 134,000 7,870,000
Accumulated deficit.......................................... (1,385,000) (438,000)* (1,823,000)
Less treasury stock, 26,800 shares, at cost.................. (61,000) (61,000)
----------- -----------
Total Stockholder's Equity................................. $ 7,015,000 $ 6,691,000
=========== ===========
</TABLE>
*Accumulated Preferred Stock dividends paid.
Bank Financing
On April 30, 1993, the Company negotiated a restructuring of its then
existing bank debt in the amount of $8,892,000 which was due on March 1, 1993 .
The balance of this debt was $1,343,000 on December 31, 1995. The remaining
balance, due January 3, 1997, was prepaid without penalty June 1, 1996. In
conjunction with the Refinancing, the Company negotiated a $3,000,000 secured
revolving credit facility on March 13, 1997 with Security Bank of Kansas City.
Funds borrowed under this facility will be used for working capital purposes.
This facility has a variable interest rate of prime plus one percent, and no
commitment fee. It is secured by all cash, accounts and notes receivable,
furniture and equipment, and capital stock of the subsidiaries.
Part II - Page 9
<PAGE>
Cash Flows and Other
Net cash provided by operating activities decreased to $2,588,000 in 1996
from $5,842,000 in 1995. The decreased cash flow is directly attributed to less
profitable operations and increased receivables. Net receivables before bad debt
charge off increased by $3,150,000 in 1996 compared to an increase of $948,000
in 1995. Deferred student tuition increased in 1996 by $1,324,000 compared to an
increase of $842,000 in 1995.
Capital expenditures in 1996 were $547,000 compared to $558,000 in 1995.
For both years, expenditures were primarily for additional classroom equipment
and leasehold improvements. During 1996 and 1995 the Company obtained waivers of
debt agreement covenants which had limited capital expenditures to $500,000 per
year. The Company received approximately $929,000 from the sale of the San Jose,
California School and Person/Wolinsky assets. Financing activities, consisting
of debt payments and preferred stock redemptions consumed $2,004,000 in 1996
compared to $3,171,000 in 1995.
The Company is moving its North Hollywood, California School to a new
location in 1997. A lease agreement has been signed. The new building will
provide better access and additional space for new programs. Leasehold
improvements and new equipment will cost approximately $850,000.
During 1991 and 1992 the Company financed a substantial portion of student
tuition through promissory notes when many of its Schools were without student
lending banks for Title IV loans. During and since 1993, the Company had lending
banks or lender of last resort access for all its Schools. As a result, bad debt
expense had been substantially reduced, and the ratio of current to long-term,
net accounts and notes receivable had improved from 81% in 1993 to 91% in 1994.
During the fourth quarter of 1995 the Company instituted a plan to decrease its
reliance on Title IV funding by increasing the number of promissory notes
accepted from students. During 1996 the Company instituted a policy which
results in most students paying a portion of their tuition while they attend
school. As a result the ratio of current to long-term net accounts and notes
receivable increased to 92%. As the Company continues to decrease its reliance
on Title IV funding the provision for bad debt expense may increase and cash
from operations may be temporarily reduced. The Company's recently adopted
policy that all new students notes will be services by a professional agency is
expected to help reduce the effects. See " -- Current Trends and Recent Events."
CONTINGENCIES
The Company generally relies on the availability of various federal and
state student financial aid programs to provide funding for the students
attending the Schools. The Company also relies on the availability of lending
institutions willing to participate in these programs and to grant loans to
these students. If the Schools would be limited, suspended or terminated from
participation in the federal or state student financial aid programs, or if
lending institutions withdrew access to student loans, the Company's continuing
operations would be in doubt.
During 1994 the ED performed a program review at the Company's
Jacksonville, Florida School. As a result of the program review, the ED reported
a preliminary finding of differences between the academic program of study as
listed in the School's catalog and the programs of study actually provided to
students. The program review was closed in June 1996 with no material liability
to the Company.
During July 1993, former students of the Jacksonville, Florida School filed
lawsuits against the school, alleging deceptive trade practices, breach of
contract, and fraud and misrepresentation. (See Item 3, "Legal Proceedings.")
Two of the Company's Schools, Anaheim and San Diego, California, have
official published Cohort Default Rates which exceed 25% for three consecutive
years. In addition, the San Bernardino, California School has official published
Cohort Default Rates for two consecutive years which exceed 25% and a
preliminary 1994 Cohort Default Rate which exceeds 25%. Currently San Bernardino
has not received a final 1994 Cohort Default Rate, however the Company believes
it will exceed 25%. The Company believes that the 1994 Cohort Default Rates for
the three Schools should be lowered below 25% through appeals, but it is
possible that the ED will not agree. All three Schools could be in jeopardy of
loss of loan eligibility if the Cohort Default Rates for one of the three
consecutive years is not lowered, but in that event the Company may challenge
the ED's rate determinations in the pending litigation filed in late 1992.
Part II - Page 10
<PAGE>
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate FFELP eligibility. If any of the
Schools loses its eligibility to participate in Federal Loan Programs, the
continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and will evaluate alternatives to mitigate the
effect on any School of the loss of its eligibility to participate in loan
programs. Among the options available to the Company, one option would be to
restructure the School to use grant funding and alternative third party
financing. This action, if necessary, would be expected to result in a short-
term decline in enrollment and profitability during the period of transition.
In 1994, ED established a policy of recertifying all schools participating
in Title IV programs every five years. The Company recently completed the
process of recertifying the Schools. Full certification has been approved for
Anaheim, North Hollywood, San Bernardino and San Diego, California, Kansas City,
Missouri, Portland, Oregon, Memphis, Tennessee, Tampa, and Miami, Florida (Miami
is an additional location of the Tampa School). Denver, Colorado, Jacksonville
and Lauderdale Lakes, Florida have received provisional certification.
Provisional certification limits the School's ability to add programs and change
the level of educational award. In addition, the School forfeits its right to
due process under ED guidelines. The provisional certifications expire in 1998,
at which time the Schools will again go through the process of reaccreditation.
The Company does not believe provisional certification will have a material
impact on its liquidity, results of operations or financial position.
On May 31, 1990, the Company, through a wholly-owned subsidiary, Concorde
Career Institute, Inc., a Florida corporation, acquired substantially all the
assets of Southern Career Institute, Inc. ("SCI"), a proprietary, postsecondary
vocational home-study school specializing in paralegal education, for a total
investment of $5,383,000. The acquisition was accounted for as a purchase and
after the acquisition the school was operated as Southern Career Institute.
In 1991, an accrediting commission failed to reaffirm accreditation of SCI
under the ownership of Concorde Career Institute, Inc. Also in 1991, SCI
received notice from the ED alleging that commencing June 1, 1990 SCI was
ineligible to participate in federal student financial assistance programs. The
ED gave notice that it intends to require SCI to repay all student financial
assistance funds disbursed from June 1, 1990 to November 7, 1990, the effective
date upon which the ED's discontinued disbursing student financial assistance
funds. The amount being claimed by ED is not determinable, but the total of the
amounts shown on six separate notices dated January 13, 1994 is approximately
$2.7 million. By letter dated February 24, 1994, counsel for SCI provided
certain information to the collection agency for ED and offered to settle all
claims of ED for the $9,828 on deposit in the SCI bank account. In December
1996, the Company was informed verbally that the matter had been referred to the
ED's General Counsel.
Because management of SCI had determined in late 1991 to wind down SCI's
operations and discontinue its business, SCI entered into a transaction with an
entity created by the former owner of Southern Career Institute, Inc. as the
purchaser. The purchaser acquired SCI's tuition receivables and agreed to
"teach-out" the then enrolled students, but did not assume any obligations to
ED. The purchaser also agreed to pay SCI a portion of amounts it realized on
collections of the tuition receivables in excess of its operating costs. In
December 1996, the Company was advised verbally that this matter has been
referred to the ED's General Counsel.
In light of applicable corporate law which limits the liability of
stockholders and the manner in which SCI was operated by Concorde Career
Institute, Inc. as a subsidiary of the Company, it is the opinion of management
of the Company that the Company will not be liable for debts of SCI. Therefore,
if SCI is required to pay the ED's claims it is the opinion of management it
will not have a material adverse impact on the Company's financial condition or
its results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121") effective January 1, 1996. SFAS 121 established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill, as well as for long-lived assets and
certain identifiable intangibles which are to be disposed. Under SFAS 121,
events or changes in circumstances of a long-lived asset indicate that the
carrying amount of an asset may not be recoverable, the Company must estimate
the future cash flows expected to result from the use of the asset and its
eventual disposition; if the sum of the expected future cash flows (undiscounted
and without interest) is lower than the carrying amount of the asset, an
impairment loss must be recognized to the extent that the carrying amount of the
asset exceeds its fair value. The adoption of SFAS 121 did not have a material
impact on the Company's results of operations or financial position.
Part II - Page 11
<PAGE>
Statement 123, "Accounting for Stock-Based Compensation" ("SFAS 123") was
issued in October 1995. SFAS 123 allows companies to continue under the current
approach set forth in Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25") for recognizing stock-based expense in the
financial statements, but encourages companies to adopt the new accounting
method based on the estimated fair value of employee stock options. The Company
elected to retain the current accounting approach under APB 25. The applicable
required pro forma disclosures are presented in the notes to consolidated
financial statements for the years ended December 31, 1996 and December 31,
1995. Had compensation expense been determined for stock options granted in 1996
and 1995 based on the fair value at grant dates consistent with SFAS 123, the
Company's pro forma 1996 net income and earnings per share would have been
$735,000 and $0.06 respectively and 1995 net income and earnings per share would
have been $1,568,000 and $0.17 respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----
Concorde Career Colleges, Inc. and Subsidiaries:
Report of Independent Accountants....................................... II-13
Consolidated Balance Sheet--December 31, 1996 and 1995.................. II-14
Consolidated Statement of Operations--For the Three Years in the
Period Ended December 31, 1996........................................ II-16
Consolidated Statement of Cash Flows--For the Three Years in the
Period Ended December 31, 1996........................................ II-17
Consolidated Statement of Changes In Stockholders' Equity--For the
Three Years in the Period Ended December 31, 1996..................... II-18
Notes to Consolidated Financial Statements--For the Three Years in the
Period Ended December 31, 1996........................................ II-19
(The remainder of this page was left blank intentionally.)
Part II - Page 12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Concorde Career Colleges, Inc., and Subsidiaries:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Concorde Career Colleges, Inc. and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 13, 1997
(The remainder of this page was left blank intentionally.)
Part II - Page 13
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................. $ 4,261,000 $ 3,295,000
Net receivables (Note 4)
Accounts receivable................... 16,756,000 17,055,000
Notes receivable...................... 4,392,000 3,188,000
Allowance for uncollectible accounts.. (1,645,000) (1,394,000)
----------- -----------
19,503,000 18,849,000
Deferred income taxes (Note 8)............. 916,000 170,000
Supplies and prepaid expenses.............. 732,000 914,000
----------- -----------
Total current assets........... 25,412,000 23,228,000
FIXED ASSETS, NET (Note 5)..................... 2,539,000 3,220,000
INTANGIBLE ASSETS, NET (Note 3)................. 768,000 1,847,000
OTHER ASSETS: (Note 4)
Long-term notes receivable............ 3,001,000 3,204,000
Allowance for uncollectible notes..... (1,243,000) (709,000)
Other................................. 390,000 30,000
----------- -----------
Total other assets........... 2,148,000 2,525,000
----------- -----------
$30,867,000 $30,820,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 14
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
------------ ------------
CURRENT LIABILITIES:
<S> <C> <C>
Deferred student tuition.......................................................... $16,572,000 $15,248,000
Current debt due related party (Note 7).......................................... 400,000 215,000
Accrued salaries and wages........................................................ 862,000 951,000
Accrued interest.................................................................. 12,000
Current income taxes payable...................................................... 439,000 471,000
Accounts payable and other accrued liabilities (Note 6)........................... 2,731,000 2,413,000
----------- -----------
Total current liabilities...................................................... 21,004,000 19,310,000
LONG TERM DEBT (Note 7)............................................................ 1,343,000
OTHER LONG-TERM LIABILITIES........................................................ 80,000
DEFERRED INCOME TAXES (Note 8)..................................................... 429,000 690,000
SUBORDINATED DEBT DUE TO RELATED PARTY (Note 7).................................... 2,419,000 2,723,000
COMMITMENTS AND CONTINGENCIES (NOTES 5, 7, 9, and 10)
STOCKHOLDERS' EQUITY (Notes 7 and 9):
Class A Preferred stock, $.10 par value, 600,000 shares authorized
260,385 shares issued and outstanding in 1996 (300,000 in 1995).................. 26,000 30,000
Common stock, $.10 par value, 19,400,000 shares authorized,
6,993,376 shares issued and 6,966,576 shares outstanding
in 1996 (6,978,976 shares issued and 6,952,176 shares
outstanding in 1995)............................................................. 699,000 698,000
Capital in excess of par......................................................... 7,736,000 8,128,000
Accumulated deficit.............................................................. (1,385,000) (2,121,000)
Less-treasury stock, 26,800 shares, at cost...................................... (61,000) (61,000)
----------- -----------
Total stockholders' equity..................................................... 7,015,000 6,674,000
----------- -----------
$30,867,000 $30,820,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 15
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
STUDENT TUITION AND OTHER REVENUE (Note 2)........... $40,097,000 $39,274,000 $35,032,000
----------- ----------- -----------
OPERATING EXPENSES:
Payroll costs...................................... 18,080,000 17,725,000 15,759,000
Occupancy (Note 5)................................. 4,948,000 5,197,000 5,434,000
Instructional materials and supplies............... 3,531,000 3,637,000 3,295,000
Advertising........................................ 3,037,000 2,820,000 2,618,000
Other general and administrative................... 6,425,000 5,879,000 5,259,000
Provision for uncollectible accounts............... 3,233,000 1,577,000 1,808,000
----------- ----------- -----------
39,254,000 36,835,000 34,173,000
----------- ----------- -----------
OPERATING INCOME..................................... 843,000 2,439,000 859,000
INTEREST EXPENSE (Note 7)........................... 371,000 659,000 1,065,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND GAIN ON SALES.. 472,000 1,780,000 (206,000)
GAIN ON SALE OF ASSETS (Note 1)...................... 190,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.................... 662,000 1,780,000 (206,000)
PROVISION FOR (BENEFIT OF) INCOME TAXES (Note 8)..... (130,000) 181,000 (200,000)
----------- ----------- -----------
NET INCOME (LOSS).................................... $ 792,000 $ 1,599,000 $ (6,000)
=========== =========== ===========
EARNINGS (LOSS) PER WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARE AVAILABLE TO
COMMON SHAREHOLDERS (Note 9)....................... $ .07 $ .18 $ (.00)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 16
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES:
Net income (loss)......................................... $ 792,000 $ 1,599,000 $ (6,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Gain on sale of assets.................................... (190,000)
Depreciation and amortization............................. 1,306,000 1,410,000 1,299,000
Provision for uncollectible accounts...................... 3,233,000 1,577,000 1,808,000
Deferred income taxes..................................... (1,007,000) (643,000) (114,000)
Change in assets and liabilities, net of effects
from asset sales --
Decrease in refundable income taxes....................... 151,000 252,000
(Increase) in receivables, net............................ (3,150,000) (948,000) (3,838,000)
Increase in deferred student tuition...................... 1,324,000 842,000 2,604,000
Other changes in assets and liabilities, net.............. 312,000 1,383,000 (155,000)
Decrease (Increase) in income taxes payable............... (32,000) 471,000
----------- ----------- -----------
Total adjustments..................................... 1,796,000 4,243,000 1,856,000
----------- ----------- -----------
Net operating activities.............................. 2,588,000 5,842,000 1,850,000
----------- ----------- -----------
CASH FLOWS -- INVESTING ACTIVITIES:
Proceeds from sale of assets.............................. 929,000 59,000
Capital expenditures...................................... (547,000) (558,000) (331,000)
----------- ----------- -----------
Net investing activities.............................. 382,000 (558,000) (272,000)
----------- ----------- -----------
CASH FLOWS -- FINANCING ACTIVITIES:
Principal payments on debt................................ (1,552,000) (3,171,000) (2,059,000)
Preferred stock redemption................................ (452,000)
----------- ----------- -----------
Net financing activities.............................. (2,004,000) (3,171,000) (2,059,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS.......... 966,000 2,113,000 (481,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 3,295,000 1,182,000 1,663,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,261,000 $ 3,295,000 $ 1,182,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 1)
CASH PAID DURING THE YEAR FOR:
Interest.................................................. $ 230,000 $ 297,000 $ 493,000
Income taxes.............................................. 901,000 189,000 337,000
CASH RECEIVED DURING THE YEAR FOR:
Interest.................................................. $ 427,000 $ 331,000 $ 423,000
Income tax refunds........................................ 434,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 17
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Capital
Preferred Common in Excess Accumulated Treasury
Stock Stock of Par Deficit Stock
--------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.................... $ $698,000 $5,158,000 $(3,714,000) $(61,000)
Preferred stock issued...................... 30,000 2,970,000
Net loss.................................... (6,000)
------- -------- ---------- ----------- --------
BALANCE, December 31, 1994.................... 30,000 698,000 8,128,000 (3,720,000) (61,000)
Net income.................................. 1,599,000
------- -------- ---------- ----------- --------
BALANCE, December 31, 1995.................... 30,000 698,000 8,128,000 (2,121,000) (61,000)
Net Income.................................. 792,000
Preferred Stock Redemptions (Note 7)........ (4,000) (392,000) (56,000)
Stock Options Exercised..................... 1,000
------- -------- ---------- ----------- --------
BALANCE, December 31, 1996.................... $26,000 $699,000 $7,736,000 $(1,385,000) $(61,000)
======= ======== ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(The remainder of this page was left blank intentionally.)
Part II - Page 18
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND TRANSACTIONS WITH CENCOR, INC.:
Basis of Presentation
Concorde Career Colleges, Inc. ("Concorde") and Subsidiaries (the
"Company") owns and operates proprietary, post-secondary schools which offer
career training designed to provide primarily entry-level skills readily needed
in certain of the major service industries. The Company's schools offer
vocational training programs primarily in the allied health field in six states,
California, Colorado, Florida, Missouri, Oregon, and Tennessee (the "Schools").
The Company also offered review courses for the Certified Public Accountants
("CPA") Examination which accounted for 3.2%, 7.4%, and 10.2% of the Company's
revenues for the year ended December 31, 1996, 1995, and 1994, respectively.
Prior to March 31, 1988, the Company was a division of CenCor, Inc. ("CenCor").
Assets acquired from CenCor and liabilities assumed were reflected at the
predecessor division's historical cost.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Concorde and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Transactions with CenCor, Inc.
The Chairman of the Company is also the Chairman of CenCor. As a result of
a refinancing on February 25, 1997, the Company paid approximately $4,409,000 to
CenCor. This payment satisfied all debts and obligations owned by the Company to
CenCor except for a continuing obligation to convey "written-off" receivables
(see Note 7.)
As part of the capitalization of Concorde, CenCor allocated $6,500,000 of
its subordinated notes to Concorde. On October 30, 1992, the Company issued
CenCor a junior subordinated debenture (the "Old Debenture") in the principal
amount of $5,422,000 in consideration for the Company's release from all
obligations under the subordinated notes, representing the principal amount of
the assumed notes plus accrued interest. Effective November 15, 1994 CenCor
exchanged $3,000,000 face value of the Old Debenture for 300,000 shares of
Cumulative Preferred Stock (the "Class A Preferred Stock"). Pursuant to 1993 and
1994 amendments to the Old Debenture, Concorde agreed to pay accrued interest on
the note through December 31, 1994, by conveying certain receivables to CenCor
(Note 7).
The Company under an agreement effective October 1995 subleases space to
CenCor. The agreement expires October 1998. The Company and CenCor do not
allocate charges to each other, otherwise share expenses, or have balances owing
to each other except debt balances as stated in Note 7.
Person/Wolinsky Associates, Inc., Concorde's subsidiary which offered CPA
review courses, financed a portion of its student tuition through Century
Acceptance Corporation ("Century"), which was a wholly owned subsidiary of
CenCor. Person/Wolinsky guaranteed repayment of the loans in the event of
default. During 1995 and 1994 Person/Wolinsky paid approximately $14,000 and
$17,500, respectively, on such guarantees. No payments were made in 1996. This
agreement was terminated in June 1995, when CenCor sold Century.
Part II - Page 19
<PAGE>
Non Cash Investing and Financing
Pursuant to a December 1993 amendment to the CenCor note indenture, the
Company assigned to CenCor approximately $8,400,000 of accounts and notes
receivable, all of which had been charged off by the Company in the normal
course of business, and thereby discharged all interest accrued of approximately
$559,000 on the Old Debentures through December 31, 1993.
Effective November 15, 1994 CenCor exchanged $3,000,000 face value of the
Old Debenture for 300,000 shares of the Class A Preferred Stock. In addition,
the Company assigned to CenCor additional accounts and notes receivable with a
face value of approximately $15,000,000 that had been charged-off by the Company
in the normal course of business. This assignment was on terms and conditions
similar to those set forth in the December 31, 1993 amendment, and discharged
approximately $495,000 of interest, which represented the amount of interest
accrued through December 31, 1994. (Note 7)
Asset Dispositions
During 1994 the Company closed two of its Schools and sold a third School.
On August 2, 1996 the Company sold the assets of Person/Wolinsky
Associates. As a result of the sale the Company received proceeds of $879,000.
The gain from the sale was $283,000. Proceeds of $353,000 were paid to CenCor
for redemption of 31,000 shares of Class A Preferred Stock and $43,000 of
accumulated Class A Preferred Stock dividends. In addition, a $750,000 non-
compete agreement is payable to the Company in ten equal annual installments
commencing December 15, 1996. The first $75,000 payment was received in December
1996. The present value of the remaining balance is included in other long term
assets.
On August 30, 1996 the Company sold the assets of its San Jose, California
School. The Company received $50,000 cash and a promissory note that was due and
paid on February 28, 1997 for $300,000 which is included in accounts receivable
at December 31, 1996. The loss on the sale was $93,000. Proceeds of $25,000 were
paid to CenCor for redemption of 2,000 shares of Class A Preferred Stock and
$3,000 of accumulated dividends on the Class A Preferred Stock.
On January 31, 1997 the Company sold its Warren, Michigan building for
approximately $725,000 (the "Warren Sale"). Proceeds of $310,000 were paid to
CenCor for redemption of approximately 27,000 shares of Class A Preferred Stock
then held by CenCor and $45,000 of accumulated preferred dividends on the Class
A Preferred Stock. The Company realized a gain of $313,000 before income taxes
in 1997 as a result of the Warren Sale.
2. SUMMARY OF ACCOUNTING POLICIES:
Recognition of Revenue
Most students enrolled at schools, subject to curriculum accreditation,
utilize state and federal government grants and/or guaranteed student loan
programs to finance their tuition. During 1996 management estimates that 82
percent of its cash receipts were derived from funds obtained by students
through Title IV programs and 18 percent were derived from state sponsored
student financial aid programs and cash received from students and other
sources.
A portion of tuition income of the career training schools is recognized in
the month a student begins attending classes, in order to offset the costs
incurred in obtaining new students. The remaining tuition income is deferred and
recognized over the term of the program.
The Company charges earnings for the amount of estimated uncollectible
accounts based upon current collection trends. However, unpaid balances are
charged off no later than 180 days after the student withdraws or graduates from
the School and/or ceases to make payments. Internal collection efforts, as well
as outside professional services, are used to pursue collection of delinquent
accounts. Most accounts that are charged off are conveyed to CenCor as
substitutes for accounts previously assigned under terms of Agreement dated
December 1993 and November 1994 (see Note 7).
All student recruitment and advertising costs are expensed as incurred.
Part II - Page 20
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents are those items with a maturity of three months
or less. Generally cash equivalents are represented by money market funds or
treasury bills which are carried at cost, which approximates fair value, on the
Company's balance sheet.
Receivables and Notes Receivables
During and since 1993 the Company had lending institutions or lenders of
last resort access at all of its Schools. The Company continues to finance a
portion of certain students' tuition not covered by student financial aid
programs. Prior to 1996 promissory notes issued by the Schools for student
tuition were generally due over 60 months, most bearing interest of 7 to 12
percent, with payments generally scheduled to commence 30 days after program
completion. Beginning in 1996, promissory notes issued by the Schools are
generally due over 24 months, bearing interest of seven percent, with payments
beginning when the student starts class.
Notes receivable are promissory notes due the Company from current and
former students. The notes are not secured by collateral and have differing
interest rates. It is not practicable to determine the fair value of notes
receivable without incurring excessive costs. The Company has no quoted market
prices or dealer quotes to compare similar loans made to borrowers with similar
credit ratings. In addition, the Company cannot readily establish a pattern of
future cash flows to estimate fair value. However, management believes that the
carrying amounts (net of allowance for doubtful accounts) recorded at December
31, 1996 are not impaired and are not materially different from their
corresponding fair values.
Beginning with the fourth quarter of 1995 the Company instituted a plan to
decrease its reliance on Title IV funding. In addition to seeking alternative
sources of financing for its students, the Schools began financing a larger
portion of the tuition for most students with promissory notes.
Depreciation and Amortization
Furniture and equipment, and buildings are depreciated over the estimated
useful lives of the assets (3 to 10 years for furniture and equipment and 30
years for buildings) using the straight-line method. Leasehold improvements are
amortized over the shorter of their estimated useful life or terms of the
related leases.
Maintenance and repairs are charged to expense as incurred. The costs of
additions and improvements are capitalized and depreciated over the remaining
useful lives of the assets. The costs and accumulated depreciation of assets
sold or retired are removed from the accounts and any gain or loss is recognized
in the year of disposal.
Acquisitions
All prior period acquisitions have been accounted for by the purchase
method, under which a portion of the purchase price is assigned to net tangible
assets acquired to the extent of their estimated values. The Company
periodically reviews goodwill to assess recoverability, and impairments would be
recognized in operating results if a permanent diminution in value were to
occur. The excess of the purchase price over net tangible assets acquired is
being charged to income over 5 to 40 years. The average amortization period
remaining at December 31, 1996, was four years. The total amount of amortization
charged to income was $223,000 in 1996, $352,000 in 1995, and $323,000 in 1994.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Goodwill................................. $ 1,511,000 $ 1,656,000
Intangible Assets........................ 1,077,000 2,782,000
----------- -----------
Total Intangible Assets................ 2,588,000 4,438,000
Less Accumulated Amortization............ 1,820,000 2,591,000
----------- -----------
Net Intangibles........................ $ 768,000 $ 1,847,000
=========== ===========
</TABLE>
Part I - Page 21
<PAGE>
4. RECEIVABLES:
Current receivables consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accounts receivable................... $16,756,000 $17,055,000 $20,412,000
Notes receivable...................... 4,392,000 3,188,000 2,117,000
Allowance for uncollectible accounts.. (1,645,000) (1,394,000) (2,491,000)
----------- ----------- -----------
Receivables.......................... $19,503,000 $18,849,000 $20,038,000
=========== =========== ===========
</TABLE>
Changes in the allowance for uncollectible accounts were as follows for the
year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance..................... $ 1,394,000 $ 2,491,000 $ 1,272,000
Provision for uncollectible accounts.. 952,000 158,000 994,000
Recoveries............................ 469,000
Charge offs........................... (701,000) (1,255,000) (244,000)
----------- ----------- -----------
$ 1,645,000 $ 1,394,000 $ 2,491,000
=========== =========== ===========
</TABLE>
Long term notes receivable and other assets consist of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Notes receivable...................... $ 3,001,000 $ 3,204,000 $ 2,318,000
Allowance for uncollectible notes..... (1,243,000) (709,000) (383,000)
----------- ----------- -----------
Net Long Term Notes Receivable...... $ 1,758,000 $ 2,495,000 $ 1,935,000
=========== =========== ===========
</TABLE>
Changes in the allowance for uncollectible notes were as follows for the
year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance..................... $ 709,000 $ 383,000 $ 1,057,000
Provision for uncollectible notes..... 2,281,000 1,419,000 814,000
Recoveries............................ 495,000
Charge offs........................... (1,747,000) (1,093,000) (1,983,000)
----------- ----------- -----------
$ 1,243,000 $ 709,000 $ 383,000
=========== =========== ===========
</TABLE>
5. FIXED ASSETS:
Fixed Assets consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Furniture and Equipment........................... $ 8,785,000 $ 9,437,000
Leasehold Improvements............................ 2,534,000 2,438,000
Buildings and Land................................ 490,000 490,000
----------- -----------
Gross Fixed Assets.............................. 11,809,000 12,365,000
Less Accumulated Depreciation and Amortization.... 9,270,000 9,145,000
----------- -----------
Net Fixed Assets................................ $ 2,539,000 $ 3,220,000
=========== ===========
</TABLE>
Part II - Page 22
<PAGE>
Concorde rents office space and buildings under operating leases generally
ranging in terms from 5 to 15 years. The leases provide renewal options and
require the Company to pay utilities, maintenance, insurance and property taxes.
Concorde also rents various equipment under operating leases which are generally
cancelable within 30 days. Rental expense for these leases was $2,640,000 in
1996, $2,743,000 in 1995, and $2,736,000 in 1994.
Aggregate minimum future rentals payable under the operating leases at
December 31, 1996, were:
<TABLE>
<CAPTION>
<S> <C>
1997........................... $2,312,000
1998........................... 1,803,000
1999........................... 1,277,000
2000........................... 858,000
2001 and thereafter............ 5,100,000
</TABLE>
6. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES:
Accounts Payable and Other Accrued Liabilities consist of the following
at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accounts Payable..................................... $ 951,000 $ 522,000
Accrued Vacation..................................... 440,000 424,000
Other Accrued Liabilities............................ 589,000 1,028,000
Accrued Compensation (other than salaries and wages). 183,000 71,000
Accrued Other Taxes.................................. 484,000 216,000
Accrued Health Expense............................... 84,000 152,000
---------- ----------
Accounts Payable and Accrued Liabilities............. $2,731,000 $2,413,000
========== ==========
</TABLE>
7. LONG-TERM DEBT AND REFINANCING:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Secured term note, prime plus 1.5 percent,
due in 1997 (balance paid June 1996)............... $1,343,000
Junior secured debenture, variable interest rate not
to exceed 12 percent, due 1996 through 1998........ $2,574,000 2,709,000
Unsecured note payable to CenCor, 7%, due in 1998.... 245,000 229,000
---------- ----------
Total.............................................. 2,819,000 4,281,000
Less--Current maturities............................. 400,000 215,000
---------- ----------
Total long-term debt due in 1998................... $2,419,000 $4,066,000
========== ==========
</TABLE>
Part II - Page 23
<PAGE>
CenCor, Inc. Agreements
The Restructuring Agreement discussed below was effective for the period
between October 30, 1992 and February 25, 1997.
Effective October 30, 1992, the Company and CenCor, Inc. ("CenCor") entered
into a Restructuring, Security and Guaranty Agreement ("Restructuring
Agreement") pursuant to which the Company was released from its obligations
relating to assumed subordinated indebtedness issued by CenCor. As consideration
for the release, the Company issued to CenCor the Old Debenture in the original
principal amount of $5,422,307, representing the full principal amount of the
assumed subordinated debt and accrued interest through October 30, 1992.
Interest on the Old Debenture accrued from October 30, 1992. The first principal
and interest payment was made June 30, 1996. In addition to compounded quarterly
interest, initially at 1% over the effective rate charged by the Company's bank
lender, at July 31, 1997 CenCor was entitled to an amount equal to 25% of the
amount by which the "market capitalization" of the Company exceeds $3,500,000
("Additional Payment").
In December 1993, the Restructuring Agreement was amended to provide for
the assignment by the Company to CenCor of approximately $8,400,000 of accounts
and notes receivable written-off by the Company in the normal course of business
and thereby discharged $559,000 of interest that had accrued on the Old
Debenture through December 31, 1993.
In November 1994, CenCor exchanged $3,000,000 face value of the Debenture
for 300,000 shares of Class A Preferred Stock of the Company (the "Class A
Preferred Stock"). The Class A Preferred Stock, had a share liquidation
preference of $10.00 per share. Cumulative quarterly dividends accrued at a rate
equal to 73% of the then current interest rate on the Old Debenture. The
exchange reduced the long-term debt and increased the equity of the Company by
$3,000,000. The Company also assigned to CenCor additional accounts and notes
receivable with a face value of approximately $15,000,000 that had been written-
off by the Company in the normal course of business and included the discharge
of approximately $495,000 of interest representing interest accrued on the Old
Debenture through December 31, 1994. Management believed at that time that the
amount of receivables assigned to CenCor in 1994 and 1993 were reflective of the
estimated collectibility of the related receivables.
On December 30, 1996 CenCor, Inc. and the Company amended the Restructuring
Agreement (the "Fourth Amendment"). The Fourth Amendment extended the due date
of the Debenture and Unsecured Debt to January 1, 1998, increased quarterly
principal payments approximately $30,000 to $100,000 and waived the capital
expenditures limitations with respect to the Company's North Hollywood,
California lease. Contingent upon the successful closing of refinancing
agreements, the Fourth Amendment also reduced the Additional Payment to $10 and
provided for terms and allocation of the CenCor Repayment. In addition, the
Company agreed to pay CenCor $1,333 per day for the number of days the closing
date extends beyond December 20, 1996.
As a result of the Cahill Transaction entered into on February 25, 1997,
discussed below, all obligations due CenCor were paid, redeemed, or otherwise
satisfied on that date, except for a continuing obligation to convey written-off
receivables in connection with interest discharged in the 1993 and 1994
agreements. As of December 31, 1996 the remaining commitment was $382,000.
Cahill, Warnock Transactions
On February 25, 1997, the Company entered into agreements, which soon
thereafter closed, with Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P., affiliated Baltimore-based venture capital funds
("Cahill-Warnock"), for the issuance by the Company and purchase by Cahill-
Warnock of (i) 55,147 shares of Voting Preferred Stock for $1.5 million and (ii)
5% Debentures due 2003 ("New Debentures") for $3.5 million (collectively, the
"Cahill Transaction"). Cahill-Warnock subsequently assigned (with the Company's
consent) its rights and obligations to acquire 1,838 shares of Voting Preferred
Stock to James Seward, a Director of the Company, and Mr. Seward purchased such
shares for their purchase price of approximately $50,000. The New Debentures
have nondetachable warrants ("Warrants") for approximately 2,573,529 shares of
Common Stock, exercisable beginning August 25, 1998 at an exercise price of
$1.36 per share of Common Stock.
The Voting Preferred Stock has the right to vote, as a class with the
Common Stock (with each share of Voting Preferred Stock having the equivalent
voting power of 20 shares of Common Stock), on all matters presented to holders
of Common Stock. Each share of Voting Preferred Stock is convertible into 20
shares of Common Stock at the election of the holder for no additional
consideration. The Voting Preferred Stock is entitled to a 12% annual dividend
beginning February 25, 2001 and a 15% annual
Part II - Page 24
<PAGE>
dividend beginning February 25, 2003. The Voting Preferred Stock is mandatorily
convertible into Common Stock upon the successful completion by the Company of a
common equity offering greater than $20 million at a price greater than $4 per
share of Common Stock. Cahill-Warnock also has certain preemptive rights in
future issuances of stock by the Company.
The New Debentures bear an interest rate of 5% per annum, payable
quarterly, with principal due in February 2003, when the attached Warrants
expire. The Warrants are not exercisable until August 25, 1998, subject to
earlier conversion (at the holder's election) in the event of the successful
completion by the Company of a common equity offering greater than $20 million
at a price greater than $4 per share of Common Stock.
The Voting Preferred Stock held by Cahill-Warnock and New Debenture are
also entitled to certain registration rights (for the underlying Common Stock).
As part of the Cahill Transaction, the Board of Directors of the Company
was increased from three to six members, with Cahill-Warnock having the right to
nominate two Directors. The sixth Director is Dr. Robert Roehrich, the Company's
new President and Chief Executive Officer effective April 7, 1997.
Pursuant to a Stockholders' Agreement among Cahill-Warnock, Messrs. Brozman
and Seward, the Robert F. Brozman Trust (who, together, hold an aggregate of
52.8% of the outstanding Voting Securities and options to purchase 1,000,000
shares of Common Stock) and the Company, such holders have agreed to certain
restrictions on the transfer of Voting Securities held by them.
Pursuant to the Fourth Amendment with CenCor, the Company used
approximately $4.4 million of the funds from the Cahill Transaction to redeem
the 260,385 outstanding shares of its Class A Preferred Stock and $438,000 of
accumulated dividends and its $2.4 million debenture principal, accrued
interest, and certain unsecured obligations which were held by CenCor (the
"CenCor Repayment"). As part of the CenCor Repayment, CenCor waived its right to
a payment from the Company equal to 25% of the amount by which the Company's
market capitalization exceeds $3.5 million on August 31, 1997. At September 30,
1996, the Company had accrued $457,000 for this purpose which was reversed at
December 31, 1996. Jack L. Brozman, the Chairman of the Board of the Company, is
the Chairman of the Board, President, and Treasurer of CenCor.
The following presents the capitalization of the Company as it existed at
December 31, 1996 adjusted to reflect the unaudited pro forma effect of the
Refinancing and associated transactions as if these transactions occurred on
December 31, 1996:
<TABLE>
<CAPTION>
DEBT HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
(unaudited)
<S> <C> <C> <C>
Current debt due related party............................... $ 400,000 $ (400,000)
Subordinated debt due related party.......................... 2,419,000 (2,419,000)
Debentures, 5%, due 2003..................................... 3,500,000 $ 3,500,000
----------- -----------
Total debt............................................... $ 2,819,000 $ 3,500,000
=========== ===========
STOCKHOLDERS' EQUITY
Preferred Stock ($.10 par value, 600,000 shares authorized)
Class A, 260,385 shares issued and outstanding............. $ 26,000 $ (26,000)
Class B, 55,147 shares issued and outstanding.............. 6,000 $ 6,000
Common Stock ($.10 par value, 19,400,000 shares authorized,
6,993,376 shares issued and 6,966,576 shares outstanding).. 699,000 699,000
Capital in excess of par..................................... 7,736,000 134,000 7,870,000
Accumulated deficit.......................................... (1,385,000) (438,000) (1,823,000)
Less treasury stock, 26,800 shares, at cost.................. (61,000) (61,000)
----------- -----------
Total Stockholder's Equity................................. $ 7,015,000 $ 6,691,000
=========== ===========
</TABLE>
Part II - Page 25
<PAGE>
Other
On April 30, 1993, the Company negotiated a restructuring of its then
existing bank debt which was due on March 1, 1993 in the amount of $8,892,000.
The balance of this debt, $1,343,000 on December 31, 1995, due January 3, 1997,
was prepaid without penalty June 1, 1996. In conjunction with the Refinancing
the Company negotiated a $3,000,000 secured revolving credit facility on March
13, 1997 with Security Bank of Kansas City. Funds borrowed under this facility
will be used for working capital purposes. This facility has an interest rate of
prime plus one percent and no commitment fee. It is secured by all cash,
accounts and notes receivable, furniture and equipment, and capital stock of
subsidiaries.
Based on the terms of the Company's debt, management estimates that the
carrying values of debt at December 31, 1996 and December 31, 1995 are not
materially different from their corresponding fair value.
The Company has a letter of credit outstanding in the amount of $492,000.
The letter of credit is to comply with United States Department of Education
("ED") Regulations and is secured by a certificate of deposit in the amount of
$492,000.
8. INCOME TAXES:
Statement of Financial Accounting Standards ("SFAS 109"), "Accounting for
Income Taxes," requires a liability approach for determining deferred taxes for
all temporary differences. Temporary differences result from differences between
the financial statements and tax basis of the Company's assets and liabilities.
Deferred taxes are provided based upon enacted tax laws and rates applicable to
the periods in which temporary differences reverse. The sources of these
differences and their cumulative tax effect at December 31, 1996, 1995, and
1994, are estimated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Credit losses....................... $1,175,000 $ 727,000 $ 848,000
Alternative minimum tax credit
carryover.......................... 176,000
Other expenses currently
deductible for financial
reporting purposes but
not for tax........................ 201,000 280,000 3,000
Depreciation and amortization....... 90,000 37,000
---------- ---------- -----------
Gross assets............... 1,466,000 1,044,000 1,027,000
---------- ---------- -----------
Valuation allowance................. (667,000) (1,027,000)
---------- ---------- -----------
Net assets................. 1,466,000 377,000
---------- ---------- -----------
Depreciation and amortization....... (253,000)
Other expenses currently deductible
for tax but not for financial
reporting purposes................. (979,000) (897,000) (910,000)
---------- ---------- -----------
Gross liabilities................... (979,000) (897,000) (1,163,000)
---------- ---------- -----------
Net........................ $ 487,000 $ (520,000) $(1,163,000)
========== ========== ===========
</TABLE>
At December 31, 1996 net tax assets included $916,000 current assets and
$550,000 non-current assets. Gross liabilities included $979,000 non-current
liabilities. Non-current tax assets were combined with non-current tax
liabilities for financial statement presentation.
At December 31, 1995 net tax assets included $340,000 current assets and
$37,000 non-current assets. Gross liabilities included $170,000 current
liabilities and $727,000 non-current liabilities. Current tax assets were
combined with current tax liabilities and non-current assets were combined with
non-current liabilities for financial statement presentation.
Part II - Page 26
<PAGE>
<TABLE>
<CAPTION>
The income tax provision (benefit) for the three years ended December 31,
1996, consist of the following:
<S> <C> <C> <C>
Current tax expense (benefit)-- 1996 1995 1994
---- ---- ----
Federal................................. $ 769,000 $ 765,000 $ 169,000
State................................... 108,000 48,000 66,000
----------- --------- ---------
Total current provision (benefit)....... 877,000 813,000 235,000
Deferred tax expenses (benefit)--
Federal................................. (973,000) (596,000) (357,000)
State................................... (34,000) (36,000) (78,000)
----------- --------- ---------
Total deferred provision (benefit)...... (1,007,000) (632,000) (435,000)
----------- --------- ---------
Total provision (benefit)............ $ (130,000) $ 181,000 $(200,000)
=========== ========= =========
</TABLE>
The effective rate of income tax expense (benefit) was (19.5) percent, 10.2
percent, and (97.1) percent for 1996, 1995, and 1994, respectively. The
provision (benefit) for income taxes as reported in the statement of income and
the provision (benefit) computed at the statutory federal rate of 34.0 percent
for the three years ended December 31, 1996 differs as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision (benefit) for federal taxes at statutory rates.. $ 225,000 $ 605,000 $ (70,000)
Valuation allowance release............................... (667,000) (360,000)
State taxes, net.......................................... 49,000 7,000 (8,000)
Goodwill amortization..................................... 59,000 29,000 26,000
Fixed asset basis adjustment.............................. 176,000
Other, net................................................ 28,000 (100,000) (148,000)
--------- --------- ---------
$(130,000) $ 181,000 $(200,000)
========= ========= =========
</TABLE>
During 1996 and 1995, the Company reduced the valuation allowance related
to deferred tax assets of $667,000 and $360,000, respectively, as it became more
likely than not the Company would realize the benefit of the corresponding
deferred tax assets.
9. STOCK OPTION PLANS AND EARNINGS PER SHARE:
The Company has an incentive stock option plan (the "1988 Option Plan")
approved in 1988 and amended in 1989 authorizing issuance of 600,000 shares of
its common stock to certain officers and employees of the Company. Options are
granted at fair market value on the date of grant for a term of not more than
ten years. In addition, in 1994 the Company's Compensation Committee awarded to
an officer of the Company the option to purchase 750,000 shares pursuant to a
stock option plan (the "1994 Option Plan") which was approved at the 1994
stockholders meeting. Under the option's terms, the officer was granted the
right to immediately exercise a portion of the option to purchase 300,000 shares
(granted at 110% of fair market value). Vesting of the right to purchase the
remaining 450,000 shares is based on performance of the Company through 1996. Of
the shares subject to annual performance vesting, 150,000 shares failed to vest
and lapsed in 1994 as the Company did not attain required performance
objectives. The Company met the performance criteria during 1995 and 1996. As a
result 150,000 shares were vested in each year and the Company recognized
additional compensation expense of $113,000 in 1996 and $71,000 in 1995.
Part II - Page 27
<PAGE>
The Company applies Accounting Principles Board (APB) Opinion 25 and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation expense has been recognized for the 1988 Option Plan as the
exercise price equals the stock price on the date of grant. Compensation expense
has been recorded for the 1994 Option Plan performance based options as noted
above. Had compensation expense been determined for stock options granted in
1996 and 1995 based on the fair value at grant dates consistent with SFAS 123
"Accounting for Stock Based Compensation," the Company's pro forma 1996 net
income and earnings per share would have been $735,000 and $0.06 respectively
and 1995 net income and earnings per share would have been $1,568,000 and $0.17
respectively. The pro forma amounts were estimated using the Black-Scholes
option pricing model with the following assumptions for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Weighted average expected life (years) 6 6
Expected Volatility 87% 87%
Annual Dividend per share -0- -0-
Risk free interest rate 6.25% 6.25%
Weighted average fair value of options granted $0.73 $0.46
</TABLE>
The following table reflects activity in options for the three year period
ended.
<TABLE>
<CAPTION>
Weighted-Average
Stock Options Number of Shares Exercise Price Option Price Per Share
- --------------------------------- ---------------- ---------------- ----------------------
<S> <C> <C> <C>
Outstanding - December 31, 1993 566,250 $0.11 $0.10 to $2.250
Canceled 318,750 $0.16 $0.10 to $2.250
Issued 810,000 $0.15 $0.13 to $0.154
Outstanding - December 31, 1994 1,057,500 $0.13 $0.10 to $0.154
Exercised 3,000 $0.10 $0.10
Canceled 69,500 $0.12 $0.10 to $0.280
Issued 73,000 $0.28 $0.28
Outstanding - December 31, 1995 1,058,000 $0.14 $0.10 to $0.280
Exercised 11,400 $0.10 $0.10
Canceled 50,000 $0.30 $0.10 to $0.590
Issued 84,500 $0.69 $0.55 to $1.060
Outstanding - December 31, 1996 1,081,100 $0.17 $0.10 to $1.060
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 28
<PAGE>
<TABLE>
<CAPTION>
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- ------------------ ----------- ----------------- -------------- ----------- --------------
(Years)
<S> <C> <C> <C> <C> <C>
$0.10 310,600 6.5 $0.10 242,950 $0.10
$0.13 67,500 7.7 $0.13 -0- -0-
$0.15 600,000 7.5 $0.15 600,000 $0.15
$0.28 33,000 8.1 $0.28 -0- -0-
$0.55 12,000 9.6 $0.55 -0- -0-
$0.59 36,500 9.0 $0.59 -0- -0-
$0.88 to $1.06 21,500 9.6 $0.99 -0- -0-
</TABLE>
The Company calculates earnings (loss) per common share by using the
weighted average common shares. The dilutive effect relative to stock options at
December 31, 1994 and 1993 was immaterial and therefore not recognized. The
dilutive effect at December 31, 1996 was 872,000 shares compared to 687,000 at
December 31, 1995. The diluted weighted average common shares outstanding was
7,839,000 for the twelve months ended December 31, 1996, and 7,642,000 for the
twelve months ended December 31, 1995. Earnings per weighted average common and
common equivalent share ("EPS") was $0.07 and $0.18 at December 31, 1996 and
1995 respectively. EPS is shown net of preferred stock dividends (not declared)
of $216,000 in 1996 and $248,000 in 1995. Cumulative dividends in arrears on the
Preferred Stock were $438,000 as of December 31, 1996. (Note 7)
10. CONTINGENCIES AND LITIGATION:
Department of Education Matters
The Company is challenging the ED's authority to enforce the 1992 Cohort
Default Rates applicable to the Company in light of the ED's rate correction
regulations applicable to such rates adopted on April 25, 1994 and November 29,
1994, which the Company contends are invalid. The Company had requested the
court to officially suspend the 1992 Cohort Default Rates, but the court has
declined to enter a temporary restraining order or a preliminary injunction
prohibiting publication of the 1992 Cohort Default Rates. The Company, however,
intends to pursue its claims for declaratory and injunctive relief concerning
1992 rate correction regulations and the Schools' recent default rates. The
Company had previously appealed certain of the 1993 default rates. The ED
decided to not review some of the appeals. The Company may decide to request the
ED to review these appeals.
The Company is also pursuing administrative appeals seeking a reduction of
its recently published 1994 rates. These appeals are being pursued under a rate
correction appeal process established by Congress in late 1993 for the
correction of default rates for demonstrated occurrences of improper loan
servicing and collections. The Company's appeals were commenced early in 1997,
and no ruling has yet been issued. (See Item 3, "Legal Proceedings.")
Two of the Company's Schools, Anaheim and San Diego, California, have
official published cohort default rates which exceed 25% for three consecutive
years. In addition, the San Bernardino, California School has official published
rates for two consecutive years which exceed 25% and a preliminary 1994 rate
which exceeds 25%. Currently San Bernardino has not received a final 1994 rate,
however the Company believes it will exceed 25%. The Company believes that the
1994 rates for the three Schools should be lowered below 25% through appeals,
but it is possible that the ED will not agree. All three Schools could be in
jeopardy of loss of loan eligibility if rates for one of the three consecutive
years is not lowered, but in that event the Company may challenge the ED's rate
determinations in the pending litigation filed in late 1992.
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate FFELP eligibility. If any of the
Schools loses its eligibility to participate in Federal Loan Programs, the
continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and will evaluate alternatives to mitigate the
effect on any School of the loss of its eligibility to participate in loan
programs. Among the options available to the Company, one option would be to
restructure the School to use grant funding and alternative third party
financing. This action, if necessary, would be expected to result in a short-
term decline in enrollment and profitability during the period of transition.
Part II - Page 29
<PAGE>
Currently students at all of the Company's Schools have access to lenders.
Even though a School is eligible to participate in Title IV programs, it must
also have access to lending institutions such as banks which are willing to act
as lenders for the Schools' students.
In 1994, ED established a policy of recertifying all schools participating
in Title IV programs every five years. The Company recently completed the
process of recertifying the Schools. Full certification has been approved for
Anaheim, North Hollywood, San Bernardino and San Diego, California, Kansas City,
Missouri, Portland, Oregon, Memphis, Tennessee, Tampa, and Miami, Florida (Miami
is an additional location of the Tampa School). Denver, Colorado, Jacksonville
and Lauderdale Lakes, Florida have received provisional certification.
Provisional certification limits the School's ability to add programs and change
the level of educational award. In addition, the School forfeits its right to
due process under ED guidelines. The provisional certifications expire in 1998,
at which time the Schools will again go through the process of recertification.
The Company does not believe provisional certification will have a material
impact on its liquidity, results of operations or financial position.
ED also has established certain "Factors of Financial Responsibility" which
the Schools are required to meet to be eligible to receive Title IV Funds.
Although these factors change regularly, the Company believes its Schools
currently meet all applicable factors.
The Company is not aware of any material violation by the Company of
applicable local, state and federal laws.
Southern Career Institute
On May 31, 1990, the Company, through a wholly-owned subsidiary, Concorde
Career Institute, Inc., a Florida corporation, acquired substantially all the
assets of Southern Career Institute, Inc., a proprietary, postsecondary
vocational home-study school specializing in paralegal education, for a total
investment of $5,383,000. The acquisition was accounted for as a purchase and
after the acquisition the school was operated as Southern Career Institute
("SCI").
In 1991, an accrediting commission failed to reaffirm accreditation of SCI
under the ownership of Concorde Career Institute, Inc. Also in 1991, SCI
received notice from the ED alleging that commencing June 1, 1990 SCI was
ineligible to participate in federal student financial assistance programs. The
ED gave notice that it intended to require SCI to repay all student financial
assistance funds disbursed from June 1, 1990 to November 7, 1990, the effective
date upon which the ED discontinued disbursing student financial assistance
funds. The amount being claimed by ED is not determinable, but the total of the
amounts shown on six separate notices dated January 13, 1994 is approximately
$2.7 million. By letter dated February 24, 1994, counsel for SCI provided
certain information to the collection agency for ED and offered to settle all
claims of ED for the $9,828 on deposit in the SCI bank account. In December
1996, the Company was informed verbally that the matter had been referred to the
ED's General Counsel.
Because management of SCI had determined in late 1991 to wind down SCI's
operations and discontinue its business, SCI entered into a transaction with an
entity created by the former owner of Southern Career Institute, Inc. as the
purchaser. The purchaser acquired SCI's tuition receivables and agreed to
"teach-out" the then enrolled students, but did not assume any obligations to
ED. The purchaser also agreed to pay SCI a portion of amounts it realized on
collections of the tuition receivables in excess of its operating costs. As of
March 6, 1997, SCI had received payments totaling approximately $30,000 pursuant
to that agreement.
In light of applicable corporate law which limits the liability of
stockholders and the manner in which SCI was operated by Concorde Career
Institute, Inc. as a subsidiary of the Company, it is the opinion of management
of the Company that the Company will not be liable for debts of SCI. Therefore,
if SCI is required to pay the ED's claims it is the opinion of management it
will not have a material adverse impact on the Company's financial condition and
its results of operations.
Other
During July 1993, nine former students of the Jacksonville, Florida School
filed individual lawsuits against the School, alleging deceptive trade
practices, breach of contract, and fraud and misrepresentation. These suits have
since been dismissed, and these and additional former students have been added
to another complaint which was filed in the Circuit Court, Fourth Judicial
District, Duval County, Florida (Case 93-04005-CA). The latter case was served
on August 26, 1993, and was amended to comprise 69 plaintiffs. Concorde Careers-
Florida, Inc. doing business as ConCorde Career Institute in Jacksonville,
Florida ("the Jacksonville School") a wholly owned subsidiary of the Company,
filed various objections and motions, including Motions to Dismiss and Motions
Part II - Page 30
<PAGE>
to Strike. After hearings, the trial court dismissed the lawsuit, but allowed
the lawsuit to be amended on behalf of one plaintiff, and authorized the
remaining plaintiffs to file individual suits if they so desired. The order of
dismissal was appealed and reversed. During the appeal process, two additional
suits making essentially the same claims were filed. In May 1995, plaintiffs
requested permission to amend the complaint by the 69 plaintiffs to convert the
case to a class action, which class would include the plaintiffs in all three
cases. The Jacksonville School opposed the motion, and the proposed class action
complaint was dismissed in August 1995, with permission to amend again. The
amended class action complaint was filed in August 1995, and the Jacksonville
School again moved to dismiss the complaint, and to strike portions from the
complaint. The motion to dismiss was denied November 7, 1995; the motion to
strike was granted in part and denied in part. The Jacksonville School has
answered the complaint, and filed numerous affirmative defenses. Discovery
restricted to class certification issues was completed in late Fall 1996. A two-
day hearing to determine whether or not the class should be certified was
conducted during mid-January 1997. A decision by the Court is expected in the
near future. In the meantime, all activity and progress in the other suits have
been stayed. The Company believes these suits are without merit, and will
continue to strongly oppose class certification, and to defend against them
vigorously.
The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of the
individual matters is not presently determinable. It is management's opinion
that this litigation will not result in liabilities that would have a material
adverse effect on the Company's financial position or results of operations.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue................... $11,032,000 $9,270,000 $10,318,000 $9,477,000
=========== ========== =========== ==========
Income (loss) before income taxes... $ 731,000 $ (567,000) $ 1,149,000 $ (651,000)
=========== ========== =========== ==========
Net income (loss)................... $ 548,000 $ (425,000) $ 862,000 $ (193,000)
=========== ========== =========== ==========
Earnings (loss) per share........... $ .06 $ (.06) $ .11 $ (.04)
=========== ========== =========== ==========
1995
----
Operating revenue................... $ 9,889,000 $8,457,000 $11,101,000 $9,827,000
=========== ========== =========== ==========
Income before income taxes.......... $ 333,000 $ 18,000 $ 1,061,000 $ 368,000
=========== ========== =========== ==========
Net income.......................... $ 300,000 $ 16,000 $ 955,000 $ 328,000
=========== ========== =========== ==========
Earnings (loss) per share........... $ .03 $ (.01) $ .12 $ .04
=========== ========== =========== ==========
1994
----
Operating revenue................... $ 8,813,000 $7,989,000 $10,513,000 $7,717,000
=========== ========== =========== ==========
Income (loss) before income taxes.. $ 62,000 $ (636,000) $ 1,081,000 $ (713,000)
=========== ========== =========== ==========
Net income (loss)................... $ 37,000 $ (486,000) $ 881,000 $ (438,000)
=========== ========== =========== ==========
Earnings (loss) per share.......... $ .01 $ (.07) $ .13 $ (.07)
=========== ========== =========== ==========
</TABLE>
Because the CPA examination is administered twice a year, the operations of
the CPA Review courses were seasonal, impacting the results of the Company for
the quarters ended March 31, and September 30.
Part II - Page 31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
(The remainder of this page was left blank intentionally.)
Part II - Page 32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Directors and Executive Officers is incorporated
herein by reference from the Company's definitive proxy statement. This
information can be found in the proxy statement under the headings: DIRECTORS
and EXECUTIVE OFFICERS .
ITEM 11. EXECUTIVE COMPENSATION
Information regarding Executive Compensation is incorporated herein by
reference from the Company's definitive proxy statement. This information can be
found in the proxy statement under the heading: EXECUTIVE COMPENSATION AND OTHER
INFORMATION (specifically excluding disclosures in such section relating to Item
402(I), (k), and (1) of Regulation S-K).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding Security Ownership of Certain Beneficial Owners and
Management is incorporated herein by reference from the Company's definitive
proxy statement. This information can be found in the proxy statement under the
headings: PROXY STATEMENT and STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Relationships and Related Transactions is
incorporated herein by reference from the Company's definitive proxy statement.
This information can be found in the proxy statement under the headings:
EXECUTIVE COMPENSATION AND OTHER INFORMATION and OTHER TRANSACTIONS.
(The remainder of this page was left blank intentionally.)
Part III - Page 1
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a. List of documents filed as part of this report.
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
1. Financial Statements:
Concorde Career Colleges, Inc. and Subsidiaries
Report of Independent Accountants............................... II-13
Consolidated Balance Sheet...................................... II-14
Consolidated Statement of Operations............................ II-16
Consolidated Statement of Cash Flows............................ II-17
Consolidated Statement of Changes In Stockholders' Equity....... II-18
Notes to Consolidated Financial Statements...................... II-19
</TABLE>
2. Financial Statement Schedules:
Concorde Career Colleges, Inc. and Subsidiaries
Schedules have been omitted as not applicable or not required under the
instructions contained in Regulations S-X or the information is included
elsewhere in the financial statements or notes thereto.
<TABLE>
<CAPTION>
3. Exhibits:
Exhibit Number Description
-------------- ------------
<S> <C>
3(a) -- Restated Certificate of Incorporation of the Registrant, as
amended (Incorporated by reference to Exhibit 3(a) of the Annual
Report on Form 10-K for the year ended December 31, 1994).
3(b) -- Amended and Restated Bylaws of the Registrant (Incorporated by
reference to Exhibit 3(b) of the Annual Report on Form 10-K for the
year ended December 31, 1991).
4(a) -- Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4(a) to Registration Statement on Form S-1 [SEC File No.
33-21654]).
4(b) -- Specimen Class A Redeemable Preferred Stock Certificate
(Incorporated by reference to Exhibit 4(b) of the Annual Report on
Form 10-K for the year ended December 31, 1994).
4(c) -- Junior Secured Debenture in principal amount of $5,422,307 made by
the Company dated October 30, 1992 to CenCor, Inc. (Incorporated by
reference to Exhibit 4(c) of the Annual Report on Form 10-K for the
year ended December 31, 1992).
4(d) -- Certificate of Designation of the Class A Redeemable Preferred
Stock (Incorporated by reference to Exhibit 4(d) of the Annual
Report on Form 10-K for the year ended December 31, 1994).
4(e) -- Certificate of Designation of Class B Convertible Preferred Stock.
</TABLE>
Part IV - Page 1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
4(f) -- Specimen Class B Convertible Preferred Stock Certificate.
4(g) -- Subordinated Debenture in principal amount of $3,316,250 made by
the Company dated February 25, 1997 to Cahill, Warnock Strategic
Partners Fund, L.P.
4(h) -- Subordinated Debenture in principal amount of $183,750 made by the
Company dated February 25, 1997 to Strategic Associates, L.P.
4(i) -- Common Stock Purchase Warrant dated February 25, 1997 issued to
Cahill, Warnock Strategic Partners Fund, L.P., granting the right
to purchase up to 2,483,419 shares of the Company's Common Stock.
4(j) -- Common Stock Purchase Warrant dated February 25, 1997 issued to
Strategic Associates, L.P., granting the right to purchase up to
135,110 shares of the Company's Common Stock.
4(k) -- Registration Rights Agreement dated February 25, 1997 issued among
the Company; Cahill, Warnock Strategic Partners Fund, L.P.; and
Strategic Associates, L.P.
8 -- Arthur Andersen letters (Incorporated by reference to Exhibits 1
and 2 on Form 8-K dated September 13, 1994).
9(a) -- Stockholders' Agreement dated February 25, 1997 among the Company,
Cahill, Warnock Strategic Partners Fund, L.P., Strategic
Associates, L.P., Jack L. Brozman, The Estate of Robert F. Brozman
and the Robert F. Brozman Trust under Agreement dated December 28,
1989 (the "Stockholders Agreement Parties").
9(b) -- Agreement dated March 21, 1997 among the Stockholders Agreement
Parties and James R. Seward.
10(a) -- Amended and Restated Agreement As to Relationship and Services to
be Provided between Registrant and CenCor, dated May 6, 1988.
(Incorporated by reference to Exhibit 10[a] to Pre-effective
Amendment No. 1 to Registration Statement on Form S-1 [SEC File
No. 33-21654]).
10(b) -- Tax Sharing Agreement between Registrant and CenCor, Dated May 3,
1988. (Incorporated by reference to Exhibit 10[b] to Registration
Statement on Form S-1 [SEC File No. 33-21654]).
10(c)(i) -- Employment Agreement dated May 1, 1984, and First and Second
Amendments thereto, between Person/Wolinsky Associates, Inc. and
Samuel Person. (Incorporated by reference to Exhibit 10[c] to
Registration Statement on Form S-1 [SEC File No. 33-21654]).*
10(c)(ii) -- Third and Fourth Amendments to Employment Agreement between
Person/Wolinsky and Samuel Person dated as of May 1, 1992 and
November 1, 1992, respectively. (Incorporated by reference to
Exhibit 10(c)(ii) of the Annual Report on Form 10-K for the year
ended December 31, 1992).*
10(c)(iii) -- Fifth Amendment to Employment Agreement between Person/Wolinsky
and Samuel Person dated as of May 1, 1993. (Incorporated by
reference to Exhibit 10(c)(iii) of the Annual Report on Form 10-K
for the year ended December 31, 1993).*
10(c)(iv) -- Sixth Amendment to Employment Agreement between Person/Wolinsky
and Samuel Person dated as of November 1, 1994. (Incorporated by
reference to Exhibit 10(c)(iv) of the Annual Report on Form 10-K
for the year ended December 31, 1994).*
10(d) -- Lease Agreement dated June 21, 1988, among Person/Wolinsky
Associates, Inc. and Daniel and Ruth Wolinsky and Samuel Person.
(Incorporated by reference to Exhibit 10(d) to Registration
Statement on Form S-1 [SEC File No. 33-30002]).
</TABLE>
Part IV - Page 2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10(e)(i) -- Revolving Credit, Security and Guaranty Agreement between
Registrant and Mark Twain Kansas City Bank dated September 3,
1991 and Amendment No. One thereto (Incorporated by reference to
Exhibit 4(d) of the Annual Report on Form 10-K for the year ended
December 31, 1991).
10(e)(ii) -- Amendment No. Two to Revolving Credit, Security and Guaranty
Agreement dated April 30, 1993. (Incorporated by reference to
Exhibit 10(e)(ii) of the Annual Report on Form 10-K for the year
ended December 31, 1992).
10(e)(iii) -- Amendment No. Three to Revolving Credit, Security and Guaranty
Agreement dated September 1, 1994 (Incorporated by reference to
Exhibit 10(e)(iii) of the Annual Report on Form 10-K for the year
ended December 31, 1994).
10(e)(iv) -- Amendment No. Four to Revolving Credit, Security and Guaranty
Agreement dated November 1, 1995 (Incorporated by Reference to
Exhibit 10(e)(iv) of the Annual Report on Form 10-K for the year
ended December 31, 1995).
10(f) -- Second Amended and Restated Concorde Career Colleges, Inc. 1988
Incentive Stock Option Plan, dated May 4, 1989 (Incorporated by
reference to Exhibit 10(f)(iii) to Pre-effective Amendment No. 1
to Registration Statement on Form S-1 [SEC File No. 33-30002]).*
10(g) -- Concorde Career Colleges, Inc. 1994 Incentive Stock Option Plan.
(Incorporated by Reference to Exhibit 10(g) of the Annual Report
on Form 10-K for the year ended December 31, 1993).*
10(h)(i) -- Agreement for Transfer of Assets and Assumption of Liabilities
between CenCor and the Company dated as of March 31, 1988.
(Incorporated by Reference to Exhibit 10(d) to Registration
Statement on Form S-1 [SEC File No. 33-21654]).
10(h)(ii) -- Amendment to Agreement for Transfer of Assets and Assumption of
Liabilities between CenCor and the Company dated October 30,
1992. (Incorporated by reference to Exhibit 10(g)(ii) of the
Annual Report on Form 10-K for the year ended December 31, 1992).
10(h)(iii) -- Restructuring, Security and Guaranty Agreement between CenCor and
the Company dated October 30, 1992. (Incorporated by reference to
Exhibit 10(g)(iii) of the Annual Report on Form 10-K for the year
ended December 31, 1991).
10(h)(iv) -- First Amendment to the Restructuring, Security and Guaranty
Agreement dated December 30, 1993. (Incorporated by reference to
Exhibit 10(h)(iv) of the Annual Report on Form 10-K for the year
ended December 31, 1993).
10(h)(v) -- Assignments of Receivable to Concorde from Guarantors, dated as
of December 30, 1993. (Incorporated by reference to Exhibit
10(h)(v) of the Annual Report on Form 10-K for the year ended
December 31, 1993).
10(h)(vi) -- Second Amendment to the Restructuring, Security and Guaranty
Agreement dated November 15, 1994 (Incorporated by Reference to
Exhibit 10(h)(vi) of the Annual Report on Form 10-K for the year
ended December 31, 1994).
10(h)(vii) -- Third Amendment to the Restructuring, Security and Guaranty
Agreement dated July 30, 1996 (Incorporated by Reference to
Exhibit 2 of the Quarterly Report on Form 10Q dated June 30,
1996).
10(h)(viii) -- Fourth Amendment to the Restructuring, Security and Guaranty
Agreement dated December 30, 1996.
</TABLE>
Page IV - Page 3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10(i) -- Expense Sharing Agreement dated as of January 1, 1993, between
CenCor, Century Acceptance Corporation, La Petite Academy, Inc.
and the Company. (Incorporated by reference to Exhibit 10(h) to
the Annual Report on Form 10-K for the year ended December 31,
1992).
10(j) -- Memorandum of Understanding and Intent, dated November 3, 1993,
regarding the sale of assets of the Pacific Travel School.
(Incorporated by reference to Exhibit 10(j) of the Annual Report
on Form 10-K for the year ended December 31, 1993).
10(k) -- Asset Purchase Agreement dated July 10, 1996 regarding the sale
of assets of Person/Wolinsky Associates, Inc. (Incorporated by
reference to Exhibit 1 to the Quarterly Report on Form 10Q dated
June 30, 1996).
10(l) -- Convertible Preferred Stock Purchase Agreement dated February
25, 1997 among Cahill, Warnock Strategic Partners Fund, L.P.,
Strategic Associates, L.P, and the Company (the "Purchase
Agreement Parties").
10(m) -- Amendment No. 1 to the Convertible Preferred Stock Purchase
Agreement dated March 21, 1997 among the Purchase Agreement
Parties and James R. Seward.
10(n) -- Subordinated Debenture and Warrant Purchase Agreement dated as
of February 25, 1997 by the Company and Cahill, Warnock
Strategic Partners Fund, L.P.
10(o) -- Subordinated Debenture and Warrant Purchase Agreement dated as
of February 25, 1997 by the Company and Strategic Associates,
L.P.
10(p) -- Revolving Credit, Security and Guaranty Agreement dated March
13, 1997 by and among the Registrant and Security Bank of Kansas
City, attached herewith.
21 -- Subsidiaries of Registrant (filed herewith).
23 -- Consent of Price Waterhouse LLP (filed herewith).
</TABLE>
* Management contract or compensation plan.
b. Reports on Form 8-K
None.
Part IV - Page 4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONCORDE CAREER COLLEGES, INC.
By /s/ JACK L. BROZMAN
----------------------------------------
Jack L. Brozman
Chairman of the Board
Date: March 31, 1996
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Date
--------- ----
<S> <C>
By /s/ JACK L. BROZMAN March 31, 1997
--------------------------------------------- --------------
Jack L. Brozman
(Chief Executive Officer, President,
Treasurer and Director)
By /s/ MICHAEL S. SAVELY March 31, 1997
--------------------------------------------- --------------
Michael S. Savely
(Senior Vice President-Operations)
By /s/ GREGG GIMLIN March 31, 1997
--------------------------------------------- --------------
M. Gregg Gimlin
(Vice President, Chief Financial Officer, and
Principal Accounting Officer)
By /s/ DAVID A. NICHOLS March 31, 1997
--------------------------------------------- --------------
David A. Nichols
(Director)
By /s/ ROBERT R. ROEHRICH March 31, 1997
--------------------------------------------- --------------
Robert R. Roehrich
(Director)
By /s/ JAMES R. SEWARD March 31, 1997
--------------------------------------------- --------------
James R. Seward
(Director)
By /s/ THOMAS K. SIGHT March 31, 1997
--------------------------------------------- --------------
Thomas K. Sight
(Director)
By /s/ DAVID L. WARNOCK March 31, 1997
--------------------------------------------- --------------
David L. Warnock
(Director)
</TABLE>
Page IV - Page 5
<PAGE>
CONCORDE CAREER COLLEGES, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PART NUMBER
- -------------- ----------- -----------
<S> <C> <C>
4(e) Certificate of Designation of Class B Convertible Part V
Preferred Stock
4(f) Specimen Class B Convertible Preferred Stock Certificate. Part V
4(g) Subordinated Debenture in principal amount of $3,316,250 Part V
made by the Company dated February 25, 1997 to Cahill,
Warnock Strategic Partners Fund, L.P.
4(h) Subordinated Debenture in principal amount of $183,750 made Part V
by the Company dated February 25, 1997 to Strategic Associates, L.P.
4(i) Common Stock Purchase Warrant dated February 25, 1997 issued to Part V
Cahill, Warnock Strategic Partners Fund, L.P., granting the right to
purchase up to 2,483,419 shares of the Company's Common Stock.
4(j) Common Stock Purchase Warrant dated February 25, 1997 issued to Part V
Strategic Associates, L.P., granting the right to purchase up to 135,110
shares of the Company's Common Stock.
4(k) Registration Rights Agreement dated February 25, 1997 issued among Part V
the Company; Cahill, Warnock Strategic Partners Fund, L.P.; and
Strategic Associates, L.P.
9(a) Stockholders' Agreement dated February 25, 1997 among the Part V
Company, Cahill, Warnock Strategic Partners Fund, L.P. , Strategic
Associates, L.P., Jack L. Brozman, The Estate of Robert F. Brozman
and the Robert F. Brozman Trust under Agreement dated December 28, 1989
(the "Stockholders Agreement Parties").
9(b) Agreement dated March 21, 1997 among the Stockholders Agreement Part V
Parties and James R. Seward.
10(h)(viii) Fourth Amendment to the Restructuring, Security and Guaranty Part V
Agreement dated December 30, 1996.
10(l) Convertible Preferred Stock Purchase Agreement dated February 25, Part V
1997 among Cahill, Warnock Strategic Partners Fund, L.P.,
Strategic Associates, L.P., and the Company
(the "Purchase Agreement Parties")
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PART NUMBER
- -------------- ----------- -----------
<S> <C> <C>
10(m) Amendment No. 1 to the Convertible Preferred Stock Purchase Part V
Agreement dated March 21, 1997 among the Purchase
Agreement Parties and James R. Seward.
10(n) Subordinated Debenture and Warrant Purchase Agreement dated as of Part V
February 25, 1997 by the Company and Cahill, Warnock Strategic
Partners Fund, L.P.
10(o) Subordinated Debenture and Warrant Purchase Agreement dated Part V
as of February 25, 1997 by the Company and Strategic Associates, L.P.
10(p) Revolving Credit, Security and Guaranty Agreement dated March 13, 1997 Part V
by and among the Registrant and Security Bank of Kansas City, attached herewith.
21 Subsidiaries of Registrant Part V
23 Consent of Price Waterhouse LLP Part V
</TABLE>
2
<PAGE>
CONCORDE CAREER COLLEGES, INC.
Certificate of Designations of the
Class B Voting Convertible
Preferred Stock
Par Value $0.10 Per Share
Liquidation Value $27.20 Per Share
________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned, the President of Concorde Career Colleges, Inc., a
Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY that the following
resolution has been duly adopted by the Board of Directors of the Corporation
(the "Board of Directors"):
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of the
Restated Certificate of Incorporation, as amended, the Board of Directors hereby
authorizes the issuance of a series of the preferred stock (the "Preferred
Stock") of the Corporation which shall consist of 150,000 shares of the
Corporation's Preferred Stock and hereby fixes the designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof of the shares of such series as follows:
(i) Designation. The designation of said series of the Preferred
Stock shall be Class B Voting Convertible Preferred Stock (the "Class B Voting
Convertible Preferred Stock"). The number of shares of Class B Voting
Convertible Preferred Stock issuable shall be 150,000. The shares of Class B
Voting Convertible Preferred Stock shall be issued as full shares and shall rank
equally in all respects.
(ii) Dividends. Except as otherwise provided herein, the holders of
the shares of Class B Voting Convertible Preferred Stock shall not be entitled
to receive any dividends payable in cash, property or securities for any period
through December 31, 2000; provided, however, commencing January 1, 2001 (the
"Dividend Commencement Date"), the holders of the Class B Voting Convertible
Preferred Stock shall be entitled to receive as and when declared by the Board
of Directors or a duly authorized committee thereof ("Authorized Board
Committee") out of funds legally available for the payment of dividends,
preferential dividends at the rate of (i) $3.26 per share of Class B Voting
Convertible Preferred Stock per annum through December 31, 2002 and (ii)
beginning January 1, 2003 and until the Class B Voting Convertible Preferred
Stock is cancelled or redeemed, $4.08 per share of Class B Voting Convertible
Preferred Stock (collectively, the "Dividends"). All Dividends shall be payable
to holders of Class B Voting Convertible Preferred Stock in cash unless no funds
are legally available for the payment of the Dividends in which case the
Dividends are payable in kind as Class B Voting Convertible Preferred Stock
valued at $27.20 per share thereof.
Dividends shall be earned from the date of the Dividend Commencement Date and
shall be payable in cash on a quarterly basis on April 1, July 1, October 1, and
January 1 in each year (the "Dividend Payment Dates") for the immediately
preceding quarterly period ending on March 31, June 30,
1
<PAGE>
September 30 and December 31, respectively. Such Dividend payments shall be made
to stockholders of record on the record date for each such quarterly period,
such record date to be determined by the Board of Directors or an Authorized
Board Committee in advance of each particular Dividend Payment Date. The
Dividend amount payable on shares of Class B Voting Convertible Preferred Stock
for each full quarterly dividend period shall be computed by dividing by four
the annual rate per share set forth in this paragraph (ii). There shall be no
sinking fund or required deposit of funds in connection with the Dividends.
(iii) Redemption. The shares of Class B Voting Convertible Preferred
Stock are not required to be redeemed by the Corporation.
(iv) Voting Rights.
-------------
(A) Each holder of Class B Voting Convertible Preferred Stock shall be
entitled to cast on all matters submitted to a vote of the Corporation's
stockholders that number of votes equal to the number of whole shares of $0.10
par value common stock of the Corporation (the "Common Stock") computed using
the conversion ratio set forth in paragraph (V) herein that would be issuable to
such holder, if such holder were to convert such shares of Class B Convertible
Preferred Stock as of the record date for purposes of voting at the meeting of
stockholders at which such vote will be taken.
(B) The holders of the Class B Voting Convertible Preferred Stock and
the holders of the Common Stock shall vote together as one class on all matters
submitted to a vote of the Corporation's stockholders.
(v) Conversion. The holders of the Class B Voting Convertible
Preferred Stock shall have the right to convert such Class B Voting Convertible
Preferred Stock on and subject to the following terms and conditions:
(A) At the option of the holder of each share of Class B Voting
Convertible Preferred Stock, each share of Class B Voting Convertible Preferred
Stock shall be convertible into twenty (20) fully paid and non-assessable shares
of Common Stock at a conversion price of $27.20 per share of Class B Voting
Convertible Preferred Stock, subject to adjustment as hereinafter provided (the
"Conversion Ratio").
(B) In order to exercise the conversion right, the holder of any
shares of Class B Voting Convertible Preferred Stock to be converted shall
surrender the certificate or certificates representing such shares for
conversion to an agent designated by the Corporation (the "Agent"), and shall
give written notice to such Agent that the holder elects to convert such shares
of Class B Voting Convertible Preferred Stock. Such notice shall also state
whether any shares of Class B Voting Convertible Preferred Stock represented by
the tendered certificate or certificates, if any, are not to be converted. Any
certificate for the Common Stock issuable upon conversion of Class B Voting
Convertible Preferred Stock, together with any certificate for Class B Voting
Convertible Preferred Stock representing the number of unconverted shares, if
any ("Balance Certificate") shall be issued in the same name as the record
holder of the certificate for Class B Voting Convertible Preferred Stock
tendered for conversion. Certificates for Common Stock and any Balance
Certificates shall not be issued unless the certificate for Class B Voting
Convertible Preferred Stock tendered for conversion is duly endorsed by, or
accompanied by instruments of transfer in form satisfactory to the Agent duly
executed by, the record holder or their duly authorized attorney.
2
<PAGE>
(C) As soon as practicable after the receipt of the certificates
representing the shares surrendered for conversion, accompanied by the notice
required by subsection (B), the Corporation shall cause to be issued and
delivered to the record holder of the shares so surrendered for conversion, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares of Class B Voting Convertible
Preferred Stock and a Balance Certificate, if any. Such conversion shall be
deemed to have been effected on the date on which the Agent shall have received
such certificates representing shares of Class B Voting Convertible Preferred
Stock.
(D) The Corporation shall not be required to issue fractional shares
of Class B Voting Convertible Preferred Stock or of Common Stock or scrip upon
conversion of shares of Class B Voting Convertible Preferred Stock. If
certificates representing more than one share of Class B Voting Convertible
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of all shares issuable by the Corporation upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Class B Voting Convertible Preferred Stock surrendered for conversion. In
connection with the conversion of any Class B Voting Convertible Preferred
Stock, no fractional shares of Common Stock shall be issued, but the Corporation
shall pay to the holder of such fractional shares a cash payment for such
fractional share in an amount based on the Conversion Ratio.
(E) In case the Corporation shall (i) declare a dividend, or make a
distribution on shares of its Common Stock, in shares of its Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (iv) make any other change
affecting the Common Stock as a class without receipt of consideration, the
Conversion Ratio shall be adjusted to the extent necessary to prevent dilution
or enlargement of the conversion rights granted to the holders of the Class B
Voting Convertible Preferred Stock hereunder.
(F) In case the Corporation shall merge or consolidate with another
corporation or entity whereupon the Corporation shall not be the surviving
entity thereof, the Class B Voting Convertible Preferred Stock shall become
convertible into the type and number of shares of the surviving entity or
property (including cash) in the same manner as the Common Stock of the
Corporation but otherwise subject to the same terms and conditions provided
herein.
(G) The Corporation shall at all times provide, free from preemptive
rights, out of its authorized but unissued shares, or out of shares held in its
treasury, shares of Common Stock into which the outstanding shares of Class B
Voting Convertible Preferred Stock are then convertible sufficient to provide
for the conversion thereof. If any shares of Common Stock to be provided for
the purpose of conversion of Class B Voting Convertible Preferred Stock require
registration with or approval of any governmental authority under any federal or
state law, before such shares may be validly issued upon conversion, then the
Corporation covenants that it will in good faith and as expeditiously as
possible endeavor to secure such registration or approval as the case may be.
The Corporation covenants that all shares of Common Stock which may be issued
upon conversion of the Class B Voting Convertible Preferred Stock will be upon
the issuance thereof be fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof.
(H) The Class B Voting Convertible Preferred Stock will be
automatically converted into shares of Common Stock at the Conversion Ratio in
the event:
(i) there is completed a successful registered public offering of
the Corporation's Common Stock exceeding $20,000,000 in the aggregate (the
"Offering"); and
3
<PAGE>
(ii) the Offering price exceeds $4.00 per share of Common Stock.
(vi) Amendment. The Board of Directors reserves the right by subsequent
amendment of this resolution from time to time to decrease the number of shares
which constitute the Class B Voting Convertible Preferred Stock (but not below
the number of shares thereof then outstanding) and, subject to anything to the
contrary set forth in the Restated Certificate of Incorporation, as amended, of
the Corporation applicable to the Preferred Stock, to subdivide the number of
shares, the par value per share and the liquidation value per share of the Class
B Voting Convertible Preferred Stock, and in other respects to amend, within the
limitations provided by law, this resolution and the Restated Certificate of
Incorporation, as amended, of the Corporation.
(vii) Liquidation, Dissolution or Winding Up. The shares of Class B Voting
Convertible Preferred Stock shall be preferred as to assets over the shares of
the Common Stock or any other capital stock of the Corporation ranking junior to
the Class B Voting Convertible Preferred Stock upon liquidation, dissolution or
winding up of the Corporation so that in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the Class B Voting Convertible Preferred Stock shall be entitled
to receive out of the assets of the Corporation available for distribution to
its stockholders, whether from capital, surplus or earnings, after distribution
and payment in full to the holders of any capital stock of the Corporation
ranking prior to the Class B Voting Convertible Preferred Stock upon
liquidation, dissolution or winding up of the Corporation of the preferential
amounts and dividends payable thereon, and before any distribution is made to
holders of shares of the Common Stock or any other capital stock of the
Corporation ranking junior to the Class B Voting Convertible Preferred Stock
upon liquidation, dissolution or winding up of the Corporation, an amount equal
to $27.20 per share plus an amount equal to all dividends (whether or not earned
or declared) accrued and unpaid on such share of Class B Voting Convertible
Preferred Stock to the date of final distribution. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of shares of Class B Voting
Convertible Preferred Stock or any capital stock ranking on a par with the Class
B Voting Convertible Preferred Stock upon liquidation, dissolution or winding up
of the Corporation, shall be insufficient to pay in full the preferential
amounts to which such stock would be entitled, then such assets, or the proceeds
thereof, shall be distributable among such holders ratably in accordance with
the respective amounts which would be payable on such shares if all amounts
payable thereof were payable in full. For the purposes hereof, neither a
consolidation nor a merger of the Corporation with one or more other
corporations, nor a sale or a transfer of all or substantially all of the assets
of the Corporation, shall be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, of the Corporation.
-----------------------
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf by its undersigned President and attested to by its
Secretary this 24th day of February, 1997.
--------------------------
Jack L. Brozman, President
ATTEST:
- -------------------------------------------
Lisa M. Henak, Secretary
5
<PAGE>
Class B
Voting Convertible Preferred Stock
CONCORDE CAREER COLLEGES, INC.
Incorporated Under the Laws
of the State of Delaware
This Certifies That [SPECIMEN]
is the owner of ____________________________________________ (__________) fully
paid and non-assessable shares of Class B Voting Convertible Preferred Stock
(par value $0.10 and liquidation value $27.20 per share) of
CONCORDE CAREER COLLEGES, INC.
transferrable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney, upon surrender of the certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate of
Incorporation and all amendments thereto (copies of which are on file with the
Office of the Secretary of State of Delaware) to all of which the holder, by
acceptance hereof assents.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated: ___________________
_________________________________ _________________________________
SECRETARY PRESIDENT
<PAGE>
CONCORDE CAREER COLLEGES, INC.
The Corporation will furnish without charge to each stockholder who so requests,
a statement of the designations, preferences and relative, participating,
optional or other special rights of the Class B Voting Convertible Preferred
Stock of the Corporation and the qualifications, limitations or restrictions of
such preferences and/or rights. Such request may be made to the Corporation.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT SUCH REGISTRATION, EXCEPT UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE
AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT ANY SUCH
TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER. OWNERSHIP, SALE, PLEDGE AND TRANSFER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN THE
STOCKHOLDERS AGREEMENT DATED FEBRUARY 25, 1997 AMONG THE CORPORATION AND CERTAIN
STOCKHOLDERS THEREOF, AS IT MAY BE MODIFIED OR AMENDED, A COPY OF WHICH IS ON
FILE AT THE OFFICES OF THE COMPANY.
<PAGE>
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS DEBENTURE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS DEBENTURE UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CONCORDE CAREER COLLEGES, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO THE PROVISIONS OF RULE 144 OF THE ACT.
THIS DEBENTURE IS SUBJECT TO THE PROVISIONS OF A DEBENTURE PURCHASE AGREEMENT,
DATED AS OF FEBRUARY 25, 1997, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT AS THEREIN PROVIDED.
CONCORDE CAREER COLLEGES, INC.
5% Subordinated Debenture due 2003
----------------------------------
$183,750 February 25, 1997
FOR VALUE RECEIVED, CONCORDE CAREER COLLEGES, INC., a Delaware corporation
(the "Company"), hereby promises to pay to STRATEGIC ASSOCIATES, L.P., or
-------
permitted assigns ("Strategic Associates" or the "Holder"), the principal amount
-------------------- ------
of One Hundred Eighty Three Thousand Seven Hundred Fifty Dollars ($183,750) on
February 25, 2003, and to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the annual rate of five percent
(5%). Interest shall be computed on the basis of a 360 day year and the actual
number of days elapsed. Accrued and unpaid interest shall be due and payable
quarterly in arrears on February 28, May 31, August 31, and November 30 of each
year from the date hereof until the entire principal amount is paid. All
amounts due and owing hereunder shall be payable in lawful money of the United
States of America, in immediately available funds, at the principal office of
the Holder or at such other place as the Holder may designate from time to time
in writing to the Company. Any payment on this Debenture coming due on a
Saturday, a Sunday or a day which is a legal holiday in the place at which a
payment is to be made hereunder shall be made on the next succeeding day which
is a business day in such place, and any such extension of the time of payment
shall be included in the computation of interest hereunder. This Debenture is
issued pursuant and subject to and is entitled to the benefits of a certain
Debenture and Warrant Purchase Agreement dated as of February 25, 1997 between
the Company and Strategic Associates (the "Debenture Purchase Agreement").
----------------------------
Subject to the terms of the Debenture Purchase Agreement (including, but
not limited to, the subordination provisions thereof), upon the occurrence or
existence of an Event of Default (as defined in the Debenture Purchase
Agreement) the Holder may, by notice to the Company, declare the entire unpaid
principal amount of this Debenture, all interest accrued and unpaid
<PAGE>
hereon, and all other amounts payable to the Holder hereunder or under the
Debenture Purchase Agreement to be forthwith due and payable, whereupon this
Debenture, all such accrued interest and all such amounts shall become and be
forthwith due and payable, and in addition thereto, and not in substitution
therefor, the Holder shall be entitled to exercise any one or more of the rights
and remedies provided by applicable law. Failure to exercise any right or
remedy under this Debenture or available under applicable law shall not
constitute a waiver of such option or such other remedies or of the right to
exercise any of the same in the event of any subsequent Event of Default. The
Company and all makers, sureties, guarantors, endorsers and other persons
assuming obligations pursuant to this Debenture hereby waive presentment,
protest, demand, notice of dishonor and all other notices and all defenses and
pleas on the grounds of any extension or extension of the time of payments or
the due dates hereof, in whole or in part, before or after maturity, with or
without notice. No renewal or extension of this Debenture, no release of any
obligor and no delay in enforcement of this Debenture or in exercising any right
or power hereunder shall affect the liability of any obligor hereunder. The
pleading of any statute of limitations as a defense to any demand against any
obligor is expressly waived.
1. Warrant. As part of the consideration for the loan evidenced by
-------
this Debenture, the Company has authorized and issued a non-detachable Warrant,
attached to this Debenture as Exhibit 1 (the "Warrant"), to Holder. If the
------- -------
Holder exercises the Warrant at any time after August 25, 1998 and on or before
February 25, 2003 (the "Exercise Period"), the Warrant would entitle Holder to
---------------
purchase an aggregate of 135,110 shares of the Company's Common Stock, at an
exercise price ("Exercise Price") of $1.36 per share, subject to any adjustments
--------------
as set forth in Section 3.3 of the Warrant. During the Exercise Period, in the
event that Holder fails to exercise this Warrant after the Company has provided
Holder (i) twenty (20) days prior written notice of its intention to pay in full
and redeem the Debenture on a particular date (the "Repayment Date"), and (ii)
--------------
thirty (30) days after the Redemption Date within which to exercise this
Warrant, then this Warrant shall terminate and thereafter be null and void.
Notwithstanding the preceding sentence, in the event that the Company repays and
redeems the Debenture in full on or before August 25, 1998, this Warrant shall
remain in full force and effect until September 25, 1998, when it shall expire.
2. Prepayment.
----------
(a) Voluntary Payment. The Company may prepay or redeem all or part of
-----------------
the Debenture prior to maturity hereof, without penalty, with twenty (20) days'
prior written notice thereof to Holder.
(b) Mandatory Prepayment. In the event that the Company consummates a
--------------------
registered underwritten public offering covering the offer and sale of Common
Stock for the account of the Company in which net proceeds to the Company of the
public offering equals or exceeds $15 million (a "Public Offering"), then the
---------------
Company must apply, at the request of Holder, the proceeds of such Public
Offering (to the extent available after payment of all Senior Indebtedness (as
defined in Section 12(e) below) to prepay the unpaid principal amount and
outstanding interest of this Debenture.
-2-
<PAGE>
3. No Impairment. The Company will not, by amendment of its Articles
-------------
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any other similar voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment due
to such event. Without limiting the generality of the foregoing, the Company
(a) will not increase the par value of any shares of stock receivable on
exercise of the Warrant attached hereto above the Exercise Price then in effect,
(b) will take all action that may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock, free from all taxes, liens and charges with respect to the issue thereof,
on the exercise of the Warrant attached hereto from time to time and (c) will
not consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company, unless such other person (or, in the
case of a merger or consolidation in which the Company is the surviving entity,
the person issuing the securities involved in such merger or consolidation)
shall expressly assume in writing and will be bound by all the terms of this
Debenture and the Warrant attached hereto.
4. Chief Financial Officer's Certificate as Adjustments. In each case of
----------------------------------------------------
any adjustment or readjustment in the shares of Common Stock issuable on the
exercise of the Warrant attached hereto, the Chief Financial Officer of the
Company will promptly compute such adjustment or readjustment in accordance with
the terms of the Warrant and prepare a certificate setting forth such adjustment
or readjustment, the Exercise Price resulting therefrom, and the increase or
decrease, if any, of the number of shares purchasable at such price upon
exercise of the Warrant showing in detail the facts and computation upon which
such adjustment or readjustment is based. The Company will forthwith mail a
copy of each such certificate to each registered holder of this Debenture, and
will, on the written request at any time of the holder of this Debenture,
furnish to such holder a like certificate setting forth the Exercise Price of
the Debenture at the time in effect and showing how it was calculated.
5. Notices of Record Date, etc. In the event the Company (a) takes a
---------------------------
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend on, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or (b)
consolidates or merges into, or transfers all or substantially all of its assets
to, another corporation, or (c) dissolves or liquidates (the events described in
the foregoing clauses (b) and (c) being hereinafter referred to as a
"Fundamental Change"), then and in each such event the Company will mail or
------------------
cause to be mailed to the registered holder of this Debenture a notice
specifying (i) the date on which any such 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, (ii) the date on which any such
Fundamental Change is to be effected, and the time, if any to be fixed, as of
which the holders of record of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property, if any, deliverable on
any Fundamental Change and (iii) the amount and character of any stock or other
securities, or rights or options with respect thereto, proposed to be issued or
granted, the date of such proposed issue or grant
-3-
<PAGE>
and the persons or class of persons to whom such proposed issue or grant is to
be offered or made. Such notice shall also state that the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or a
--------------
favorable vote of stockholders, if either is required. Such notice shall be
mailed at least 20 days prior to the date specified in such notice on which any
such action is to be taken or 20 days prior to the record date therefor,
whichever is earlier.
6. Reservation of Warrant Shares. The Company will at all times reserve
-----------------------------
and keep available, solely for issuance and delivery on the exercise of the
Warrant attached hereto, all shares of Common Stock from time to time issuable
upon such exercise.
7. Transfer. Subject to applicable federal and state securities laws,
--------
the transfer of this Debenture and all rights hereunder, in whole or in part, is
registrable at the office or agency of the Company by the holder hereof in
person or by his duly authorized attorney, upon surrender of this Debenture
properly endorsed, provided that this Debenture (and any rights of the Holder
hereunder) is non-transferable except to a person or entity controlled by, or
under common control with, the Holder. Each taker and holder of this Debenture,
by taking or holding the same, consents and agrees that this Debenture, when
endorsed in blank, shall be deemed negotiable, and that the holder hereof, when
this Debenture shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Debenture as the absolute owner and holder
hereof for any purpose and as the person entitled to exercise the rights
represented by this Debenture, or to the registration of transfer hereof on the
books of the Company; and until due presentment for registration of transfer on
such books the Company may treat the registered holder hereof as the owner and
holder for all purposes, and the Company shall not be affected by notice to the
contrary.
8. Register. The Company shall maintain, at the principal office of the
--------
Company (or such other office as it may designate by notice to the holder
hereof), a register for the Debenture, in which the Company shall record the
name and address of the person in whose name a Debenture has been issued, as
well as the name and address of each transferee and each prior owner of such
Debenture.
9. Replacement. On receipt of evidence reasonably satisfactory to the
-----------
Company of the loss, theft, destruction or mutilation of this Debenture and, in
the case of any such loss, theft or destruction of this Debenture, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Debenture, the Company at its expense will execute and
deliver, in lieu thereof, a new Debenture of like tenor; provided, however, if a
-------- -------
Debenture held by Holder its nominee or any of its partners, principals,
officers or directors is lost, stolen or destroyed, the affidavit of a general
partner or any principal or corporate officer of Holder setting forth the
circumstances with respect to such loss, theft or destruction shall be accepted
as satisfactory evidence thereof, and no indemnity bond or other security shall
be required as a condition to the execution and delivery by the company of a new
Debenture in replacement of such lost, stolen or destroyed Debenture.
-4-
<PAGE>
10. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Debenture in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Debenture are not and will not be adequate, and that such terms may be
specifically enforced pursuant to a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
11. No Sinking Fund; Payment Unsecured. No sinking fund or similar
----------------------------------
provision shall be required to fund payment of principal or interest under this
Debenture. Payment of principal and interest on this Debenture is unsecured.
12. Subordination.
-------------
(a) Subordination to Senior Indebtedness. The payment of the
------------------------------------
principal of and interest on this Debenture is hereby expressly made subordinate
and junior in right of payment to the prior payment in full of all principal of
and interest on all Senior Indebtedness (as defined below) whether now
outstanding or hereafter incurred, created or assumed.
(b) Payment Over of Proceeds Upon Dissolution, Liquidation, Etc. of
---------------------------------------------------------------
the Company. In the event of any insolvency or bankruptcy proceedings, or any
- -----------
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its creditors, as such, or
to its property, and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether nor not involving
insolvency or bankruptcy, then the holders of the Senior Indebtedness shall be
entitled to receive payment in full of all principal and interest on all Senior
Indebtedness before the Holder of this Debenture is entitled to receive any
payment on account of principal or interest upon this Debenture and to that end
(but subject to the power of a court of competent jurisdiction to make other
equitable provision reflecting the rights conferred by the provisions of this
Section upon the Senior Indebtedness and the holders thereof with respect to
this Debenture and the Holder thereof by a lawful plan of reorganization under
applicable bankruptcy law) the holders of the Senior Indebtedness shall be
entitled to receive for application in payment hereof any payment or
distribution of any kind or character, whether in cash or property or securities
which may be payable or deliverable in any such proceedings in respect of this
Debenture.
(c) Subrogation to Rights of Holders of Senior Indebtedness. Subject
-------------------------------------------------------
to the payment in full of all principal and interest on all Senior Indebtedness,
the Holder of this Debenture shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets or
securities of the Company applicable to the Senior Indebtedness.
(d) No Payment on Debentures When Senior Indebtedness in Default. In
------------------------------------------------------------
the event and during the continuation of any default in the payment of principal
or interest on any Senior Indebtedness beyond any applicable grace, notice or
cure period, or if any Event of Default (as defined in the Debenture Purchase
Agreement) with respect to Senior Indebtedness shall have
-5-
<PAGE>
occurred and be continuing permitting the holders of such Senior Indebtedness to
accelerate the maturity thereof, unless and until such default or Event of
Default shall have been cured or waived or shall have ceased to exist, then no
payment of principal or interest shall be made by the Company on this Debenture.
(e) Definition of Senior Indebtedness. The term "Senior
--------------------------------- ------
Indebtedness," as used in this Debenture, shall mean the principal and interest
- -------------
on the following, whether outstanding at the date of execution of the Debenture
Purchase Agreement or thereafter incurred, created, assumed, modified, renewed
or extended: (w) indebtedness of the Company for money borrowed (including the
loan with Security Bank, as defined in the Debenture Purchase Agreement); (x)
the financial obligations of the Company to CenCor existing as of the date
hereof (which will be repaid in full and released at Closing as defined in the
Debenture Purchase Agreement); (y) obligations of the Company as lessee under
any lease of property which is reflected on the Company's balance sheet as a
capitalized lease in accordance with generally accepted accounting principles
("GAAP"); and (z) guarantees by the Company of indebtedness for money borrowed
by a Subsidiary or of any obligations of a Subsidiary under any lease or
property which is reflected on the Subsidiary's balance sheet as a capitalized
lease in accordance with GAAP.
13. Notices. All notices, demands, requests, or other communications
-------
which may be or are required to be given, served, or sent pursuant to this
Debenture shall be given, served and sent in accordance with the provisions of
the Debenture Purchase Agreement.
14. Miscellaneous. This Debenture and the Warrant attached hereto and any
-------------
term hereof or therein may be changed, waived, discharged or terminated only by
an instrument in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. Any amendment, modification
or addition to this Warrant is subject to the provisions governing same in the
Debenture Purchase Agreement. This Debenture and the Warrant attached hereto
shall be construed and enforced in accordance with and governed by the laws of
the State of Delaware (excluding the choice of law rules thereof). The headings
in this Debenture and the Warrant attached hereto are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Debenture to be duly
executed on its behalf as of the date first hereinabove set forth.
CONCORDE CAREER COLLEGES, INC.
By:__________________________________
Jack L. Brozman
President and Chief Executive Officer
-7-
<PAGE>
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS DEBENTURE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS DEBENTURE UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CONCORDE CAREER COLLEGES, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO THE PROVISIONS OF RULE 144 OF THE ACT.
THIS DEBENTURE IS SUBJECT TO THE PROVISIONS OF A DEBENTURE PURCHASE AGREEMENT,
DATED AS OF FEBRUARY 25, 1997, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT AS THEREIN PROVIDED.
CONCORDE CAREER COLLEGES, INC.
5% Subordinated Debenture due 2003
----------------------------------
$3,316,250 February 25, 1997
FOR VALUE RECEIVED, CONCORDE CAREER COLLEGES, INC., a Delaware corporation
(the "Company"), hereby promises to pay to CAHILL, WARNOCK STRATEGIC PARTNERS
-------
FUND, L.P., or permitted assigns ("Strategic Partners" or the "Holder"), the
------------------ ------
principal amount of Three Million Three Hundred Sixteen Thousand Two Hundred
Fifty Dollars ($3,316,250) on February 25, 2003, and to pay interest on the
unpaid principal amount hereof, from the date hereof until paid in full, at the
annual rate of five percent (5%). Interest shall be computed on the basis of a
360 day year and the actual number of days elapsed. Accrued and unpaid interest
shall be due and payable quarterly in arrears on February 28, May 31, August 31,
and November 30 of each year from the date hereof until the entire principal
amount is paid. All amounts due and owing hereunder shall be payable in lawful
money of the United States of America, in immediately available funds, at the
principal office of the Holder or at such other place as the Holder may
designate from time to time in writing to the Company. Any payment on this
Debenture coming due on a Saturday, a Sunday or a day which is a legal holiday
in the place at which a payment is to be made hereunder shall be made on the
next succeeding day which is a business day in such place, and any such
extension of the time of payment shall be included in the computation of
interest hereunder. This Debenture is issued pursuant and subject to and is
entitled to the benefits of a certain Debenture and Warrant Purchase Agreement
dated as of February 25, 1997 between the Company and Strategic Partners (the
"Debenture Purchase Agreement").
----------------------------
Subject to the terms of the Debenture Purchase Agreement (including, but
not limited to, the subordination provisions thereof), upon the occurrence or
existence of an Event of Default (as
-1-
<PAGE>
defined in the Debenture Purchase Agreement) the Holder may, by notice to the
Company, declare the entire unpaid principal amount of this Debenture, all
interest accrued and unpaid hereon, and all other amounts payable to the Holder
hereunder or under the Debenture Purchase Agreement to be forthwith due and
payable, whereupon this Debenture, all such accrued interest and all such
amounts shall become and be forthwith due and payable, and in addition thereto,
and not in substitution therefor, the Holder shall be entitled to exercise any
one or more of the rights and remedies provided by applicable law. Failure to
exercise any right or remedy under this Debenture or available under applicable
law shall not constitute a waiver of such option or such other remedies or of
the right to exercise any of the same in the event of any subsequent Event of
Default. The Company and all makers, sureties, guarantors, endorsers and other
persons assuming obligations pursuant to this Debenture hereby waive
presentment, protest, demand, notice of dishonor and all other notices and all
defenses and pleas on the grounds of any extension or extension of the time of
payments or the due dates hereof, in whole or in part, before or after maturity,
with or without notice. No renewal or extension of this Debenture, no release
of any obligor and no delay in enforcement of this Debenture or in exercising
any right or power hereunder shall affect the liability of any obligor
hereunder. The pleading of any statute of limitations as a defense to any
demand against any obligor is expressly waived.
1. Warrant. As part of the consideration for the loan evidenced by
-------
this Debenture, the Company has authorized and issued a non-detachable Warrant,
attached to this Debenture as Exhibit 1 (the "Warrant"), to Holder. If the
------- -------
Holder exercises the Warrant at any time after August 25, 1998 and on or before
February 25, 2003 (the "Exercise Period"), the Warrant would entitle Holder to
---------------
purchase an aggregate of 2,438,419 shares of the Company's Common Stock, at an
exercise price ("Exercise Price") of $1.36 per share, subject to any adjustments
--------------
as set forth in Section 3.3 of the Warrant. During the Exercise Period, in the
event that Holder fails to exercise this Warrant after the Company has provided
Holder (i) twenty (20) days prior written notice of its intention to pay in full
and redeem the Debenture on a particular date (the "Repayment Date"), and (ii)
--------------
thirty (30) days after the Redemption Date within which to exercise this
Warrant, then this Warrant shall terminate and thereafter be null and void.
Notwithstanding the preceding sentence, in the event that the Company repays and
redeems the Debenture in full on or before August 25, 1998, this Warrant shall
remain in full force and effect until September 25, 1998, when it shall then
expire.
2. Prepayment.
----------
(a) Voluntary Payment. The Company may prepay or redeem all or part of
-----------------
the Debenture prior to maturity hereof, without penalty, with twenty (20) days'
prior written notice thereof to Holder.
(b) Mandatory Prepayment. In the event that the Company consummates a
--------------------
registered underwritten public offering covering the offer and sale of Common
Stock for the account of the Company in which net proceeds to the Company of the
public offering equals or exceeds $15 million (a "Public Offering"), then the
---------------
Company must apply, at the request of Holder, the proceeds of such Public
Offering (to the extent available after payment of all Senior Indebtedness
-2-
<PAGE>
(as defined in Section 12(e) below) to prepay the unpaid principal amount and
outstanding interest of this Debenture.
3. No Impairment. The Company will not, by amendment of its Articles
-------------
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any other similar voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment due
to such event. Without limiting the generality of the foregoing, the Company
(a) will not increase the par value of any shares of stock receivable on
exercise of the Warrant attached hereto above the Exercise Price then in effect,
(b) will take all action that may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock, free from all taxes, liens and charges with respect to the issue thereof,
on the exercise of the Warrant attached hereto from time to time and (c) will
not consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company, unless such other person (or, in the
case of a merger or consolidation in which the Company is the surviving entity,
the person issuing the securities involved in such merger or consolidation)
shall expressly assume in writing and will be bound by all the terms of this
Debenture and the Warrant attached hereto.
4. Chief Financial Officer's Certificate as Adjustments. In each case of
----------------------------------------------------
any adjustment or readjustment in the shares of Common Stock issuable on the
exercise of the Warrant attached hereto, the Chief Financial Officer of the
Company will promptly compute such adjustment or readjustment in accordance with
the terms of the Warrant and prepare a certificate setting forth such adjustment
or readjustment, the Exercise Price resulting therefrom, and the increase or
decrease, if any, of the number of shares purchasable at such price upon
exercise of the Warrant showing in detail the facts and computation upon which
such adjustment or readjustment is based. The Company will forthwith mail a
copy of each such certificate to each registered holder of this Debenture, and
will, on the written request at any time of the holder of this Debenture,
furnish to such holder a like certificate setting forth the Exercise Price of
the Debenture at the time in effect and showing how it was calculated.
5. Notices of Record Date, etc. In the event the Company (a) takes a
----------------------------
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend on, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or (b)
consolidates or merges into, or transfers all or substantially all of its assets
to, another corporation, or (c) dissolves or liquidates (the events described in
the foregoing clauses (b) and (c) being hereinafter referred to as a
"Fundamental Change"), then and in each such event the Company will mail or
------------------
cause to be mailed to the registered holder of this Debenture a notice
specifying (i) the date on which any such 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, (ii) the date on which any such
Fundamental Change is to be effected, and the time, if any to be fixed, as of
which the holders of record of Common Stock shall be entitled to exchange their
-3-
<PAGE>
shares of Common Stock for securities or other property, if any, deliverable on
any Fundamental Change and (iii) the amount and character of any stock or other
securities, or rights or options with respect thereto, proposed to be issued or
granted, the date of such proposed issue or grant and the persons or class of
persons to whom such proposed issue or grant is to be offered or made. Such
notice shall also state that the action in question or the record date is
subject to the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), or a favorable vote of
--------------
stockholders, if either is required. Such notice shall be mailed at least 20
days prior to the date specified in such notice on which any such action is to
be taken or 20 days prior to the record date therefor, whichever is earlier.
6. Reservation of Warrant Shares. The Company will at all times reserve
-----------------------------
and keep available, solely for issuance and delivery on the exercise of the
Warrant attached hereto, all shares of Common Stock from time to time issuable
upon such exercise.
7. Transfer. Subject to applicable federal and state securities laws,
--------
the transfer of this Debenture and all rights hereunder, in whole or in part, is
registrable at the office or agency of the Company by the holder hereof in
person or by his duly authorized attorney, upon surrender of this Debenture
properly endorsed, provided that this Debenture (and any rights of the Holder
hereunder) is non-transferable except to a person or entity controlled by, or
under common control with, the Holder. Each taker and holder of this Debenture,
by taking or holding the same, consents and agrees that this Debenture, when
endorsed in blank, shall be deemed negotiable, and that the holder hereof, when
this Debenture shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Debenture as the absolute owner and holder
hereof for any purpose and as the person entitled to exercise the rights
represented by this Debenture, or to the registration of transfer hereof on the
books of the Company; and until due presentment for registration of transfer on
such books the Company may treat the registered holder hereof as the owner and
holder for all purposes, and the Company shall not be affected by notice to the
contrary.
8. Register. The Company shall maintain, at the principal office of the
--------
Company (or such other office as it may designate by notice to the holder
hereof), a register for the Debenture, in which the Company shall record the
name and address of the person in whose name a Debenture has been issued, as
well as the name and address of each transferee and each prior owner of such
Debenture.
9. Replacement. On receipt of evidence reasonably satisfactory to the
-----------
Company of the loss, theft, destruction or mutilation of this Debenture and, in
the case of any such loss, theft or destruction of this Debenture, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Debenture, the Company at its expense will execute and
deliver, in lieu thereof, a new Debenture of like tenor; provided, however, if a
-------- -------
Debenture held by Holder its nominee or any of its partners, principals,
officers or directors is lost, stolen or destroyed, the affidavit of a general
partner or any principal or corporate officer of Holder setting forth the
circumstances with respect to such loss, theft or destruction shall be accepted
as
-4-
<PAGE>
satisfactory evidence thereof, and no indemnity bond or other security shall be
required as a condition to the execution and delivery by the company of a new
Debenture in replacement of such lost, stolen or destroyed Debenture.
10. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Debenture in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Debenture are not and will not be adequate, and that such terms may be
specifically enforced pursuant to a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
11. No Sinking Fund; Payment Unsecured. No sinking fund or similar
----------------------------------
provision shall be required to fund payment of principal or interest under this
Debenture. Payment of principal and interest on this Debenture is unsecured.
12. Subordination.
-------------
(a) Subordination to Senior Indebtedness. The payment of the
------------------------------------
principal of and interest on this Debenture is hereby expressly made subordinate
and junior in right of payment to the prior payment in full of all principal of
and interest on all Senior Indebtedness (as defined below) whether now
outstanding or hereafter incurred, created or assumed.
(b) Payment Over of Proceeds Upon Dissolution, Liquidation, Etc. of
---------------------------------------------------------------
the Company. In the event of any insolvency or bankruptcy proceedings, or any
- -----------
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its creditors, as such, or
to its property, and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether nor not involving
insolvency or bankruptcy, then the holders of the Senior Indebtedness shall be
entitled to receive payment in full of all principal and interest on all Senior
Indebtedness before the Holder of this Debenture is entitled to receive any
payment on account of principal or interest upon this Debenture and to that end
(but subject to the power of a court of competent jurisdiction to make other
equitable provision reflecting the rights conferred by the provisions of this
Section upon the Senior Indebtedness and the holders thereof with respect to
this Debenture and the Holder thereof by a lawful plan of reorganization under
applicable bankruptcy law) the holders of the Senior Indebtedness shall be
entitled to receive for application in payment hereof any payment or
distribution of any kind or character, whether in cash or property or securities
which may be payable or deliverable in any such proceedings in respect of this
Debenture.
(c) Subrogation to Rights of Holders of Senior Indebtedness. Subject
-------------------------------------------------------
to the payment in full of all principal and interest on all Senior Indebtedness,
the Holder of this Debenture shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets or
securities of the Company applicable to the Senior Indebtedness.
-5-
<PAGE>
(d) No Payment on Debentures When Senior Indebtedness in Default. In
------------------------------------------------------------
the event and during the continuation of any default in the payment of principal
or interest on any Senior Indebtedness beyond any applicable grace, notice or
cure period, or if any Event of Default (as defined in the Debenture Purchase
Agreement) with respect to Senior Indebtedness shall have occurred and be
continuing permitting the holders of such Senior Indebtedness to accelerate the
maturity thereof, unless and until such default or Event of Default shall have
been cured or waived or shall have ceased to exist, then no payment of principal
or interest shall be made by the Company on this Debenture.
(e) Definition of Senior Indebtedness. The term "Senior
--------------------------------- ------
Indebtedness," as used in this Debenture, shall mean the principal and interest
- ------------
on the following, whether outstanding at the date of execution of the Debenture
Purchase Agreement or thereafter incurred, created, assumed, modified, renewed
or extended: (w) indebtedness of the Company for money borrowed (including the
loan with Security Bank, as defined in the Debenture Purchase Agreement); (x)
the financial obligations of the Company to CenCor existing as of the date
hereof (which will be repaid in full and released at Closing as defined in the
Debenture Purchase Agreement); (y) obligations of the Company as lessee under
any lease of property which is reflected on the Company's balance sheet as a
capitalized lease in accordance with generally accepted accounting principles
("GAAP"); and (z) guarantees by the Company of indebtedness for money borrowed
----
by a Subsidiary or of any obligations of a Subsidiary under any lease or
property which is reflected on the Subsidiary's balance sheet as a capitalized
lease in accordance with GAAP.
13. Notices. All notices, demands, requests, or other communications
-------
which may be or are required to be given, served, or sent pursuant to this
Debenture shall be given, served and sent in accordance with the provisions of
the Debenture Purchase Agreement.
14. Miscellaneous. This Debenture and the Warrant attached hereto and any
-------------
term hereof or therein may be changed, waived, discharged or terminated only by
an instrument in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. Any amendment, modification
or addition to this Warrant is subject to the provisions governing same in the
Debenture Purchase Agreement. This Debenture and the Warrant attached hereto
shall be construed and enforced in accordance with and governed by the laws of
the State of Delaware (excluding the choice of law rules thereof). The headings
in this Debenture and the Warrant attached hereto are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Debenture to be duly
executed on its behalf as of the date first hereinabove set forth.
CONCORDE CAREER COLLEGES, INC.
By:__________________________________
Jack L. Brozman
President and Chief Executive Officer
-7-
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CONCORDE CAREER COLLEGES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO THE PROVISIONS OF RULE 144 OF THE ACT.
THIS WARRANT IS SUBJECT TO THE PROVISIONS OF A DEBENTURE PURCHASE AGREEMENT,
DATED AS OF FEBRUARY 25, 1997, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT AS THEREIN PROVIDED.
WARRANT TO ACQUIRE SHARES OF
COMMON STOCK OF
CONCORDE CAREER COLLEGES, INC.
February 25, 1997
THIS CERTIFIES THAT CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
("Holder"), for value received, or its registered assigns, is entitled to
------
purchase, on the terms and subject to the conditions hereinafter set forth, from
CONCORDE CAREER COLLEGES, INC., a Delaware corporation (the "Company"), at any
-------
time after August 25, 1998 and on or before February 25, 2003, subject to
earlier termination (the "Exercise Period"), that number of shares (the "Warrant
--------------- -------
Shares") of common stock, par value $.10 per share, of the Company (the "Common
- ------ ------
Stock"), as set forth in Section 2.1 hereof.
- -----
SECTION 1
Exercise Price
--------------
The exercise price at which this Warrant may be exercised shall be $1.36
per share of Common Stock (the "Exercise Price"), subject to any adjustment
--------------
pursuant to Section 3.3.
SECTION 2
Exercise of Warrant, Etc.
-------------------------
2.1 Number of Shares for Which Warrant is Exercisable. This Warrant shall
-------------------------------------------------
be exercisable for 2,438,419 shares of Common Stock, subject to any adjustment
pursuant to Section 3.3.
2.2 Procedure for Exercise of Warrant. The Warrant may be exercised in
---------------------------------
whole or in part during the Exercise Period by surrendering this Warrant, with
the purchase form provided for
<PAGE>
herein duly executed by Holder or by Holder's duly authorized attorney-in-fact,
at the principal office of the Company or at such other office or agency in the
United States as the Company may designate by notice in writing to the Holder
accompanied by payment in full, in cash, bank cashier's check or certified check
payable to the order of the Company, of the Exercise Price payable in respect of
the Warrant Shares being exercised. In addition to payments of the Exercise
Price by cash or said checks, payment of the Exercise Price with respect to the
Warrants being exercised may be made, at the option of the Holder, by the
reduction in the principal amount of the Debenture (the "Debenture") issued to
---------
the Holder pursuant to the Debenture Purchase Agreement, dated as of February
25, 1997, by and between the Company and the Holder (the "Debenture Purchase
------------------
Agreement") (or forgiveness of any accrued and unpaid interest thereon, whether
- ---------
or not payment of such interest has been suspended pursuant to the provisions of
such Debenture), even during a period in which an Event of Default (as defined
in the Debenture Purchase Agreement) has occurred and is continuing under such
Debenture, in an amount equal to the Exercise Price with respect to the Warrant
being exercised; and in such a case, this Warrant shall be accompanied by said
Debenture (with the purchase form duly executed) which shall be substituted and
replaced by a new Debenture identical in form and content to the original
Debenture except that principal amount shall be appropriately reduced to reflect
the reduction in the principal amount applicable to the payment of the Exercise
Price with respect to the Warrant being exercised. If fewer than all of the
Warrant Shares are being exercised, the Company shall, upon exercise prior to
the end of the Expiration Period, execute and deliver to the Holder a new
certificate (dated the date hereof) evidencing the balance of the Warrant Shares
that remain exercisable.
2.3 Conversion.
----------
(a) On or after August 25, 1998, in the event that the Company consummates
a firm-commitment underwritten public offering pursuant to an effective
registration statement under the Act covering the offer and sale of Common Stock
for the account of the Company in which (i) the net proceeds of the public
offering price equals or exceeds $20 million and (ii) the public offering price
per share of Common Stock equals or exceeds $4.00, then this Warrant shall
become mandatorily exercisable within six (6) months for that number of shares
of Common Stock issuable upon exercise of the Warrant.
(b) In the Event of Default (as defined in the Debenture Purchase
Agreement), then this Warrant shall immediately become exercisable, at the
option of the Holder, for that number of shares of Common Stock issuable upon
exercise of the Warrant.
2.4 Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Act, shall bear the following
legend (and any additional legend required by any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof:
- 2 -
<PAGE>
"These securities have not been registered under the Securities Act of
1933, as amended, or under any state securities laws and may be offered,
sold or transferred only if registered pursuant to the provisions of such
laws, or if in the opinion of counsel satisfactory to the Company, an
exemption from such registration is available."
2.5 Acknowledgment of Continuing Obligation. The Company will, if Holder
---------------------------------------
exercises this Warrant in part, upon request of the Holder, acknowledge in
writing the Company's continuing obligation to the Holder in respect of any
rights to which the Holder shall continue to be entitled after such exercise in
accordance with this Warrant, provided, that the failure of the Holder to make
any such request shall not affect the continuing obligation of the Company to
the Holder in respect of such rights.
2.6 Exercise Period. The Company and Purchaser agree to negotiate in good
---------------
faith to modify or extend the Exercise Period in the event that either the
Company or Purchaser deems it appropriate to modify or extend such Exercise
Period.
2.7 Termination of Warrant. During the Exercise Period, in the event that
----------------------
Holder fails to exercise this Warrant after the Company has provided Holder (i)
twenty (20) days prior written notice of its intention to pay in full and redeem
the Debenture on a particular date (the "Repayment Date"), and (ii) thirty (30)
--------------
days after the Redemption Date within which to exercise this Warrant, then this
Warrant shall terminate and thereafter be null and void. Notwithstanding the
preceding sentence, in the event that the Company repays and redeems the
Debenture in full on or before August 25, 1998, this Warrant shall remain in
full force and effect until September 25, 1998, when it shall expire.
SECTION 3
Ownership of this Warrant.
-------------------------
3.1 Deemed Holder. The Company may deem and treat the person in whose
-------------
name this Warrant is registered as the Holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 3.
3.2 Exchange, Transfer and Replacement. This Warrant is non-detachable
----------------------------------
from the Debenture and may not be transferred, assigned, sold, pledged or
otherwise hypothecated ("Transferred") except with the Debenture, and if so
-----------
Transferred, then only as permitted under the terms and conditions of the
Debenture and the Debenture Purchase Agreement; provided, however, that if the
Company repays and redeems the Debenture in full on or before August 25, 1998,
this Warrant shall remain in full force and effect until September 25, 1998.
This Warrant
- 3 -
<PAGE>
and all rights hereunder are transferable in whole or in part upon the books of
the Company by the Holder in person or by duly authorized attorney, and a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee, upon surrender of this
Warrant duly endorsed at said office or agency of the Company. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, or indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant, provided,
--------
however, that if the Holder of this Warrant is the original Holder, an affidavit
- -------
of lost Warrant shall be sufficient for all purposes of this Section 3.2. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall pay all
reasonable expenses, taxes (other than stock transfer taxes and income taxes)
and other charges payable by it in connection with the preparation, execution
and delivery of Warrant Shares pursuant to this Section 3.2.
3.3 Antidilution.
------------
(a) If at any time while all or any portion of this Warrant remains
outstanding all or any portion of this Warrant shall be exercised subsequent to
(i) any sales of shares of Common Stock of the Company at a price per share less
than the Exercise Price per share then applicable to this Warrant, or (ii) any
issuance of any security convertible into shares of Common Stock of the Company
with a conversion price per share less than the Exercise Price per share then
applicable to this Warrant, or (iii) any issuance of any option, warrant or
other right to purchase shares of Common Stock of the Company at any Exercise
Price per share less than the Exercise Price per share then applicable to this
Warrant (except pursuant to an employee or director stock option plan or similar
compensation plan approved by the Board of Directors); then in any and every
such event the Exercise Price per share for this Warrant shall be reduced and
shall be equal to such lower sales, conversion or Exercise Price per share.
(b) If all or any portion of this Warrant shall be exercised subsequent to
any stock dividend, split-up, recapitalization, merger, consolidation,
combination or exchange of shares, reorganization or liquidation of the Company
occurring after the date hereof, as a result of which such shares of any class
shall be issued in respect of outstanding shares of Common Stock of the Company
(or shall be issuable in respect of securities convertible into shares of Common
Stock) or upon exercise of rights (other than this Warrant) to purchase shares
of Common Stock or shares of such Common Stock shall be changed into the same or
a different number of shares of the same or another class or classes, the Holder
exercising this Warrant shall receive the aggregate number and class of shares
which such Holder would have received if this Warrant had been exercised
immediately before such stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, reorganization or liquidation.
- 4 -
<PAGE>
SECTION 4
Special Agreements of the Company
---------------------------------
The Company covenants and agrees that:
4.1 The Company will reserve and set apart and have at all times, free
from preemptive rights, a number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant or of any other rights or
privileges provided for therein sufficient to enable the Company at any time to
fulfill all its obligations thereunder.
4.2 This Warrant shall be binding upon any corporation or entity
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
SECTION 5
Notices
-------
Any notice or other document required or permitted to be given or delivered
to the Holder or the Company shall be delivered, or sent by certified or
registered mail, to the Holder or the Company at the address as set forth in
Section 10.4 of the Debenture Purchase Agreement.
SECTION 6
Governing Law
-------------
This Warrant shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of Delaware, without giving effect to its
conflicts of laws provisions.
SECTION 7
Assignment
----------
Notwithstanding any provision of this Warrant which may be construed to the
contrary, this Warrant and any rights hereunder shall not be assignable by the
Holder except in accordance with the provisions governing assignments hereof set
forth in the Debenture Purchase Agreement, dated as of February 25, 1997, among
the Company and Holder, and any attempt by Holder to assign this Warrant or any
rights hereunder other than in accordance therewith shall be void and of no
force and effect.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, and to be dated as of February 25, 1997.
ATTEST: CONCORDE CAREER COLLEGES, INC.
______________________________ By: _____________________________________
Lisa M. Henak, Secretary Jack L. Brozman, President and
Chief Executive Officer
- 6 -
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES AND IS PERMITTED TO
TRANSFER THE WARRANT OF
CONCORDE CAREER COLLEGES, INC.
FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto __________________________ the right to purchase
[______%] of the number of shares of Common Stock covered by the within Warrant,
and does hereby irrevocably constitute and appoint
__________________________________________________ Attorney to transfer the said
Warrant on the books of the Company (as defined in said Warrant) with full power
of substitution.
The undersigned represents and warrants to the Company that this assignment
has been effected in compliance with all applicable provisions of said Warrant
and any applicable provisions of the Debenture Purchase Agreement referred to in
such Warrant.
Signature: __________________________(SEAL)
Address: ________________________________
Dated: ___________________199__
In the presence of
______________________________ By: _____________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
WARRANT CERTIFICATE
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THE WARRANT OF
CONCORDE CAREER COLLEGES, INC.
The undersigned hereby exercises the right to purchase shares of Common
Stock obtainable by exercise of [_____%] of the within Warrant, according to the
conditions thereof and makes payment of the Exercise Price for such shares in
full by the enclosed payment and/or by reduction in the principal amount of the
Debenture (as defined in the Warrant) as more specifically set forth below:
Signature: __________________________(SEAL)
Address: ________________________________
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CONCORDE CAREER COLLEGES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO THE PROVISIONS OF RULE 144 OF THE ACT.
THIS WARRANT IS SUBJECT TO THE PROVISIONS OF A DEBENTURE PURCHASE AGREEMENT,
DATED AS OF FEBRUARY 25, 1997, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT AS THEREIN PROVIDED.
WARRANT TO ACQUIRE SHARES OF
COMMON STOCK OF
CONCORDE CAREER COLLEGES, INC.
February 25, 1997
THIS CERTIFIES THAT STRATEGIC ASSOCIATES, L.P. ("Holder"), for value
------
received, or its registered assigns, is entitled to purchase, on the terms and
subject to the conditions hereinafter set forth, from CONCORDE CAREER COLLEGES,
INC., a Delaware corporation (the "Company"), at any time after August 25, 1998
-------
and on or before February 25, 2003, subject to earlier termination (the
"Exercise Period"), that number of shares (the "Warrant Shares") of common
--------------- --------------
stock, par value $.10 per share, of the Company (the "Common Stock"), as set
------------
forth in Section 2.1 hereof.
SECTION 1
Exercise Price
--------------
The exercise price at which this Warrant may be exercised shall be $1.36
per share of Common Stock (the "Exercise Price"), subject to any adjustment
--------------
pursuant to Section 3.3.
SECTION 2
Exercise of Warrant, Etc.
-------------------------
2.1 Number of Shares for Which Warrant is Exercisable. This Warrant shall
-------------------------------------------------
be exercisable for 135,110 shares of Common Stock, subject to any adjustment
pursuant to Section 3.3.
2.2 Procedure for Exercise of Warrant. The Warrant may be exercised in
---------------------------------
whole or in part during the Exercise Period by surrendering this Warrant, with
the purchase form provided for
<PAGE>
herein duly executed by Holder or by Holder's duly authorized attorney-in-fact,
at the principal office of the Company or at such other office or agency in the
United States as the Company may designate by notice in writing to the Holder
accompanied by payment in full, in cash, bank cashier's check or certified check
payable to the order of the Company, of the Exercise Price payable in respect of
the Warrant Shares being exercised. In addition to payments of the Exercise
Price by cash or said checks, payment of the Exercise Price with respect to the
Warrants being exercised may be made, at the option of the Holder, by the
reduction in the principal amount of the Debenture (the "Debenture") issued to
---------
the Holder pursuant to the Debenture Purchase Agreement, dated as of February
25, 1997, by and between the Company and the Holder (the "Debenture Purchase
------------------
Agreement") (or forgiveness of any accrued and unpaid interest thereon, whether
- ---------
or not payment of such interest has been suspended pursuant to the provisions of
such Debenture), even during a period in which an Event of Default (as defined
in the Debenture Purchase Agreement) has occurred and is continuing under such
Debenture, in an amount equal to the Exercise Price with respect to the Warrant
being exercised; and in such a case, this Warrant shall be accompanied by said
Debenture (with the purchase form duly executed) which shall be substituted and
replaced by a new Debenture identical in form and content to the original
Debenture except that principal amount shall be appropriately reduced to reflect
the reduction in the principal amount applicable to the payment of the Exercise
Price with respect to the Warrant being exercised. If fewer than all of the
Warrant Shares are being exercised, the Company shall, upon exercise prior to
the end of the Expiration Period, execute and deliver to the Holder a new
certificate (dated the date hereof) evidencing the balance of the Warrant Shares
that remain exercisable.
2.3 Conversion.
----------
(a) On or after August 25, 1998, in the event that the Company consummates
a firm-commitment underwritten public offering pursuant to an effective
registration statement under the Act covering the offer and sale of Common Stock
for the account of the Company in which (i) the net proceeds of the public
offering price equals or exceeds $20 million and (ii) the public offering price
per share of Common Stock equals or exceeds $4.00, then this Warrant shall
become mandatorily exercisable within six (6) months for that number of shares
of Common Stock issuable upon exercise of the Warrant.
(b) In the Event of Default (as defined in the Debenture Purchase
Agreement), then this Warrant shall immediately become exercisable, at the
option of the Holder, for that number of shares of Common Stock issuable upon
exercise of the Warrant.
2.4 Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
initially issued upon exercise of this Warrant, unless at the time of exercise
such Warrant Shares are registered under the Act, shall bear the following
legend (and any additional legend required by any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof:
-2-
<PAGE>
"These securities have not been registered under the Securities Act of
1933, as amended, or under any state securities laws and may be offered,
sold or transferred only if registered pursuant to the provisions of such
laws, or if in the opinion of counsel satisfactory to the Company, an
exemption from such registration is available."
2.5 Acknowledgment of Continuing Obligation. The Company will, if Holder
---------------------------------------
exercises this Warrant in part, upon request of the Holder, acknowledge in
writing the Company's continuing obligation to the Holder in respect of any
rights to which the Holder shall continue to be entitled after such exercise in
accordance with this Warrant, provided, that the failure of the Holder to make
any such request shall not affect the continuing obligation of the Company to
the Holder in respect of such rights.
2.6 Exercise Period. The Company and Purchaser agree to negotiate in good
---------------
faith to modify or extend the Exercise Period in the event that either the
Company or Purchaser deems it appropriate to modify or extend such Exercise
Period.
2.7 Termination of Warrant. During the Exercise Period, in the event that
----------------------
Holder fails to exercise this Warrant after the Company has provided Holder (i)
twenty (20) days prior written notice of its intention to pay in full and redeem
the Debenture on a particular date (the "Repayment Date"), and (ii) thirty (30)
--------------
days after the Redemption Date within which to exercise this Warrant, then this
Warrant shall terminate and thereafter be null and void. Notwithstanding the
preceding sentence, in the event that the Company repays and redeems the
Debenture in full on or before August 25, 1998, this Warrant shall remain in
full force and effect until September 25, 1998, when it shall expire.
SECTION 3
Ownership of this Warrant.
-------------------------
3.1 Deemed Holder. The Company may deem and treat the person in whose
-------------
name this Warrant is registered as the Holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 3.
3.2 Exchange, Transfer and Replacement. This Warrant is non-detachable
----------------------------------
from the Debenture and may not be transferred, assigned, sold, pledged or
otherwise hypothecated ("Transferred") except with the Debenture, and if so
-----------
Transferred, then only as permitted under the terms and conditions of the
Debenture and the Debenture Purchase Agreement; provided, however, that if the
Company repays and redeems the Debenture in full on or before August 25, 1998,
this Warrant shall remain in full force and effect until September 25, 1998.
This Warrant
-3-
<PAGE>
and all rights hereunder are transferable in whole or in part upon the books of
the Company by the Holder in person or by duly authorized attorney, and a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee, upon surrender of this
Warrant duly endorsed at said office or agency of the Company. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, or indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant, provided,
--------
however, that if the Holder of this Warrant is the original Holder, an affidavit
- -------
of lost Warrant shall be sufficient for all purposes of this Section 3.2. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall pay all
reasonable expenses, taxes (other than stock transfer taxes and income taxes)
and other charges payable by it in connection with the preparation, execution
and delivery of Warrant Shares pursuant to this Section 3.2.
3.3 Antidilution.
------------
(a) If at any time while all or any portion of this Warrant remains
outstanding all or any portion of this Warrant shall be exercised subsequent to
(i) any sales of shares of Common Stock of the Company at a price per share less
than the Exercise Price per share then applicable to this Warrant, or (ii) any
issuance of any security convertible into shares of Common Stock of the Company
with a conversion price per share less than the Exercise Price per share then
applicable to this Warrant, or (iii) any issuance of any option, warrant or
other right to purchase shares of Common Stock of the Company at any Exercise
Price per share less than the Exercise Price per share then applicable to this
Warrant (except pursuant to an employee or director stock option plan or similar
compensation plan approved by the Board of Directors); then in any and every
such event the Exercise Price per share for this Warrant shall be reduced and
shall be equal to such lower sales, conversion or Exercise Price per share.
(b) If all or any portion of this Warrant shall be exercised subsequent to
any stock dividend, split-up, recapitalization, merger, consolidation,
combination or exchange of shares, reorganization or liquidation of the Company
occurring after the date hereof, as a result of which such shares of any class
shall be issued in respect of outstanding shares of Common Stock of the Company
(or shall be issuable in respect of securities convertible into shares of Common
Stock) or upon exercise of rights (other than this Warrant) to purchase shares
of Common Stock or shares of such Common Stock shall be changed into the same or
a different number of shares of the same or another class or classes, the Holder
exercising this Warrant shall receive the aggregate number and class of shares
which such Holder would have received if this Warrant had been exercised
immediately before such stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, reorganization or liquidation.
-4-
<PAGE>
SECTION 4
Special Agreements of the Company
---------------------------------
The Company covenants and agrees that:
4.1 The Company will reserve and set apart and have at all times, free
from preemptive rights, a number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant or of any other rights or
privileges provided for therein sufficient to enable the Company at any time to
fulfill all its obligations thereunder.
4.2 This Warrant shall be binding upon any corporation or entity
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
SECTION 5
Notices
-------
Any notice or other document required or permitted to be given or delivered
to the Holder or the Company shall be delivered, or sent by certified or
registered mail, to the Holder or the Company at the address as set forth in
Section 10.4 of the Debenture Purchase Agreement.
SECTION 6
Governing Law
-------------
This Warrant shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of Delaware, without giving effect to its
conflicts of laws provisions.
SECTION 7
Assignment
----------
Notwithstanding any provision of this Warrant which may be construed to the
contrary, this Warrant and any rights hereunder shall not be assignable by the
Holder except in accordance with the provisions governing assignments hereof set
forth in the Debenture Purchase Agreement, dated as of February 25, 1997, among
the Company and Holder, and any attempt by Holder to assign this Warrant or any
rights hereunder other than in accordance therewith shall be void and of no
force and effect.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, and to be dated as of February 25, 1997.
ATTEST: CONCORDE CAREER COLLEGES, INC.
______________________________ By: _____________________________________
Lisa M. Henak, Secretary Jack L. Brozman, President and
Chief Executive Officer
-6-
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES AND IS PERMITTED TO
TRANSFER THE WARRANT OF
CONCORDE CAREER COLLEGES, INC.
FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto __________________________ the right to purchase
[______%] of the number of shares of Common Stock covered by the within Warrant,
and does hereby irrevocably constitute and appoint ____________________________
Attorney to transfer the said Warrant on the books of the Company (as defined in
said Warrant) with full power of substitution.
The undersigned represents and warrants to the Company that this assignment
has been effected in compliance with all applicable provisions of said Warrant
and any applicable provisions of the Debenture Purchase Agreement referred to in
such Warrant.
Signature: __________________________(SEAL)
Address: ________________________________
Dated: ___________________199__
In the presence of
______________________________ By: _____________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
WARRANT CERTIFICATE
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THE WARRANT OF
CONCORDE CAREER COLLEGES, INC.
The undersigned hereby exercises the right to purchase shares of Common
Stock obtainable by exercise of [_____%] of the within Warrant, according to the
conditions thereof and makes payment of the Exercise Price for such shares in
full by the enclosed payment and/or by reduction in the principal amount of the
Debenture (as defined in the Warrant) as more specifically set forth below:
Signature: __________________________(SEAL)
Address: ________________________________
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF FEBRUARY 25, 1997
BY AND AMONG
CONCORDE CAREER COLLEGES, INC.,
CAHILL WARNOCK STRATEGIC PARTNERS FUND, L.P.
AND
STRATEGIC ASSOCIATES, L.P.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1
Registration Rights.................................................................... 1
-------------------
1.1 Demand Registration Rights.................................................. 1
--------------------------
1.2 "Piggyback" Registration Rights............................................. 2
------------------------------
1.3 Terms and Conditions of Registration or Qualification....................... 2
-----------------------------------------------------
1.4 Exceptions to Registration Obligations...................................... 6
--------------------------------------
1.5 Indemnity................................................................... 6
---------
SECTION 2
Miscellaneous.......................................................................... 9
-------------
2.1 Additional Actions and Documents............................................ 9
--------------------------------
2.2 No Assignment............................................................... 9
-------------
2.3 Entire Agreement; Amendment................................................. 9
---------------------------
2.4 Limitation on Benefits...................................................... 9
----------------------
2.5 Binding Effect.............................................................. 9
--------------
2.6 Governing Law............................................................... 10
-------------
2.7 Notices..................................................................... 10
-------
2.8 Headings.................................................................... 11
--------
2.9 Execution in Counterparts................................................... 11
-------------------------
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of February
---------
25, 1997, by and among CONCORDE CAREER COLLEGES, INC., a Delaware corporation
(the "Company"), CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P., a limited
-------
partnership organized under the laws of the State of Delaware, and STRATEGIC
ASSOCIATES, L.P., a limited partnership organized under the laws of the State of
Delaware (collectively, the "Purchasers").
----------
WHEREAS, the Company and the Purchasers have entered into Debenture and
Warrant Purchase Agreements, dated as of February 25, 1997 (the "Debenture
---------
Purchase Agreements");
- -------------------
WHEREAS, pursuant to the Debenture Purchase Agreements, the Company and the
Purchasers desire to enter into this Agreement to provide Purchasers with
certain stock registration rights and to address related matters;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties agree as follows:
SECTION 1
Registration Rights
-------------------
1.1 Demand Registration Rights. At any time after the date hereof but
--------------------------
excluding the period beginning December 1 and ending March 1 in any year,
Purchasers may request, in writing, registration for sale under the Securities
Act of 1933, as amended (the "Act"), of all or at least 500,000 shares of the
---
Common Stock, par value $0.10 per share, of the Company (the "Shares") then held
------
by Purchasers or issuable to Purchasers upon exercise of the Warrants of even
date herewith, issued by the Company to Purchasers pursuant to the Debenture
Purchase Agreements. The Company shall thereafter, as expeditiously as
practicable, use its reasonable best efforts (i) to prepare and file with the
Securities and Exchange Commission (the "SEC") under the Act, a registration
---
statement on the appropriate form (using Form S-3 or other "short form," if
available and advised by counsel) covering all of the Shares specified in the
demand request, within 60 days after the date of such request (45 days in the
case of a Form S-3) and (ii) to cause such registration statement to be declared
effective. The Purchasers shall select the underwriter of any offering pursuant
to a registration statement filed pursuant to this Section 1.1, subject to the
approval of the Company, which approval shall not be unreasonably withheld. Any
selected underwriter shall be a well-recognized firm in good standing. The
Company shall not be required to comply with more than one (1) request by
Purchasers for demand registration ("Demand Registration") pursuant to this
-------------------
Section 1.1. A demand registration shall not count as such until a registration
statement becomes effective; provided, that if, after it has become effective,
--------
the offering pursuant to the registration statement is interfered with by any
stop order, injunction or other order or requirement of the SEC or any other
governmental authority, such registration be
<PAGE>
deemed not to have been effected unless such stop order, injunction or other
order shall subsequently have been vacated or otherwise removed.
1.2 "Piggyback" Registration Rights. Subject to applicable stock exchange
------------------------------
rules and securities regulations, at least 30 days prior to any public offering
of any of its Common Stock for the account of the Company or any other person
(other than a registration statement on Form S-4 or S-8 (or any successor forms
under the Securities Act) or other registrations relating solely to employee
benefit plans or any transaction governed by Rule 145 of the Securities Act),
other than pursuant to the exercise of any Demand Registration pursuant to
Section 1.1, the Company shall give written notice of such proposed filing and
of the proposed date thereof to Purchasers and if, on or before the twentieth
(20th) day following the date on which such notice is given, the Company shall
receive a written request from Purchasers requesting that the Company include
among the securities covered by such registration statement any Shares of Common
Stock or Shares of Common Stock issued or issuable upon exercise of the Warrant
for offering for sale in a manner and on terms set forth in such request, the
Company shall include such Shares in such registration statement, if filed, so
as to permit such Shares to be sold or disposed of in the manner and on the
terms of the offering thereof set forth in such request. Each such registration
shall hereinafter be called a "Piggyback Registration." The Company shall
----------------------
select the underwriters of any offering pursuant to a registration statement
filed pursuant to this Section 1.2, subject to the approval of the Purchasers,
which approval shall not be unreasonably withheld.
1.3 Terms and Conditions of Registration or Qualification. In connection
-----------------------------------------------------
with any registration statement filed pursuant to Sections 1.1 or 1.2 hereof,
the following provisions shall apply.
(a) The obligations of the Company to use its reasonable best efforts to
cause the registration of Shares under the Securities Act are subject to the
limitation, condition and qualification that the Company shall be entitled to
postpone for a reasonable period of time (but not exceeding 90 days in any one
year period) the filing of any registration statement otherwise required to be
filed by it if the Company in good faith determines that such registration and
offering would (i) interfere with any financing, acquisition, corporate
reorganization or other material transaction or event involving the Company or
any of its subsidiaries or (ii) require premature disclosure thereof or of
conditions, circumstances or events affecting the Company or the Company's
industry which are not yet fully developed or ripe for disclosure, in which
event the Company shall promptly give the securityholders requesting
registration thereof written notice of such determination and an approximation
of the anticipated delay. If the Company shall so postpone the filing of a
registration statement, the Purchasers shall have the right to withdraw the
request for registration by giving written notice to the Company within 15 days
after receipt of the notice of postponement and, in the event of such
withdrawal, such request shall not be counted for purposes of the requests for
registration to which Purchasers are entitled under this Agreement.
2
<PAGE>
(b) If the managing underwriter advises that the inclusion in such
registration or qualification of some or all of the Shares sought to be
registered exceeds the number (the "Saleable Number") that can be sold in an
---------------
orderly fashion or without adversely affecting the offering, then the number of
Shares offered shall be limited to the Saleable Number and shall be allocated as
follows:
(i) If such registration is being effected pursuant to a Piggyback
Registration under Section 1.2, (1) first, all the Shares the Company (or in the
exercise of demand registration rights, the selling stockholder(s) exercising
such rights) proposes to register and (2) second, the difference between the
Saleable Number and the number to be included pursuant to clause (1) above,
allocated first to the Purchasers pro rata on the basis of the relative number
of Shares offered for sale by each Purchaser; and
(ii) if such registration is being effected pursuant to a Demand
Registration other than in connection with the first public offering after the
date of this Agreement of Common Stock of the Company, (1) first, the entire
Saleable Number allocated first to the Purchasers on the basis of the relative
number of Shares offered for sale by Purchasers, and then among all other
selling securityholders pro rata on the basis of the relative number of Shares
offered for sale by each such securityholder and (2) second, the difference (if
positive) between the Saleable Number and the number to be included pursuant to
clause (1) above, allocated to the Company;
(iii) if such registration is being effected pursuant to a Demand
Registration pursuant to Section 1.1 and would be the first public offering of
Common Stock after the date of this Agreement and the Company wishes to sell,
for its own account, shares of Common Stock in such offering, then the Saleable
Number shall be allocated to the Purchasers, on one hand, and the Company, on
the other hand, equally, to the extent of the number of Shares offered by the
Purchasers.
(c) Purchasers will promptly provide the Company with such information as
the Company shall reasonably request in order to prepare such registration
statement and, upon the Company's request, each Purchaser shall provide such
information in writing and signed by such Purchaser and stated to be
specifically for inclusion in the registration statement. In the event that the
distribution of the Shares covered by the registration statement shall be
effected by means of an underwriting, the right of any Purchaser to include its
Shares in such registration shall be conditioned on such Purchaser's execution
and delivery of a customary underwriting agreement with respect thereto;
provided, however, that except with respect to information concerning such
- -------- -------
holder and such Purchaser's intended manner of distribution of the Shares, no
Purchaser shall be required as a Purchaser exercising registration rights to
make any representations or warranties in such agreement as a condition to the
inclusion of its Shares in such registration.
(d) The Company shall bear all expenses in connection with the preparation
of any registration statement filed pursuant to Section 1.1, including the fees
and disbursements of one counsel for Purchasers.
3
<PAGE>
(e) The Company shall bear all expenses in connection with the preparation
of any registration statement filed pursuant to Section 1.2, excluding (A) the
fees and disbursements of counsel for Purchasers, and (B) the underwriting fees,
discounts or commissions with respect to Shares of Purchasers, which shall be
borne by Purchasers.
(f) Following the effective date of such registration statement, the
Company shall, upon the request of Purchasers, forthwith supply such number of
prospectuses (including preliminary prospectuses and amendments and supplements
thereto) meeting the requirements of the Securities Act or such other securities
laws where the registration statement or prospectus has been filed and such
other documents as are referred to in the registration statement as shall be
requested by Purchasers to permit such Purchasers to make a public distribution
of their Shares, provided that Purchasers furnish the Company with such
appropriate information relating to such Purchasers' intentions in connection
therewith as the Company shall reasonably request in writing.
(g) The Company shall prepare and file such amendments and supplements to
such registration statement as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act or
such other securities laws where the registration statement has been filed with
respect to the offer and sale or other disposition of the shares covered by such
registration statement during the period required for distribution of the
Shares, which period shall not be in excess of six (6) months from the effective
date of such registration statement.
(h) The Company shall use its reasonable best efforts to register or
qualify the Shares of Purchasers covered by any such registration statement
under such securities or Blue Sky laws in such jurisdictions as Purchasers may
reasonably request; provided, however, that the Company shall not be required to
-------- ------
execute a general consent to service of process or to qualify to do business as
a foreign corporation in any jurisdiction where it is not so qualified in order
to comply with such request.
(i) In connection with any registration pursuant to Sections 1.1 and 1.2,
the Company will as expeditiously as possible:
(A) cause the Shares covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable Purchasers to consummate the disposition of such Shares;
(B) notify each Purchaser at any time of the happening of any event
as a result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the Purchasers of such Shares,
such
4
<PAGE>
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(C) cause all Shares covered by the registration statement to be
listed on each securities exchange on which similar securities issued by the
Company are then listed and, unless the same already exists, provide a transfer
agent, registrar and CUSIP number for all such Shares not later than the
effective date of the registration statement;
(D) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as Purchasers or
the underwriters retained by such holders, if any, reasonably request in order
to expedite or facilitate the disposition of such Shares;
(E) make available for inspection by any Purchaser, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other records,
----------
pertinent corporate documents and properties of the Company as shall be
necessary to enable them to exercise their due diligence responsibility, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such registration
statement, provided that such Inspectors shall have first executed and delivered
to the Company a confidentiality agreement in customary form protecting the
confidentiality of such information;
(F) obtain "cold comfort" letters and updates thereof from the
Company's independent public accountants and an opinion from the Company's
counsel in customary form and covering such matters of the type customarily
covered by "cold comfort" letters and opinion of counsel, respectively, as
Purchasers may reasonably request; and
(G) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its securityholders, as soon as reasonably
practicable, an earnings statement covering a period of 12 months, beginning
within three months after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
(j) Each Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
1.3(i)(B), such holder will forthwith discontinue disposition of its Shares
pursuant to the registration statement covering such Shares until such
Purchaser's receipt of the copies of the supplemented or amended prospectus
contemplated by such Section 1.3(i)(B) and, if so directed by the Company, such
Purchaser will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Purchaser's possession, of the
prospectus covering such Shares current at the time of receipt of such notice.
5
<PAGE>
(k) Each Purchaser agrees not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the Securities Act, of any Shares
of Common Stock, and not to effect any such public sale or distribution of any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company in each case,
other than as part of an offering made pursuant to a registration statement
filed and affected by this Agreement during the 15 days prior to, and during the
90-day period (or such longer period as each Purchaser agrees with the
underwriter of such offering) beginning on the effective date of such
registration statement (except as part of such registration) provided that each
Purchaser has received written notice of such registration at least 15 days
prior to such effective date.
1.4 Exceptions to Registration Obligations. The Company shall not be
--------------------------------------
required to effect any registration of Shares pursuant to Section 1.1 or Section
1.2 hereof if either:
(a) it shall deliver to the Purchaser requesting such registration an
opinion of counsel in form reasonably satisfactory to such Purchaser to the
effect that all such Shares held by such Purchaser may be sold in the public
market without registration under the Securities Act (e.g., pursuant to Rule
----
144) and any applicable state securities laws; or
(b) it shall offer to purchase all the Shares sought by the Purchaser to
be registered, at a purchase price per Share equal to the average, over the ten
(10) trading days immediately after the Purchaser's request for Demand
Registration or Piggyback Registration, of the average on each such trading day
of the bid and ask price (or high and low sales price, if applicable) for a
share of Common Stock of the Company on the exchange or quotation system upon
which the Common Stock is traded or quoted.
1.5 Indemnity.
---------
(a) In the event of the registration or qualification of any Shares of the
securityholders under the Securities Act or any other applicable securities laws
pursuant to the provisions of Sections 1.1 and 1.2, the Company agrees to
indemnify and hold harmless each Purchaser thereby offering such Shares for sale
(a "Seller"), underwriter, broker or dealer, if any, of such Shares, and each
------
other person, if any, who controls any such Seller, underwriter, broker or
dealer within the meaning of the Securities Act or any other applicable
securities laws, from and against any and all losses, claims, damages or
liabilities (or actions in respect thereof), joint or several, to which such
Seller, underwriter, broker or dealer or controlling person may become subject
under the Securities Act or any other applicable securities laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Shares were registered or qualified under the Securities Act or any
other applicable securities laws, any preliminary prospectus or final prospectus
relating to such Shares, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
6
<PAGE>
the statements therein not misleading, or any violation by the Company of any
rule or regulation under the Securities Act or any other applicable securities
laws applicable to the Company or relating to any action or inaction required by
the Company in connection with any such registration or qualification and will
reimburse each such Seller, underwriter, broker or dealer and each such
controlling person for any legal or other expenses reasonably incurred by such
Seller, underwriter, broker or dealer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or omission made in such registration statement, such
preliminary prospectus, such final prospectus or such amendment or supplement
thereto or violation in reliance upon and in conformity with written information
furnished to the Company by such Seller, underwriter, broker, dealer or
controlling person specifically and expressly for use in the preparation
thereof; and provided, further, that the Company shall not be liable to any
-------- -------
person who participates as an underwriter in the offering or sale of Shares or
any other person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Shares to such person if such
statement or omission was corrected in such final prospectus so long as such
final prospectus, and any amendments or supplements thereto, have been furnished
to such underwriter.
(b) In the event of the registration or qualification of any Shares of
Seller under the Securities Act or any other applicable securities laws for sale
pursuant to the provisions of Sections 1.1 and 1.2, each Seller, each
underwriter, broker and dealer, if any, of such Shares, and each other person,
if any, who controls any such Seller, underwriter, broker or dealer within the
meaning of the Securities Act, agrees severally, and not jointly to indemnify
and hold harmless the Company, each person who controls the Company within the
meaning of the Securities Act, and each officer and director of the Company from
and against any and all losses, claims, damages or liabilities (or actions in
respect thereof), joint or several, to which the Company, such controlling
person or any such officer or director may become subject under the Securities
Act or any other applicable securities laws or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement of any material fact contained in any
registration statement under which such Shares were registered or qualified
under the Securities Act or any other applicable securities laws, any
preliminary prospectus or final prospectus relating to such Shares, or any
amendment or supplement thereto, or arise out of or are based upon an untrue
statement or the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or any
violation by the Company of any rule or regulation under the Securities Act or
any other applicable securities laws applicable to the Company or relating to
any action or inaction required by the Company in connection with any such
registration or qualification, which untrue statement or omission or violation
was made therein in reliance upon and in conformity with written information
furnished
7
<PAGE>
to the Company by such selling securityholder, underwriter, broker, dealer or
controlling person specifically for use in connection with the preparation
thereof, and will reimburse the Company, such controlling person and each such
officer or director for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that no Seller will be liable under this
-------- -------
Section 1.4(b) for any amount in excess of the net proceeds paid to such selling
securityholder of Shares sold by it unless such liability arises from such
written information furnished to the Company with knowledge of its misleading
nature or an intent to defraud.
(c) Promptly after receipt by a person entitled to indemnification under
this Section 1.4 (an "indemnified party") of notice of the commencement of any
-----------------
action or claim relating to any registration statement filed under Section 1.1
or 1.2 or as to which indemnity may be sought hereunder, such indemnified party
will, if a claim for indemnification hereunder in respect thereof is to be made
against any other party hereto (an "indemnifying party"), give written notice to
------------------
such indemnifying party of the commencement of such action or claim, but the
omission to so notify the indemnifying party will not relieve the indemnifying
party from any liability that it may have to any indemnified party otherwise
than pursuant to the provisions of this Section 1.4 and shall also not relieve
the indemnifying party of its obligations under this Section 1.4 except to the
extent that the indemnifying party is actually prejudiced thereby. In case any
such action is brought against an indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled (at its own expense) to participate in and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense, with counsel reasonably satisfactory to such indemnified party, of
such action and/or to settle such action and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, other than the reasonable cost of
investigation; provided, however, that no indemnifying party shall enter into
-------- -------
any settlement agreement without the prior written consent of the indemnified
party unless such indemnified party is fully released and discharged from any
such liability. Notwithstanding the foregoing, the indemnified party shall have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (A) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such suit, action, claim or
proceeding, (B) the indemnifying party shall not have employed counsel
(reasonably satisfactory to the indemnified party) to take charge of the defense
of such action, suit, claim or proceeding, or (C) such indemnified party shall
have reasonably concluded, based upon the advice of counsel, that there may be
defenses available to it that are different from or additional to those
available to the indemnifying party which, if the indemnifying party and the
indemnified party were to be represented by the same counsel, could result in a
conflict of interest for such counsel or materially prejudice the prosecution of
the defenses available to such indemnified party. If any of the events
specified in clauses (A), (B) or (C) of the preceding sentence shall have
occurred or shall otherwise be applicable, then the fees and expenses of one
counsel or firm of counsel selected by a majority in interest of the indemnified
parties (and reasonably acceptable to the
8
<PAGE>
indemnifying party) shall be borne by the indemnifying party. If, in any such
case, the indemnified party employs separate counsel, the indemnifying party
shall not have the right to direct the defense of such action, suit, claim or
proceeding on behalf of the indemnified party and the indemnified party shall
assume such defense and/or settle such action; provided, however, that an
-------- -------
indemnifying party shall not be liable for the settlement of any action, suit,
claim or proceeding effected without its prior written consent, which consent
shall not be unreasonably withheld.
SECTION 2
Miscellaneous
-------------
2.1 Additional Actions and Documents. Each of the parties hereto hereby
--------------------------------
agrees to use its good faith best efforts to bring about the consummation of
this Agreement, and to take or cause to be taken such further actions, to
execute, deliver and file or cause to be executed, delivered and filed such
further documents and instruments, and to obtain such consents, as may be
necessary or as may be reasonably requested in order to fully effectuate the
purposes, terms and conditions of this Agreement.
2.2 No Assignment. The right of Purchasers herein are personal and may
-------------
not be assigned or transferred to any third party without the Company's prior
express written consent.
2.3 Entire Agreement; Amendment. This Agreement, including the other
---------------------------
writings referred to herein or delivered pursuant hereto, constitutes the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, and it supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein. No amendment,
modification or discharge of this Agreement shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, or discharge is sought.
2.4 Limitation on Benefits. It is the explicit intention of the parties
----------------------
hereto that no person or entity other than the parties hereto (and their
respective successors and assigns) is or shall be entitled to bring any action
to enforce any provision of this Agreement against any of the parties hereto,
and the covenants, undertakings and agreements set forth in this Agreement shall
be solely for the benefit of, and shall be enforceable only by, the parties
hereto or their respective successors and assigns.
2.5 Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto and their respective successors and
assigns.
2.6 Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of Delaware (excluding the choice
of law rules thereof).
9
<PAGE>
2.7 Notices. All notices, demands, requests, or other communications
-------
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows:
(a) If to the Company:
Concorde Career Colleges, Inc.
1100 Main Street
Suite 416
Kansas City, MO 64105
Attn: Jack L. Brozman
Facsimile No.: (816) 474-7610
with a copy to:
Bryan Cave, L.L.P.
7500 College Boulevard
Suite 1100
Overland Park, KS 66210-4035
Attn: Thomas W. Van Dyke
Facsimile No.: (913) 338-7777
(b) if to the Purchasers:
c/o Cahill, Warnock & Company, LLC
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: David Warnock
Facsimile No.: (410) 895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: John B. Watkins, Esquire
Facsimile No.: (410) 986-2828
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above
10
<PAGE>
shall be deemed sufficiently given, served, sent and received for all purposes
at such time as it is delivered to the addressee (with the return receipt, the
delivery receipt, the affidavit of messenger or facsimile transmission
confirmation being deemed conclusive (but not exclusive) evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
2.8 Headings. Article and Section headings contained in this Agreement
--------
are inserted for convenience of reference only, shall not be deemed to be a part
of this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
2.9 Execution in Counterparts. To facilitate execution, this Agreement
-------------------------
may be executed in as many counterparts as may be required; and it shall not be
necessary that the signatures of each party appear on each counterpart; but it
shall be sufficient that the signature of each party appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of all of the parties hereto.
[Remainder of Page Left Blank Intentionally -- Signature Page Follows]
11
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first above written.
CONCORDE CAREER COLLEGES, INC.
By: __________________________________________
Name:
Title:
CAHILL, WARNOCK STRATEGIC PARTNERS FUND,
L.P.
By: CAHILL, WARNOCK STRATEGIC PARTNERS,
L.P., its General Partner
By: __________________________________________
Name: David L. Warnock
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, L.L.C., its
General Partner
By: __________________________________________
Name: David L. Warnock
Title: Managing Member
12
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
DATED AS OF FEBRUARY 25, 1997
BY AND AMONG
CONCORDE CAREER COLLEGES, INC.
AND
THE STOCKHOLDERS IDENTIFIED HEREIN
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1.
DEFINITIONS........................................... 1
1.1. Defined Terms.................................... 1
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ARTICLE 2.
BOARD; COMMITTEE...................................... 4
2.1. Number and Election of Directors................. 4
---------------------------------
2.2. Removal of Directors............................. 4
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2.3. Vacancies........................................ 4
---------
2.4. Proxies.......................................... 5
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2.5. Compensation..................................... 5
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2.6. Information...................................... 5
-----------
2.7. Insurance........................................ 5
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ARTICLE 3.
CERTAIN CORPORATE ACTION.............................. 5
3.1. Approval of Preferred Stock Directors............ 5
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3.2. Approval of Preferred Stock Holders.............. 5
------------------------------------
ARTICLE 4.
TRANSFER OF SHARES.................................... 6
4.1. Restrictions on Transfer......................... 6
-------------------------
4.2. Certain Permitted Transfers...................... 6
---------------------------
4.3. Rights of First Refusal.......................... 7
-----------------------
4.4. Restrictions in Connection with Registrations.... 9
---------------------------------------------
ARTICLE 5.
REGISTRATION RIGHTS................................... 9
5.1. Sale or Transfer of Shares....................... 9
--------------------------
5.2. Public Offering Shares........................... 9
-----------------------
ARTICLE 6.
PREEMPTIVE RIGHTS.....................................18
6.1. Preemptive Rights................................19
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<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT dated as of February 25, 1997 (this
"Agreement") by and among CONCORDE CAREER COLLEGES, INC., a Delaware corporation
---------
(the "Company"); the parties identified on the signature pages under the heading
"Cahill, Warnock Parties" (the "Cahill, Warnock Parties"); and the parties
-----------------------
identified on the signature pages under the heading "Other Holders"
-------------
(collectively, the "Other Holders"). The Cahill, Warnock Parties and the Other
Holders are referred to herein collectively as the "Securityholders."
---------------
WHEREAS, the Company has entered into a Convertible Preferred Stock
Purchase Agreement, of even date herewith (the "Stock Purchase Agreement"), with
------------------------
the Cahill, Warnock Parties, pursuant to which the Cahill, Warnock Parties have
acquired shares of the Company's Convertible Preferred Stock on the terms and
conditions set forth therein;
WHEREAS, the Company proposes to issue and sell, and the Cahill
Warnock Parties wish to purchase, Debentures and Warrants pursuant to Debenture
and Warrant Purchase Agreements, between the Company and the Cahill, Warnock
Parties, of even date herewith;
WHEREAS, the Estate of Robert F. Brozman proposes to sell, and the
Cahill, Warnock Parties wish to purchase, 500,000 shares of common stock of the
Company, pursuant to a Stock Purchase Agreement, of even date herewith, between
the Company and the Cahill, Warnock Parties;
WHEREAS, on the date hereof, each Securityholder owns the shares of
capital stock of the Company or options exercisable for shares of capital stock
of the Company set forth opposite its name on Exhibit A hereto;
WHEREAS, the Securityholders desire to enter in this Agreement with
the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Defined Terms. The following terms are defined as follows:
-------------
"Affiliate" means, with respect to any Person, (i) any Person in which
---------
such Person holds direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 5% of the outstanding voting power of a
Person or equity securities or other equity interests
<PAGE>
representing at least 5% of the outstanding equity securities or equity
interests in a Person and (ii) any brother, sister, parent, child or spouse of
such Person or any Person described in clause (i).
"Board" shall mean the Board of Directors of the Company.
-----
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's common stock, par value $.10
------------
per share.
"Common Stock Equivalent" shall mean, with respect to any
-----------------------
Securityholder, the number of shares of Common Stock owned by such
Securityholder and the number of shares of Common Stock into which any shares of
Convertible Preferred Stock owned by such Securityholder shall be convertible
and the number of shares of Common Stock into which any options owned by any
Securityholder shall be exercisable as of the date of determination thereof.
"Conversion Stock" shall mean Common Stock into which shares of
----------------
Convertible Preferred Stock shall have been converted.
"Convertible Preferred Stock" shall mean the Company's Convertible
---------------------------
Preferred Stock, par value $.10 per share, having such rights, preferences and
privileges as may be in effect from time to time.
"Encumbrances" shall mean any and all liens, claims, charges, security
------------
interests, options or other legal or equitable encumbrances.
"Exchange Act" shall mean the Securities Exchange Act of 1934 or any
------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Preferred Stock Directors" shall mean the directors nominated by the
-------------------------
Preferred Stock Holders pursuant to Section 2.1(a).
"Preferred Stock Holders" shall mean all holders of the Convertible
-----------------------
Preferred Stock issued and outstanding at any time.
"Prime Rate" shall mean the prime rate publicly announced by The Chase
----------
Manhattan Bank, N.A. from time to time.
"Pro Rata Share" shall mean the percentage of Transfer Shares (as
--------------
defined in Section 4.3) being offered by a Transferring Securityholder (as
defined in Section 4.3) that each other Securityholder shall be entitled to
purchase, if any. Such percentage shall be determined by
2
<PAGE>
dividing the number of Shares of such other Securityholder by the aggregate
number of all Shares of Securityholders entitled to participate in the purchase
of such Transfer Shares (as defined in Section 4.3).
"Qualified Offering" shall mean the consummation of a firm-commitment
------------------
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock for the
account of the Company in which (i) the net proceeds of the public offering
price equals or exceeds $20 million and (ii) the public offering price per share
of Common Stock equals or exceeds $4.00.
"Registered Securities" shall mean securities that have been
---------------------
registered under the Securities Act.
"Sale of the Company" shall mean (i) consummation of a merger or
-------------------
consolidation of the Company with or into another person that is not a parent or
subsidiary of the Company as a result of which those persons who were
stockholders of the Company immediately prior to such transaction own, in the
aggregate, less than a majority of the outstanding voting capital stock of the
surviving or resulting corporation, (ii) the consummation of the sale or other
disposition of a majority of the outstanding shares of voting capital stock of
the Company to a person that is not a parent or subsidiary of the Company or
(iii) the consummation of the sale or other disposition of all or substantially
all of the Company's assets to a person that is not a parent or subsidiary of
the Company.
"Securities Act" shall mean the Securities Act of 1933, or any similar
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Senior Management" shall mean the Company's Chairman, Chief Executive
-----------------
Officer and Chief Financial Officer, and any other manager of the Company who
receives from the Company an annual base compensation equal to or in excess of
$100,000.
"Shares" shall mean any shares of capital stock of the Company,
------
including, without limitation, Common Stock and Convertible Preferred Stock, now
or hereafter issued.
"Subsidiary" shall mean any corporation of which a majority of the
----------
outstanding voting securities or other voting equity interests are owned,
directly or indirectly, by the Company.
3
<PAGE>
ARTICLE 2.
BOARD; COMMITTEE
2.1. Number and Election of Directors.
---------------------------------
(a) Number of Directors. Subject to the next succeeding sentence, the
-------------------
Board shall consist of six directors, (i) four directors nominated by the Board
of Directors (excluding the Preferred Stock Directors) or by the holders of a
majority of the shares of Common Stock in accordance with the Company's Bylaws
(excluding the Preferred Stock) (which nominees shall initially be the incumbent
directors and the new Chief Executive Officer) (collectively, the "Company
-------
Directors"), and (ii) two directors (the "Preferred Stock Directors") nominated
- --------- -------------------------
by the Preferred Stock Holders. All such action shall have been taken as may be
necessary to elect such a Board of Directors of the Company effective upon the
Closing of this Agreement and the Stock Purchase Agreement. The Preferred Stock
Holders shall have the right to nominate the Preferred Stock Directors so long
as the Preferred Stock Holders maintain ownership in the aggregate of at least
50% of the Conversion Stock and Common Stock Equivalents acquired by them
pursuant to this Agreement.
(b) Election of Nominees. On the date hereof, and at each annual meeting
--------------------
of stockholders of the Company or any special meeting called for the purpose of
electing directors of the Company (or by consent of stockholders in lieu of any
such meeting) or at such other time or times as the Securityholders may agree,
the Securityholders shall vote all of their respective Shares entitled to vote
in favor of the election of all of the persons nominated in accordance with
Section 2.1(a) and no other person.
(c) Term. The Preferred Stock Directors and the Company Directors shall
----
each hold office as a director of the Company until their successors are duly
elected and qualified.
2.2. Removal of Directors. No Securityholder shall vote any Shares in
--------------------
favor of the removal of a director nominated by one or more of the other
Securityholders hereunder unless the right of any such Securityholder to so
designate such director shall no longer exist; provided, however, that upon the
-------- -------
request of Preferred Stock Holders holding a majority of the Common Stock
Equivalents to remove a director previously nominated by such persons, the
Securityholders shall vote all of their Shares in favor of (i) the removal of
such director and (ii) the election of any replacement director as may be
designated by such Securityholder(s).
2.3. Vacancies. If any vacancy occurs in the Board because of death,
---------
disability, resignation, retirement or removal of a director in accordance with
this Agreement, the Securityholder that nominated the person creating such
vacancy shall nominate a successor, and all Securityholders shall vote their
Shares in favor of the election of such successor to the Board. Any vacancy that
occurs shall be filled as promptly as possible upon the request of the group
having the right to nominate a person to fill such vacancy.
4
<PAGE>
2.4. Proxies. Neither the Company nor any Securityholder shall give any
-------
proxy or power of attorney to any person or entity that permits the holder
thereof to vote in his discretion on any matter that may be submitted to the
Company's stockholders for their consideration and approval, unless such proxy
or power of attorney is made subject to and is exercised in conformity with the
provisions of this Agreement.
2.5. Compensation. Each Preferred Stock Director and Company Director
------------
(collectively the "Directors") shall be reimbursed by the Company for all direct
---------
out-of-pocket expenses reasonably incurred in connection with their services as
directors and each Director shall receive from the Company an annual director's
fee.
2.6. Information. The Company agrees to deliver to each of the Directors
-----------
the information specified in Section 9.1 of the Stock Purchase Agreement.
2.7. Insurance. The Company agrees to obtain and maintain insurance, in
---------
an amount acceptable to the Purchasers, to indemnify each Director against any
liability incurred by him or her arising as a result of his or her acting as a
director of the Company.
ARTICLE 3.
CERTAIN CORPORATE ACTION
3.1. Approval of Preferred Stock Directors. The Company agrees that it
-------------------------------------
shall not, without the prior approval of a majority of the Company Directors and
a majority of the Preferred Stock Directors:
(a) redeem or otherwise purchase any outstanding Shares;
(b) enter into any material transaction with any Affiliate (other than a
transaction between the Company and any of its Subsidiaries);
(c) change the number of Directors on the Board;
(d) amend, modify or waive any provision of this Agreement.
3.2. Approval of Preferred Stock Holders. The Company agrees it shall
-----------------------------------
not, without the approval of Preferred Stock Holders holding a majority of the
Preferred Stock:
(a) issue any class or series of equity security senior to or on a parity
with the Convertible Preferred Stock as to payment of dividends or senior to or
on a parity with the Convertible Preferred Stock as to payments on a
dissolution, liquidation or winding-up of the Company;
5
<PAGE>
(b) enter into any agreement or arrangement of any kind that would
restrict the Company's ability to perform its obligations under this Agreement
or the Stock Purchase Agreement;
(c) amend the Certificate of Designation, the certificate of incorporation
or the by-laws of the Company in any manner that would impair, reduce or affect
the rights of the Convertible Preferred Stock;
(d) merge or consolidate with any other entity or sell all or
substantially all of its assets; or
(e) liquidate or dissolve.
ARTICLE 4.
TRANSFER OF SHARES
4.1. Restrictions on Transfer.
------------------------
(a) So long as this Agreement is in effect, no Securityholder shall sell,
assign, transfer, give, encumber, pledge, hypothecate or in any other way
dispose of any Shares or options exercisable for Shares (any of which being a
"Transfer") except as provided in this Agreement.
--------
(b) Each Securityholder agrees that it will not Transfer any of its Shares
or options exercisable for Shares except as permitted under the Securities Act
or applicable state securities laws or any rule or regulation promulgated
thereunder. No Transfer in violation of this Agreement shall be made or
recorded on the books of the Company and any such Transfer shall be void and of
no force or effect. Subject to the terms of this Agreement, the Securityholders
shall be entitled to exercise all rights of ownership of their Shares and any
such options, and the transferability of any such options shall, in addition to
the terms hereof, be subject to the terms and conditions contained therein.
4.2. Certain Permitted Transfers. The Company and the Securityholders
---------------------------
acknowledge and agree that any of the following Transfers shall be deemed to be
in compliance with this Agreement:
(a) a Transfer in accordance with the provisions of Section 4.3 hereof or
through a sale in a registered offering in accordance with Article 5 hereof;
(b) a Transfer from the Cahill, Warnock Parties to any of their partners,
limited partners or employees;
6
<PAGE>
(c) subject to Section 9.5 hereof, a Transfer upon the death of a
Securityholder to his executors, administrators and testamentary trustees; and
(d) subject to Section 9.5 hereof, a Transfer of Shares made for nominal
consideration or as a gift in compliance with applicable federal and state
securities laws to the Securityholder's spouse, parents or issue or to a trust,
the beneficiaries of which, or to a corporation or partnership the stockholders
or partners of which, include only the Securityholder and such Securityholder's
spouse or issue (any such transferee, together with any transferee pursuant to
Section 4.2(c), being a "Permitted Transferee");
--------------------
(e) a Transfer from the Estate to the Trust; and
(f) a Transfer from the Trust to the beneficiaries thereof provided such
beneficiaries are bound by a voting trust agreement or similar arrangement
reasonably satisfactory to the Cahill Warnock Parties.
4.3. Rights of First Refusal.
-----------------------
(a) Each Securityholder agrees that, subject to the restrictions on
Transfers contained in Sections 4.4, 4.5 and 4.6, if any Securityholder (for
purposes of this Section 4.3, a "Transferring Securityholder") wishes to
---------------------------
Transfer any or all of the Shares then owned by such Transferring
Securityholder, other than as provided in Section 4.2 or 4.5 hereof, then such
Transferring Securityholder shall first give a written notice (the "Transfer
--------
Notice") to the Company and each Securityholder specifying the number of Shares
- ------
such Transferring Securityholder wishes to Transfer (the "Transfer Shares"),
---------------
containing an irrevocable offer (open to acceptance for a period of 30 days
after the date such Transfer Notice is received) to sell the Transfer Shares to
each Securityholder other than the Transferring Securityholder (collectively the
"Transfer Offerees") at the price per share stated in the Transfer Notice, which
-----------------
price shall be equal to the price per Share offered to such Securityholder by a
bona fide third-party offeror (the "Transfer Price"), and stating whether such
--------------
offer is conditioned upon purchase of all the Transfer Shares by the Transfer
Offerees.
(b) Each Securityholder shall have the right to purchase all or a portion
of the Transfer Shares in proportion to their respective Pro Rata Share. A
Transfer Offeree who wishes to purchase Transfer Shares shall provide the
Company and the other Transfer Offerees with written notice specifying the
number of Transfer Shares (up to such Transfer Offeree's Pro Rata Share) as to
which such Transfer Offeree desires to accept the offer within 10 business days
of the giving of such notice by the Transfer Offerees, and may, at the Transfer
Offeree's option, indicate the maximum number of Transfer Shares such Transfer
Offeree would purchase in excess of such Transfer Offeree's Pro Rata Share (the
"Excess Amount"). If one or more Transfer Offerees declines to participate in
-------------
such purchase or elects to purchase less than such Transfer Offeree's Pro Rata
Share, then the Remaining Transfer Shares shall automatically be deemed to be
accepted by Transfer Offerees who specified an Excess Amount in their respective
notice of acceptance,
7
<PAGE>
allocated among such Transfer Offerees (with rounding to avoid fractional
shares) in proportion to their respective Pro Rata Share but in no event shall
an amount greater than a Transfer Offeree's Excess Amount be allocated to such
Transfer Offeree. Any excess Transfer Shares shall be allocated among the
remaining Transfer Offerees whose specified Excess Amount has not been satisfied
(with rounding to avoid fractional shares) in proportion to their respective Pro
Rata Shares, and such procedure shall be employed until the entire Excess Amount
of each Transfer Offeree has been satisfied or all Transfer Shares have been
allocated. The Company and the Preferred Stock Holders shall have the right but
not the obligation to purchase any Transfer Shares remaining thereafter.
(c) If the offer is accepted by any Transfer Offerees and, if the offer is
conditioned on the purchase of all Transferee Shares, all Transfer Shares have
been accepted for purchase, the Company, on behalf of all purchasing Transfer
Offerees, shall provide the Transferring Securityholder with written notice of
such acceptance specifying the number of the Transfer Shares as to which each
Transfer Offeree is accepting the offer (a "Notice of Acceptance") within 30
--------------------
days after the Transfer Notice is received.
(d) The closing of the purchase by the Transfer Offerees of the Transfer
Shares pursuant to this Section 4.3 shall take place at the principal offices of
the Company on the fifteenth business day after the Notice of Acceptance is
given. At such closing, each of the Transfer Offerees who has elected to
purchase Transfer Shares shall deliver a certified check or checks in the
appropriate amount to the Transferring Securityholder against delivery of duly
endorsed certificates representing the Transfer Shares to be purchased. The
Transfer Shares shall be delivered free and clear of all Encumbrances other than
those imposed by this Agreement.
(e) If any Transfer Shares allocated to a Transfer Offeree are not
purchased by such Transfer Offeree (the "Transfer Default Shares"), such
------------------------
Transfer Default Shares may be purchased by the Company promptly following any
such default. Nothing contained herein shall prejudice any Person's right to
maintain any cause of action or pursue any other remedies available to it as a
result of such default.
(f) If, at the end of the thirtieth (30th) day after the Transfer Notice
is received, the Company has not delivered an effective Notice of Acceptance of
the offer contained in such Transfer Notice, or if it has delivered a Notice of
Acceptance covering less than all of the Transfer Shares, then the Transferring
Securityholder shall have 90 days in which to Transfer any or all of the
Transfer Shares not accepted for purchase by the Transfer Offerees, at a price
not lower than the Transfer Price and on terms no more favorable to the
transferee than those contained in the Transfer Notice, to any third party;
provided, however, that no Transfer may be made to any third party unless and
- -------- -------
until such third party delivers to the Company an executed consent to be bound
by the provision of this Agreement in form and substance reasonably satisfactory
to the Company. Promptly after any Transfer pursuant to this Section 4.3, the
Transferring Securityholder shall notify the Company of the consummation thereof
and shall furnish such evidence of the completion and time of completion of such
Transfer and of the terms
8
<PAGE>
thereof as the Company may request. If, at the end of such 90-day period, the
Transferring Securityholder has not completed the Transfer of all of the
Transfer Shares, the Transferring Securityholder shall no longer be permitted to
Transfer such Shares pursuant to this Section 4.3(f) without again complying
with this Section 4.3 in its entirety. If the Transferring Securityholder
determines at any time within such 90-day period that the Transfer of all or any
part of such Transfer Shares at a price not lower than the Transfer Price and on
terms no more favorable to the transferee than those contained in the Transfer
Notice is impractical, such Securityholder may terminate all attempts to
Transfer such Transfer Shares and recommence the procedures of this Section 4.3
in their entirety without waiting for the expiration of such 90-day period by
delivering written notice of such decision to the Company.
4.4. Restrictions in Connection with Registrations. Each Securityholder
---------------------------------------------
agrees not to effect any public sale or distribution of Shares, including any
sale pursuant to Rule 144, during the seven (7) days prior to the effective date
of a registration statement effected pursuant to the terms hereof and during
such period of time beginning on such effective date as may be required by the
underwriters of such offering and agreed to by the Company, but in no event
exceeding nine (9) months (in each case except as part of such registration).
Each Securityholder hereby acknowledges that such Securityholder shall have no
right to include its Shares in any registration of Shares, except as expressly
provided in Article 6.
ARTICLE 5.
REGISTRATION RIGHTS
5.1. Sale or Transfer of Shares.
--------------------------
(a) In addition to the other transfer restrictions set forth in this
Agreement, the shares of Common Stock and any shares of Common Stock issued or
issuable upon conversion of the Convertible Preferred Stock shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act, or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for a transfer by a Purchaser that is a partnership to
a partner of such partnership.
5.2. Public Offering Shares.
----------------------
(a) Demand Registration. At any time and from time to time but
-------------------
excluding the period beginning December 1 and ending March 1 in any year, if the
Company receives written notice from Preferred Stock Holders holding a majority
of the Convertible Preferred Stock, which notice demands the registration of all
or at least 500,000 shares of the Conversion Stock issued or
9
<PAGE>
issuable upon conversion of Convertible Preferred Stock, and specifies the
intended methods of disposition thereof, then the Company shall promptly (and in
any event within 10 days after its receipt of such demand) provide notice
thereof to the other Securityholders in accordance with this Section 5.2 (which
other Securityholders shall have the right to include any shares of Common Stock
and any shares of Common Stock issued or issuable upon conversion of Convertible
Preferred Stock or exercise of options to purchase Common Stock held by them in
such registration) and cause to be prepared a registration statement, file the
registration statement within 60 days after the date of such request (45 days in
the case of a Form S-3) (using Form S-3 or other "short form," if available and
advised by counsel), to the end that such Conversion Stock issued or issuable
upon conversion of Convertible Preferred Stock, may be sold thereunder as soon
as it becomes effective, and the Company will use its reasonable best efforts to
ensure that a distribution of the Conversion Stock pursuant to the registration
statement may continue for up to nine months from the date of the effective date
of the registration statement. Each such registration shall hereinafter be
called a "Demand Registration." The Preferred Stock Holders shall be entitled
-------------------
to request one Demand Registration. A Demand Registration shall not count as
such until a registration statement becomes effective; provided, that if, after
--------
it has become effective, the offering pursuant to the registration statement is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental authority, such registration be deemed
not to have been effected unless such stop order, injunction or other order
shall subsequently have been vacated or otherwise removed. The Preferred Stock
Holders shall select the underwriters of any offering pursuant to a registration
statement filed pursuant to this Section 5.2(a), subject to the approval of the
Company, which approval shall not be unreasonably withheld. Any selected
underwriter shall be a well-recognized firm in good standing.
(b) "Piggyback" Registration Rights. Subject to applicable stock
------------------------------
exchange rules and securities regulations, at least 30 days prior to any public
offering of any of its Common Stock for the account of the Company or any other
person (other than a registration statement on Form S-4 or S-8 (or any successor
forms under the Securities Act) or other registrations relating solely to
employee benefit plans or any transaction governed by Rule 145 of the Securities
Act), other than pursuant to the exercise of any Demand Registration pursuant to
Section 5.2(a), the Company shall give written notice of such proposed filing
and of the proposed date thereof to each Securityholder and if, on or before the
twentieth (20th) day following the date on which such notice is given, the
Company shall receive a written request from any such holder requesting that the
Company include among the securities covered by such registration statement any
Shares of Common Stock, Shares of Common Stock issued or issuable upon
conversion of Convertible Preferred Stock or the exercise of options to purchase
Common Stock owned by such Securityholder for offering for sale in a manner and
on terms set forth in such request, the Company shall include such Shares in
such registration statement, if filed, so as to permit such Shares to be sold or
disposed of in the manner and on the terms of the offering thereof set forth in
such request. Each such registration shall hereinafter be called a "Piggyback
---------
Registration." The Company shall select the underwriters of any offering
- ------------
pursuant to a registration statement filed
10
<PAGE>
pursuant to this Section 5.2(b), subject to the approval of the Purchasers,
which approval shall not be unreasonably withheld.
(c) Terms and Conditions of Registration or Qualification. In
-----------------------------------------------------
connection with any registration statement filed pursuant to Sections 5.2(a) or
5.2(b) hereof, the following provisions shall apply.
(i) The obligations of the Company to use its reasonable best
efforts to cause the registration of Shares under the Securities Act are
subject to the limitation, condition and qualification that the Company
shall be entitled to postpone for a reasonable period of time (but not
exceeding 90 days in any one year period) the filing of any registration
statement otherwise required to be filed by it if the Company in good faith
determines that such registration and offering would (A) interfere with any
financing, acquisition, corporate reorganization or other material
transaction or event involving the Company or any of its subsidiaries or
(B) require premature disclosure thereof or of conditions, circumstances or
events affecting the Company or the Company's industry which are not yet
fully developed or ripe for disclosure, in which event the Company shall
promptly give the Securityholders requesting registration thereof written
notice of such determination and an approximation of the anticipated delay.
If the Company shall so postpone the filing of a registration statement,
the Securityholders requesting registration shall have the right to
withdraw the request for registration by giving written notice to the
Company within 15 days after receipt of the notice of postponement and, in
the event of such withdrawal, such request shall not be counted for
purposes of the requests for registration to which Holders are entitled
under this Agreement.
(ii) If the managing underwriter advises that the inclusion in such
registration or qualification of some or all of the Shares sought to be
registered exceeds the number (the "Saleable Number") that can be sold in
---------------
an orderly fashion or without adversely affecting the offering, then the
number of Shares offered shall be limited to the Saleable Number and shall
be allocated as follows:
(A) If such registration is being effected pursuant to a
Piggyback Registration, (1) first, all the Shares the Company
(or in the exercise of demand registration rights by other
stockholders of the Company, the selling stockholder(s)
exercising such rights) proposes to register and (2) second,
the difference between the Saleable Number and the number to be
included pursuant to clause (1) above, allocated to the
Preferred Stock Holders pro rata on the basis of the relative
number of Shares offered for sale by each Preferred Stock
Holder; and
11
<PAGE>
(B) if such registration is being effected pursuant to a
Demand Registration other than in connection with the first
public offering of Common Stock of the Company after the date
of this Agreement, (1) first, the entire Saleable Number
allocated first to the Preferred Stock Holders pro rata on the
basis of the relative number of Shares offered for sale by each
such Securityholder, and then among all other selling
Securityholders pro rata on the basis of the relative number of
Shares offered for sale by each such Securityholder and (2)
second, the difference (if positive) between the Saleable
Number and the number to be included pursuant to clause (1)
above, allocated to the Company; and
(C) if such registration is being effected pursuant to a
Demand Registration and would be the first public offering of
Common Stock after the date of this Agreement and the Company
wishes to sell, for its own account, shares of Common Stock in
such offering, then the Saleable Number shall be allocated
evenly to the Purchasers, on one hand, and the Company, on the
other hand, to the extent of the number of Shares offered by
the Purchasers.
(iii) The selling Securityholders will promptly provide the Company
with such information as the Company shall reasonably request in order to
prepare such registration statement and, upon the Company's request, each
selling Securityholder shall provide such information in writing and signed
by such holder and stated to be specifically for inclusion in the
registration statement. In the event that the distribution of the Shares
covered by the registration statement shall be effected by means of an
underwriting, the right of any selling Securityholder to include its Shares
in such registration shall be conditioned on such holder's execution and
delivery of a customary underwriting agreement with respect thereto;
provided, however, that except with respect to information concerning such
-------- -------
holder and such holder's intended manner of distribution of the Shares, no
selling Securityholder shall be required (as a selling Securityholder
exercising registration rights) to make any representations or warranties
in such agreement as a condition to the inclusion of its Shares in such
registration.
(iv) The Company shall bear all expenses in connection with the
preparation of any registration statement filed pursuant to Section 5.2(a),
including the fees and disbursements of one counsel for the selling
Securityholders.
(v) The Company shall bear all expenses in connection with the
preparation of any registration statement filed pursuant to Section 5.2(b),
excluding (A) the fees and disbursements of counsel for the selling
Securityholders, and (B) the underwriting fees, discounts or commissions
with
12
<PAGE>
respect to Shares of the selling Securityholders, which shall be borne by
the selling Securityholders.
(vi) Following the effective date of such registration statement,
the Company shall, upon the request of the selling Securityholders,
forthwith supply such number of prospectuses (including preliminary
prospectuses and amendments and supplements thereto) meeting the
requirements of the Securities Act or such other securities laws where the
registration statement or prospectus has been filed and such other
documents as are referred to in the registration statement as shall be
requested by the selling Securityholders to permit such holders to make a
public distribution of their Shares, provided that the selling
Securityholders furnish the Company with such appropriate information
relating to such holders' intentions in connection therewith as the Company
shall reasonably request in writing.
(vii) The Company shall prepare and file such amendments and
supplements to such registration statement as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act or such other securities laws where the registration
statement has been filed with respect to the offer and sale or other
disposition of the shares covered by such registration statement during the
period required for distribution of the Shares, which period shall not be
in excess of six (6) months from the effective date of such registration
statement.
(viii) The Company shall use its reasonable best efforts to register
or qualify the Shares of the selling Securityholders covered by any such
registration statement under such securities or Blue Sky laws in such
jurisdictions as the Securityholders may reasonably request; provided,
--------
however, that the Company shall not be required to execute a general
-------
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified in order to
comply with such request.
(ix) In connection with any registration pursuant to Article 5, the
Company will as expeditiously as possible:
(A) cause the Shares covered by such registration
statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by
virtue of the business and operations of the Company to enable
the selling Securityholders to consummate the disposition of
such Shares;
(B) notify each selling Securityholder at any time of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a
13
<PAGE>
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Shares, such prospectus will not
contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(C) cause all Shares covered by the registration
statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed and,
unless the same already exists, provide a transfer agent,
registrar and CUSIP number for all such Shares not later than
the effective date of the registration statement;
(D) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such
other actions as the holders of a majority of the voting power
of the Shares being sold or the underwriters retained by such
holders, if any, reasonably request in order to expedite or
facilitate the disposition of such Shares;
(E) make available for inspection by any selling
Securityholder, any underwriter participating in any
disposition pursuant to such registration statement, and any
attorney, accountant or other agent retained by any such seller
or underwriter (collectively, the "Inspectors"), all financial
----------
and other records, pertinent corporate documents and properties
of the Company as shall be necessary to enable them to exercise
their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with
such registration statement, provided that such Inspectors
shall have first executed and delivered to the Company a
confidentiality agreement in customary form protecting the
confidentiality of such information;
(F) obtain "cold comfort" letters and updates thereof
from the Company's independent public accountants and an
opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered by "cold
comfort" letters and opinion of counsel, respectively, as the
holders of a majority of the voting power of the Shares of the
selling Securityholders shall reasonably request; and
14
<PAGE>
(G) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its
Securityholders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within
three months after the effective date of the registration
statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
(x) Each selling Securityholder agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind
described in Section 5.2(c)(ix)(B), such holder will forthwith
discontinue disposition of its Shares pursuant to the registration
statement covering such Shares until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by such
Section 5.2(c)(ix)(B) and, if so directed by the Company, such holder
will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such holder's possession, of
the prospectus covering such Shares current at the time of receipt of
such notice.
(xi) Each selling Securityholder agrees not to effect any
public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Shares of Common Stock, and not to
effect any such public sale or distribution of any other equity
security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company in
each case, other than as part of an offering made pursuant to a
registration statement filed and affected by this Agreement during the
15 days prior to, and during the 90-day period (or such longer period
as each selling Securityholder agrees with the underwriter of such
offering) beginning on the effective date of such registration
statement (except as part of such registration) provided that each
selling Securityholder has received written notice of such
registration at least 15 days prior to such effective date.
(d) Exceptions to Registration Obligations. The Company shall not
--------------------------------------
be required to effect any registration of Shares pursuant to Section 5.2(a) or
Section 5.2(b) hereof if either:
(i) it shall deliver to the selling Securityholders
requesting such registration an opinion of counsel in form reasonably
satisfactory to such selling Securityholder to the effect that all
such Shares held by such selling Securityholder may be sold in the
public market without registration under the Securities Act (e.g.,
---
pursuant to Rule 144) and any applicable state securities laws; or
(ii) it shall offer to purchase all the Shares sought by the
selling Securityholder to be registered, at a purchase price per Share
equal to the average,
15
<PAGE>
over the ten (10) trading days immediately after the selling
Securityholder's request for Demand Registration or Piggyback
Registration, of the average on each such trading day of the bid and
ask price (or high and low sales price, if applicable) for a share of
Common Stock of the Company on the exchange or quotation system upon
which the Common Stock is traded or quoted.
(e) Transfer Restrictions. The transfer restrictions contained in
---------------------
Article 4 of this Agreement shall not apply to any offering of Shares pursuant
to this Section 5.2.
(f) Indemnification.
---------------
(i) In the event of the registration or qualification of any
Shares of the Securityholders under the Securities Act or any other
applicable securities laws pursuant to the provisions of this Section
5.2, the Company agrees to indemnify and hold harmless each
Securityholder thereby offering such Shares for sale (a "Seller"),
------
underwriter, broker or dealer, if any, of such Shares, and each other
person, if any, who controls any such Seller, underwriter, broker or
dealer within the meaning of the Securities Act or any other
applicable securities laws, from and against any and all losses,
claims, damages or liabilities (or actions in respect thereof), joint
or several, to which such Seller, underwriter, broker or dealer or
controlling person may become subject under the Securities Act or any
other applicable securities laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement
under which such Shares were registered or qualified under the
Securities Act or any other applicable securities laws, any
preliminary prospectus or final prospectus relating to such Shares, or
any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of any rule or
regulation under the Securities Act or any other applicable securities
laws applicable to the Company or relating to any action or inaction
required by the Company in connection with any such registration or
qualification and will reimburse each such Seller, underwriter, broker
or dealer and each such controlling person for any legal or other
expenses reasonably incurred by such Seller, underwriter, broker or
dealer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
--------
however, that the Company will not be liable in any such case to the
-------
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission made in such
registration statement, such preliminary prospectus, such final
prospectus or such amendment or supplement thereto or violation in
reliance upon and in conformity with written information furnished to
the Company by such Seller, underwriter, broker, dealer or controlling
16
<PAGE>
person specifically and expressly for use in the preparation thereof;
and provided, further, that the Company shall not be liable to any
-------- -------
person who participates as an underwriter in the offering or sale of
Shares or any other person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such person's
failure to send or give a copy of the final prospectus, as the same
may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of Shares to such
person if such statement or omission was corrected in such final
prospectus so long as such final prospectus, and any amendments or
supplements thereto, have been furnished to such underwriter.
(ii) In the event of the registration or qualification of any
Shares of the Securityholders under the Securities Act or any other
applicable securities laws for sale pursuant to the provisions of this
Section 5.2, each selling Securityholder, each underwriter, broker and
dealer, if any, of such Shares, and each other person, if any, who
controls any such selling Securityholder, underwriter, broker or
dealer within the meaning of the Securities Act, agrees severally, and
not jointly to indemnify and hold harmless the Company, each person
who controls the Company within the meaning of the Securities Act, and
each officer and director of the Company from and against any and all
losses, claims, damages or liabilities (or actions in respect
thereof), joint or several, to which the Company, such controlling
person or any such officer or director may become subject under the
Securities Act or any other applicable securities laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement
of any material fact contained in any registration statement under
which such Shares were registered or qualified under the Securities
Act or any other applicable securities laws, any preliminary
prospectus or final prospectus relating to such Shares, or any
amendment or supplement thereto, or arise out of or are based upon an
untrue statement or the omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading or any violation by the Company of any rule or
regulation under the Securities Act or any other applicable securities
laws applicable to the Company or relating to any action or inaction
required by the Company in connection with any such registration or
qualification and will reimburse each such Seller, underwriter, broker
or dealer and each such controlling person for any legal or other
expenses reasonably incurred by such Seller, underwriter, broker or
dealer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action, which
untrue statement or omission or violation was made therein in reliance
upon and in conformity with written information furnished to the
Company by such selling Securityholder, underwriter, broker, dealer or
controlling person specifically for
17
<PAGE>
use in connection with the preparation thereof, and will reimburse the
Company, such controlling person and each such officer or director for
any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that no selling
-------- -------
Securityholder will be liable under this Section 5.2(f)(ii) for any
amount in excess of the net proceeds paid to such selling
Securityholder of Shares sold by it unless such liability arises from
such written information furnished to the Company with knowledge of
its misleading nature or an intent to defraud.
(iii) Promptly after receipt by a person entitled to
indemnification under this Section 5.2(f) (an "indemnified party") of
-----------------
notice of the commencement of any action or claim relating to any
registration statement filed under Section 5.2(a) or 5.2(b) or as to
which indemnity may be sought hereunder, such indemnified party will,
if a claim for indemnification hereunder in respect thereof is to be
made against any other party hereto (an "indemnifying party"), give
------------------
written notice to such indemnifying party of the commencement of such
action or claim, but the omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability that it may
have to any indemnified party otherwise than pursuant to the
provisions of this Section 5.2(f) and shall also not relieve the
indemnifying party of its obligations under this Section 5.2(f) except
to the extent that the indemnifying party is actually prejudiced
thereby. In case any such action is brought against an indemnified
party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled (at its own expense)
to participate in and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the
defense, with counsel reasonably satisfactory to such indemnified
party, of such action and/or to settle such action and, after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than the reasonable cost of investigation;
provided, however, that no indemnifying party shall enter into any
-------- -------
settlement agreement without the prior written consent of the
indemnified party unless such indemnified party is fully released and
discharged from any such liability. Notwithstanding the foregoing, the
indemnified party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (A) the employment of
such counsel shall have been authorized in writing by the indemnifying
party in connection with the defense of such suit, action, claim or
proceeding, (B) the indemnifying party shall not have employed counsel
(reasonably satisfactory to the indemnified party) to take charge of
the defense of such action, suit, claim or proceeding, or (C) such
indemnified party shall have reasonably concluded, based upon the
advice of counsel, that there may be defenses available to it that are
different from or additional to those available to the
18
<PAGE>
indemnifying party which, if the indemnifying party and the
indemnified party were to be represented by the same counsel, could
result in a conflict of interest for such counsel or materially
prejudice the prosecution of the defenses available to such
indemnified party. If any of the events specified in clauses (A), (B)
or (C) of the preceding sentence shall have occurred or shall
otherwise be applicable, then the fees and expenses of one counsel or
firm of counsel selected by a majority in interest of the indemnified
parties (and reasonably acceptable to the indemnifying party) shall be
borne by the indemnifying party. If, in any such case, the indemnified
party employs separate counsel, the indemnifying party shall not have
the right to direct the defense of such action, suit, claim or
proceeding on behalf of the indemnified party and the indemnified
party shall assume such defense and/or settle such action; provided,
--------
however, that an indemnifying party shall not be liable for the
-------
settlement of any action, suit, claim or proceeding effected without
its prior written consent, which consent shall not be unreasonably
withheld.
ARTICLE 6.
PREEMPTIVE RIGHTS
6.1. Preemptive Rights. If, after the date hereof and prior to the
-----------------
conversion of the Convertible Preferred Stock by Preferred Stock Holders holding
a majority of the Convertible Preferred Stock, the Company shall propose to
issue or sell New Securities (as hereinafter defined) or enter into any
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance or sale of any New Securities, each Preferred Stock
Holder shall have the right to purchase that number of New Securities at the
same price and on the same terms proposed to be issued or sold by the Company so
that such holder would after the issuance or sale of all of such New Securities,
hold the same proportional interest of the then outstanding Shares (assuming
that any securities or other rights convertible or exchangeable into or
exercisable for Shares have been converted, exchanged or exercised) as was held
by it prior to such issuance and sale (the "Proportionate Percentage"). "New
------------------------ ---
Securities" shall mean any securities or other rights convertible or
- ----------
exchangeable into or exercisable for Shares; provided, however, that "New
-------- -------
Securities" does not include: (i) Common Stock issued or issuable on conversion
of the Convertible Preferred Stock or upon the exercise of options outstanding
on the date hereof; (ii) Shares issued pursuant to any rights or agreements
including, without limitation, any security convertible or exchangeable, with or
without consideration, into or for any stock, options and warrants, provided
that the rights established by this Section 6.1 apply with respect to the
initial sale or grant by the Company of such rights or agreements; (iii)
securities issued by the Company as part of any public offering pursuant to an
effective registration statement under the Securities Act; (iv) Shares issued in
connection with any stock split, stock dividend, recapitalization, spin-off, or
split-off of the Company; (v) Shares issued to management, directors or
employees of, or consultants to, the Company pursuant to plans outstanding as of
the date hereof, and options to purchase Shares issued in accordance with such
plans or pursuant to other
19
<PAGE>
plans approved by the Board and options to purchase Shares issued in accordance
with such plans; (vi) securities issued in connection with any merger or
acquisition by the Company; and (vii) securities issued in any single
transaction in which (A) the purchase price for such securities is less than
$1,000,000 and (B) such purchase price per share of Common Stock or per Common
Stock Equivalent is not less than the then applicable Conversion Price per share
of the Convertible Preferred Stock.
The Company shall give the Preferred Stock Holders written notice of
its intention to issue and sell New Securities, describing the type of New
Securities, the price and the general terms and conditions upon which the
Company proposes to issue the same. The Preferred Stock Holders shall have 15
days from the giving of such notice to agree to purchase all (or any part) of
its Proportionate Percentage of New Securities for the price and upon the terms
and conditions specified in the notice by giving written notice of the Company
and stating therein the quantity of New Securities to be purchased.
If the Preferred Stock Holders fail to timely exercise in full such
right, the Company shall have 120 days thereafter to sell the New Securities in
respect of which the Preferred Stock Holders' rights were not exercised, at a
price and upon general terms and conditions no more favorable to the purchasers
thereof than specified in the Company's notice to the Preferred Stock Holders
pursuant to this Section 7.1. If the Company has not sold the New Securities
within such 120 days, the Company shall not thereafter issue or sell any New
Securities, without first offering such securities to the Preferred Stock
Holders in the manner provided above.
ARTICLE 7.
TERMINATION
This Agreement shall terminate automatically upon the consummation of
(a) a Qualified Offering, or (b) a Sale of the Company. Notwithstanding the
foregoing, the provisions of Article 5 of this Agreement shall survive and
continue in effect subsequent to the consummation of a Qualified Offering until
the third anniversary of the date of consummation of a Qualified Offering.
ARTICLE 8.
REPRESENTATIONS
8.1. Representation of Company. The execution, delivery, and
-------------------------
performance by the Company of this Agreement and all other agreements in
connection with this Agreement required to be executed by the Company and the
consummation by the Company of the
20
<PAGE>
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action. This Agreement and all other agreements have been
duly executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by
this Agreement and all other agreements and compliance with their provisions by
the Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions, or provisions of, or
constitute a default under, or require a consent or waiver under, its
Certificate of Incorporation or by-laws or any indenture, lease, agreement or
other instrument to which the company is a party or by which it or any of its
properties is bound, or any decree, judgment, order, statute, rule or regulation
applicable to the Company.
8.2. Representation of Cahill, Warnock Purchasers. The execution,
--------------------------------------------
delivery, and performance by the Cahill, Warnock Parties of this Agreement and
all other agreements required to be executed by the Cahill, Warnock Parties and
the consummation by the Cahill, Warnock Parties of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary action. This
Agreement and all other agreements have been duly executed and delivered by the
Cahill, Warnock Parties and constitute valid and binding obligations of the
Cahill, Warnock Parties enforceable in accordance with their respective terms.
The execution of and performance of the transactions contemplated by this
Agreement and all other agreements and compliance with their provisions by the
Cahill, Warnock Parties will not violate any provision of law and will not
conflict with or result in any breach of any of the terms, conditions, or
provisions of, or constitute a default under, or require a consent or waiver
under any agreements applicable to the Cahill, Warnock Parties.
8.3. Representation of the Brozman Estate. The execution, delivery,
------------------------------------
and performance by the Executor of the Brozman Estate of this Agreement and all
other agreements required to be executed by the Executor of the Brozman Estate
and the consummation by the Executor of the Brozman Estate of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
action by the Brozman Estate. This Agreement and all other agreements have been
duly executed and delivered by the Executor of the Brozman Estate and constitute
valid and binding obligations of the Brozman Estate enforceable in accordance
with their respective terms. The execution of and performance of the
transactions contemplated by this Agreement and all other agreements and
compliance with their provisions by the Brozman Estate will not violate any
provision of law and will not conflict with or result in any breach of any of
the terms, conditions, or provisions of, or constitute a default under, or
require a consent or waiver under any applicable agreements applicable to the
Brozman Estate.
8.4. Representation of the Brozman Trust. The execution, delivery,
-----------------------------------
and performance by the Trustee of the Robert F. Brozman Trust Under Agreement
dated December 28, 1989 (the "Brozman Trust") of this Agreement and all other
-------------
agreements required to be executed by the Trustee of the Brozman Trust and the
consummation by the Trustee of the Brozman Trust of the transactions
contemplated hereby and thereby, have been duly authorized
21
<PAGE>
by all necessary action by the Brozman Trust. This Agreement and all other
agreements have been duly executed and delivered by the Trustee of the Brozman
Trust and constitute valid and binding obligations of the Brozman Trust
enforceable in accordance with their respective terms. The execution of and
performance of the transactions contemplated by this Agreement and all other
agreements and compliance with their provisions by the Brozman Trust will not
violate any provision of law and will not conflict with or result in any breach
of any of the terms, conditions, or provisions of, or constitute a default
under, or require a consent or waiver under any applicable agreements applicable
to the Brozman Trust.
ARTICLE 9.
MISCELLANEOUS
9.1. Certificate Legend. Upon execution of this Agreement, the stock
------------------
certificates representing Shares held by the Stockholders shall contain
substantially the following legend, in addition to any other legends deemed
reasonably appropriate or necessary by the Company:
"This certificate is transferable only upon compliance with and
subject to the provisions of a Stockholders' Agreement among the
Company and certain Securityholders, a copy of which Agreement is on
file in the office of the Secretary of the Company at its principal
place of business. The Company will furnish a copy of such Agreement
to the record holder of this Certificate, without charge, upon written
request to the Company at its principal place of business or
registered office."
9.2. Negotiable Form. Whenever any Shares are to be delivered or
---------------
sold pursuant to this Agreement, the person selling such Shares shall deliver
such certificates or other instruments duly endorsed or accompanied by
appropriate stock powers or assignments separate from the certificate or
instrument.
9.3. Enforcement. No Shares shall be Transferred on the books of the
-----------
Company and no Transfer thereof shall be effective unless and until the terms
and provisions of this Agreement are complied with, and in cases of violation of
this agreement by the attempted Transfer of the Shares without compliance with
the terms and provisions thereof, such Transfer shall be invalid and of no
effect, and the Company and/or any of the Securityholders who are not attempting
to Transfer the Shares shall have the right to compel the Securityholder who is
attempting to Transfer the Shares, and/or the purported transferee, to Transfer
and deliver the same in accordance with the applicable provisions of this
Agreement.
9.4. Specific Performance. The parties hereto recognize that it is
--------------------
to the benefit of the Company and the Securityholders that this Agreement be
carried out; and for those and
22
<PAGE>
other reasons, the parties hereto would be irreparably damaged if this Agreement
is not specifically enforced in the event of a breach hereof. If any
controversy concerning the rights or obligations to purchase or sell any Shares
arises, or if this Agreement is breached, the parties hereto hereby agree that
remedies at law might be inadequate and that, therefore, such rights and
obligations, and this Agreement, shall be enforceable by specific performance.
The remedy of specific performance shall not be an exclusive remedy, but shall
be cumulative of all other rights and remedies of the parties hereto at law, in
equity or under this Agreement.
9.5. Transferees. The Company and the Securityholders shall cause
-----------
any transferee of any Shares or options exercisable for shares held by any
Securityholder to execute a consent, in form and substance reasonably acceptable
to the Company, to be bound by the terms and conditions of this Agreement and
upon execution thereof such future Securityholder shall be entitled to the
rights of an owner of the Shares held by such transferee hereunder, provided
that the foregoing shall not apply to Shares that have been sold pursuant to an
effective registration statement under the Securities Act or Rule 144
thereunder.
9.6. Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if in writing and delivered in
person, transmitted by telecopier or sent by registered or certified mail
(return receipt requested) or recognized overnight delivery service, postage
pre-paid, addressed as follows, or to such other address as any such party may
notify to the other parties in writing:
(a) if to the Company:
Concorde Career Colleges, Inc.
1100 Main Street
Suite 416
Kansas City, MO 64105
Attn: Jack L. Brozman
with a copy to:
Bryan Cave, L.L.P.
7500 College Boulevard
Suite 1100
Overland Park, KS 66210-4035
Attn: Thomas W. Van Dyke
(b) if to the Cahill, Warnock Parties:
c/o Cahill, Warnock & Company, LLC
One South Street, Suite 2150
Baltimore, Maryland 21202
23
<PAGE>
Attn: David Warnock
Facsimile No.: (410) 895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: John B. Watkins, Esquire
Facsimile No.: (410) 986-2828
(c) if to any of the Other Holders, to the respective Other Holder as
set forth below:
Jack L. Brozman
8607 Cedar
Prairie Village, KS 66207
The Brozman Estate
c/o Jack L. Brozman
1100 Main Street
Suite 416
Kansas City, MO 64105
The Brozman Trust
c/o Jack L. Brozman
1100 Main Street
Kansas City, MO 64105
A notice or communication will be effective (i) if delivered in person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, 3 business days
after dispatch.
9.7. Binding Effect; Assignment. This Agreement, including the
--------------------------
rights and conditions contained herein in connection with disposition of
Shares, shall be binding upon the parties hereto, together with their respective
executors, administrators, successors, personal representatives, heirs and
assigns permitted under this Agreement.
9.8. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware.
24
<PAGE>
9.9. Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provisions shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement, a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable.
9.10. Entire Agreement. This Agreement together with the Certificate
----------------
of Designation embodies the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to the subject matter hereof.
9.11. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one instrument.
9.12. Amendment; Waiver. This Agreement may be amended, modified or
-----------------
supplemented only by a written instrument executed by the Company and the
Securityholders.
9.13. Captions. The captions of this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
25
<PAGE>
STOCKHOLDERS' AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CONCORDE CAREER COLLEGES, INC.
By: _______________________________________
Name:
Title:
CAHILL, WARNOCK PARTIES:
-----------------------
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL, WARNOCK STRATEGIC PARTNERS,
L.P., its General Partner
By: _______________________________________
Name: David L. Warnock
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, L.L.C., its
General Partner
By: _________________________________________
Name: David L. Warnock
Title: Managing Member
26
<PAGE>
OTHER HOLDERS:
-------------
JACK L. BROZMAN, in his individual capacity
By: __________________________________________
THE ESTATE OF ROBERT F. BROZMAN
By: ___________________________________________
Jack L. Brozman, Executor
ROBERT F. BROZMAN TRUST UNDER AGREEMENT
DATED DECEMBER 28, 1989
By: ___________________________________________
Jack L. Brozman, Trustee
27
<PAGE>
AGREEMENT
This Agreement (this "Agreement") is dated March 20, 1997 and is by and
among the Concorde Career Colleges, Inc. ("Concorde"), Cahill, Warnock Strategic
Partners Fund, L.P. ("Partners"), Strategic Associates, L.P. ("Associates"),
Jack L. Brozman, The Estate of Robert F. Brozman, the Robert F. Brozman Trust
under Agreement dated 12/28/89 (collectively, "Brozman") and James R. Seward
("Seward") and relates to the Stockholders' Agreement dated as of February 25,
1997 by and among Concorde, Partners, Associates and Brozman (the "Agreement").
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, Seward desires to purchase 1,838 shares (the "Seward Shares") of
Concorde's Class B Convertible Preferred Stock, par value $0.10 per share (the
"Preferred Stock");
WHEREAS, as a condition to such purchase of the Seward Shares, the other
parties hereto (the "Other Parties") desire Seward to have the rights and
obligations provided by certain provisions of the Agreement, and Seward desires
to have such rights and be bound by such obligations, on the terms and
conditions hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Restrictions on Transfer. With respect only to the Seward Shares,
Seward shall be subject and entitled to, and shall comply with and be bound by,
the provisions of Article 4 of the Agreement, as if Seward was a
"Securityholder" and the Seward Shares were "Shares" as defined in the
Agreement.
2. Registration Rights. With respect only to the Seward Shares, Seward
shall be subject and entitled to, and shall comply with and be bound by, the
provisions of Article 5 (except for Section 5.2(a)) of the Agreement, as if
Seward was a "Preferred Stock Holder".
3. Miscellaneous. With respect only to the Seward Shares and the
application of the Agreement to Seward and the Seward Shares as provided hereby,
Seward shall be subject and entitled to, and shall comply with and be bound by,
the provisions of Article 9 of the Agreement.
4. Agreement Remains in Force. Except as specifically amended hereby, all
of the provisions, terms and conditions of the Agreement shall remain in full
force and effect.
[signatures follow on next page]
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by persons
thereunto duly authorized as of the date first written above.
CONCORDE CAREER COLLEGES, INC.
By:
------------------------------------
Jack L. Brozman
President
CAHILL, WARNOCK STRATEGIC PARTNERS
FUND, L.P.
By: Cahill Warnock Strategic Partners,
L.P., its general partner
By:
-------------------------------
David L. Warnock
A General Partner
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Company, L.L.C.,
its general partner
By:
-------------------------------
David L. Warnock
Managing Member
---------------------------------------
Jack L. Brozman
ESTATE OF ROBERT F. BROZMAN
By:
------------------------------------
Jack L. Brozman
Executor
ROBERT F. BROZMAN TRUST UTA 12/28/89
By:
------------------------------------
Jack L. Brozman
Trustee
---------------------------------------
James R. Seward
2
<PAGE>
FOURTH AMENDMENT
TO THE
RESTRUCTURING, SECURITY AND GUARANTY AGREEMENT
----------------------------------------------
THIS AGREEMENT, made and entered into as of the 30th day of December,
1996, (the "FOURTH AMENDMENT") by and among CENCOR, INC., a Delaware corporation
("CENCOR"); CONCORDE CAREER COLLEGES, INC., a Delaware corporation ("CONCORDE");
UNITED HEALTH CAREERS INSTITUTE, INC., a California corporation ("UNITED");
SOUTHERN CALIFORNIA COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC., a California
corporation ("SOUTHERN CALIFORNIA"); CONCORDE CAREERS - FLORIDA, INC., a Florida
corporation ("FLORIDA"); COLLEGES OF DENTAL AND MEDICAL ASSISTANTS, INC., a
California corporation ("DENTAL"); COMPUTER CAREER INSTITUTE, INC., an Oregon
corporation ("COMPUTER"); and CAREER ASSISTANCE, INC., a Delaware corporation
("CAREER") (United, Southern California, Florida, Dental, Computer, Career,
Minnesota Institute of Medical and Dental Assistants, Inc., a Minnesota
corporation ("MINNESOTA"), and Texas College of Medical and Dental Assistants,
Inc., a Texas corporation ("TEXAS"), being hereinafter referred to collectively
as "GUARANTORS" and each individually as a "GUARANTOR") amends that certain
Restructuring, Security and Guaranty Agreement between the parties dated as of
October 30, 1992, as previously amended by written agreements dated as of
December 30, 1993, November 15, 1994 and July 30, 1996 (collectively, the
"AGREEMENT").
RECITALS
--------
(i) Pursuant to the Agreement entered into by CenCor, Concorde
and the Guarantors, Concorde issued a debenture to CenCor in the principal
amount of $5,422,307, dated October 30, 1992 (the "DEBENTURE").
(ii) Pursuant to the terms of the November 15, 1994 amendment
(the "SECOND AMENDMENT"), Concorde exchanged 300,000 shares of its Class A
Redeemable Preferred Stock, $.10 par value (the "CLASS A PREFERRED STOCK")
for $3,000,000 of the principal amount of the Debenture; reduced the
outstanding principal amount of the Debenture to $2,442,307, and amended
the Debenture to reflect such.
(iii) The Mark Twain liabilities have been paid in full by
Concorde and are no longer outstanding.
(iv) Concorde is the successor-in-interest by merger of two of
the Guarantors, Minnesota and Texas.
(v) Pursuant to the terms of the Agreement, Concorde has made
quarterly payments of principal and accrued interest on the Debenture on
June 30, 1996, of $69,554.05 and $72,683.95, respectively, and on September
30, 1996, of $69,554.01 and $66,119.79, respectively, thereby reducing the
current outstanding
<PAGE>
principal amount of the Debenture to $2,643,052.56, and is scheduled to
make a quarterly payment of principal and accrued interest ($69,554.01 and
$64,424.40, respectively) on the Debenture on December 31, 1996 (the "12/96
DEBENTURE PAYMENT").
(vi) Pursuant to the terms of the Agreement, Concorde has
redeemed a total of 39,615 shares of Class A Preferred Stock, and the
accrued dividends thereon, thereby reducing the number of shares of Class A
Preferred Stock currently outstanding to 260,385 shares.
(vii) Due to modifications of the terms of the San Jose sale
made prior to its closing on August 31, 1996, the amount and payment date
of the second installment of the San Jose Sale purchase price was modified
to be $300,000 on February 28, 1997, of which 50% is scheduled to be paid
by Concorde to CenCor.
(viii) Career is a newly formed subsidiary of Concorde and,
pursuant to the provisions of Section 7.4 of the Agreement, (A) Concorde
has pledged its shares of stock of Career to CenCor and (B) by execution of
this Fourth Amendment, Career hereby agrees to become a Guarantor subject
to all the provisions of the Agreement applicable to Guarantors and to
pledge its assets as security to CenCor.
(ix) Concorde is currently seeking to raise additional capital
and to obtain a new bank credit facility (collectively, the "REFINANCING")
which will enable it to (a) redeem all outstanding shares of Class A
Preferred Stock and pay all accrued but unpaid dividends thereon; (b)
retire the Debenture by the repayment in full of the outstanding principal
thereof and all accrued but unpaid interest thereon and the Additional
Payment; and (c) repay in full the Unsecured Debt, with all accrued but
unpaid interest thereon (collectively, the "REPAYMENT").
(x) In order to facilitate the Refinancing and in consideration
of Concorde's agreement that it will use the proceeds from the Refinancing
to make the Repayment, the parties hereto have agreed to the terms of the
Repayment and related matters, all as set forth herein.
(xi) Concorde and CenCor wish to amend the Agreement to provide
for the Repayment.
(xii) The Guarantors wish to eliminate their guaranteed
obligations through the Repayment and thus consent to the amendment of the
Agreement to provide for such.
AGREEMENT
---------
2
<PAGE>
In consideration of the premises and the mutual covenants and
agreements herein contained, CenCor, Concorde and Guarantors agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 CERTAIN DEFINED TERMS. The following terms used herein shall
have the meanings set forth in this Article and in the other parts of this
Agreement referred to in this Article, and such meanings shall apply to both the
singular and plural forms of such terms.
(a) "CLASS A PREFERRED STOCK" means the Class A Redeemable Preferred
Stock, $.10 par value, of Concorde, as currently existing pursuant to the
Certificate of Designations filed with the Secretary of State of Delaware
on November 16, 1994.
(b) "CLASS B PREFERRED STOCK" means the Class B Preferred Stock, that
may be authorized by Concorde's Board of Directors pursuant to a
Certificate of Designations to be filed with the Secretary of State of
Delaware and issued solely pursuant to the Refinancing in connection with a
new equity investment in Concorde.
(c) "CLASS A-1 PREFERRED STOCK" means the Class A-1 Preferred Stock,
that shall be authorized by Concorde's Board of Directors pursuant to a
Certificate of Designations, substantially in the form of Exhibit A hereto
(the "CLASS A-1 CERTIFICATE OF DESIGNATION"), to be filed with the
Secretary of State of Delaware and issued to CenCor in exchange for the
outstanding Class A Preferred Stock pursuant to Section 5.3, hereof in the
event the Repayment does not occur by February 28, 1997.
(d) "CLOSING" means the closing of the Repayment, as set forth in
Section 2.2 and as scheduled in Section 2.3, herein.
(e) "FOURTH AMENDMENT" means this Fourth Amendment, dated December 30,
1996, to the Restructuring, Security and Guaranty Agreement, dated October
30, 1992, as previously amended by written agreements dated as of December
30, 1993, November 15, 1994, and July 30, 1996.
(f) "MICHIGAN ALLOCATED PROCEEDS" means that portion of proceeds from
the sale of Concorde's Michigan real property identified in Section 3.5
hereof, actually received by Concorde that shall be applied to the
redemption of outstanding Class A Preferred Stock.
(g) "OBLIGATIONS" means the aggregate of (i) the Redemption Price of
the Class A Preferred Stock (including accrued dividends) outstanding on
the Closing Date, and (ii) the principal and accrued interest on the
Debenture and the Unsecured Debt
3
<PAGE>
outstanding on the Closing Date and all amounts owing with respect to the
Additional Payment pursuant to the Agreement, all of which shall be paid in
full at Closing.
(h) "POST 9/30/96 PAYMENTS" means the cumulative amount of any (i)
Redemption Price paid by Concorde with respect to the retirement of Class
A Preferred Stock; (ii) payment of principal on the Debenture made by
Concorde and (iii) repayments of principal on the Unsecured Debt made by
Concorde, that were paid on or after September 30, 1996 but prior to the
Closing Date.
(i) "REFINANCING" means the infusion by investors of a minimum of
$5,000,000 in capital into Concorde and Concorde's securing of new bank
credit facilities in the minimum amount of $3,000,000.
(j) "REPAYMENT" means Concorde's repayment of all its then existing
financial obligations owed to CenCor, including (i) the redemption of all
its outstanding shares of Class A Preferred Stock and the payment of all
accrued but unpaid dividends thereon; (ii) the retirement of the Debenture,
with the repayment in full of the outstanding principal thereof and all
accrued but unpaid interest thereon; (iii) the retirement of the Unsecured
Debt, with the repayment in full of the outstanding principal thereof and
all accrued but unpaid interest thereon; and (iv) the payment of the
Additional Payment.
(k) "REPAYMENT PRICE" means the total amount of consideration, as
adjusted, to be paid by Concorde to CenCor in connection with the
Repayment, as set forth in Section 2.4 herein.
(l) "UNSECURED DEBT" means the unsecured debt of Concorde owed to
CenCor represented by Concorde's promissory note dated February 26, 1993,
which as of December 16, 1996 totals $189,285.24 in principal, and
$55,499.45 in accrued but unpaid interest.
1.2 OTHER TERMS. All capitalized terms used herein, not defined in
Section 1.1 or elsewhere in this Fourth Amendment, shall have the meanings and
be as defined in the Third Amendment, and if not therein defined, as defined in
the Second Amendment, and if not therein defined, as defined in the First
Amendment, and if not therein defined, as defined in the original provisions of
the Agreement.
ARTICLE II
THE REPAYMENT
-------------
2.1 AGREEMENT TO REPAY. Subject to the terms and conditions
herein, Concorde hereby agrees that, contingent upon it obtaining the
Refinancing, it will pay the Repayment Price to CenCor in repayment in full of
the Obligations. Subject to the terms and conditions herein, CenCor hereby
agrees to accept the Repayment Price from Concorde as
4
<PAGE>
redemption, in full, of its Class A Preferred Stock and as payment in full of
all of Concorde's debt obligations owed to CenCor pursuant to the Debenture and
the Unsecured Debt. The parties hereto agree that the closing of the Refinancing
and Concorde's receipt of the proceeds thereof is a condition precedent to the
Repayment. Concorde undertakes that it will use the proceeds of the Refinancing
for the Repayment.
2.2 CLOSING OF THE REPAYMENT. At the Closing of the Repayment (the
"CLOSING"), Concorde shall deliver to CenCor, by wire transfer pursuant to
CenCor's instructions, cash in an amount equal to the Repayment Price in
exchange for CenCor's delivery to Concorde of:
(a) certificates representing all of the then outstanding shares
of Class A Preferred Stock, duly endorsed for transfer to
Concorde and cancellation;
(b) the Debenture, marked "paid in full";
(c) the promissory note, representing the Unsecured Debt, marked
"paid in full";
(d) properly executed releases and/or cancellations of all
mortgages, and other Liens, including releases of all UCC
filings, held by CenCor with respect to the assets of
Concorde or any of the Restricted Subsidiaries, all in such
form as may be required for filing and recordation with the
appropriate governmental agencies or offices;
(e) fully executed cancellations of the guaranties issued by the
Guarantors pursuant to original terms of the Agreement; and
(f) such other documents and/or certificates deemed necessary or
advisable by Concorde's counsel in order to effectuate the
full release of Concorde, the Restricted Subsidiaries and
the Guarantors from all liabilities or other obligations
owed to CenCor, other than those regarding substitution of
receivables specifically set forth in Section 4.1, herein.
2.3 CLOSING DATE. The Closing shall occur at 10:00 a.m., on
December 31, 1996, at the office of Bryan Cave LLP, 3500 One Kansas City Place,
1200 Main Street, Kansas City, Missouri 64105, unless extended at Concorde's
option to such later date as may be required to completed the Refinancing (as
may be so extended, the "CLOSING DATE"), provided however, the date of Closing
may not be extended beyond February 28, 1997, without the written consent of
CenCor. In any event, the Closing Date shall not be extended to a date beyond
the closing date of the Refinancing.
5
<PAGE>
2.4 REPAYMENT PRICE. Subject to adjustment as set forth herein,
the Repayment Price to be paid by Concorde to CenCor at Closing shall be an
amount equal to $4,868,006, minus the cumulative amount of any Post 9/30/96
Payments. Notwithstanding the foregoing, the amount of the Repayment Price
shall be increased by an amount equal to the product of (a) the number of days
the actual Closing Date extends beyond December 20, 1996 multiplied by (b) a per
diem adjustment of $1,333.
2.5 ALLOCATION OF REPAYMENT PRICE. The Repayment Price shall be
allocated among the Obligations as follows:
(a) first, to the principal of the Debenture;
(b) second, to the accrued interest on the Debenture;
(c) third, to the principal of the Unsecured Debt;
(d) fourth, to the accrued interest on the Unsecured Debt;
(e) fifth, to the Additional Payment; and
(f) sixth, to the Redemption Price.
2.6 WAIVER OF BREACHES RESULTING FROM REFINANCING. In addition to
any waivers heretofore granted by CenCor to Concorde in writing, CenCor hereby
waives any and all breaches of the Agreement that have occurred or may occur as
a result of the implementation of the Refinancing, including the issuance of
Class B Preferred Stock and/or the grant of security interests in the assets of
Concorde and/or the Restricted Subsidiaries (which, prior to Closing, shall
continue to be subordinate to the security interest of CenCor).
6
<PAGE>
ARTICLE III
OBLIGATIONS PENDING CLOSING
---------------------------
3.1 CONTINUING DUTIES OF PAYMENT. Concorde shall continue to be
obligated to make quarterly payments of principal and interest pursuant to
Section 2.3(a) of the Agreement and Section 2.3(a) of the Agreement shall be
amended to provide that the obligation to make such quarterly payments shall
continue through maturity of the Debenture on January 1, 1998. Additionally,
Concorde shall continue to be obligated to make scheduled redemptions of the
Class A Preferred Stock, pursuant to the provisions of the Third Amendment to
the Agreement.
3.2 EXTENSION OF MATURITY DATES.
(a) Sections 2.3(a) and 2.3(c) of the Agreement shall be amended
to provide that the Debenture shall bear a maturity date of
January 1, 1998.
(b) Section 2.3(b) of the Agreement shall be amended to provide
that required annual prepayments made with respect to Excess
Cash Flow shall commence on March 30, 1998, with respect to
Concorde's fiscal year ending December 31, 1997.
(c) The promissory note representing the Unsecured Debt shall be
amended to provide that the principal and interest thereon
shall not become due and payable until January 1, 1998.
3.3 ADDITIONAL PAYMENT. Section 2.5 of the Agreement shall be
amended to provide that the Additional Payment due at Closing shall be $10.00,
however if Closing does not occur as scheduled, the Additional Payment shall be
calculated as currently provided.
3.4 WAIVER OF BREACHES. In addition to any waivers heretofore
granted by CenCor to Concorde in writing, CenCor hereby waives any and all
breaches of the Agreement that have occurred or may occur as a result of the
execution of that certain lease dated July 31, 1996, with respect to Concorde's
North Hollywood, California School and the implementation of the leasehold
improvements of $900,000 related thereto.
3.5 CONSENT TO SALE. Subject to the terms and conditions herein,
CenCor hereby (a) consents to the sale (the "MICHIGAN SALE") of the real
property located in Warren, Michigan (the "MICHIGAN PROPERTY"), owned by
Concorde Career Colleges, Inc.; (b) waives any restrictions set forth in Section
7.1 or elsewhere in the Agreement with respect thereto; and (c) agrees to
release its mortgage with respect to the Michigan Property and any other Liens
it has related thereto in connection with the closing of the Michigan Sale. In
the event the Michigan Property is sold prior to Closing, fifty percent (50%) of
the proceeds, net of brokerage commissions, costs of sale, and taxes (the
"MICHIGAN ALLOCATED PROCEEDS"), shall
7
<PAGE>
be applied to the retirement of Class A Preferred Stock or the Class A-1
Preferred Stock, whichever is then outstanding. Promptly upon the receipt of the
Michigan Allocated Proceeds, Concorde shall redeem that number of whole shares
of Class A Preferred Stock, or Class A-1 Preferred Stock, held by CenCor (or its
assigns) equal to the amount of such Michigan Allocated Proceeds divided by the
Redemption Price. Any Allocated Proceeds remaining that would have been applied
but for the requirement that only whole shares be redeemed, shall be retained by
Concorde and aggregated with subsequently received Allocated Proceeds for future
Redemptions/Retirements.
(a) Following the Redemption of all outstanding shares of Class
A Preferred Stock or Class A-1 Preferred Stock, Concorde
shall pay any remaining Michigan Allocated Proceeds to
CenCor with respect to the Debenture, pursuant to the terms
of the Agreement, first to be applied to the payment of any
then accrued but unpaid interest on the Debenture and next
to the principal amount of the Debenture.
(b) Except as otherwise provided for in this Section 3.5, the
date of Redemption or Retirement with respect to any
Michigan Allocated Proceeds shall not occur prior to three
(3) business days from the date of the receipt of good funds
with respect to the Michigan Allocated Proceeds received by
Concorde. Notwithstanding anything herein to the contrary,
Concorde shall have no obligation to effect a Redemption or
Retirement unless and until its receipt of Michigan
Allocated Proceeds.
(c) The procedures for Redemption or Retirement under this
Section 3.5 shall be in accordance with Section 2.5 of the
Third Amendment. Upon the Redemption of all outstanding
shares of Class A Preferred Stock owned by CenCor (or its
assigns) and the Retirement of the entire Debenture
(including accrued interest thereon), Concorde shall be
entitled to retain any remaining Michigan Allocated Proceeds
and CenCor has no further rights or interest in such
Michigan Allocated Proceeds.
ARTICLE IV
POST-CLOSING OBLIGATIONS
------------------------
4.1 CONTINUATION OF RIGHT OF SUBSTITUTION. Following the Closing,
and not withstanding the cancellation of all of the Obligations upon receipt of
the Repayment Price, CenCor's Right of Substitution, set forth in Article V of
The Second Amendment to the Agreement, shall continue in full force and effect
with respect to the 1994 Receivables. All uncollected 1994 Receivables will be
reassigned to Concorde at such time as the amount of the
8
<PAGE>
interest payments, for which the 1994 Receivables were assigned to CenCor, has
been fully funded.
4.2 INDEMNIFICATION WITH RESPECT TO ASSUMED SUBORDINATED
INDEBTEDNESS. In lieu of the protections previously provided Concorde by
Section 2.6 of the Agreement, in the event Concorde, as a result of an action
before a court of competent jurisdiction, to which Concorde has presented a
reasonable defense, makes any future payments, to CenCor or any other Person, on
account of the Assumed Subordinated Indebtedness, from which it has been
released pursuant to the terms of the Agreement, Concorde shall be entitled to
indemnification from CenCor in the amount of such payments.
4.3 FURTHER ASSURANCES. The parties hereto agree to undertake such
further actions and execute such further documents as necessary, pre-Closing or
post-Closing, to effectuate the purposes of this Fourth Amendment, including but
not limited to the Repayment and the cancellation of the Obligations.
4.4 TERMINATION. Following the Closing, all other provisions of
the Agreement, other than as set forth in this Article IV or as necessary to
effectuate the intent and provisions hereof, shall be terminated and of no
further force and effect.
ARTICLE V
OBLIGATIONS IN THE EVENT CLOSING FAILS TO OCCUR
-----------------------------------------------
5.1 FAILURE TO CLOSE. In the event Concorde fails to timely obtain
the Refinancing and therefore the Closing does not occur by February 28, 1997,
or by such later date as mutually agreed to in writing by CenCor and Concorde,
the provisions of the Agreement, as amended by this Fourth Amendment, shall
continue in full force and effect, except that the terms and provisions of
Article II, above, shall be and become null and void. In addition to the
provisions set forth above, in the event Closing fails to occur, the Agreement
shall be further amended to provide as set forth in this Article V. The
provisions of this Article V shall be of no force and effect unless and until
the Closing fails to occur by February 28, 1997, or by such later date as
mutually agreed to in writing by CenCor and Concorde.
5.2 INCREASE IN QUARTERLY PAYMENTS OF PRINCIPAL. Section 2.3(a) of
the Agreement shall be amended to provide that the scheduled quarterly payments
of principal on the Debenture shall be increased from $69,554 to $100,000,
commencing with the payment due March 31, 1997. Quarterly payments of accrued
interest shall continue to be payable as currently provided.
5.3 EXCHANGE OF CLASS A PREFERRED STOCK. In the event the Closing
has not occurred, promptly after February 28, 1997, or such later Closing Date
subsequently agreed to by CenCor and Concorde, the Board of Directors shall
adopt the Class A-1 Certificate of Designation, substantially in the form of
Exhibit A attached hereto, and shall file such Class
9
<PAGE>
A-1 Certificate of Designation with the Secretary of State of Delaware to
authorize the Class A-1 Preferred Stock. Thereafter, upon the written request of
CenCor, Concorde and Cencor shall promptly effect a one-for-one exchange of all
outstanding shares of Class A Preferred Stock for a like number of shares of
Class A-1 Preferred Stock, as a result of which CenCor shall become the holder
of all of the issued and outstanding shares of Class A-1 Preferred Stock, and
all of the previously outstanding shares of Class A Preferred Stock shall be
redeemed by Concorde and no longer be outstanding.
(a) As set forth in the Class A-1 Certificate of Designation,
the Class A-1 Preferred Stock shall have all of the rights
and preferences of the Class A Preferred Stock, and
additionally, the Class A-1 Preferred Stock (i) shall have
all the contractual rights afforded to Class A Preferred
Stock under the Agreement; (ii) shall have voting rights on
all matters submitted to a vote of the holders of Concorde's
common stock, with each share of Class A-1 Preferred Stock
having eight (8) votes for each vote accorded to a share of
Concorde's common stock, and (iii) shall be convertible, at
the holder's option, into Concorde common stock, on a one-
for-eight basis.
(b) Additionally, Concorde hereby agrees that CenCor, or its
assigns, shall have piggy-back registration rights with
respect to any shares of Concorde common stock issued or
issuable as a result of the exercise of the conversion right
associated with the Class A-1 Preferred Stock (the
"REGISTERABLE SHARES"), provided such Registerable Shares of
Concorde common stock are not then immediately saleable
pursuant to Rule 144 (or other successor exemption from the
registration requirements) under the Securities Act of 1933,
as amended (the "SECURITIES ACT"). Such piggy-back rights:
(i) shall attach to any registration of equity securities
under the Securities Act made by Concorde on Forms
S-1, S-2, S-3, or similar registration form (but shall
not attach to registrations on Forms S-4, S-8, or
similar purpose registrations forms);
(ii) may be exercised by CenCor, or its assigns, with
respect to some or all of the Registerable Shares;
(iii) shall be subject to the holder of such Registerable
Shares agreeing: to be bound by the terms of the
underwriting agreement entered into in connection with
the registration, including any indemnification,
standstill or lock-up
10
<PAGE>
provisions required of Concorde or other selling
stockholders; to accept the pricing of the offering as
agreed to by Concorde with respect to the shares of
common stock being sold by Concorde pursuant to the
registration; and to pay its pro rata share of
registration fees and underwriting commissions and
discounts;
(iv) shall be subject to standard discretionary
curtailment, pro rata amongst all selling
stockholders, by the underwriter, if in its opinion
the market cannot support the total number of shares
requested to be registered so that inclusion of all
such shares would be detrimental to the offering taken
as a whole; and
(v) may be waived by CenCor as to any underwriting if
CenCor does not agree with the terms of such
underwriting, without forfeiture of piggy-back rights
as to any subsequent underwritings by Concorde.
(c) Concorde hereby agrees that CenCor, or its assigns, shall
have one cumulative demand registration right with respect
to all Registerable Shares collectively held by CenCor and
its assigns. Upon receipt of a written request for such
registration (of all or part of such Registerable Shares),
Concorde will: as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications and
compliances (including, without limitation, the execution of
an undertaking to file post-effective amendments,
appropriate qualifications under the applicable blue sky or
other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and
any other governmental requirements or regulations) as may
be so requested and as would permit or facilitate the sale
and distribution of all or such portion of Registerable
Shares as are specified in such request; provided that
Concorde shall not be obligated to take any action to effect
such registration, qualification or compliance pursuant to
this Section 5.3(c), after Concorde has effected one such
registration pursuant to this Section 5.3(c) and such
registration has been declared or ordered effective.
Notwithstanding anything herein, this demand right shall
terminate at such time as all Registrable Shares are freely
tradeable in the public market, pursuant to Rule 144 under
the Securities Act, or otherwise. (To be "freely tradeable"
the Registrable Shares must be immediately saleable without
regard to any trickle out limitations under Rule 144.)
11
<PAGE>
Subject to the foregoing, Concorde shall file a registration
statement covering the Registerable Shares so requested to
be registered as soon as practical, but in any event within
ninety days, after receipt of the request or requests of
CenCor; provided, however, that if Concorde shall furnish to
CenCor a certificate signed by the President of Concorde
stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to Concorde and
its stockholders for such registration statement to be filed
at the date filing would be required and it is therefore
essential to defer the filing of such registration
statement, Concorde shall have an additional period of not
more than ninety (90) days from the expiration of the
foregoing ninety (90) day period within which to file such
registration statement.
(i) If CenCor intends to distribute the Registerable Shares
covered by its request by means of an underwriting, it
shall so advise Concorde as a part of its request made
pursuant to Section 5.3(c). In such event, if so
requested in writing by Concorde, CenCor shall
negotiate with an underwriter selected by Concorde with
regard to the underwriting of such requested
registration; provided, however, that if CenCor has not
agreed with such underwriter as to the terms and
conditions of such underwriting within twenty days (20)
following commencement of such negotiations, CenCor may
select an underwriter of its own choice. Concorde shall
enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such
underwriting by CenCor.
(ii) All out-of-pocket expenses incurred in connection with
any registration pursuant to this Section 5.3(c) shall
be borne by CenCor.
(d) In the case of registration pursuant to either Sections
5.3(b) or (c), Concorde will keep CenCor advised in writing
as to the initiation of each registration, qualification and
compliance and as to the completion thereof. Concorde will:
(i) keep such registration, qualification or compliance
pursuant to Sections 5.3(b) or (c) effective for a
period of 120 days or until a distribution contemplated
in the registration statement has been completed;
provided,
12
<PAGE>
however that (i) such 120-day period shall be extended
for a period of time equal to the period CenCor
refrains from selling securities included in such
registration at the request of an underwriter of common
stock (or other securities) of Concorde; and (ii) in
the case of any registration of Registerable Shares on
Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall
be extended, if necessary, to keep the registration
effective until all such Registerable Shares are sold,
provided that Rule 145, or any successor rule under the
Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation
to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (i) includes
any prospectus required by Section 10(a)(3) of the
Securities Act or (ii) reflects facts or events
representing a material or fundamental change in the
information set forth in the registration statement,
the incorporation by reference of information required
to be included in (i) and (ii) above to be contained in
periodic reports filed pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended
("1934 ACT") and registration statement; and
(ii) furnish such number of prospectuses and other documents
incident thereto as CenCor from time to time may
reasonably request.
(e) Concorde will indemnify CenCor, each of CenCor's officers
and directors, and each person controlling CenCor within the
meaning of the Securities Act, with respect to such
registration, qualification, or compliance effected pursuant
to Sections 5.3(b) or (c), and each underwriter, if any, and
each person who controls any underwriter of the Registerable
Shares against all claims, losses, damages, and liabilities
(or actions in respect thereto) arising out of or based on
any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular
or other document (including any related registration
statement, notification or the like) incident to any such
registration, qualification, or compliance, or based on any
omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by
Concorde of any rule
13
<PAGE>
or regulation promulgated under the Securities Act
applicable to Concorde and relating to action or inaction
required of Concorde in connection with any such
registration, qualification or compliance, and will
reimburse CenCor, each of CenCor's officers and directors,
and each person controlling CenCor, each such underwriter
and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim,
loss, damage, liability or action, provided that Concorde
will not be liable in any such case to the extent that any
such claim, loss, damage or liability arises out of or is
(i) based on any untrue statement or omission based upon
written information furnished to Concorde by an instrument
duly executed by CenCor or underwriter specifically for use
therein or (ii) relating to action or inaction required of
CenCor or any such underwriter under any rule or regulation
promulgated under the Securities Act.
CenCor will, if Registerable Shares held by or issuable to
Cencor are included in the securities as to which such
registration, qualification, or compliance is being
effected, indemnify Concorde, each of Concorde's officers
and directors, and each person controlling Concorde within
the meaning of the Securities Act, with respect to such
registration, qualification, or compliance effected pursuant
to Sections 5.3(b) or (c), and each underwriter, if any, and
each person who controls any underwriter of the Registerable
Shares against all claims, losses, damages, and liabilities
(or actions in respect thereto) arising out of or based on
any untrue statement (or alleged untrue statement) of a
material fact contained in any such prospectus, offering
circular, or other document (including any related
registration statement, notification or the like) incident
to any such registration, qualification, or compliance, or
based on any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any
violation by CenCor of any rule or regulation promulgated
under the Securities Act applicable to CenCor and relating
to action or inaction required of CenCor in connection with
any such registration, qualification or compliance, and will
reimburse Concorde, each of Concorde's officers and
directors, and each person controlling Concorde, each such
underwriter and each person who controls any such
underwriter, for any legal or any other expenses reasonably
incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case
to the
14
<PAGE>
extent, but only to the extent, (x) that such untrue
statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance
upon and in conformity with written information furnished to
Concorde by an instrument duly executed by CenCor
specifically for use therein or (y) that such violation was
due to an action or inaction required of CenCor.
Each party entitled to indemnification under this Section
5.3(e) (the Indemnified Party) shall give notice to the
party required to provide indemnification (the Indemnifying
Party) promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified
Party may participate in such defense at such party's
expenses, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under
this Section 5.3(e). No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(f) CenCor shall furnish to Concorde such written information
regarding it and the distribution proposed by it as Concorde
may request in writing and as shall be required in
connection with any registration, qualification, or
compliance referred to in this Section 5.3.
(g) With a view to making available to CenCor the benefits of
certain rules and regulations of the Securities and Exchange
Commission ("SEC") which may permit the sale of the
securities of Concorde to the public without registration or
pursuant to a registration on Form S-3, Concorde agrees to:
(i) make and keep public information available, as those
terms are understood and defined in SEC Rule 144;
15
<PAGE>
(ii) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of
Concorde under the Securities Act and the 1934 Act;
and
(iii) so long as CenCor owns any Class A Preferred Stock,
Class A-1 Preferred Stock, or Registerable Shares, to
furnish to CenCor forthwith upon its request a written
statement by Concorde as to its compliance with the
reporting requirements of said Rule 144, and of the
Act and the 1934 Act, a copy of the most recent annual
or quarterly report of the company, and such other
reports and documents so filed by Concorde as CenCor
may reasonably request in availing itself of any rule
or regulation of the SEC allowing you to sell any such
securities without registration.
(h) The rights to cause Concorde to register the Registerable
Shares granted to CenCor by Concorde under Sections 5.3(b)
and (c) may be assigned by CenCor to a transferee or
assignee of any of the Registerable Shares, provided, that
Concorde is given written notice by CenCor at the time of or
within a reasonable time after said transfer, stating the
name and address of said transferee or assignee and
identifying the securities with respect to which such
registration rights are being assigned.
(i) CenCor shall furnish to Concorde such written information
regarding it and the distribution proposed by it as Concorde
may request in writing and as shall be required in
connection with any registration, qualification, or
compliance referred to in Section 5.3(b) or (c).
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES
--------------------------------------------------------
6.1 CORPORATE AUTHORITY. Concorde hereby represents and warrants
to CenCor that Concorde and the Guarantors have obtained all necessary corporate
and other approvals and consents to enter into this Fourth Amendment and to take
all actions contemplated herein. The Board of Directors of Concorde has approved
this Fourth Amendment and all actions to be taken pursuant to this Fourth
Amendment, including without limitation, the filing of the Class A-1 Certificate
of Designation in the event the Repayment does not occur by February 28, 1997,
or such later date as may be mutually agreed to in writing by CenCor and
Concorde.
16
<PAGE>
6.2 STOCK. Concorde hereby represents and warrants to CenCor that
(a) it does not own an interest in any entity other than its interest in the
Guarantors and (b) all of the stock it owns in Guarantors has been or is hereby
pledged as collateral for the Debenture Liabilities. Concorde and Guarantors
hereby jointly and severally represent and warrant that the attached Exhibit "B"
is a complete list of all stock issued by Guarantors and acknowledge that all
such stock certificates have been delivered to CenCor.
6.3 REGISTRATION RIGHTS. Concorde hereby represents and warrants
that, except in connection with the issuance of Class B Preferred Stock pursuant
to the Refinancing (the "CLASS B REGISTRATION RIGHTS") or as otherwise provided
for in this Fourth Amendment, it has not granted, or agreed to grant, any
registration rights, including piggy-back rights, to any person or entity.
Furthermore, Concorde covenants that (a) prior to Closing, it will not grant or
agree to grant any such rights to any person or entity other than CenCor, except
for the Class B Registration Rights and (b) in the event the Closing does not
occur by February 28, 1997, or by such later date as mutually agreed to in
writing by CenCor and Concorde, Concorde will not grant or agree to grant any
such rights to any person or entity other than CenCor.
6.4 CAREER. Career hereby guarantees to CenCor payment when due of
all Debenture Liabilities and shall be deemed a Guarantor as defined in the
Agreement. To secure this guaranty, Career hereby mortgages, pledges, conveys
and assigns to CenCor, and grants CenCor a continuing security interest in all
personal property of the following types which is now owned or hereafter shall
be owned or acquired by Career, and all Proceeds of such property:
All Equipment, Farm Products, Consumer Goods, Inventory, Fixtures,
Accounts, Contract Rights, General Intangibles, Instruments,
Documents, Chattel Paper and money (including money in bank accounts).
If the Repayment does not occur by February 28, 1997, or by such other later
date as may be mutually agreed to in writing by CenCor and Concorde, Career will
execute any and all documents reasonably requested by CenCor to bind Career to
all of the same obligations to CenCor as the Guarantors and all financing
statements deemed necessary by CenCor to perfect CenCor's security interest in
the above assets of Career.
6.5 CENCOR'S CORPORATE AUTHORITY. CenCor hereby represents and
warrants to Concorde that it has obtained all necessary corporate and other
approvals and consents to enter into this Fourth Amendment and to take all
actions contemplated herein. The Board of Directors of CenCor has approved this
Fourth Amendment and all actions to be taken pursuant to this Fourth Amendment,
including without limitation, the cancellation of all the Obligations pursuant
to the Repayment.
17
<PAGE>
ARTICLE VII
MISCELLANEOUS
-------------
7.1 ATTORNEYS' FEES. Notwithstanding anything in the Agreement or
herein to the contrary, Concorde shall pay to CenCor in cash one-half of
CenCor's attorneys' fees and expenses incurred in connection with the
negotiation of this Fourth Amendment and the consummation of the transactions
contemplated thereby, within ten (10) business days after receiving an invoice
from CenCor with supporting documentation, which payment the parties agree shall
not exceed $5,000 in the aggregate.
7.2 RATIFICATION. All provisions of the Agreement not specifically
amended in this Fourth Amendment are hereby ratified and reaffirmed.
7.3 GOVERNING LAW. Except as otherwise provided by express
reference to the Uniform Commercial Code, this Fourth Amendment shall be
construed in accordance with and governed by the laws, statutes and decisions of
the State of Missouri, to the non-exclusive jurisdiction of whose courts, state
and federal, Concorde and Guarantors irrevocably agree to submit.
7.4 INCORPORATION. The recitals and exhibits hereto are hereby
incorporated herein by reference.
7.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
7.6 FURTHER ASSURANCES. The parties hereto agree to execute all
additional documents reasonably necessary to effectuate the transactions
contemplated herein, including without limitation those documents necessary to
release the Liens on a timely basis.
7.7 BENEFIT AND BURDEN. This Agreement shall be binding upon and
inure to the benefit of the successors of CenCor, Concorde and the Restricted
Subsidiaries. Cencor may assign its rights hereunder, including without
limitation to a liquidating trust.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to the Agreement to be executed by their respective duly authorized
officers as of the day and year first above written.
Oral agreements or commitments to loan money, extend credit or to
forbear from enforcing repayment of a debt including promises to extend or renew
such debt are not enforceable. To protect the debtor and creditor from
misunderstanding or disappointment, any agreements we reach covering such
matters are contained in this writing, which is the complete and exclusive
statement of the agreement between us, except as we may later agree in writing
to modify it.
18
<PAGE>
CENCOR, INC.
ATTEST:
By: _____________________________________
___________________________ Terri Rinne
Secretary Vice President
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this ____ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came Terri Rinne, Vice
President of CenCor, Inc., a Delaware corporation, to me personally known to be
such officer and the same person who executed as such officer the foregoing
instrument on behalf of said corporation, and such person duly acknowledged the
execution of the same to be the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
19
<PAGE>
CONCORDE CAREER COLLEGES, INC.
ATTEST:
By: _____________________________________
___________________________ M. Gregg Gimlin
Secretary Vice President
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this ____ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came M. Gregg Gimlin, Vice
President of Concorde Career Colleges, Inc., a Delaware corporation, to me
personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
20
<PAGE>
UNITED HEALTH CAREERS INSTITUTE,
INC.
ATTEST:
By: _____________________________________
___________________________ A. Eugene Johnson
Secretary President
ACKNOWLEDGEMENT
---------------
STATE OF )
) ss.
COUNTY OF )
BE IT REMEMBERED, that on this ______ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came A. Eugene Johnson,
President of United Health Careers Institute, Inc. a California corporation, to
me personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
21
<PAGE>
SOUTHERN CALIFORNIA COLLEGE OF
MEDICAL AND DENTAL ASSISTANTS,
INC.
ATTEST:
By: _____________________________________
___________________________ A. Eugene Johnson
Secretary President
ACKNOWLEDGEMENT
---------------
STATE OF )
) ss.
COUNTY OF )
BE IT REMEMBERED, that on this ______ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came A. Eugene Johnson,
President of Southern California College of Medical and Dental Assistants, Inc.
a California corporation, to me personally known to be such officer and the same
person who executed as such officer the foregoing instrument on behalf of said
corporation, and such person duly acknowledged the execution of the same to be
the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
CONCORDE CAREERS-FLORIDA, INC.
ATTEST:
By: _____________________________________
___________________________ A. Eugene Johnson
Secretary President
22
<PAGE>
ACKNOWLEDGEMENT
---------------
STATE OF )
) ss.
COUNTY OF )
BE IT REMEMBERED, that on this ______ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came A. Eugene Johnson,
President of Concorde Careers-Florida, Inc. a Florida corporation, to me
personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
COLLEGES OF DENTAL AND MEDICAL
ASSISTANTS, INC.
ATTEST:
By: _____________________________________
___________________________ A. Eugene Johnson
Secretary President
23
<PAGE>
ACKNOWLEDGEMENT
---------------
STATE OF )
) ss.
COUNTY OF )
BE IT REMEMBERED, that on this ______ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came A. Eugene Johnson,
President of Colleges of Dental and Medical Assistants, Inc. a California
corporation, to me personally known to be such officer and the same person who
executed as such officer the foregoing instrument on behalf of said corporation,
and such person duly acknowledged the execution of the same to be the act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
COMPUTER CAREER INSTITUTE, INC.
ATTEST:
By: _____________________________________
___________________________ A. Eugene Johnson
Secretary President
ACKNOWLEDGEMENT
---------------
STATE OF )
) ss.
COUNTY OF )
BE IT REMEMBERED, that on this ______ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came A. Eugene Johnson,
President of Computer Career Institute, Inc. an Oregon corporation, to me
personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of
24
<PAGE>
said corporation, and such person duly acknowledged the execution of the same to
be the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
CAREER ASSISTANCE, INC.
ATTEST:
By: _____________________________________
___________________________ A. Eugene Johnson
Secretary President
ACKNOWLEDGEMENT
---------------
STATE OF )
) ss.
COUNTY OF )
BE IT REMEMBERED, that on this ______ day of December, 1996, before me, the
undersigned, a notary public in and for said state, came Patrick J. Debold,
President of Career Assistance, Inc. a Delaware corporation, to me personally
known to be such officer and the same person who executed as such officer the
foregoing instrument on behalf of said corporation, and such person duly
acknowledged the execution of the same to be the act and deed of said
corporation.
25
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri the day and year last above
mentioned.
_________________________________________
Notary Public in and for said
County and State
My commission expires:
_______________, 19__
26
<PAGE>
EXHIBIT A
CONCORDE CAREER COLLEGES, INC.
Certificate of Designations of the
Class A-1 Convertible Redeemable
Voting Preferred Stock
Par Value 0.10 Per Share
Liquidation Value $10.00 Per Share
________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned, the President of Concorde Career Colleges, Inc., a
Delaware corporation (hereinafter called the "CORPORATION"), DOES HEREBY CERTIFY
that:
1. The following resolution has been duly adopted by the Board of
Directors of the Corporation (the "BOARD OF DIRECTORS"):
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of the
Restated Certificate of Incorporation, as amended, and the Amended and Restated
Bylaws, the Board of Directors hereby authorizes the issuance of a series of the
preferred stock (the "PREFERRED STOCK") of the Corporation which shall consist
of (260,385) shares of the Corporation's Preferred Stock and hereby fixes the
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof of the shares of
such series as follows:
(i) DESIGNATION. The designation of said series of the Preferred
Stock shall be Class A-1 Convertible Redeemable Voting Preferred Stock (the
"CLASS A-1 PREFERRED STOCK"). The number of shares of Class A-1 Preferred Stock
shall be (260,385) . The liquidation value of the Class A-1 Preferred Stock
shall be $10.00 per share. The shares of Class A-1 Preferred Stock shall be
issued as full shares.
(ii) DIVIDENDS. The shares of Class A-1 Preferred Stock shall be
entitled to receive cumulative dividends, as declared by the Board of Directors
or a duly authorized committee thereof (an "AUTHORIZED BOARD COMMITTEE"), out of
funds legally available for the payment of dividends, (the "DIVIDENDS") and at a
variable annual rate, all as set forth in this Section (ii).
<PAGE>
(a) For so long as the Corporation's junior secured debenture,
dated October 30, 1992 and issued in the original principal amount of
$5,422,307 (the "DEBENTURE"), or any portion of the principal amount
thereof, is outstanding, the annual rate of the Dividend shall be equal to
73% of the current interest rate on the Debenture, as of the first day of
calendar quarter during which the Dividend is earned, as calculated based
on the liquidation value of the Class A-1 Preferred Stock set forth in
Section (v), below;
(b) commencing upon the retirement, in full, of the Debenture
(the "DEBENTURE REPAYMENT DATE"), the annual rate of the Dividend shall be
equal to 2% above the prime rate charged, as of the first day of the
calendar quarter during which the Dividend is earned, by Mercantile Bank of
Kansas City, N.A., as calculated based on the liquidation value of the
Class A-1 Preferred Stock set forth in Section (v), below;
(c) provided that, notwithstanding the foregoing, the annual rate
of the Dividends shall not exceed 12% of the per share liquidation value of
the Class A-1 Preferred Stock, as set forth in Section (v), below ($1.20
per share).
Dividends shall be earned from date of original issue of a share of
Class A-1 Preferred Stock, however they shall not be paid, but rather accrued
until the Debenture Repayment Date (the "INITIAL ACCRUED DIVIDENDS"). Upon the
Debenture Repayment Date, future earned Dividends shall be payable in cash,
commencing on the last day of the calendar quarter which occurs following the
Debenture Repayment Date (the "INITIAL DIVIDEND PAYMENT DATE") with respect to
the period commencing on the Debenture Repayment Date and ending the day prior
to the Initial Dividend Payment Date, and thereafter quarterly on March 31, June
30, September 30 and December 31 in each year (the "DIVIDEND PAYMENT DATES")
with respect to the quarterly period ending on the March 30, June 29, September
29 and December 30, respectively, next preceding such Dividend Payment Date, to
stockholders of record on the record date, not exceeding sixty days preceding
the Initial Dividend Payment Date or such Dividend Payment Date, respectively,
fixed for the purpose by the Board of Directors or an Authorized Board Committee
in advance of each particular dividend. The amount of dividends payable on
shares of Class A-1 Preferred Stock, for each full quarterly dividend period,
shall be computed by dividing by four the annual rate per share set forth in
this Section (ii).
The Initial Accrued Dividends shall be paid ratably over 12 calendar
quarters, commencing with the calendar quarter which ends immediately after the
Debenture Repayment Date. Payment of the Initial Accrued Dividends shall be made
on the Initial Dividend Payment Date and the following 11 Dividend Payment
Dates, to stockholders of record on the respective record dates for such
Dividend Payment Dates.
Notice of the current rate of Dividends, which shall detail the basis
for such determination, shall be given by the Corporation on a quarterly basis
to the holders of record
2
<PAGE>
of the shares of Class A-1 Preferred Stock as of the record date for such
Dividends, at their respective addresses appearing on the books of the
Corporation. Such notice shall be given on each Dividend Payment Date (including
the Initial Dividend Payment Date), and, prior to the Debenture Repayment Date,
shall be given each December 31, March 31, June 30 and September 30.
Notice of the Debenture Repayment Date shall be given by the
Corporation, promptly upon its determination, to the holders of record of the
shares of Class A-1 Preferred Stock on such date, at their respective addresses
appearing on the books of the Corporation.
Dividends payable on the Class A-1 Preferred Stock for the initial
dividend period and for any other period which is less than a full quarterly
period shall be computed on the basis of a 360-day year of twelve 30-day months.
(iii) RIGHT OF CONVERSION. Any holder of Class A-1 Preferred Stock at
any time, and from time to time, may at its option convert all, or any number
less than all, of the shares of Class A-1 Preferred Stock into shares of the
Corporation's common stock, $.10 par value (the "COMMON STOCK") on the basis of
one (1) share of Class A-1 Preferred Stock for eight (8) shares of Common Stock.
In the event of a merger, consolidation, recapitalization or other
reorganization, including any stock splits, reverse stock splits, or stock
dividends, affecting the Common Stock (the "REORGANIZATION") the right to
convert the Class A-1 Preferred Stock shall be automatically modified to provide
that each share of Class A-1 Preferred Stock shall be convertible into such
reciprocally adjusted number of shares of Common Stock, or such other
consideration as a holder of eight (8) shares of Common Stock would be entitled
to receive as a result of any such Reorganization.
Any holder desiring to effect such a conversion shall provide notice
to the Corporation of the conversion by delivering stock certificates
representing the shares of Class A-1 Preferred Stock to be converted to the
Corporation, duly endorsed, with an instruction letter requesting conversion.
The effective date of any such conversion shall be the date the Corporation
actually receives such notice and certificate(s) duly endorsed (the "CONVERSION
DATE"). Upon such receipt, the Corporation shall promptly transmit instructions
to its transfer agent to issue to such holder certificate(s) representing the
Common Stock, as of the Conversion Date. In the event less than all the shares
of Class A-1 Preferred Stock represented by the tendered certificate are to be
converted, the Corporation will cause a new certificate, representing the
unconverted shares of Class A-1 Preferred Stock, to be issued to such holder.
All shares of Class A-1 Preferred Stock which shall at any time have
been converted shall, after such conversion, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors or an Authorized Board Committee.
3
<PAGE>
(iv) OPTIONAL REDEMPTION. The Corporation at any time and from time
to time may at its option redeem all, or any number less than all, of the
outstanding shares of Class A-1 Preferred Stock. Any redemption of shares of
Class A-1 Preferred Stock shall be effected at a redemption price of $10.00 per
share plus, in each case, an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid on such share of Class A-1 Preferred
Stock to the date fixed for redemption. Notice of any proposed redemption of
shares of Class A-1 Preferred Stock shall be given by the Corporation by mailing
a copy of such notice no less than 20 days nor more than 60 days prior to the
date fixed for such redemption to holders of record of the shares of Class A-1
Preferred Stock to be redeemed at their respective addresses appearing on the
books of the Corporation. Said notice shall specify the shares called for
redemption, the redemption price and the place at which and date on which the
shares called for redemption will, upon presentation and surrender of the
certificates of stock evidencing such shares, be redeemed and the redemption
price therefor paid. In the case of the redemption of less than all the
outstanding shares of Class A-1 Preferred Stock, such redemption shall be of
full shares selected by lot among all then outstanding Class A-1 Preferred Stock
in such manner as may be prescribed by the Board of Directors. From and after
the date fixed in any such notice as the date of redemption of shares of Class
A-1 Preferred Stock, unless default shall be made by the Corporation in
providing monies at the time and place specified for the payment of the
redemption price pursuant to such notice, all dividends on the Class A-1
Preferred Stock thereby called for redemption shall cease to accrue and all
rights of the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price, shall cease and terminate.
All shares of Class A-1 Preferred Stock which shall at any time have
been redeemed shall, after such redemption, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors or an Authorized Board Committee.
(v) PRIORITY OF CLASS A-1 PREFERRED STOCK. The shares of Class A-1
Preferred Stock shall be preferred as to assets over the shares of the Common
Stock or any other capital stock of the Corporation ranking junior to the Class
A-1 Preferred Stock upon liquidation, dissolution or winding up of the
Corporation so that in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of the Class
A-1 Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, after distribution and payment in full to the
holders of any capital stock of the Corporation ranking prior to the Class A-1
Preferred Stock upon liquidation, dissolution or winding up of the Corporation
of the preferential amounts and dividends payable thereon, and before any
distribution is made to holders of shares of the Common Stock or any other
capital stock of the Corporation ranking junior to the Class A-1 Preferred Stock
upon liquidation, dissolution or winding up of the Corporation, an amount equal
to $10.00 per share plus an amount equal to all dividends (whether or not earned
or declared) accrued and unpaid on such share of Class A-1 Preferred Stock to
the date of final distribution. If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation, or proceeds
4
<PAGE>
thereof, distributable among the holders of shares of Class A-1 Preferred Stock
or any capital stock ranking on a par with the Class A-1 Preferred Stock upon
liquidation, dissolution or winding up of the Corporation, shall be insufficient
to pay in full the preferential amounts to which such stock would be entitled,
then such assets, or the proceeds thereof, shall be distributable among such
holders ratably in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereof were payable in full. For the
purposes hereof, neither a consolidation nor a merger of the Corporation with
one or more other corporations, nor a sale or a transfer of all or substantially
all of the assets of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
(vi) VOTING RIGHTS.
Each share of Class A-1 Preferred Stock shall be entitled to vote on
all matters presented to the stockholders of the Corporation and shall be
entitled to eight (8) votes for each vote afforded to a share of Common Stock.
In the event of a recapitalization of the Corporation that would result in the
multiplication or division of the voting power of the outstanding Common Stock
(i.e., through a stock split, reverse stock split, or otherwise), the
proportionate voting power of the Class A-1 Preferred Stock shall be
reciprocally adjusted upward or downward as the case may be.
Additionally, notwithstanding anything herein to the contrary, so long
as any shares of the Class A-1 Preferred Stock remain outstanding, the
Corporation will not, either directly or indirectly or through merger or
consolidation with any other corporation, without the affirmative unanimous vote
at a meeting, or the written consent with or without a meeting, of the holders
of the shares of Class A-1 Preferred Stock then outstanding, amend, alter or
repeal any of the provisions of the Certificate of Designations of the Class A-1
Preferred Stock or the certificate of Incorporation of the Corporation, or
authorize any reclassification of the Class A-1 Preferred Stock, so as in any
such case to affect adversely the preferences, special rights or powers of the
Class A-1 Preferred Stock, including but not limited to the super voting rights
afforded pursuant to the first paragraph of this Section (vi), or authorize or
issue any capital stock of the Corporation ranking, either as to payment of
dividends or upon liquidation, dissolution or winding up of the Corporation,
prior to or on par with the Class A-1 Preferred Stock.
Additionally, notwithstanding anything herein to the contrary, so long
as any shares of the Class A-1 Preferred Stock remain outstanding, the
Corporation will not, either directly or indirectly or through merger or
consolidation with any other corporation, without the affirmative unanimous vote
at a meeting, or the written consent with or without a meeting, of the holders
of the shares of Class A-1 Preferred Stock then outstanding, increase the
authorized number of shares of Class A-1 Preferred Stock, increase the
authorized number of shares of Preferred Stock or create, or increase the
authorized number of shares of, any other class of capital stock of the
Corporation ranking on a parity with the Class A-1 Preferred Stock
5
<PAGE>
either as to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation.
No consent of holders of the Class A-1 Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, or (b) the issuance of any class of capital stock of the
Corporation ranking junior to the Class A-1 Preferred Stock in payment of
dividends and upon liquidation, dissolution or winding up of the Corporation.
(vii) AMENDMENT. The Board of Directors reserves the right by
subsequent amendment of this resolution from time to time to decrease the number
of shares which constitute the Class A-1 Preferred Stock (but not below the
number of shares thereof then outstanding) and, subject to anything to the
contrary set forth in the Restated Certificate of Incorporation, as amended, of
the Corporation applicable to the Preferred Stock, to subdivide the number of
shares, the par value per share and the liquidation value per share of the Class
A-1 Preferred Stock, and in other respects to amend, within the limitations
provided by law, this resolution and the Restated Certificate of Incorporation,
as amended, of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf by its undersigned President and attested to by its
Secretary this _____ day of December, 1996.
_________________________________________
Jack L. Brozman, President
[Corporate Seal]
ATTEST:
___________________________________
______________________, Secretary
6
<PAGE>
EXHIBIT B
CENCOR, INC.
CONCORDE CAREER COLLEGES, INC.
STOCK CERTIFICATE HOLDINGS
1. United Health Careers Institute, Inc. - California - 120 shares
2. Southern California College of Medical and Dental Assistants, Inc. -
California - 100 shares
3. Southern California College of Medical and Dental Assistants, Inc. -
California - 180 shares
4. Concorde Careers - Florida, Inc. - Florida - 1,000 shares
5. Colleges of Dental & Medical Assistants, Inc. - California - 180 shares *
6. Computer Career Institute, Inc. - Oregon - 250 shares
7. Career Assistance, Inc. - Missouri - 250,000 shares
* CERTIFICATE STILL NEEDS TO BE DELIVERED TO CENCOR
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
DATED AS OF FEBRUARY 25, 1997
BY AND AMONG
CONCORDE CAREER COLLEGES, INC.,
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
AND
STRATEGIC ASSOCIATES, L.P.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1................................................................... 1
Definitions............................................................ 1
1.1. Defined Terms............................................... 1
SECTION 2................................................................... 4
Authorization and Sale of Convertible Preferred Stock.................. 4
2.1. Authorization of Convertible Preferred Stock................ 4
---------------------------------------------
2.2. Sale and Purchase of Convertible Preferred Stock............ 4
-------------------------------------------------
SECTION 3................................................................... 5
Closing Dates; Delivery................................................ 5
3.1. Closing Dates............................................... 5
-------------
3.2. Delivery.................................................... 5
--------
SECTION 4................................................................... 5
Representations and Warranties of the Company.......................... 5
4.1. Organization, Good Standing and Qualification............... 5
----------------------------------------------
4.2. Capitalization.............................................. 5
--------------
4.3. Subsidiaries................................................ 6
------------
4.4. Partnerships................................................ 7
------------
4.5. Authorization............................................... 7
-------------
4.6. Governmental Consents....................................... 7
---------------------
4.7. Litigation.................................................. 7
----------
4.8. Certain Events; Insurance................................... 8
-------------------------
4.9. Patents and Trademarks...................................... 8
----------------------
4.10. Compliance with Other Instruments and Legal Requirements.... 8
---------------------------------------------------------
4.11. Material Agreements; Action................................. 9
---------------------------
4.12. Disclosure.................................................. 9
----------
4.13. Brokers' Fees............................................... 9
-------------
4.14. Registration Rights......................................... 9
-------------------
4.15. Corporate Documents......................................... 10
-------------------
4.16. Real Property............................................... 10
-------------
4.17. Tangible Personal Property.................................. 11
--------------------------
4.18. Environmental Matters....................................... 11
---------------------
4.19. Financial Statements........................................ 12
--------------------
4.20. Changes..................................................... 13
-------
4.21. Employee Benefit Plans...................................... 13
----------------------
4.22. Taxes....................................................... 17
-----
4.23. Insurance................................................... 17
---------
4.24. Minute Books................................................ 17
------------
4.25. Labor and Employment Matters................................ 18
----------------------------
4.26. Use of Proceeds............................................. 18
---------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.27. Accreditation and State Licensure/Approval.................. 18
------------------------------------------
4.28. No Undisclosed Liabilities.................................. 19
--------------------------
4.29. Licenses and Permits........................................ 19
--------------------
4.30 U.S. Department of Education Certification and Eligibility.. 20
----------------------------------------------------------
SECTION 5................................................................... 22
Representations, Warranties and Covenants of the Purchasers............ 22
5.1. Accredited Investor; Experience; Risk....................... 22
-------------------------------------
5.2. Investment.................................................. 22
----------
5.3. Legends; Opinion Requirement................................ 22
----------------------------
5.4. Authorization............................................... 23
-------------
5.5. Governmental Consents....................................... 23
---------------------
5.6. Brokers' Fees............................................... 23
-------------
SECTION 6................................................................... 24
Covenants.............................................................. 24
---------
6.1. Access to Information....................................... 24
---------------------
6.2. Publicity................................................... 24
---------
6.3. Register of Securities...................................... 24
----------------------
6.4. Removal of Legend........................................... 25
-----------------
SECTION 7................................................................... 25
Conditions to Closing of Purchasers.................................... 25
-----------------------------------
7.1. Representations and Warranties Correct...................... 25
--------------------------------------
7.2. Covenants................................................... 25
---------
7.3. Opinion of Company's Counsel................................ 25
----------------------------
7.4. No Material Adverse Change.................................. 25
--------------------------
7.5. Certificate of Designation.................................. 25
---------------------------
7.6. Stockholders' Agreement..................................... 26
-----------------------
7.7. State Securities Laws....................................... 26
---------------------
7.8. CenCor Obligations.......................................... 26
------------------
7.9. Issuance of Shares.......................................... 26
------------------
7.10. Certificates................................................ 26
------------
7.11. Debenture and Warrant Purchase Agreements................... 26
-----------------------------------------
7.12. Debentures and Warrants..................................... 26
-----------------------
7.13. Registration Rights Agreement............................... 26
-----------------------------
SECTION 8................................................................... 27
Conditions to Closing of the Company................................... 27
------------------------------------
8.1. Representations............................................. 27
---------------
8.2. Covenants................................................... 27
---------
8.3. Stockholders' Agreement..................................... 27
-----------------------
8.4. Opinion of Purchasers' Counsel.............................. 27
------------------------------
8.5. No Material Adverse Change.................................. 27
--------------------------
8.6. State Securities Laws....................................... 27
----------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.7. Purchase Price.............................................. 27
--------------
8.8. Certificate................................................. 27
-----------
8.9. Debenture and Warrant Purchase Agreements................... 27
-----------------------------------------
8.10. Registration Rights Agreement............................... 28
-----------------------------
SECTION 9................................................................... 28
Covenants of the Company............................................... 28
------------------------
9.1. Information................................................. 28
-----------
9.2. Additional Agreements....................................... 30
---------------------
SECTION 10.................................................................. 31
Miscellaneous.......................................................... 31
-------------
10.1. Amendment; Waiver........................................... 31
-----------------
10.2. Notices..................................................... 31
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10.3. Survival of Representations, Warranties and Covenants....... 32
-----------------------------------------------------
10.4. Severability................................................ 32
------------
10.5. Successors and Assigns...................................... 32
----------------------
10.6. Entire Agreement............................................ 32
----------------
10.7. Choice of Law............................................... 32
-------------
10.8. Counterparts................................................ 33
------------
10.9. Costs and Expenses.......................................... 33
------------------
10.10.Indemnification............................................. 33
---------------
10.11.Limits on Liability......................................... 34
-------------------
10.12.No Third-Party Beneficiaries................................ 34
----------------------------
</TABLE>
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of February 25,
1997 (this "Agreement"), by and among CONCORDE CAREER COLLEGES, INC., a Delaware
---------
corporation (the "Company"), CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P., a
-------
limited partnership organized under the laws of the State of Delaware, and
STRATEGIC ASSOCIATES, L.P., a limited partnership organized under the laws of
the State of Delaware. Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P. together may be referred to herein as the
"Purchasers."
----------
WHEREAS, the Company has issued and outstanding the shares of capital stock
described in Section 4.2 hereof and the Company has reserved for issuance
additional shares of capital stock upon the exercise of the outstanding
convertible securities identified in Section 4.2;
WHEREAS, the Company proposes to issue and sell, and the Purchasers wish to
purchase, shares of the Company's Convertible Preferred Stock, par value $0.10
per share (the "Convertible Preferred Stock") on the terms and conditions set
---------------------------
forth herein;
WHEREAS, the Company proposes to issue and sell, and the Purchasers wish to
purchase, Debentures and Warrants pursuant to Debenture and Warrant Purchase
Agreements, between the Company and Purchasers, of even date herewith;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1
Definitions
-----------
1.1. Defined Terms. The following terms are defined as follows:
"Affiliate" means, with respect to any Person, (i) any Person in which such
---------
Person holds direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of voting securities or other voting
interests representing at least 5% of the outstanding voting power of a Person
or equity securities or other equity interests representing at least 5% of the
outstanding equity securities or equity interests in a Person and (ii) any
brother, sister, parent, child or spouse of such Person or any Person described
in clause (i).
"Benefit Arrangement" means any benefit arrangement, obligation, custom, or
-------------------
practice, whether or not legally enforceable, to provide benefits, other than
salary, as compensation for services rendered, to present or former directors,
employees, agents, or independent contractors,
<PAGE>
other than any obligation, arrangement, custom or practice that is an Employee
Benefit Plan, including, without limitation, employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, severance pay policies, plant closing
benefits, salary continuation for disability, consulting, or other compensation
arrangements, workers' compensation, retirement, deferred compensation, bonus,
stock option or purchase, hospitalization, medical insurance, life insurance,
tuition reimbursement or scholarship programs, employee discounts, any plans
subject to Section 125 of the Code, and any plans providing benefits or payments
in the event of a change of control, change in ownership, or sale of a
substantial portion (including all or substantially all) of the assets of any
business or portion thereof, in each case with respect to any present or former
employees, directors, or agents.
"CenCor" means CenCor, Inc., a Delaware corporation.
------
"Code" means the Internal Revenue Code of 1986 (or any successor thereto),
----
as amended from time to time.
"Company Benefit Arrangement" means any Benefit Arrangement sponsored or
---------------------------
maintained by the Company or its Subsidiaries or with respect to which the
Company or a Subsidiary has or may have any liability (whether actual,
contingent, with respect to any of its assets or otherwise) as of the Closing
Date, in each case with respect to any present or former directors, employees,
or agents of the Company or the Subsidiaries.
"Company Plan" means, as of the Closing Date, any Employee Benefit Plan for
------------
which the Company or any Subsidiary is the "plan sponsor" (as defined in Section
3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the Company or any
Subsidiary or to which the Company or any Subsidiary is obligated to make
payments, in each case with respect to any present or former employees of the
Company or the Subsidiaries.
"Company's Knowledge" or derivations thereof shall mean the actual
-------------------
knowledge of the executive officers of the Company.
"Employee Benefit Plan" has the meaning given in Section 3(3) of ERISA.
---------------------
"Environmental Law" means any foreign, federal, state or local statute,
-----------------
regulation, ordinance or rule of common law as now or hereafter in effect in any
way relating to the protection of the environment including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. (S)(S) 9601 et seq.), the Hazardous Materials Transportation Act (49
-- ----
U.S.C. App. (S)(S) 1801 et seq.), the Resource Conservation and Recovery Act (42
-- ----
U.S.C. (S)(S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S)(S) 1251 et
-- ---- --
seq.), the Clean Air Act (42 U.S.C. (S)(S) 7401 et seq.), the Toxic Substances
- ---- -- ----
Control Act (15 U.S.C. (S)(S) 2601 et seq.), the Federal Insecticide, Fungicide,
-- ----
and Rodenticide Act (7 U.S.C. (S)(S) 136 et seq.), and the Occupational Safety
-- ----
and Health Act (29 U.S.C. (S)(S) 651 et seq.) and the regulations promulgated
-- ----
2
<PAGE>
pursuant thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any regulation or rule issued thereunder.
"ERISA Affiliate" means any person that together with the Company, would be
---------------
or was at any time treated as a single employer under Section 414 of the Code or
Section 4001 of ERISA and any general partnership of which the Company is or has
been a general partner.
"Hazardous Material" means any substance, material or waste that is
------------------
regulated by the United States, the foreign jurisdictions in which the Company
or its Subsidiaries conducts business, or any state or local governmental
authority including, without limitation, petroleum and its by-products,
asbestos, and any material or substance that is defined as a "hazardous waste,"
"hazardous substance," "hazardous material," "restricted hazardous waste,"
"industrial waste," "solid waste," "contaminant," "pollutant," "toxic waste" or
"toxic substance" under any provision of Environmental Law.
"Lien" means any lien, pledge, mortgage, deed of trust, security interest,
----
claim, lease, charge, option, right of first refusal, easement, servitude,
transfer restriction under any shareholder or similar agreement, encumbrance or
any other restriction or limitation whatsoever.
"Multiemployer Plan" means any Employee Benefit Plan described in Section
------------------
3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permits" means any approvals, authorizations, consents, licenses, permits
-------
or certificates.
"Permitted Exceptions" means (i) all defects, exceptions, restrictions,
--------------------
easements, rights of way and encumbrances disclosed in policies of title
insurance that have been made available to the Company; (ii) statutory Liens for
current taxes, assessments or other governmental charges not yet delinquent or
the amount or validity of which is being contested in good faith by appropriate
proceedings, provided an appropriate reserve is established therefor; (iii)
mechanics', carriers', workers', repairers' and similar Liens arising or
incurred in the ordinary course of business that are not material to the
business, operations and financial condition of the property so encumbered or
the Company or its Subsidiaries; (iv) zoning, entitlement and other land use and
environmental regulations by any governmental body, provided that such
regulations have not been violated; and (v) such other imperfections in title,
charges, easements, restrictions and encumbrances that do not materially detract
from the value of or materially interfere with the present use of any Company
Property (as hereinafter defined) subject thereto or affected thereby.
"Person" means an individual, partnership, limited liability company,
------
corporation, joint
3
<PAGE>
stock company, trust, unincorporated association, joint venture or other entity,
or a government or any political subdivision or agency thereof.
"Qualified Plan" means any Employee Benefit Plan that meets, purports to
--------------
meet, or is intended to meet the requirements of Section 401(a) of the Code.
"Release" means any release, spill, emission, leaking, pumping, injection,
-------
deposit, disposal, discharge, dispersal or leaching into the indoor or outdoor
environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or in
---------------
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"Subsidiaries" means each corporation in which the Company owns or
------------
controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests.
"Welfare Plan" means any Employee Benefit Plan described in Section 3(1) of
------------
ERISA.
SECTION 2
Authorization and Sale of Convertible Preferred Stock
-----------------------------------------------------
2.1. Authorization of Convertible Preferred Stock. At the First Closing
--------------------------------------------
(as defined in Section 3.1), the Company will have authorized the issuance and
sale of 55,147 shares of Convertible Preferred Stock, having the rights,
preferences, privileges and restrictions set forth in the Certificate of
Designation attached to this Agreement as Exhibit A hereto (the "Certificate of
--------------
Designation").
- -----------
2.2. Sale and Purchase of Convertible Preferred Stock. In reliance on
-------------------------------------------------
the representations and warranties of the Company contained herein and subject
to the terms and conditions hereof, the Purchasers agree to purchase from the
Company, severally and in the amounts set forth on Exhibit B hereto, and the
Company agrees to sell to the Purchasers 55,147 shares of Convertible Preferred
Stock for the purchase price of $27.20 per share.
4
<PAGE>
SECTION 3
Closing Dates; Delivery
-----------------------
3.1. Closing Dates. The initial closing of the purchase and sale of
-------------
certain of the Convertible Preferred Stock in the amounts as set forth on
Schedule 3.1 (the "First Closing") shall be held at the offices of Bryan Cave
- ------------ -------------
LLP, One Kansas City Place, Suite 3500, Kansas City, Missouri on February 25,
1997, or on such other date or at such other place as the Purchasers and the
Company shall mutually agree (the date of the Closing being referred to herein
as the "First Closing Date"). The second closing of the purchase and sale of
------------------
certain of the Convertible Preferred Stock in the amounts as set forth on
Schedule 3.1 (the "Second Closing") shall be held at the offices of Bryan Cave
--------------
LLP, One Kansas City Place, Suite 3500, Kansas City, Missouri on March 14, 1997,
or on such other date or at such other place as the Purchasers and the Company
shall mutually agree (the date of the Closing being referred to herein as the
"Second Closing Date").
-------------------
3.2. Delivery. At the First Closing and the Second Closing, the Company
--------
shall deliver to each Purchaser a certificate or certificates evidencing the
shares of Convertible Preferred Stock being purchased by it registered in such
Purchaser's name against delivery to the Company of payment in an amount equal
to the full purchase price of the shares of Convertible Preferred Stock being
purchased by such Purchaser by certified check or wire transfer to an account
designated by the Company in the amounts set forth on Schedule 3.2.
------------
SECTION 4
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to, and agrees with, each
Purchaser as follows:
4.1. Organization, Good Standing and Qualification. Each of the Company
----------------------------------------------
and its Subsidiaries (i) is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (ii) has
all requisite power and authority to carry on its business, (iii) is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify could reasonably be expected, individually or in
the aggregate, to have a material adverse effect on the business, financial
condition, or operations of the Company and its Subsidiaries (a "Material
--------
Adverse Effect").
- --------------
4.2. Capitalization.
--------------
(a) The authorized capital stock of the Company is 20,000,000
shares, consisting of 19,400,000 shares of common stock, par value $.10 per
share ("Common Stock") of
------------
5
<PAGE>
which 6,965,976 shares are issued and outstanding, and 600,000 shares of
preferred stock, par value $.10 per share ("Preferred Stock"), of which 233,817
---------------
shares are Class A Redeemable Preferred Stock issued and outstanding and owned
by CenCor to be redeemed at the First Closing. Schedule 4.2 lists the options
------------
and warrants of the Company issued and outstanding prior to the First Closing.
At the First Closing, the Company will have reserved for issuance 1,102,940
shares of Common Stock upon conversion of the authorized shares of Convertible
Preferred Stock and at least 600,000 shares of Common Stock in connection with a
new option to be issued to the Company's new chief executive officer. Schedule
--------
4.2 sets forth a true and correct list of the stockholders of record maintained
- ---
by the Company's transfer agent with respect to the issued and outstanding
shares of capital stock of the Company as of December 31, 1996. Except as
listed on Schedule 4.2, there are no outstanding securities of the Company
------------
convertible into or evidencing the right to purchase or subscribe for any shares
of capital stock of the Company, there are no outstanding or authorized options,
warrants, calls, subscriptions, rights, commitments or any other agreements of
any character obligating the Company to issue any shares of its capital stock or
any securities convertible into or evidencing the right to purchase or subscribe
for any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of capital
stock of the Company, other than the Stockholders' Agreement in the form of
Exhibit C hereto (the "Stockholders' Agreement"), the Registration Rights
-----------------------
Agreement dated of even date herewith among the parties hereto, the First
Amendment to the Settlement Agreement, dated as of December 31, 1996, among the
parties thereto. No outstanding options, warrants or other securities
exercisable for or convertible into shares of capital stock of the Company
require anti-dilution adjustments by reason of the consummation of the
transactions contemplated hereby.
(b) The issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable. The
shares of Convertible Preferred Stock to be issued pursuant to this Agreement,
upon delivery to the Purchasers of certificates therefor against payment in
accordance with the terms of this Agreement, and the shares of Common Stock
issuable upon conversion of such Convertible Preferred Stock of the Company when
issued upon conversion of such Convertible Preferred Stock in accordance with
the Certificate of Designation, (i) will be validly issued, fully paid and
nonassessable, (ii) will be free and clear of all Liens, other than any created
by the holder thereof and the restrictions imposed by the Stockholders'
Agreement and (iii) assuming that the representations of the Purchasers in
Section 5 hereof are true and correct, will be issued in compliance with all
applicable federal and state securities laws.
4.3. Subsidiaries. Schedule 4.3 sets forth a complete and accurate list
------------ ------------
of all Subsidiaries of the Company, showing (as to each such Subsidiary) the
date of its incorporation, the jurisdiction of its incorporation, the number of
shares of its authorized capital stock, the number and class of shares thereof
duly issued and outstanding, the names of all stockholders of such Subsidiaries
and the number and percentage of the outstanding shares of each such class
owned, directly or indirectly, by all such stockholders, including the Company.
The outstanding shares of capital stock of each Subsidiary are validly issued,
fully paid and nonassessable and all
6
<PAGE>
such shares represented as being owned by the Company are owned by it, except as
listed on Schedule 4.3, free and clear of all Liens. There are no outstanding
------------
securities of any Subsidiary convertible into or evidencing the right to
purchase or subscribe for any shares of capital stock of any Subsidiary, there
are no outstanding or authorized options, warrants, calls, subscriptions,
rights, commitments or any other agreements of any character obligating any
Subsidiary to issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or subscribe for any shares
of such stock, and there are no agreements or understandings with respect to the
voting, sale, transfer or registration of any shares of capital stock of any
Subsidiary.
4.4. Partnerships. The Company is not a party to, and does not hold, any
------------
equity interests in any partnership or limited partnership of any kind.
4.5. Authorization. The Company has all requisite corporate power and
-------------
authority to execute and deliver this Agreement and each agreement, document or
instrument adopted, entered into or delivered in connection herewith (the
"Transaction Documents") and to perform its obligations hereunder and
---------------------
thereunder. The execution, delivery and performance of the Agreement and the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate, including stockholder action on the part of the Company.
Each Transaction Document has been duly and validly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity) and except
to the extent that rights to indemnification and contribution under this
Agreement and the Stockholders' Agreement may be limited by federal or state
securities laws or public policy relating thereto.
4.6. Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the valid execution and delivery by the Company of
the Transaction Documents to which it is a party, or the consummation by the
Company of the transactions contemplated by the Transaction Documents to which
it is a party, except for such filings as have been made prior to the First
Closing.
4.7. Litigation. All pending claims, suits, or proceedings against the
----------
Company, its Subsidiaries, and its schools are set forth on Schedule 4.7. None
-------------
of the pending claims, suits, or proceedings listed on Schedule 4.7 seeks to
------------
enjoin the consummation of this Agreement or the Stockholders Agreement, nor
does management believe that any pending claims, suits or proceedings materially
adversely affect the operation or financial condition of, or result in the
payment of material damages by, the Company, its Subsidiaries or any of the
schools, taken as a whole. The Company, its Subsidiaries, and the schools
represent that each of the claims, suits,
7
<PAGE>
and proceedings or litigation contained on Schedule 4.7 is without merit and
------------
intend to vigorously defend the Company, the affected Subsidiary or the affected
school in all matters pertaining to such claims, suits or proceedings. Except
as set forth on Schedule 4.7, there are no pending or threatened claims, suits
------------
or proceedings against the Company, its Subsidiary or its schools. To the
Company's Knowledge, there is no investigation by any governmental agency
pending or threatened against the Company, its Subsidiaries, or its schools
which might result in any such suit, action or other proceeding, except as
disclosed on Schedule 4.7.
------------
4.8. Certain Events; Insurance. Except for matters covered by Section
-------------------------
4.7 hereof, there has been no event or accident at any premises owned or
operated by the Company or any of its Subsidiaries involving personal injury or
that otherwise could reasonably be expected to result in monetary liability to
the Company or any of its Subsidiaries that has not been adequately covered by
insurance sufficient in amount to pay any and all foreseeable liabilities
arising therefrom or in connection therewith, subject to a reasonable
deductible.
4.9. Patents and Trademarks. The Company and its Subsidiaries have
----------------------
sufficient title and ownership of (or rights under license agreements to use)
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
proprietary rights and processes ("Intellectual Property") necessary for their
---------------------
businesses. There are no outstanding options, licenses or agreements of any
kind relating to the foregoing, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, proprietary rights and processes of any other Person. A list of
all patents, patent applications, registered trademarks, trademark applications,
registered copyrights and copyright applications owned by the Company or any of
its Subsidiaries is set forth on Schedule 4.9. Within the past five years, the
------------
Company has not received any communications alleging that the Company or any of
its Subsidiaries has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights,
trade secrets, proprietary rights and processes of any other Person, nor is the
Company aware of any such violations.
4.10. Compliance with Other Instruments and Legal Requirements.
---------------------------------------------------------
(a) None of the Company or any of its Subsidiaries is in violation
or default of any provisions of its certificate of incorporation, by-laws, or
comparable organizational documents. Except as listed on Schedule 4.10, none of
-------------
the Company or any of its Subsidiaries is in violation or default in any
material respect under any provision, instrument, judgment, order, writ, decree,
contract or agreement to which it is a party or by which it is bound or of any
provision of any federal, state or local statute, rule or regulation applicable
to the Company or any of its Subsidiaries (including, without limitation, any
law, rule or regulation relating to protection of the environment and the
maintenance of safe and sanitary premises). Except under the agreements with
CenCor, the execution, delivery and performance of each Transaction Document and
the consummation of the transactions contemplated hereby and thereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving
8
<PAGE>
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree, contract or agreement, or require any consent, waiver or
approval thereunder, or constitute an event that results in the creation of any
Lien upon any assets of the Company or any of its Subsidiaries.
(b) Except as set forth on Schedule 4.10, the Company and its
-------------
Subsidiaries have all material Permits of all governmental entities required to
conduct their respective businesses as proposed to be conducted.
4.11. Material Agreements; Action. Except as set forth on Schedule 4.11,
--------------------------- -------------
there are no material contracts, agreements, commitments, understandings or
proposed transactions, whether written or oral, to which the Company or any of
its Subsidiaries is a party or by which it is bound that involve or relate to:
(i) any of their respective officers, directors stockholders or partners or any
Affiliate thereof; (ii) the sale of any of the assets of the Company or any of
its Subsidiaries other than in the ordinary course of business; (iii) covenants
of the Company or any of its Subsidiaries not to compete in any line of business
or with any Person in any geographical area or covenants of any other Person not
to compete with the Company or any of its Subsidiaries in any line of business
or in any geographical area; (iv) the acquisition by the Company or any of its
Subsidiaries of any operating business or the capital stock of any other Person;
(v) the borrowing of money; (vi) the expenditure of more than $100,000 in the
aggregate or the performance by any party more than one year from the date
hereof or (vii) the license of any Intellectual Property, other material
proprietary right to or from the Company or any of its Subsidiaries. There have
been made available to the Purchasers and their representatives true and
complete copies of all such agreements. All such agreements are in full force
and effect and are the legal, valid and binding obligation of the Company or its
Subsidiaries, enforceable against them in accordance with their terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). None of the Company
or any of its Subsidiaries is in default under any such agreements nor is any
other party to any such agreements in default thereunder in any respect.
4.12. Disclosure. To the Company's knowledge, after making due inquiry,
----------
neither this Agreement nor any Schedule hereto nor any certificates or
instruments delivered by the Company or its representatives to the Purchasers in
connection with this Agreement or the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state a material fact
required to be contained therein not misleading.
4.13. Brokers' Fees. No broker, finder, investment banker or other Person
-------------
is entitled to any brokerage fee, finder's fee or other commission in connection
with the transactions contemplated by this Agreement.
4.14. Registration Rights. Except as provided in the Stockholders'
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback
9
<PAGE>
registration rights, to any Person.
4.15. Corporate Documents. The Certificate of Incorporation and the By-
-------------------
laws of the Company, as amended, are in the form set forth in Exhibits D and E
hereto, respectively.
4.16. Real Property.
-------------
(a) Neither the Company nor its Subsidiaries owns any real property
or fee simple interests in real property. Schedule 4.16 sets forth a complete
-------------
list of all real property and interests in real property leased by the Company
and its Subsidiaries (individually, a "Real Property Lease" and the real
-------------------
properties specified in such leases, together with the Owned Properties, being
referred to herein individually as a "Company Property" and collectively as the
----------------
"Company Properties as lessee or lessor. The Company Property constitutes all
------------------
interests in real property currently used or currently held for use in
connection with the business of the Company and its Subsidiaries and which are
necessary for the continued operation of the business of the Company and its
Subsidiaries as the business is currently conducted. The Company and its
Subsidiaries have a valid and enforceable leasehold interest under each of the
Real Property Leases, and none of the Company or any of its Subsidiaries has
received any written notice of any default or event which, with notice or lapse
of time, or both, would constitute a default by the Company or any of its
Subsidiaries under any of the Real Property Leases. All of the Company Property,
buildings, fixtures and improvements thereon owned or leased by the Company and
its Subsidiaries are in good operating condition and repair (subject to normal
wear and tear) except for deficiencies which do not have a Material Adverse
Effect. The Company has delivered or otherwise made available to the Purchasers
true, correct and complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) The Company and its Subsidiaries have all material certificates
of occupancy and Permits of any governmental body necessary or useful for the
current use and operation of each Company Property, and the Company and its
Subsidiaries have fully complied with all material conditions of the Permits
applicable to them. No default or violation, or event which, with the lapse of
time or giving of notice or both would become a default or violation, has
occurred in the due observance of any such Permit.
(c) There does not exist any actual, threatened or contemplated
condemnation or eminent domain proceedings that affect any Company Property or
any part thereof, and none of the Company or any of its Subsidiaries has
received any notice, oral or written, of the intention of any governmental body
or other Person to take or use all or any part thereof.
(d) None of the Company or any of its Subsidiaries has received any
written notice from any insurance company that has issued a policy with respect
to any Company Property requiring performance of any structural or other repairs
or alterations to such Company Property.
10
<PAGE>
(e) Except as set forth on Schedule 4.16, none of the Company or
------------
any of its Subsidiaries owns or holds, and is not obligated under or a party to,
any option, right of first refusal or other contractual right to purchase,
acquire, sell, assign or dispose of any real estate or any portion thereof or
interest therein.
4.17. Tangible Personal Property.
--------------------------
(a) Schedule 4.17 sets forth all leases of personal property
("Personal Property Leases") involving annual payments in excess of $50,000
------------------------
relating to personal property used in the business of the Company and its
Subsidiaries or to which the Company or any of its Subsidiaries is a party or by
which the properties or assets of the Company or any of its Subsidiaries is
bound. The Company has delivered or otherwise made available to the Purchasers
true, correct and complete copies of the Personal Property Leases, together with
all amendments, modifications or supplements thereto.
(b) Each of the Company and its Subsidiaries has a valid leasehold
interest under each of the Personal Property Leases under which it is a lessee,
and there is no material default under any Personal Property Lease by the
Company or any of its Subsidiaries, by any other party thereto, and no event has
occurred which, with the lapse of time or the giving of notice or both would
constitute a material default thereunder.
(c) Except as set forth on Schedule 4.17, each of the Company and
-------------
its Subsidiaries has good and marketable title to all of the items of tangible
personal property reflected in the balance sheets referred to in Section 4.19
(except as sold or disposed of subsequent to the date thereof in the ordinary
course of business consistent with past practice), free and clear of any and all
Liens other than the Permitted Exceptions. All such items of tangible personal
property that, individually or in the aggregate, are material to the operation
of the business of the Company and its Subsidiaries are in good condition and in
a state of good maintenance and repair (ordinary wear and tear excepted) and are
suitable for the purposes used.
(d) All of the items of tangible personal property used by the
Company and its Subsidiaries under the Personal Property Leases are in good
condition and repair (ordinary wear and tear excepted) and are suitable for the
purposes used except for deficiencies which do not have a Material Adverse
Effect.
4.18. Environmental Matters.
---------------------
(a) to the Company's Knowledge, the operations of each of the
Company and its Subsidiaries are in compliance with all applicable Environmental
Laws and all Permits issued pursuant to Environmental Laws or otherwise;
(b) to the Company's Knowledge, each of the Company and its
Subsidiaries has obtained all Permits required under all applicable
Environmental Laws necessary to operate its
11
<PAGE>
business;
(c) none of the Company or any of its Subsidiaries is the subject
of any outstanding written order, agreement or arrangement with any governmental
authority or Person respecting (i) Environmental Laws, (ii) Remedial Action or
(iii) any Release or threatened Release of a Hazardous Material;
(d) none of the Company or any of its Subsidiaries has received any
written communication alleging either or both that the Company or any of its
Subsidiaries may be in violation of any Environmental Law, or any Permit issued
pursuant to Environmental Law, or may have any liability under any Environmental
Law;
(e) to the Company's Knowledge, none of the Company or any of its
Subsidiaries has any current contingent liability in connection with any Release
of any Hazardous Materials into the indoor or outdoor environment (whether on-
site or off-site);
(f) to the Company's Knowledge, there are no investigations of the
business, operations, or currently or previously owned, operated or leased
property of the Company or any of its Subsidiaries pending or threatened that
could lead to the imposition of any liability pursuant to Environmental Law;
(g) to the Company's Knowledge, there is not located at any of the
properties owned, leased or operated by the Company or any of its Subsidiaries
any (i) underground storage tanks, (ii) asbestos-containing material or (iii)
equipment containing polychlorinated biphenyls; and
(h) the Company has provided to the Purchasers all environmentally
related audits, studies, reports, analyses and results of investigations, if
any, that have been performed by or for the Company in the last five (5) years
with respect to the currently or previously owned, leased or operated properties
of the Company or any of its Subsidiaries.
4.19. Financial Statements. The Company has delivered to each Purchaser
--------------------
its audited consolidated balance sheets as at December 31, 1994 and December 31,
1995, and the related statements of income, changes in stockholders' equity and
cash flows for the fiscal periods then ended and its unaudited financial
statements as at the end of and for the twelve-month period ended December 31,
1996 (collectively the "Financial Statements"). The Financial Statements have
--------------------
been prepared from the books and records of the Company and fairly reflect in
all material respects the consolidated financial position and results of
operations, shareholders' equity and cash flows of the Company and its
Subsidiaries as at the dates and for the periods reflected thereon in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, except as noted therein and except for the
failure of the unaudited financial statements to include the footnotes required
by generally accepted accounting principles, and subject, in the case of the
unaudited financial statements, to normal year-end audit
12
<PAGE>
adjustments that will not in the aggregate be material. The Company maintains a
standard system of accounting established and administered in accordance with
generally accepted accounting principles. The books and records of the Company
accurately reflect in all material respects the transactions to which the
Company or any of its Subsidiaries is a party or by which any of their
properties are subject or bound, and such books and records have been properly
maintained.
4.20. Changes. Except as set forth on Schedule 4.20, since December 31,
------- -------------
1996, there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company or any of its Subsidiaries from that reflected
in the Financial Statements, except changes in the ordinary course of business
that have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results or business of the Company or any of its
Subsidiaries;
(c) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it outside of the ordinary course
of business or that otherwise could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect;
(d) any satisfaction or discharge of any Lien or payment of any
obligation by the Company or any of its Subsidiaries that could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
(e) any change or amendment to a contract or arrangement by which
the Company or any of its Subsidiaries or any of their respective assets or
properties is bound or subject that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect;
(f) other than in the ordinary course of business, any material
increase in any compensation arrangement or agreement with any employee of the
Company or any of its Subsidiaries receiving compensation in excess of $50,000
annually;
(g) any events or circumstances that otherwise could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
or
(h) none of the Company or any of its Subsidiaries has since
December 31, 1996 (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock or
equity interests, (ii) incurred any indebtedness for money borrowed in excess of
$20,000, (iii) made any loans or advances to any Person, other than ordinary
advances for travel expenses not exceeding $20,000, or (iv) sold, exchanged or
13
<PAGE>
otherwise disposed of any of its assets or rights for consideration in excess of
$20,000 in any one transaction or series of related transactions.
4.21. Employee Benefit Plans
----------------------
(a) Schedule 4.21(a) contains a complete and accurate list of all
---------------
Company Plans and Company Benefit Arrangements. Schedule 4.21(a) specifically
---------------
identifies all Company Plans (if any) that are Qualified Plans.
(b) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true, correct, and complete copies of all the following
documents with respect to each Company Plan and Company Benefit Arrangement, to
the extent applicable, have been delivered to Purchasers: (A) all documents
constituting the Company Plans and Company Benefit Arrangements, including but
not limited to, trust agreements, insurance policies, service agreements, and
formal and informal amendments thereto; (B) the most recent Forms 5500 or
5500C/R and any financial statements attached thereto and those for the prior
three years; (C) the last Internal Revenue Service determination letter, the
last IRS determination letter that covered the qualification of the entire plan
(if different), and the materials submitted by the Company to obtain those
letters; (D) the most recent summary plan description; (E) the most recent
written descriptions of all non-written agreements relating to any such plan or
arrangement; (F) all reports submitted within the four years preceding the date
of this Agreement by third-party administrators, actuaries, investment managers,
consultants, or other independent contractors; (G) all notices that were given
within the three years preceding the date of this Agreement by the IRS,
Department of Labor, or any other governmental agency or entity with respect to
any plan or arrangement; and (H) employee manuals or handbooks containing
personnel or employee relations policies;
(ii) the Concorde Career Colleges, Inc. Profit Sharing and
401(k) Retirement Savings Plan (the "Company 401(k) Plan") is the only Qualified
Plan. The Company has never, and since their formation or acquisition by the
Company or the Company's former parent corporation, CenCor (the "Subsidiary
----------
Start Date"), the Subsidiaries have never maintained or contributed to another
- ----------
Qualified Plan which has not heretofore been terminated. To the Company's
Knowledge, there have been no claims against the Company or any Subsidiary since
such Subsidiary's Start Date under or alleging any such other Qualified Plan.
The Company 401(k) Plan substantially qualifies under Section 401(a) of the
Code, and any trusts maintained pursuant thereto are exempt from federal income
taxation under Section 501 of the Code, and, to the Company's Knowledge, nothing
has occurred with respect to the design or operation of any Qualified Plans that
would likely cause the loss of such qualification or exemption or the imposition
of any liability, lien, penalty, or tax under ERISA or the Code;
(iii) the Company has never, and since their respective
Subsidiary
14
<PAGE>
Start Dates, any Subsidiary has never, sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code
or Title IV of ERISA (including any Multiemployer Plan), and, to the Company's
Knowledge, nothing has occurred with respect to the design or operation of any
Employee Benefit Plan that would likely cause the loss of such qualification or
exemption or the imposition of any liability, lien, penalty, or tax under ERISA
or the Code;
(iv) to the Company's Knowledge, each Company Plan and each
Company Benefit Arrangement has been substantially maintained in accordance with
its constituent documents and with all applicable provisions of the Code, ERISA
and other laws, including federal and state securities laws;
(v) there are no pending claims or lawsuits by, against, or
relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful, result
in liability of the Company or any Stockholder, and no claims or lawsuits have
been asserted, instituted or, to the knowledge of the Company, threatened by,
against, or relating to any Company Plan or Company Benefit Arrangement, against
the assets of any trust or other funding arrangement under any such Company
Plan, by or against the Company or the Subsidiaries with respect to any Company
Plan or Company Benefit Arrangement, or by or against the plan administrator or
any fiduciary of any Company Plan or Company Benefit Arrangement, and the
Company does not have Knowledge of any fact that would likely form the basis for
a meritorious claim or lawsuit. The Company Plans and Company Benefit
Arrangements are not presently under audit or examination (nor has notice been
received of a potential audit or examination) by the IRS, the Department of
Labor, or any other governmental agency or entity, and no matters are pending
with respect to the Company 401(k) Plan under the IRS's Voluntary Compliance
Resolution program, its Closing Agreement Program, or other similar programs;
(vi) no Company Plan or Company Benefit Arrangement contains
any provision or is subject to any law that would prohibit the transactions
contemplated by this Agreement or that would give rise to any vesting of
benefits, severance, termination, or other payments or liabilities as a result
of the transactions contemplated by this Agreement;
(vii) to the Company's Knowledge, with respect to each
Company Plan, there has occurred no non-exempt Aprohibited transaction@ (within
the meaning of Section 4975 of the Code) or transaction prohibited by Section
406 of ERISA or breach of any fiduciary duty described in Section 404 of ERISA
that would, if successful, result in any liability for the Company or any
Stockholder, officer, director, or employee of the Company;
(viii) to the Company's Knowledge, all reporting, disclosure,
and notice requirements of ERISA and the Code have been substantially satisfied
with respect to each Company Plan and each Company Benefit Arrangement;
15
<PAGE>
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code, and other applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be made or taken until
after the Effective Date and (B) are disclosed on Schedule 4.21(b);
-----------------
(x) to the Company's Knowledge, payment has been made of
all amounts that the Company and each Subsidiary is required to pay as
contributions to the Company Benefit Plans as of the last day of the most recent
fiscal year of each of the plans ended before the date of this Agreement; all
benefits accrued under any unfunded Company Plan or Company Benefit Arrangement
will have been paid, accrued, or otherwise adequately reserved in accordance
with GAAP as of the Balance Sheet Date; and all monies withheld from employee
paychecks with respect to Company Plans have been transferred to the appropriate
plan within 30 days of such withholding;
(xi) except as disclosed on Schedule 4.21(b)(xi), the
--------------------
Company and the Subsidiaries have not prepaid or prefunded any Welfare Plan
through a trust, reserve, premium stabilization, or similar account, nor do they
provide benefits through a voluntary employee beneficiary association as defined
in Section 501(c)(9);
(xii) to the Company's Knowledge, no statement, either
written or oral, has been made by the Company or the Subsidiaries to any person
with regard to any Company Plan or Company Benefit Arrangement that was not in
accordance with the Company Plan or Company Benefit Arrangement and that would
likely have an adverse economic consequence to the Company or the Subsidiaries;
(xiii) to the Company's Knowledge, the Company and the
Subsidiaries have no liability (whether actual, contingent, with respect to any
of its assets or otherwise) with respect to any Employee Benefit Plan or Benefit
Arrangement that is not a Company Benefit Arrangement or with respect to any
Employee Benefit Plan sponsored or maintained (or which has been or should have
been sponsored or maintained) by any ERISA Affiliate;
(xiv) to the Company's Knowledge, all group health plans of
the Company and its ERISA Affiliates have been operated in material compliance
with the requirements of Sections 4980B (and its predecessor) and 5000 of the
Code;
(xv) to the Company's Knowledge, no employee or former
employee of the Company or beneficiary of any such employee or former employee
is, by reason of such employee's or former employee's employment, entitled to
receive any benefits, including, without limitation, death or medical benefits
(whether or not insured) beyond retirement or other termination of employment as
described in Statement of Financial Accounting Standards No. 106, other than (i)
death or retirement benefits under a Qualified Plan, (ii) deferred compensation
16
<PAGE>
benefits accrued as liabilities on the Closing Statement or (iii) continuation
coverage mandated under Section 4980B of the Code or other applicable law.
(c) Schedule 4.21(c) hereto sets forth an accurate list, as of the
----------------
date hereof, of all officers, directors, and key employees of the Company and
lists all employment agreements with such officers, directors, and key employees
and the rate of compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such person as of (a)
December 31, 1996 and (b) the date hereof.
4.22. Taxes. Except as set forth on Schedule 4.22, all federal, state,
----- -------------
local and foreign tax returns, reports and statements required to be filed by
the Company or any of its Subsidiaries have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns, reports and
statements are required to be filed and, to the Company's Knowledge, all such
returns, reports and statements were true, complete and correct in all material
respects. All taxes, charges and other impositions due and payable by the
Company or any of its Subsidiaries have been paid except where contested in good
faith and by appropriate proceedings if adequate reserves therefor have been
established on the books and records of the Company or such Subsidiary in
accordance with generally accepted accounting principles consistently applied,
and where such non-payment would not have a Material Adverse Effect. The
provision for taxes of each of the Company and its Subsidiaries as shown in the
Financial Statements is sufficient for all taxes, charges and other impositions
of any nature due or accrued as of the date hereof, whether or not assessed or
disputed. To the Company's Knowledge, proper and accurate amounts have been
withheld by each of the Company and its Subsidiaries from their respective
employees for all periods in full and complete compliance with the tax, social
security and unemployment withholding provisions of applicable federal, state,
local and foreign law and such withholdings have been timely paid to the
respective governmental agencies. The Company has not received notice of any
audit or of any proposed deficiencies from any governmental authority, and no
controversy with respect to taxes of any type is pending or threatened. Except
for routine filing extensions granted as a matter of right under applicable law,
none of the Company or any of its Subsidiaries has executed or filed with the
Internal Revenue Service or any other governmental authority any agreement or
other document extending, or having the effect of extending, the period for
assessment or collection of any taxes, charges or other impositions. None of
the Company or any of its Subsidiaries has agreed or has been requested to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. Further, none of the Company or any of its
Subsidiaries has any obligation under any written tax-sharing agreement. None
of the Company or any of its Subsidiaries has elected, pursuant to the Code, to
be treated as a Subchapter S corporation or a collapsible corporation pursuant
to Section 1362(a) or Section 341(f) of the Code.
4.23. Insurance. Schedule 4.23 sets forth a complete and accurate list of
--------- -------------
all policies of insurance of any kind or nature covering the Company and its
Subsidiaries and any of their respective employees, properties or assets,
including, without limitation, policies of life, disability, fire, theft,
workers compensation, employee fidelity and other casualty and liability
insurance. All
17
<PAGE>
such policies are in full force and effect and are of a nature and provide such
coverage as is customarily carried by companies of the size and character of the
Company and its Subsidiaries. None of the Company or any of its Subsidiaries is
in default of any policies of insurance. None of the Company or any of its
Subsidiaries has been refused insurance or had any policy of insurance
terminated (other than at its request).
4.24. Minute Books. The minute books of the Company and each of its
------------
Subsidiaries contain a complete summary of all material actions by their
respective directors and stockholders since the date of their respective
incorporation (or acquisition, in the case of Subsidiaries) and reflect all
transactions referred to in such minutes accurately in all material respects.
4.25. Labor and Employment Matters. With respect to employees of and
----------------------------
service providers to the Company and the Subsidiaries: (a) the Company and the
Subsidiaries are and have been in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation any
such laws respecting employment discrimination, workers' compensation, family
and medical leave, the Immigration Reform and Control Act, and occupational
safety and health requirements, and have not and are not engaged in any unfair
labor practice; (b) there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Company or any Subsidiary
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other comparable authority; (c) there is not now, nor
within the past three years has there been, any labor strike, slowdown or
stoppage actually pending or, to the Company's or any Subsidiary's knowledge,
threatened against or directly affecting the Company or any Subsidiary; (d) to
the Company's Knowledge, no labor representation organization effort exists nor
has there been any such activity within the past three years; (e) no grievance
or arbitration proceeding arising out of or under collective bargaining
agreements is pending and, to the Company's Knowledge, no claims therefor exist
or have been threatened; (f) the employees of the Company and the Subsidiaries
are not and have never been represented by any labor union, and no collective
bargaining agreement is binding and in force against the Company or any
Subsidiary or currently being negotiated by the Company or any Subsidiary; and
(g) to the Company's Knowledge, all persons classified by the Company or its
Subsidiaries as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and the Company and its Subsidiaries
have fully and accurately reported their compensation on IRS Forms 1099 when
required to do so. To the Company's knowledge, none of the employees of the
Company or any of its Subsidiaries is obligated under any contract or other
agreement (including licenses, covenants or commitments of any nature), or
subject to any judgment, decree or order of any court or administrative agency,
that materially interferes with the use of the employee's best efforts to
promote the interests of the Company and its Subsidiaries or conflicts with the
business as proposed to be conducted by the Company or its Subsidiaries.
4.26. Use of Proceeds. The Company shall use the net proceeds from the
---------------
issuance and sale of the Convertible Preferred Stock to redeem, retire, and
repay its obligations to CenCor in their entirety on terms substantially in the
form of the Fourth Amendment to the Restructuring,
18
<PAGE>
Security and Guaranty Agreement, dated December 30, 1996.
4.27. Accreditation and State Licensure/Approval.
------------------------------------------
(a) Schedule 4.27(a) contains a complete and accurate statement of
---------------
the accreditation granted to each of the Company and its Subsidiaries, the date
that accreditation was last granted, and the current term of accreditation.
Except as set forth on Schedule 4.27(a), none of the schools or educational and
training programs of the Company and its Subsidiaries are on probation or
warning, having been directed to show cause why accreditation should not be
revoked, or are subject to an action by an accrediting agency to withdraw or
deny accreditation. To the Company's knowledge, there are no facts,
circumstances, or omissions concerning their schools that would likely lead to
such actions by an accrediting agency.
(b) The Company, its Subsidiaries, and its schools have
substantially complied with all stipulations, conditions and other requirements
imposed by the schools' accrediting agencies at the time of, or since, the last
grant of accreditation, including but not limited to the timely filing of all
required reports and responses. Such reports and responses demonstrate
improvement in the compliance of the schools with accrediting standards.
(c) The Company, its Subsidiaries, and its schools have secured all
requisite approvals from its institutional accrediting agencies for the
educational and training programs currently offered. Without limiting the
effect of this representation and warranty, the school located in Miami, Florida
has secured the approval of the Accrediting Commission of Career Schools and
Colleges of Technology ("ACCSCT") to offer its Dental Assistant and Patient Care
------
Assistant programs, and the school located in Tampa, Florida has secured the
approval of ACCSCT to offer its Dental Radiographers program.
(d) To the Company's Knowledge, the Company, its Subsidiaries, and
its schools have secured all requisite licenses to operate in the states in
which they are located and all requisite approvals from such states for the
educational and training programs currently offered. Without limiting the effect
of this representation and warranty, the school located in Denver, Colorado has
secured state approval of its Practical Nursing program; the school in San
Diego, California has secured state approval for its Dental Assisting program;
and the school located in Anaheim, California has secured state approval for its
Vocational Nurse, Dental Assistant and other programs.
(e) The Company, its Subsidiaries, and its schools have secured all
requisite approvals from the schools' accrediting agencies and the states in
which the schools are located to consummate the transaction provided for in this
Agreement and in the Stockholders' Agreement or, in the event that approval has
not been secured, have reasonably determined that no such approval is required.
4.28. No Undisclosed Liabilities. Except as, and to the extent, reserved
--------------------------
for in the
19
<PAGE>
Financial Statements and the notes thereto or as set forth on Schedule 4.28
attached hereto and made a part hereof or in any filings with the Securities
and Exchange Commission (the "SEC"), to the Company's Knowledge, the Company
does not on the date hereof have any material liabilities or obligations,
whether accrued, absolute or contingent, determined or undetermined, or whether
due or to become due, nor, to the Company's Knowledge, does any basis exist for
such liabilities or obligations other than those incurred in the ordinary course
of business since December 31, 1996.
4.29. Licenses and Permits. Schedule 4.29 attached hereto and made a part
--------------------
hereof is a complete list of all governmental licenses and permits and other
governmental authorizations and approvals required for the conduct of the
Business as presently conducted (collectively, the "Permits").
4.30 U.S. Department of Education Certification and Eligibility
----------------------------------------------------------
(a) Schedule 4.30(a) contains a complete and accurate statement of
---------------
the U.S. Department of Education certification and eligibility status for each
of the schools owned by the Company and its Subsidiaries, including the date
that certification was last granted and the current terms of certification. Each
of the schools listed on Schedule 4.30(a) is certified by the U.S. Department of
---------------
Education to participate in all programs authorized by the Higher Education Act
of 1965, as amended (the "Higher Education Act"). None of the schools are
--------------------
subject to limitation, suspension or termination proceedings, or subject to any
other action or proceeding by the U.S. Department of Education that would likely
result in the loss of certification or eligibility or a material liability or
fine. To the Company's Knowledge, there are no facts, circumstances, or
omissions concerning their schools that would likely lead to such an action by
the U.S. Department of Education.
(b) The Company and its Subsidiaries have accurately and completely
disclosed to the U.S. Department of Education the ownership interests in all of
the schools and have secured all requisite approvals for such ownership; based
upon the Letter of Steven Z. Finley of the Office of General Counsel at the
Department of Education dated February 14, 1997 to Mark L. Pelesh, the
consummation of the transactions provided for in this Agreement and in the
Stockholders' Agreement do not require the approval of the Department of
Education.
(c) Each of the schools listed on Schedule 4.30(a) is in material
----------------
compliance with all rules, regulations and requirements established by the U.S.
Department of Education pertaining to each school's eligibility and
participation in Title IV of the Higher Education Act and other federal student
financial aid funding programs set forth at 34 C.F.R. (S)(S)600 et seq. The
Company does not have Knowledge of facts, circumstances, or omissions concerning
the schools that would likely result in a finding of material non-compliance
with regard to such rules, regulations and requirements. Without limiting the
foregoing, the Company, its Subsidiaries and its schools also represent that:
20
<PAGE>
(1) Each of the schools satisfies the standards of financial
responsibility and administrative capability, as established by the U.S.
Department of Education and as set forth at 34 C.F.R. (S)(S) 668.15-668.16,
including all requirements pertaining to satisfactory academic progress.
Further, each program offered by the schools is an eligible program in
accordance with the requirements of 34 C.F.R. (S) 668.8.
(2) Except as set forth on Schedule 4.30(c)(2), each of the
-------------------
schools provides refunds substantially in accordance with applicable state and
federal refund policies and as required pursuant to 34 C.F.R. (S) 668.22. To the
extent that the U.S. Department of Education previously determined that any of
the schools failed to comply with applicable state or federal refund
requirements. Except as set forth on Schedule 4.30(c)(2), the Company and its
-------------------
Subsidiaries have taken or are taking appropriate corrective action to ensure
that all refunds are made in accordance with such requirements, the schools have
satisfied all U.S. Department of Education findings regarding non-compliance
with applicable refund requirements by posting letters of credit in accordance
with 34 C.F.R. (S) 668.15(b)(5), and none of the schools is subject to any
further action or to the imposition of a liability by the U.S. Department of
Education as a result of the school's non-compliance with applicable refund
requirements.
(3) Each of the schools receives no greater than eighty-five
percent (85%) of its revenues from Title IV or other federal student financial
aid funds and satisfies the requirements regarding tuition revenue established
by the Department of Education as set forth at 34 C.F.R. (S) 600.5. Schedule
--------
4.30(c)(3) contains a correct statement of each school's percentage of revenue
- ----------
from such federal funding sources.
(4) The cohort default rates published by the U.S. Department
of Education for fiscal years 1990 through 1994 for the schools of the Company
and its Subsidiaries are listed on Schedule 4.30(c)(4). All rates except for
-------------------
those published for fiscal year 1991 are considered official by the U.S.
Department of Education. Based on the cohort default rates supplied by the
Department for fiscal year 1994, San Diego, Anaheim, and, assuming the use of
the prepublication rates, the San Bernardino schools have cohort default rates
attributed to them of 25% or over for three consecutive years and could be
declared ineligible to participate in Federal Family Education Loan ("FFEL")
----
programs. If the 1991 cohort default rates are certified as official, the
Jacksonville, Portland, Tampa and Miami schools also could be found to have
cohort default rates attributed to them of over 25% for three consecutive years
and could be declared ineligible to participate in the FFEL programs.
----
Notwithstanding the foregoing and with the understanding that the Company does
not have the servicing records for 1994, the Company believes that the cohort
default rate information supplied and published by the Department of Education
with respect to the schools referred to above is erroneous and when corrected
will demonstrate that each of the schools' cohort default rates are within
acceptable thresholds but it has no assurance that such correction will be made.
In addition, the Company, the affected Subsidiaries and the affected schools
have filed, or intend to timely file, all requisite administrative and judicial
actions, challenges, and appeals regarding the veracity of cohort default rates
published by the U.S. Department of Education in those instances in which the
published cohort
21
<PAGE>
default rates for a school exceeds or equals 25%.
(5) Each of the schools has established a default reduction
plan and submitted such plans to the U.S. Department of Education in accordance
with 34 C.F.R. (S)674.6 for Fiscal Years 1995 and 1996.
(6) Each of the schools disburses federal Pell Grant payments
substantially in accordance with procedures that comply with 34 C.F.R.
(S)690.63.
(d) The U.S. Department of Education program reviews and compliance
audits conducted at each of the schools since 1991 have not materially adversely
affected the Company, its Subsidiaries or its schools nor has any program review
or compliance audit resulted in the imposition of any material liability,
financial or otherwise, affecting the Company, its Subsidiaries or its schools,
except as disclosed on Schedule 4.30(d) or Forms 10-K and Forms 10-Q previously
---------------
filed by the Company with the SEC. The Company, its Subsidiaries, and its
schools have substantially complied with all the findings and conditions arising
from the program reviews and compliance audits. To the extent that any program
review or audit remains pending or unresolved. Except as disclosed on Schedule
--------
4.30(d), there are no issues or findings of non-compliance which, to the
- ------
Company's Knowledge would likely result in the loss of certification or
eligibility or a material liability or fine.
SECTION 5
Representations, Warranties and Covenants of the Purchasers
------------------------------------------------------------
Each of the Purchasers (severally and not jointly), hereby represents and
warrants to and agrees with the Company, as follows:
5.1. Accredited Investor; Experience; Risk. Such Purchaser is an
-------------------------------------
accredited investor within the definition of Regulation D of the Securities Act
of 1933 (the "Securities Act"). Such Purchaser has such knowledge and experience
--------------
in financial and business matters that it is capable of evaluating the merits
and risks of the purchase of the Convertible Preferred Stock pursuant to this
Agreement and recognizes that it must bear the economic risk of its investment
in the Convertible Preferred Stock for an indefinite period of time.
5.2. Investment. Such Purchaser is acquiring the Convertible Preferred
----------
Stock for investment purposes only, for its own account and not as a nominee or
agent for any other Person, and not with a view to, or for resale in connection
with, any distribution thereof in violation of applicable law. Such Purchaser
understands that the Convertible Preferred Stock has not been registered under
the Securities Act or applicable state securities laws and that, accordingly,
neither the Convertible Preferred Stock nor the shares of Common Stock issuable
upon conversion thereof will be transferable except upon satisfaction of the
registration and
22
<PAGE>
prospectus delivery requirements of such laws or pursuant to an available
exemption therefrom. Such Purchaser is not acquiring the Convertible Preferred
Stock for purposes of acquiring or changing "control" (as defined in Rule 405 of
the Securities Exchange Act of 1934) of the Company.
5.3. Legends; Opinion Requirement. Such Purchaser hereby agrees with the
----------------------------
Company as follows:
(a) The certificates evidencing the Convertible Preferred Stock and
the shares of Common Stock issuable upon conversion thereof, and each
certificate issued in transfer thereof, will bear the following legend and any
applicable legend required by the Stockholders' Agreement:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION, EXCEPT UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE
AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT
ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER."
(b) If such Purchaser desires to sell or otherwise dispose of all
or any part of the Convertible Preferred Stock or shares of Common Stock
issuable upon conversion thereof owned by it under an exemption from
registration under the Securities Act, and if requested by the Company, such
Purchaser shall deliver to the Company an opinion of counsel, which may be
counsel for the Company, that such exemption is available.
5.4. Authorization. Such Purchaser represents that it has all requisite
-------------
power and authority to enter into and perform its obligations under the
Transaction Documents to which it is a party. Assuming the due authorization,
execution and delivery of the Transaction Documents by each other party thereto,
each Transaction Document to which such Purchaser is a party constitutes a valid
and binding obligation of such Purchaser, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that rights to
indemnification and contribution under this Agreement and the Stockholders'
Agreement may be limited by federal or
23
<PAGE>
state securities laws or public policy relating thereto.
5.5. Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of such Purchaser is
required in connection with the valid execution and delivery by such Purchaser
of the Transaction Documents to which it is a party, or the consummation by such
Purchaser of the transactions contemplated by the Transaction Documents to which
it is a party, except for such filings as have been made prior to the First
Closing.
5.6. Brokers' Fees. No broker, finder, investment banker or other Person
-------------
is entitled to any brokerage fee, finder's fee or other commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by the Purchasers.
SECTION 6
Covenants
---------
6.1. Access to Information. The Company agrees that, after the First
---------------------
Closing Date, the Purchasers shall be entitled, through their respective
officers, employees and representatives (including, without limitation, their
respective legal advisors and accountants), to make such investigation of the
properties, businesses and operations of the Company and its Subsidiaries and
such examination of the books, records and financial condition of the Company
and its Subsidiaries as the Purchasers reasonably request and to make extracts
and copies of such books and records. Any such investigation and examination
shall be conducted during regular business hours and under reasonable
circumstances, and the Company shall cooperate, and shall cause its Subsidiaries
to cooperate, fully therein. No investigation by the Purchasers prior to or
after the date of this Agreement shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Company contained in
this Agreement or in any certificates, instruments or other documents delivered
by the Company or its representatives to the Purchasers in connection with this
Agreement or the transactions contemplated hereby. In order that the Purchasers
may have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as any of them may reasonably request of
the affairs of the Company and its Subsidiaries, the Company shall cause the
officers, employees, consultants, agents, accountants, attorneys and other
representatives of the Company and its Subsidiaries to cooperate fully with such
representatives in connection with such review and examination.
6.2. Publicity. Neither the Company nor the Purchasers shall issue any
---------
press release or public announcement concerning this Agreement or the
transactions contemplated hereby without obtaining the prior written approval of
the other parties hereto, which approval will not be unreasonably withheld or
delayed, unless disclosure is otherwise required by applicable law, provided
that, to the extent required by applicable law, the party intending to make such
release
24
<PAGE>
shall use its best efforts consistent with such applicable law to consult with
the other parties hereto with respect to the text thereof.
6.3. Register of Securities. The Company or its duly appointed agent
----------------------
shall maintain a separate register for the shares of the Company's Convertible
Preferred Stock and Common Stock, in which it shall register the issue and sale
of all such shares. All transfers of such securities shall be recorded on the
register maintained by the Company or its agent, and the Company shall be
entitled to regard the registered holder of such securities as the actual holder
of the securities so registered until the Company or its agent is required to
record a transfer of such securities on its register. Subject to Section 5.3
the Company or its agent shall be required to record any such transfer when it
receives such security to be transferred duly and properly endorsed by the
registered holder thereof or by its attorney duly authorized in writing.
6.4. Removal of Legend. Subject to any contrary rule, regulation or
-----------------
advice of the SEC or its staff, any legend endorsed on a certificate pursuant to
Section 5.3 and any stop transfer instructions and record notations with respect
thereto shall be removed and the Company shall issue a certificate without such
legend to the holder thereof at such time as (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) such securities shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, or (iii) such securities are otherwise sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(l) thereof so that all transfer restrictions
with respect to such securities are removed upon the consummation of such sale
and the seller of such securities provides the Company an opinion of counsel
(which may be counsel for the Company), which shall be in form and content
reasonably satisfactory to the Company, to the effect that such securities in
the hands of the purchaser thereof are freely transferable without restriction
or registration under the Securities Act in any public or private transaction.
SECTION 7
Conditions to Closing of Purchasers
-----------------------------------
Each Purchaser's obligation to purchase the Convertible Preferred Stock at
each of the Closings is, at the option of such Purchaser, subject to the
fulfillment on or prior to each of the Closing Dates of the following
conditions:
7.1. Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 4 hereof shall be true and correct
when made, and shall be true and correct on each of the Closing Dates with the
same force and effect as if they had been made on and as of such date.
25
<PAGE>
7.2. Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to each of the Closing
Dates shall have been performed or complied with in all material respects.
7.3. Opinion of Company's Counsel. The Purchasers shall have received
----------------------------
from Bryan Cave, L.L.P., counsel to the Company, an opinion addressed to the
Purchasers, dated the First Closing Date, in substantially the form of Exhibit F
hereto.
7.4. No Material Adverse Change. Since December 31, 1996, there shall
--------------------------
not have occurred any events or circumstances that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
7.5. Certificate of Designation. The Certificate of Designation shall
--------------------------
have been duly adopted and executed by the Company and filed with the Delaware
Secretary of State.
7.6. Stockholders' Agreement. The Stockholders' Agreement shall have
-----------------------
been executed and delivered by all the parties thereto. All such action shall
have been taken as may be necessary to elect a Board of Directors of the
Company, effective upon the First Closing, in accordance with the Stockholders'
Agreement.
7.7. State Securities Laws. All registrations, qualifications and
---------------------
Permits required under applicable state securities laws, if any, shall have been
obtained for the lawful execution, delivery and performance of this Agreement.
7.8. CenCor Obligations. The Company shall have executed appropriate
------------------
legal documentation and releases, on terms reasonably satisfactory to the
Purchasers, redeeming, retiring and repaying all of the Company's obligations to
CenCor on terms substantially in the form of the Fourth Amendment to the
Restructuring, Security and Guaranty Agreement, dated December 30, 1996.
7.9. Issuance of Shares. At the First Closing, the Company shall be
------------------
prepared to issue 42,647 shares of Convertible Preferred Stock pursuant to this
Agreement. At the Second Closing, the Company shall be prepared to issue 12,500
shares of Convertible Preferred Stock pursuant to this Agreement.
7.10. Certificates. Each of the Purchasers shall have received a
------------
certificate of the President or a Vice President of the Company to the effect
set forth in Sections 7.1, 7.2, 7.4, 7.6 and 7.8.
7.11. Debenture and Warrant Purchase Agreements. The Debenture and
-----------------------------------------
Warrant Purchase Agreements shall have been executed and delivered by all the
parties thereto.
7.12. Debentures and Warrants. The Company shall be prepared to issue the
-----------------------
Debentures
26
<PAGE>
and Warrants pursuant to the Debenture Purchase Agreements, of even date
herewith, between the Company and Purchasers.
7.13. Registration Rights Agreement. The Registration Rights Agreement,
-----------------------------
of even date herewith, between the Company and Purchasers, shall have been
executed and delivered by all the parties thereto.
SECTION 8
Conditions to Closing of the Company
------------------------------------
The Company's obligation to issue and sell the Convertible Stock at each of
the Closing is, at the option of the Company, subject to the fulfillment of the
following conditions:
8.1. Representations. The representations and warranties made by each
---------------
Purchaser in Section 5 hereof shall be true and correct when made, and shall be
true and correct on each of the Closing Dates with the same force and effect as
if they had been made on and as of such date.
8.2. Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Purchasers on or prior to each of the
Closing Dates shall have been performed or complied with in all respects.
8.3. Stockholders' Agreement. The Stockholders' Agreement shall have
-----------------------
been executed and delivered by all other parties thereto. All such action shall
have been taken as may be necessary to elect a Board of Directors of the
Company, effective upon the First Closing, in accordance with the Stockholders'
Agreement.
8.4. Opinion of Purchasers' Counsel. The Company shall have received
------------------------------
from Wilmer, Cutler & Pickering, counsel to the Purchasers, an opinion addressed
to the Company, dated the First Closing Date, in substantially the form of
Exhibit H hereto.
8.5. No Material Adverse Change. Since December 31, 1996, there shall
--------------------------
not have occurred any events or circumstances that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
8.6. State Securities Laws. All registrations, qualifications and Permits
---------------------
required under applicable state securities laws, if any, shall have been
obtained for the lawful execution, delivery and performance of this Agreement.
8.7. Purchase Price. At the First Closing, the Purchasers shall have
--------------
tendered the purchase price for the Convertible Preferred Stock of One Million
One Hundred Sixty Thousand
27
<PAGE>
Dollars ($1,160,000). At the Second Closing, the Purchasers shall have
tendered the purchase price for the Convertible Preferred Stock of Three Hundred
Forty Thousand Dollars ($340,000).
8.8. Certificate. The Company shall have received a certificate from the
-----------
Purchasers to the effect set forth in Sections 8.1 and 8.2.
8.9. Debenture and Warrant Purchase Agreements. The Debenture and
-----------------------------------------
Warrant Purchase Agreements, of even date herewith, between the Company and
Purchasers, shall have been executed and delivered by all the parties thereto.
8.10. Registration Rights Agreement. The Registration Rights Agreement,
-----------------------------
of even date herewith, between the Company and Purchasers, shall have been
executed and delivered by all the parties thereto.
SECTION 9
Covenants of the Company
------------------------
9.1. Information. The Company covenants and agrees that so long as the
-----------
Purchasers own of the shares of Convertible Preferred Stock or shares of Common
Stock into which any such shares of Convertible Preferred Stock shall have been
converted, the Company shall deliver to such Purchaser the information specified
in this Section 9.1 unless any such Purchaser at any time specifically requests
that such information not be delivered to it.
(a) Monthly Financial Statements. As soon as available, but in any
----------------------------
event not later than forty-five (45) days after the end of each monthly fiscal
period (other than the last monthly fiscal period of the fourth fiscal quarter
of the Company), the unaudited consolidated balance sheet of the Company and its
Subsidiaries as at the end of each such period and the related unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such period and for the elapsed period in such fiscal year, all
in reasonable detail and stating in comparative form (i) the figures as of the
end of and for the comparable periods of the preceding fiscal year and (ii) the
figures reflected in the operating budget for such period as specified in the
financial plan of the Company delivered pursuant to Section 9.1(e) hereof. All
such financial statements shall be prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods reflected therein except as stated therein and shall be accompanied by a
certificate of the Company's president or chief financial officer to such
effect.
(b) Material Litigation. Within ten (10) days after the Company
-------------------
learns of the commencement or written threat of commencement of any litigation
or proceeding against the Company or any of its Subsidiaries or any of their
respective assets that would likely be expected to have a Material Adverse
Effect, written notice of the nature and extent of such litigation or
28
<PAGE>
proceeding.
(c) Material Agreements. Within five (5) days after the receipt by
-------------------
the Company of written notice of the occurrence of a default by the Company or
any of its Subsidiaries under any material contract, agreement or document to
which it is a party or by which it is bound, written notice of the nature and
extent of such default.
(d) Other Reports and Statements. Promptly (but in any event within
----------------------------
ten (10) days) after any distribution to its stockholders generally, to its
directors or to the financial community of an annual report, definitive proxy
statement, registration statement or other similar report or communication, a
copy of each such annual report, proxy statement, registration statement or
other similar report or communication and promptly (but in any event within ten
(10) days) after any filing by the Company with the SEC or with any national
securities exchange, of any publicly available annual or periodic or special
report or proxy statement or registration statement, a copy of such report or
statement and copies of all press releases and other statements made available
generally by the Company to the public concerning material developments in the
Company's business.
(e) Budgets. As soon as available, but in any event not later than
-------
thirty (30) days prior to the beginning of each fiscal year of the Company, the
financial plan of the Company for such fiscal year, including, without
limitation, a cash flow projection and operating budget, calculated monthly, as
contained in its operating plan approved by the Company's Board of Directors as
well as any updates or revisions to such plan as soon as available.
(f) Accountants' Management Letters, Etc. Promptly after receipt by
------------------------------------
the Company, copies of all accountants' management letters and all management
and board responses to such letters, and copies of all certificates as to
compliance, defaults, material adverse changes, material litigation or similar
matters relating to the Company and its Subsidiaries, which shall be prepared by
the Company or its officers and delivered to the third parties.
(g) Stockholders' Lists. As prepared in connection with the
-------------------
Company's proxy solicitation for its annual meeting of shareholders each year
and as soon as practicable after preparation thereof:
(i) a list of stockholders as of the record date for such
meeting, as prepared by the Company's transfer agent,
showing the names and addresses of stockholders of
record and number of shares of Common Stock held; and
(ii) one or more tables of lists identifying:
(A) any grants of options or stock appreciation or
similar rights in the last fiscal year as required by Item
402(c) of
29
<PAGE>
Regulation S-K;
(B) any exercise of options or stock appreciation or
similar rights in the last fiscal year as required by Item
402(d) of Regulation S-K; and
(C) any repricing of options or stock appreciation or
similar rights in the last fiscal year as required by Item
402(k) of Regulation S-K.
In addition, a list as of December 31 of the previous fiscal year of any grants,
exercises, conversions or repricing of warrants or convertible securities of the
Company (not described in subparagraph (ii) above) in the last fiscal year, and
the name of each holder thereof together with the amount of such security held
and the issuance and exercise price thereof.
(h) Other Information and Access. From time to time, and promptly,
----------------------------
such additional information regarding results of operations, financial condition
or business of the Company and its Subsidiaries, including, without limitation,
cash flow analyses, projections and minutes of any meetings of the Board of
Directors, as the Purchasers may reasonably request, and access, at reasonable
times and on reasonable prior notice, to the books, records and properties of
the Company and its Subsidiaries, provided that Purchaser and its
representatives execute and deliver to the Company an appropriate
confidentiality agreement relating thereto.
9.2. Additional Agreements.
---------------------
(a) Rule 144. If the Company shall have filed a registration
--------
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company will timely file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder, to the extent required from time to time to enable each
Purchaser to sell shares of Convertible Preferred Stock and the shares of Common
Stock into which the Convertible Preferred Stock may be converted without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Purchaser, the Company will deliver a written
statement as to whether it has complied with such requirements.
(b) Rule 144A Information. The Company will, as promptly as
---------------------
practicable after, but in any event within thirty (30) days after, a written
request from any Purchaser provide the information required in Rule 144A(d)(4)
under the Securities Act to such Purchaser and any Person designated by any
Purchaser to the Company as a prospective buyer in a transaction pursuant to
Rule 144A.
30
<PAGE>
(c) Transaction with Affiliates. Except for employee or director
---------------------------
compensation, stock bonus, stock option or similar plans or arrangements
approved by the Board of Directors, neither the Company nor any Subsidiary of
the Company shall, directly or indirectly, enter into any transaction or
agreement with any holder of five percent (5%) or more of any class of capital
stock of the Company or with any Affiliate of the Company or of any such
stockholder or extend or modify any existing agreement with any such stockholder
or Affiliate, unless the transaction or agreement is reviewed and approved by a
majority of the disinterested directors of the Board of Directors of the
Company.
(d) Publicity. Except as may be required by law, the Company shall
---------
not use the name of, or make reference to, any Purchaser or any of its
Affiliates in any press release or in any public manner without such Purchaser's
prior written consent.
SECTION 10
Miscellaneous
-------------
10.1. Amendment; Waiver. Neither this Agreement nor any provision hereof
-----------------
may be amended, modified, supplemented or waived, except by a written instrument
executed by (i) the Company and (ii) the Purchasers holding a majority in
interest of the Convertible Preferred Stock issued and sold pursuant to this
Agreement and the shares of Common Stock issuable upon conversion thereof.
10.2. Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if in writing and delivered in Person,
transmitted by facsimile transmission (fax) or sent by registered or certified
mail (return receipt requested) or recognized overnight delivery service,
postage pre-paid, addressed as follows, or to such other address has such party
may notify to the other parties in writing:
(a) if to the Company:
Concorde Career Colleges, Inc.
1100 Main Street
Suite 416
Kansas City, MO 64105
Attn: Jack L. Brozman
Facsimile No.: (816) 474-7610
with a copy to:
31
<PAGE>
Bryan Cave, L.L.P.
7500 College Boulevard
Suite 1100
Overland Park, KS 66210-4035
Attn: Thomas W. Van Dyke
Facsimile No.: (913) 338-7777
(b) if to the Purchasers:
c/o Cahill, Warnock & Company
One South Street, Suite 2150
Baltimore, Maryland 21202
Attn: David L. Warnock
Facsimile No.: (410) 895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: John B. Watkins, Esq.
Facsimile No.: (410) 986-2828.
A notice or communication will be effective (i) if delivered in Person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three (3) business
days after dispatch.
10.3. Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of any Purchaser, and the sale
and purchase of the Convertible Preferred Stock and payment therefor for a
period of two (2) years; provided, however, that the representations and
warranties made in Section 4.22 (Taxes) shall survive the applicable statutory
period of limitations with respect to any liabilities covered thereby.
10.4. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
32
<PAGE>
10.5. Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and assigns of the parties hereto, including, without limitation,
each transferee of all or any portion of the Convertible Preferred Stock. No
party hereto may assign its rights or delegate its obligations under this
Agreement without the prior written consent of the other parties hereto.
10.6. Entire Agreement. This Agreement and the other documents delivered
----------------
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subject matter hereof and thereof and
supersede and cancel all prior representations, alleged warranties, statements,
negotiations, undertakings, letters, acceptances, understandings, contracts and
communications, whether verbal or written, among the parties hereto and thereto
or their respective agents with respect to or in connection with the subject
matter hereof.
10.7. Choice of Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of Delaware, without regard to
principles of conflict of laws.
10.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
10.9. Costs and Expenses. The Company shall pay (i) all reasonable out-
------------------
of-pocket expenses (including legal fees) incurred by Purchasers in connection
with the negotiation of the Transaction Documents, up to a maximum of $25,000,
plus (ii) the reasonable legal fees and expenses incurred by Wilmer, Cutler &
Pickering for the period on or after February 10, 1997 in connection with the
preparation, execution and delivery of the Transaction Documents.
10.10. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the
Purchasers and their Affiliates, and their respective partners, co-investors,
officers, directors, employees, agents, consultants, attorneys and advisers
(each, an "Indemnified Party"), from and against any and all actual losses,
-----------------
claims, damages, liabilities, costs and expenses (including, without limitation,
environmental liabilities, costs and expenses and all reasonable fees, expenses
and disbursements of counsel), joint or several (hereinafter collectively
referred to as a "Loss"), which may be incurred by or asserted or awarded
----
against any Indemnified Party in connection with or in any manner arising out of
or relating to any investigation, litigation or proceeding or the preparation of
any defense with respect thereto, arising out of or in connection with or
relating to this Agreement, the other Transaction Documents or the transactions
contemplated hereby or thereby or any use made or proposal to be made with the
proceeds of the Purchasers' purchase of the Convertible Preferred Stock pursuant
to this Agreement, whether or not such investigation, litigation or proceeding
is brought by the Company, any of its Subsidiaries, shareholders or
33
<PAGE>
creditors, whether or not any of the transactions contemplated by this Agreement
or the other Transaction Documents are consummated, except to the extent such
Loss is found in a final judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
(b) An Indemnified Party shall give written notice to the Company
of any claim with respect to which it seeks indemnification within ten (10) days
after the discovery by such parties of any matters giving arise to a claim for
indemnification pursuant to Section 10.10(a); provided that the failure of any
--------
Indemnified Party to give notice as provided herein shall not relieve the
Company of its obligations under this Section 10.10, except to the extent that
the Company is actually prejudiced by such failure to give notice. In case any
such action or claim is brought against any Indemnified Party, the Company shall
be entitled to participate in and, unless in the reasonable good faith judgment
of the Indemnified Party a conflict of interest between such Indemnified Party
and the Company may exist in respect of such action or claim, to assume the
defense thereof, with counsel satisfactory to the Indemnified Party and after
notice from the Company to the Indemnified Party of its election so to assume
the defense thereof, the Company shall not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. In any event, unless and until the Company elects in writing to
assume and does so assume the defense of any such action or claim the
Indemnified Party's costs and expenses arising out of the defense, settlement or
compromise of any such action or claim shall be Losses subject to
indemnification hereunder. If the Company elects to defend any such action or
claim, then the Indemnified Party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense. The Company
shall not be liable for any settlement of any action or claim effected without
its written consent. Anything in this Section 10.10 to the contrary
notwithstanding, the Company shall not, without the Indemnified Party's prior
written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof that imposes any future obligation on the
Indemnified Party or that does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the Indemnified Party, a release
from all liability in respect of such claim.
(c) Purchaser hereby agrees to indemnify and hold harmless the
Company and its respective directors, officers, affiliates, attorneys or
advisers (the "Company Group") from and against any Loss sustained, incurred,
------------------
paid or required to be paid by any of the Company Group which arises out of the
inaccuracy or breach by Purchaser of any representation or warranty contained in
this Agreement.
10.11. Limits on Liability.
-------------------
The Company agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract, tort or otherwise) to the Company or
any of its Subsidiaries, shareholders or creditors, for or in connection with
the transactions contemplated by this Agreement or the other Transaction
Documents, except to the extent such liability is found in a final judgment by a
court
34
<PAGE>
of competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct or the misrepresentations of the Indemnified
Party, but in no event shall an Indemnified Party be liable for punitive,
exemplary or consequential damages. The maximum aggregate liability under and
with respect to this Agreement, the transactions contemplated hereby, or any
claims associated herewith shall be One Million Five Hundred Thousand Dollars
($1,500,000) plus reasonable attorneys' fees. The foregoing limitation on
indemnification shall not apply with respect to any claim for intentional fraud.
10.12. No Third-Party Beneficiaries.
----------------------------
Nothing in this Agreement will confer any third party beneficiary or other
rights upon any person (specifically including any employees of the Company and
its Subsidiaries) or entity that is not a party to this Agreement.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
35
<PAGE>
CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed effective as of the date first above written.
CONCORDE CAREER COLLEGES, INC.
By:_______________________________________________
Name: Jack L. Brozman
Title: President and Chief Executive Officer
CAHILL, WARNOCK PURCHASERS:
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By:_______________________________________________
Name: David L. Warnock
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC, its
General Partner
By:_______________________________________________
Name: David L. Warnock
Title: Managing Member
36
<PAGE>
Exhibit B
---------
<TABLE>
<CAPTION>
Name Total Number of Shares Total Cost
- ---- ---------------------- ----------
<S> <C> <C>
Cahill, Warnock Strategic
Partners Fund, L.P. 52,252 $1,421,255
Strategic Associates, L.P. 2,895 $ 78,744
</TABLE>
<PAGE>
Schedule 3.2
------------
<TABLE>
<CAPTION>
FIRST CLOSING NUMBER OF SHARES PURCHASE PRICE
<S> <C> <C>
Cahill, Warnock Strategic 39,752 $1,081,255
Partners Fund, L.P.
Strategic Associates, L.P. 2,895 $ 78,744
SECOND CLOSING
Cahill, Warnock Strategic 12,500 $ 340,000
Partners Fund, L.P.
</TABLE>
<PAGE>
AMENDMENT NO. 1
TO
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Amendment No. 1 (this "Amendment") is dated March 20, 1997 and is by
and among the Concorde Career Colleges, Inc. ("Concorde"), Cahill, Warnock
Strategic Partners Fund, L.P. ("Partners"), Strategic Associates, L.P.
("Associates") and James R. Seward ("Seward") and amends that certain
Convertible Preferred Stock Purchase Agreement dated as of February 25, 1997 by
and among Concorde, Partners and Associates (the "Agreement"). Capitalized terms
used and otherwise defined herein shall have the meanings ascribed to them in
the Agreement.
RECITALS
WHEREAS, the Agreement provides, among other things, for the issuance and
sale by Concorde, and the purchase by Partners, of 12,500 shares (the "Shares")
of Concorde's Class B Convertible Preferred Stock, par value $0.10 per share
(the "Preferred Stock") at the Second Closing;
WHEREAS, Partners desires to assign to Seward its right to purchase, at the
Second Closing, 1,838 shares of Preferred Stock (the "Seward Shares") of the
12,500 Shares, thereby reserving to Partners the right to purchase 10,662 shares
of Preferred Stock (the "Partners Shares") at the Second Closing, and Seward
desires to accept and Concorde desires to consent to such assignment (the
"Assignment");
WHEREAS, the parties hereto each desire to amend the Agreement to divide
the purchase of the Shares between Partners and Seward, on the terms and
conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Consent to Assignment. Concorde hereby consents to the Assignment as
required to Section 10.5 of the Agreement.
2. Seward as a Purchaser. Seward shall be deemed a "Purchaser", solely
and exclusively for purposes of the Second Closing, under Sections 2.2, 3, 5,
7.9, 8.1, 8.7 and 10 of the Agreement, as if he were an original party to, and
included within the definition of "Purchaser" under, the Agreement.
3. Waiver of Affiliate Transaction. Partners, Associates and Concorde
hereby waive the application of the provisions of Section 9.2(c) of the
Agreement for purposes of
<PAGE>
the Assignment, the purchase and sale of the Seward Shares and the provisions of
and transactions contemplated by this Amendment.
4. Amendment to Schedule 3.2. Schedule 3.2 of the Agreement is hereby
amended, with respect only to the Second Closing described therein, as follows:
<TABLE>
<S> <C> <C>
Second Closing Number of Shares Purchase Price
Cahill, Warnock, Strategic 10,662 $290,006.40
Partners Fund, L.P.
James R. Seward 1,838 $ 49,993.60
</TABLE>
5. Stockholders' Agreement. Seward shall execute and deliver the certain
Agreement dated of even date herewith regarding his being subject and entitled
to, and obligated to comply with and be bound by, certain provisions of the
Stockholders' Agreement dated as of February 25, 1997 by and among Concorde,
Partners, Associates and certain other parties signatory thereto.
6. Miscellaneous. Sections 10.3 through and including 10.8 of the
Agreement are incorporated herein by reference.
7. Agreement Remains in Force. Except as specifically amended or
addressed hereby, all of the provisions, terms and conditions of the Agreement
shall remain in full force and effect.
[signatures follow on next page]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment by persons
thereunto duly authorized as of the date first written above.
CONCORDE CAREER COLLEGES, INC.
By:
------------------------------------
Jack L. Brozman
President
CAHILL, WARNOCK STRATEGIC PARTNERS
FUND, L.P.
By: Cahill Warnock Strategic Partners, L.P.,
its general partner
By:
--------------------------------
David L. Warnock
A General Partner
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Company, L.L.C.,
its general partner
By:
--------------------------------
David L. Warnock
Managing Member
----------------------------------------
James R. Seward
3
<PAGE>
EXECUTION COPY
________________________________________________________________________________
SUBORDINATED DEBENTURE AND
WARRANT PURCHASE AGREEMENT
DATED AS OF FEBRUARY 25, 1997
BY AND BETWEEN
CONCORDE CAREER COLLEGES, INC.
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
________________________________________________________________________________
<PAGE>
<TABLE>
<S> <C>
SECTION 1
Authorization, Purchase and Sale of Debenture. Issuance of warrant.............. 1
------------------------------------------------------------------
1.1 Authorization of the Debenture........................................ 1
------------------------------
1.2 Authorization of the Warrant.......................................... 1
-----------------------------
1.3 Purchase and Sale of Debenture........................................ 1
-------------------------------
1.4 Issuance of Warrants................................................. 2
----------------------
SECTION 2
Certain Terms of the Debenture and Warrant...................................... 2
------------------------------------------
2.1 Certain Terms of the Debenture........................................ 2
------------------------------
2.2 Certain Terms of the Warrants......................................... 3
-----------------------------
2.3 Replacement of Debenture or Warrant................................... 3
-----------------------------------
2.4 Registration, etc..................................................... 3
-----------------
SECTION 3
Conditions to Purchaser's Obligation............................................ 4
------------------------------------
3.1 Preferred Stock Transfer.............................................. 4
------------------------
3.2 Registration Rights Agreement......................................... 4
-----------------------------
3.3 Certificate that Representations True at.............................. 4
Closing.
--------
3.4 Covenants of the Company.............................................. 4
------------------------
3.5 No Injunction......................................................... 4
-------------
3.6 Approvals............................................................. 5
---------
3.7 Opinion of Seller's Counsel........................................... 5
---------------------------
SECTION 4
Conditions to Company's Obligations............................................. 5
-----------------------------------
4.1. Preferred Stock Transfer.............................................. 5
------------------------
4.2 Certificate That Representations True at Closing...................... 5
------------------------------------------------
4.3 Covenants of Purchaser................................................ 5
----------------------------------------------
4.4 No Injunction......................................................... 5
----------------------------------------------
4.5 Opinion of Purchaser's Counsel........................................ 6
----------------------------------------------
SECTION 5
Representations and Warranties of the Company................................... 6
---------------------------------------------
5.1 Authority; Validity................................................... 6
-------------------
5.2 No Conflicts.......................................................... 6
------------
5.3 Consents and Approvals............................................... 6
-----------------------
5.4 Representations and Warranties Regarding the Company................. 6
----------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.5 Accuracy of Information.............................................. 7
-----------------------
SECTION 6
Representations and Warranties of Purchaser..................................... 7
-------------------------------------------
6.1 Authority............................................................ 7
---------
6.2 No Conflicts......................................................... 7
------------
6.3 Investment Representations........................................... 7
--------------------------
SECTION 7
Events of Default.............................................................. 8
------------------
7.1 Events of Default.................................................... 8
-----------------
7.2 Annulment of Defaults................................................ 9
---------------------
SECTION 8
Covenants of the Company........................................................ 10
------------------------
8.1 General Covenants of the Company..................................... 10
--------------------------------
SECTION 9
Subordination of Debentures..................................................... 14
---------------------------
9.1 Subordinate to Senior Indebtedness................................... 14
----------------------------------
9.2 Payment Over of Proceeds Upon Dissolution, Liquidation, Etc. of the 14
Company.............................................................. 14
-------
9.3 Subrogation to Rights of Holders of Senior
Indebtedness......................................................... 14
------------
9.4 No Payment on Debentures When Senior
Indebtedness in Default.............................................. 14
-----------------------
9.5 Definition of Senior Indebtedness.................................... 14
---------------------------------
SECTION 10
Miscellaneous................................................................... 15
-------------
10.1 Indemnification...................................................... 15
---------------
10.2 No Waiver; Cumulative Remedies....................................... 15
------------------------------
10.3 Amendments, Waiver and Consents...................................... 15
-------------------------------
10.4 Notices.............................................................. 16
-------
10.5 Costs and Expenses................................................... 17
------------------
10.6 Binding Effect; Assignment........................................... 17
--------------------------
10.7 Survival of Representations and Warranties........................... 17
------------------------------------------
10.8 Prior Agreements..................................................... 17
----------------
10.9 Governing Law........................................................ 17
-------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.10 Headings............................................................. 17
--------
10.11 Counterparts......................................................... 18
------------
10.12 Further Assurances................................................... 18
------------------
</TABLE>
<PAGE>
SUBORDINATED DEBENTURE AND WARRANT PURCHASE AGREEMENT
THIS SUBORDINATED DEBENTURE AND WARRANT PURCHASE AGREEMENT (the "Debenture
---------
Agreement") is made as of February 25, 1997, by and between CONCORDE CAREER
- ---------
COLLEGES, INC., a Delaware corporation (the "Company") and CAHILL, WARNOCK
-------
STRATEGIC PARTNERS FUND, L.P., a limited partnership organized under the laws of
the State of Delaware (the "Purchaser").
---------
WHEREAS, the Company has agreed to issue 52,252 shares of the Company's
Class B Voting Convertible Preferred Stock, par value $0.10 per share, to the
Purchaser pursuant to the Convertible Preferred Stock Purchase Agreement, of
even date herewith, between the Company and Purchaser (the "Preferred
---------
Agreement");
- ---------
WHEREAS, the Company wishes to sell to Purchaser, and Purchaser wishes to
purchase from the Company, the Company's Debenture and non-detachable Warrant;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale
of Debenture; Issuance of Warrant
---------------------------------
1.1 Authorization of the Debenture. The Company has authorized the
------------------------------
issuance and sale to Purchaser of the Company's Debenture in the original
principal amount of Three Million Three Hundred Sixteen Thousand Two Hundred
Fifty Dollars ($3,316,250). Such Debenture shall be substantially in the form
set forth as Exhibit 1.1 (the "Debenture"). The Debenture shall be repayable at
------- ---------
the times and under the terms and conditions specified therein.
1.2 Authorization of the Warrant. The Company has authorized the
----------------------------
issuance of a Warrant as part of the consideration for the loan evidenced by the
Debenture. The Warrant entitles Purchaser to purchase an aggregate of 2,438,419
shares of the Company's Common Stock, at an exercise price of $1.36 per share,
subject to any adjustment as set forth in Section 3.3 of the Warrant. The
Warrant shall be substantially in the form set forth as Exhibit 1.2 (the
-------
"Warrant"). The Company has reserved a sufficient number of shares of Common
-------
Stock for issuance upon exercise of the Warrant. (The shares of Common Stock
issuable upon exercise of the Warrant are referred to as the "Warrant Shares.")
--------------
1.3 Purchase and Sale of Debenture.
------------------------------
(a) The Closing. The Company agrees to issue and sell to Purchaser,
-----------
and subject to and in reliance upon the representations, warranties, terms and
conditions of this
<PAGE>
Agreement, Purchaser agrees to purchase, the Debenture for the purchase price
(the "Purchase Price") of Three Million Three Hundred Sixteen Thousand Two
--------------
Hundred Fifty Dollars ($3,316,250). Such purchase and sale shall take place at
a closing (the "Closing") to be held by exchange of documents on February 25,
1997, or on such other date as may be mutually agreed, at the offices of Bryan
Cave LLP, One Kansas City Place, Suite 3500, Kansas City, Missouri (the date of
such Closing is the "Closing Date"). At the Closing, the Company will issue to
------------
Purchaser the Debenture. At the Closing, Purchaser will deliver to the Company,
by wire transfer of immediately available funds to an account designated by the
Company by written notice to Purchaser, the Purchase Price.
(b) Use of Proceeds. The Company agrees to use the full proceeds, to
---------------
the extent required, from the sale of the Debenture to settle, redeem, and
release its financial obligations to CenCor, Inc. ("CenCor"), pursuant to the
Fourth Amendment to the Restructuring, Security and Guaranty Agreement, dated
December 30, 1996, by and among CenCor, the Company and certain of the Company's
affiliates (the "CenCor Obligations").
------------------
1.4 Issuance of Warrants. At the Closing, the Company agrees to issue
---------------------
to Purchaser, as part of the consideration for the loan evidenced by the
Debenture, the Warrant substantially in the form as set forth in Exhibit 1.2.
-------
SECTION 2
Certain Terms of the Debenture and Warrant
------------------------------------------
2.1 Certain Terms of the Debenture. All principal, interest and amounts
------------------------------
outstanding under the Debenture shall be due and payable in full on February 25,
2003. The Debenture shall bear interest at an annual rate of five percent (5%).
Accrued and unpaid interest shall be due and payable quarterly in arrears on
February 28, May 31, August 31, and November 30 of each year until maturity.
The Debenture may be prepaid or redeemed, in whole or in part, by the Company
prior to maturity, without penalty, with twenty (20) days prior written notice
thereof to the Purchaser. In the event that the Company consummates an
underwritten registered public offering covering the offer and sale of Common
Stock for the account of the Company in which net proceeds to the Company of the
public offering equals or exceeds $15 million (a "Public Offering"), then the
---------------
Company must apply, at the request of Purchaser, the proceeds of such Public
Offering (to the extent available after payment of all Senior Indebtedness (as
defined in Section 9.5)) to prepay the unpaid principal amount and outstanding
interest on the Debenture. Payments of principal and interest on the Debenture
shall be made directly by wire transfer to an account designated by Purchaser by
written notice to the Company or by check duly mailed or delivered to Purchaser
at its address set forth in Section 8.4 of the Agreement. The Debenture (and
any rights of the Purchaser hereunder or related thereto) is non-transferable
except to a person or entity controlled by, or under common control with,
Purchaser. No sinking fund or
2
<PAGE>
similar provision shall be required to fund payment of principal or interest
under the Debenture. Payment of principal and interest on the Debenture is
unsecured.
2.2 Certain Terms of the Warrants. The Warrant shall initially be
-----------------------------
exercisable into 2,438,419 shares of Common Stock. The Warrant shall initially
be exercisable at any time between August 25, 1998 and February 25, 2003,
subject to earlier termination upon redemption of the Debenture (the "Exercise
--------
Period"). The Warrant entitles Holder to purchase an aggregate of 2,438,419
- ------
shares of the Company's Common Stock, at an exercise price ("Exercise Price") of
--------------
$1.36 per share, subject to any adjustments as set forth in Section 3.3 of the
Warrant. During the Exercise Period, in the event that Holder fails to exercise
this Warrant after the Company has provided Holder (i) twenty (20) days prior
written notice of its intention to pay in full and redeem the Debenture on a
particular date (the "Repayment Date"), and (ii) thirty (30) days after the
--------------
Redemption Date within which to exercise this Warrant, then this Warrant shall
terminate and thereafter be null and void. Notwithstanding the preceding
sentence, in the event that the Company repays and redeems the Debenture in full
on or before August 25, 1998, this Warrant shall remain in full force and effect
until September 25, 1998, when it shall then expire. The Warrant may be
exercised in whole or in part by payment in cash, bank cashier's check,
certified check, or, at the option of Purchaser, by reduction in the principal
amount of the Debenture (or forgiveness of any accrued and unpaid interest
thereon), in an amount equal to the exercise price with respect to the Warrant
being exercised. The Warrant shall have an initial exercise price of $1.36 per
share of Common Stock.
2.3 Replacement of Debenture or Warrant. Upon receipt of evidence
-----------------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Debenture or Warrant and, if requested in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond or other agreement or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of such Debenture or Warrant, the Company will
issue a new Debenture or Warrant, of like tenor and amount, in lieu of such
lost, stolen, destroyed or mutilated Debenture or Warrant; provided, however, if
-------- -------
any Debenture or Warrant of which Purchaser, its nominee, or any of its
partners, officers or principals is the registered holder is lost, stolen or
destroyed, the affidavit of such principal or general partner or any principal
or corporate officer of such holder setting forth the circumstances with respect
to such loss, theft or destruction, together with an agreement to indemnify the
Company with respect thereto shall be accepted as satisfactory evidence thereof,
and no bond or other security shall be required as a condition to the execution
and delivery by the Company of a new Debenture or Warrant in replacement of such
lost, stolen or destroyed Debenture or Warrant.
2.4 Registration, etc. The Company shall maintain at its principal
-----------------
office a register with respect to the Debenture and Warrant and shall record
therein the name(s) and address(es) of the respective registered holder(s)
thereof, to which notices are to be sent and the address(es) to which payments
(in the case of the Debenture) are to be made as designated by the registered
holder if other than the address of such holder, and the particulars of all
permitted transfers, exchanges and replacements of the Debenture and Warrant.
Provided that such transfer is
3
<PAGE>
permitted herein, the Company shall record on such register any and all
transfers of the Debenture and Warrant by or for the registered holder or such
holder's executors or administrators or their duly appointed attorney, in form
reasonably satisfactory to the Company, in order to maintain an accurate record
of the holder(s) thereof. Each Debenture and Warrant issued hereunder, whether
originally or upon transfer, exchange or replacement, shall be registered on the
date of execution thereof by the Company. The registered holder of a Debenture
and Warrant issued hereunder shall be that individual, corporation, partnership,
joint venture, trust or unincorporated organization or other entity (a "Person")
------
in whose name the Debenture and Warrant has been so registered by the Company.
A registered holder shall be deemed the owner of a Debenture or Warrant for all
purposes of this Agreement and, subject to the provisions hereof, shall be
entitled to all of the benefits thereof and rights thereunder free from all
equities or rights of set off or counterclaim between the Company and the
transferor of such registered holder or any previous registered holder of such
Debenture or Warrant.
SECTION 3
Conditions to Purchaser's Obligation
------------------------------------
The obligation of Purchaser to purchase and pay for the Debenture at the
Closing is subject to the following conditions, which may be waived by Purchaser
at its sole discretion:
3.1 Preferred Stock Transfer. The Preferred Agreement between the
------------------------
Company and Purchaser shall have been fully executed and the closing of the
transactions provided for therein, including but not limited to the execution of
the Stockholders' Agreement, of even date herewith, by and among the Company,
the Purchaser and other stockholders (the "Stockholders' Agreement"), shall have
-----------------------
closed and be complete prior to or simultaneously with the issuance of the
Debenture and payment therefor.
3.2 Registration Rights Agreement. The Company and Purchaser shall have
-----------------------------
entered into the Registration Rights Agreement substantially in the form set
forth as Exhibit 3.2 hereto.
-------
3.3 Certificate that Representations True at Closing. Purchaser shall
------------------------------------------------
have received the executed certificate of an executive officer of the Company to
the effect that each of the Company's representations and warranties herein and
in any document or instrument delivered to Purchaser hereunder shall be true and
correct on the Closing Date with the same force and effect as though such
representations and warranties had been made again on and as of such time.
3.4 Covenants of the Company. The Company shall have duly performed all
------------------------
of the covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, including but not limited to the closing deliveries required of
it.
4
<PAGE>
3.5 No Injunction. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit, or obtain
substantial damages in respect of, or that is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business of the Company, if such action,
proceeding, investigation, regulation or legislation, in the reasonable judgment
of Purchaser, would make it inadvisable to consummate such transactions.
3.6 Approvals. The execution and the delivery of this Agreement and the
---------
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities whose approvals are required by law and by all third
parties whose approvals are required by an agreement binding upon the Company.
It is acknowledged by all parties that the approval of the Department of
Education is not required to close this transaction.
3.7 Opinion of Seller's Counsel. Purchaser shall have received from
---------------------------
Bryan Cave, LLP, counsel to the Company, an opinion addressed to Purchaser,
dated the Closing Date, in substantially the form of Exhibit A hereto.
SECTION 4
Conditions to Company's Obligations
-----------------------------------
The obligation of the Company to issue and sell the Debenture at the
Closing is subject to the following conditions, which may be waived by the
Company at its sole discretion:
4.1. Preferred Stock Transfer. The Preferred Agreement between the
------------------------
Company and Purchaser shall have been fully executed and the closing of the
transactions provided for therein, including but not limited to the execution of
the Stockholders' Agreement, of even date herewith, by and among the Company,
the Purchaser and other stockholders (the "Stockholders' Agreement"), shall have
-----------------------
closed and be complete prior to or simultaneously with the issuance of the
Debenture and payment therefor.
4.2 Certificate That Representations True at Closing. The Company shall
------------------------------------------------
have received the executed certificate of the Purchaser to the effect that each
of the Purchaser's representations and warranties herein and in any document or
instrument delivered to the Company hereunder shall be true and correct on the
Closing Date with the same force and effect as though such representations and
warranties had been made again on and as of such time.
4.3 Covenants of Purchaser. Purchaser shall have duly performed all of
----------------------
the covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, including but not limited to the closing deliveries required of
it.
5
<PAGE>
4.4 No Injunction. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit, or obtain
substantial damages in respect of, or that is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business of Purchaser, if such action,
proceeding, investigation, regulation or legislation, in the reasonable judgment
of Company, would make it inadvisable to consummate such transactions.
4.5 Opinion of Purchaser's Counsel. Purchaser shall have received from
------------------------------
Wilmer, Cutler & Pickering, counsel to Purchaser, an opinion addressed to the
Company, dated the Closing Date, in substantially the form of Exhibit B hereto.
SECTION 5
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to Purchaser as follows:
5.1 Authority; Validity. The Company has the full legal right, power and
-------------------
authority to enter into this Agreement and to issue the Debenture and Warrant in
accordance with the terms of this Agreement. This Agreement has been duly and
validly executed by the Company and this Agreement, the Debenture and Warrant
constitute legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that rights to
indemnification and contribution under this Agreement may be limited by federal
or state securities laws or public policy thereto.
5.2 No Conflicts. Subject to the repayment and satisfaction of the CenCor
------------
obligations, the execution, delivery and performance of this Agreement, the
Debenture and Warrant and the consummation of the transactions by the Company
contemplated hereby and thereby will not conflict with, violate or result in a
breach or constitute a default under any mortgage, indenture, loan agreement or
other agreement or instrument binding upon the Company, or any order, decree,
statute, ordinance, regulation or other law applicable to the Company.
5.3 Consents and Approvals. Subject to the repayment and satisfaction of
----------------------
the CenCor obligations, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or any
third party is required in connection with the execution, delivery and
performance of this Agreement, the Debenture and Warrant by the Company and the
consummation of the transactions by the Company hereunder.
6
<PAGE>
5.4 Representations and Warranties Regarding the Company. In order to
----------------------------------------------------
induce the Purchasers to enter into this Agreement, the Company hereby
represents and warrants that each of the representations and warranties
regarding the Company set forth in Section 4 of the Preferred Agreement is true,
complete and accurate in all material respects.
5.5 Accuracy of Information. To the knowledge of the executive officers
-----------------------
of the Company, none of this Agreement, the Debenture, the Warrant nor any
certificate, instrument or other agreement (including, but not limited to, the
Preferred Agreement and Stockholders' Agreement) furnished or to be furnished by
or on behalf of the Company, contains or will contain any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
SECTION 6
Representations and Warranties of Purchaser
-------------------------------------------
6.1 Authority. Purchaser is duly organized and validly existing and has
---------
the full legal right, power and authority to enter into this Agreement. This
Agreement has been duly and validly authorized, executed and delivered by the
Purchaser and constitutes a valid and binding obligation of Purchaser,
enforceable in accordance with its terms.
6.2 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the consummation of the transactions by Purchaser contemplated
hereby will not conflict with, violate or result in a breach or constitute a
default under, any mortgage, indenture, loan agreement or other agreement or
instrument, or any order, decree, statute, ordinance, regulation or other law
applicable to the Purchaser.
6.3 Investment Representations. Purchaser hereby represents and warrants
--------------------------
to the Company as follows:
(a) It is acquiring the Debenture and the Warrant for its own account
for investment, and not with a view to the distribution thereof within the
meaning of the Securities Act of 1933, as amended (the "Securities Act");
--------------
(b) It is an "Accredited Investor" as defined under the Securities
-------------------
Act;
(c) It is aware and it acknowledges that neither the Debenture nor
the Warrant is registered under the Securities Act or any state securities laws,
and that the Debenture and the Warrant are each subject to certain restrictions
on the subsequent transfer and/or sale thereof; and
7
<PAGE>
(d) It is not acquiring the Debenture or the Warrant for purposes of
acquiring or changing "control" (as defined under Rule 405 of the Securities
Exchange Act of 1934, as amended) of the Company.
SECTION 7
Events of Default
------------------
7.1 Events of Default. For so long as any indebtedness under the
-----------------
Debenture shall be outstanding, the following events shall constitute an event
of default hereunder ("Events of Default"):
-----------------
(a) The Company shall fail to pay any installment of principal of or
interest on the Debenture when due and any such failure shall not be cured by
full performance thereof within ten (10) days after written notice thereof shall
have been given to the Company by any registered holder of the Debenture; or
(b) The Company shall default in the performance of any covenant
contained in Section 7 of this Agreement, any covenant set forth in the
Preferred Agreement, or any covenant in the Stockholders' Agreement, and any
such failure shall not be cured by full performance thereof within ten (10) days
after written notice thereof shall have been given to the Company by any
registered holder of the Debenture; or
(c) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or by the Company or any Subsidiary (or any
officers of the Company or any Subsidiary) in any certificate, instrument or
written statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, the Preferred Agreement, or the Stockholders'
Agreement, shall prove to have been incorrect when made in any material respect;
or
(d) The Company or any Subsidiary shall fail to perform or observe any
other term, covenant or agreement contained in the Preferred Agreement, the
Stockholders' Agreement, the Debenture, or Warrant on its part to be performed
or observed and any such failure shall not be cured or by full performance
thereof within ten (10) days after written notice thereof shall have been given
to the Company by any registered holder of the Debenture; or
(e) The Company or any Subsidiary shall (i) admit in writing its
inability to pay its debts generally as they become due; (ii) commence a
voluntary case under Title 11 of the United States Code as from time to time in
effect, or authorize, by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary case; (iii) file an
answer or other pleading omitting or failing to deny the material allegations of
a petition filed against it commencing an involuntary case under such Title 11,
or seek, consent to or acquiesce in
8
<PAGE>
the relief therein provided, or fail to controvert timely the material
allegations of any such petition; (iv) suffer the entry of an order for relief
in any involuntary case commenced under said Title 11; (v) seek relief as a
debtor under any applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the modification
or alteration of the rights of creditors, or consent to or acquiesce in such
relief; (vi) suffer the entry of an order by a court of competent jurisdiction
(A) finding it to be bankrupt or insolvent, (B) ordering or approving its
liquidation, reorganization or any modification or alteration of the rights of
its creditors, or (C) assuming custody of, or appointing a receiver or other
custodian for, all or a substantial part of its property (not otherwise covered
by subsection (f) below); or (vii) make an assignment for the benefit of, or
enter into a composition with, its creditors, or appoint or consent to the
appointment of a receiver or other custodian or all or a substantial part of its
property; or
(f) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against the property of the Company or any
Subsidiary in an aggregate amount which exceeds $2,500,000 and such judgment,
writ, or similar process shall not be released, vacated or fully bonded or
stayed pending appeal within sixty (60) days after its issue or levy; or
(g) The Company fails to prepay the unpaid principal amount of the
Debenture and outstanding interest thereon in the event of a Public Offering to
the extent available after payment of all Senior Indebtedness.
Upon the occurrence of any Event of Default, and in any such event, Purchaser or
any other holder of any Debenture may, by notice to the Company, declare the
entire unpaid principal amount of such Debenture, all interest accrued and
unpaid thereon and all other amounts payable to such holder under such Debenture
or this Agreement to be forthwith due and payable, whereupon such Debenture, all
such accrued interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under Section
6.1(e) in which case all such accounts shall automatically become due and
payable without such declaration), without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Company with respect to itself and its Subsidiaries. Upon the occurrence of any
Event of Default, the Warrant shall immediately become exercisable, at the
option of the Holder, for that number of shares of Common Stock issuable upon
exercise of the Warrant.
7.2 Annulment of Defaults. Section 7.1 is subject to the condition that,
---------------------
if at any time after the principal of any Debenture shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due
shall have been entered, all arrears of interest upon such Debenture and all
other sums payable to the holder of such Debenture under or such Debenture and
under this Agreement (except the principal amount which by such declaration
shall have become payable) shall have been duly paid, and every other default
and Event of Default shall have been made good or cured, then and in every such
case the holder of such Debenture, by written instrument delivered to the
Company, may rescind and annul such declaration and its
9
<PAGE>
consequences; but no such rescission or annulment shall extend to or affect any
other or subsequent default or Event of Default or impair any right of the
holders of any other Debenture consequent thereon.
SECTION 8
Covenants of the Company
------------------------
8.1 General Covenants of the Company. Without limiting any other
--------------------------------
covenants and provisions hereof, the Company covenants and agrees that, as long
as any of the Debenture is outstanding, it will perform and observe the
following covenants and provisions and will cause each Subsidiary to perform and
observe such of the following covenants and provisions as are applicable to such
Subsidiary:
(a) Punctual Payment. The Company shall pay the principal of and interest
----------------
on the Debenture at the times and place and in the manner provided in the
Debenture and herein.
(b) Payment of Taxes. The Company shall pay and discharge, and cause each
----------------
Subsidiary to pay and discharge, all material taxes, assessments and
governmental charges or levies imposed on it or upon its income or profits or
business, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might likely
(in the Company's opinion) become a lien or charge upon any properties of the
Company or any Subsidiary, provided that neither the Company nor the Subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested and/or negotiated in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate (in the Company's opinion) reserves with respect thereto. The
Company shall pay, when due, or in conformity with customary trade terms, all
material lease obligations, all material trade debt, and all other material
indebtedness incident to the operations of the Company, except such as are being
contested in good faith and by appropriate proceedings if the Company shall have
set aside on its books adequate reserves with respect thereto.
(c) Maintenance of Insurance. The Company shall maintain, and cause each
------------------------
Subsidiary to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Company or such Subsidiary operates.
(d) Preservation of Corporate Existence. The Company shall preserve and
-----------------------------------
maintain, and cause each Subsidiary to preserve and maintain, its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each Subsidiary to
qualify and remain qualified, as a foreign corporation in each jurisdiction in
which
10
<PAGE>
such qualification is necessary or desirable in view of its business and
operations or the ownership of its properties; the Company shall preserve and
maintain, and cause each Subsidiary to preserve and maintain, all licenses and
other rights to use patents, processes, licenses, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or used by and
necessary to the conduct of its business; provided, however, that the Company
shall not be required to preserve any such Subsidiary, license or right if the
Board of Directors shall determine that the preservation is no longer desirable
in the conduct of the Company's business and that the loss thereof is not, and
will not be, adverse in any material respect to the holder of the Debenture.
(e) Compliance with Laws. The Company shall use its best efforts to
--------------------
comply, and cause each Subsidiary to comply, with all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with which
could materially adversely affect its business or condition, financial or
otherwise.
(f) Access to Information. In the Event of a Default (as defined in
---------------------
Section 7.1 above), the Company shall permit Purchaser or any representatives
thereof, at any reasonable time and from time to time, to receive, to examine
and make copies of and extract from the records and books of account of
(including, but not limited to unaudited balance sheets of the Company as at the
end of each month and unaudited statements of income and of cash flows of the
Company for each month and for the current fiscal year to the end of each month,
setting forth in comparative form the Company's budget for the corresponding
periods for the current fiscal year, all in reasonable detail and duly certified
by the chief financial officer of the Company as having been prepared in
accordance with generally accepted accounting principles consistently applied),
and visit and inspect the properties of, the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of their officers or directors and independent accountants. Purchaser
agrees and acknowledges that, upon access to and receipt of such information, it
shall keep such information confidential and that such information may
constitute proprietary information and/or trade secrets of the Company.
(g) Keeping of Records and Books of Account. The Company shall keep, and
---------------------------------------
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries shall be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
(h) Maintenance of Properties, etc. The Company shall maintain and
------------------------------
preserve, and cause each Subsidiary to maintain and preserve, all of its
properties, necessary or useful in the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted, except as
otherwise determined by the Board of Directors.
(i) Compliance with ERISA. The Company shall use its best efforts to
---------------------
comply, and cause each Subsidiary to comply, with the provisions of ERISA and
the Code, and the rules and
11
<PAGE>
regulations thereunder, which are applicable to any Plan. Neither the Company
nor any Subsidiary shall permit any event or condition it knows to exist which
would likely permit any such plan to be terminated under circumstances which
would cause the lien provided for in Section 4068 of ERISA to attach to the
assets of the Company or any Subsidiary.
(j) Dealings with Affiliates. Except for employee or director
------------------------
compensation, stock bonus, stock option or similar plans or arrangements
approved by the Board of Directors, the Company will not enter or permit any
Subsidiary to enter into any transaction with any holder of five percent (5%) or
more of any class of capital stock of the Company, or any member of their
families or any corporation or other entity in which any one or more of such
stockholders or members of their immediate families directly or indirectly holds
five percent (5%) or more of any class of capital stock except in the ordinary
course of business and on terms not less favorable to the Company or the
Subsidiary than it would obtain in a transaction between unrelated parties.
(k) SEC Reports. The Company shall file all reports and other information
-----------
and documents which it is required to file with the Securities and Exchange
Commission ("SEC") pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"). The Company will cause
any quarterly and annual reports, proxy statements and any other documents which
it mails to its stockholders to be mailed to the registered holder of the
Debenture.
If the Company is not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Company will prepare, for the first three
quarters of each fiscal year, quarterly financial statements substantially
equivalent to the financial statements required to be included in a report on
Form 10-Q under the Exchange Act. The Company will also prepare, on an annual
basis, complete audited consolidated financial statements, including, but not
limited to, a balance sheet, a statement of income and retained earnings, a
statement of changes in financial position and all appropriate notes. All such
financial statements will be prepared in accordance with generally accepted
accounting principles consistently applied, except for changes with which the
Company's independent accountants concur, and except that quarterly statements
may be subject to year-end adjustments. The Company will cause a copy of such
financial statements to be mailed to the registered holder of the Debenture as
soon as available within sixty (60) days after the close of each of the first
three quarters of each fiscal year and within one hundred twenty (120) days
after the close of each fiscal year.
The holder of the Debenture and prospective purchasers designated by such
holder will have the right to obtain from the Company upon request by such
holder or prospective purchasers, during any period in which the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the information required by
paragraph d (4)(i) of Rule 144A under the Securities Act.
12
<PAGE>
(l) Debt. The Company shall not and shall not permit any Subsidiary to
----
create, incur, assume or suffer to exist any secured debt in excess of $5
million outstanding principal amount, excluding purchase money indebtedness for
office equipment or fixtures.
(m) Proceeds from Public Offering. The Company will apply, at the request
-----------------------------
of Purchaser, the proceeds of a Public Offering to prepay the unpaid principal
amount and outstanding interest on the Debenture, to the extent that proceeds
are available after payment in full of any Senior Indebtedness (as defined in
Section 9.5).
13
<PAGE>
SECTION 9
Subordination of Debentures
---------------------------
9.1 Subordinate to Senior Indebtedness. The Company agrees, and
----------------------------------
Purchaser by its acceptance hereof likewise agrees, that the payment of the
principal of and interest on this Debenture is hereby expressly made subordinate
and junior in right of payment to the prior payment in full of all principal of
and interest on all Senior Indebtedness (as defined below) whether now
outstanding or hereafter incurred, created or assumed.
9.2 Payment Over of Proceeds Upon Dissolution, Liquidation, Etc. of
---------------------------------------------------------------
the Company. In the event of any insolvency or bankruptcy proceedings, or any
- -----------
receivership, liquidation, reorganization or other similar proceedings in
connection herewith, relative to the Company or to its creditors, as such, or to
its property, and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether or not involving
insolvency or bankruptcy, then the holders of the Senior Indebtedness shall be
entitled to receive payment in full of all principal and any interest on all
Senior Indebtedness before the Holder of this Debenture is entitled to receive
any payment on account of principal or interest upon this Debenture and to that
end (but subject to the power of a court of competent jurisdiction to make other
equitable provision reflecting the rights conferred by the provisions of this
Section upon the Senior Indebtedness and the holders thereof with respect to
this Debenture and the Holder thereof by a lawful plan of reorganization under
applicable bankruptcy law) the holders of the Senior Indebtedness shall be
entitled to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or property or securities
which may be payable or deliverable in any such proceedings in respect of this
Debenture.
9.3 Subrogation to Rights of Holders of Senior Indebtedness. Subject
-------------------------------------------------------
to the payment in full of all principal and interest on all Senior Indebtedness,
the Holder of this Debenture shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets or
securities of the Company applicable to the Senior Indebtedness.
9.4 No Payment on Debentures When Senior Indebtedness in Default. In
------------------------------------------------------------
the event and during the continuation of any default in the payment of principal
or interest on any Senior Indebtedness beyond any applicable grace, notice or
cure period, or if any Event of Default (as defined in Section 7.1) with respect
to Senior Indebtedness shall have occurred and be continuing permitting the
holders of such Senior Indebtedness to accelerate the maturity thereof, unless
and until such default or Event of Default shall have been cured or waived or
shall have ceased to exist, then no payment of principal or interest shall be
made by the Company on this Debenture.
9.5 Definition of Senior Indebtedness. The term "Senior Indebtedness," as
--------------------------------- -------------------
used in this Agreement, shall mean the principal and interest on the following,
whether outstanding at the date of execution of this Agreement or thereafter
incurred, created, assumed, modified, renewed or extended: (w) indebtedness of
the Company for money borrowed (including the loan with
14
<PAGE>
Security Bank); (x) the financial obligations of the Company to CenCor existing
as of the date hereof (which will be repaid in full and released at Closing);
(y) obligations of the Company as lessee under any lease of property which is
reflected on the Company's balance sheet as a capitalized lease in accordance
with generally accepted accounting principles ("GAAP"); and (z) guarantees by
----
the Company of indebtedness for money borrowed by a Subsidiary or of any
obligations of a Subsidiary under any lease of property which is reflected on
the Subsidiary's balance sheet as a capitalized lease in accordance with GAAP.
SECTION 10
Miscellaneous
-------------
10.1 Indemnification. The Company hereby agrees to indemnify,
---------------
exonerate and hold Purchaser and each of its partners, and their stockholders,
officers, directors, employees and agents free and harmless from and against any
and all actions, causes of action, suits, litigation, losses, liabilities and
damages, investigations or proceedings instituted by any governmental agency or
any other Person, and expenses in connection therewith, including without
limitation reasonable attorneys' fees and disbursements, incurred by the
indemnitee or any of them as a result of, or arising out of, or relating to (a)
any transaction financed or to be financed in whole or in part directly or
indirectly with proceeds from the sale by the Company of any securities
hereunder, or (b) the execution, delivery, performance or enforcement of this
Agreement or any instrument contemplated hereby by any of the indemnitees,
except in each such case to the extent any such indemnified liabilities arise on
account of such indemnitee's gross negligence, willful misconduct or bad faith.
Purchaser hereby agrees to indemnify, exonerate and hold the Company and its
stockholders, officers, directors, employees and agents free and harmless from
and against any and all actions, causes of action, suits, litigation, losses,
liabilities and damages, investigations or proceedings instituted by any
governmental agency or any other Person, and expenses in connection therewith,
including without limitation reasonable attorneys' fees and disbursements,
incurred by the indemnitee or any of them as a result of, or arising out of, or
relating to the execution, delivery, performance or enforcement of this
Agreement or any instrument contemplated hereby by any of the indemnitees,
except in each such case to the extent any such indemnified liabilities arise on
account of such indemnitee's gross negligence, willful misconduct or bad faith.
10.2 No Waiver; Cumulative Remedies. No failure or delay on the part
------------------------------
of any party in exercising any right, power or remedy hereunder or thereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder or thereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
15
<PAGE>
10.3 Amendments, Waiver and Consents. No amendment, modification or
-------------------------------
addition to this Agreement, and no waiver of or consent to noncompliance with
any covenant or other provision of this Agreement, or the Debenture shall be
effective unless in writing and duly executed by the party against whom
enforcement of such amendment, modification, addition, waiver or consent is
sought. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. In
addition, no amendment, modification or addition to this Agreement or the
Debenture that is material or affects the economic or subordination provisions
hereof (but excluding any postponement, delay or exercises of the Exercise
Period of the Warrants) shall be effective without the prior written consent of
Security Bank of Kansas City (for so long as such bank is a lender to the
Company).
10.4 Notices. All notices, demands, requests, or other communications
-------
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows:
(a) if to the Company:
Concorde Career Colleges, Inc.
1100 Main Street
Suite 416
Kansas City, MO 64105
Facsimile No.: (816) 474-7610
Attn: Jack L. Brozman
with a copy to:
Bryan Cave, L.L.P.
7500 College Boulevard
Suite 1100
Overland Park, KS 66210-4035
Facsimile No.: (913) 338-7777
Attn: Thomas W. Van Dyke
(b) if to Purchaser:
c/o Cahill, Warnock & Company
One South Street, Suite 2150
Baltimore, MD 21202
Attn: David L. Warnock
Facsimile No.: (410) 895-3805
16
<PAGE>
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: John B. Watkins, Esq.
Facsimile No.: (410) 986-2828.
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the affidavit of
messenger being deemed conclusive (but not exclusive) evidence of such delivery)
or at such time as delivery is refused by the addressee upon presentation.
10.5 Costs and Expenses. The Company agrees to pay all Purchaser's
------------------
reasonable legal fees and expenses (incurred by Wilmer, Cutler & Pickering for
the period on or after February 10, 1997) in connection with the preparation,
execution and delivery of this Agreement, the Debenture, the Warrant and other
instruments and documents to be delivered hereunder.
10.6 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Company and Purchaser and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of Purchaser. The parties hereto agree that the Warrant is attached to
the Debenture and the Warrant may not be assigned separately from the Debenture.
10.7 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement, the Debenture or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof until the payment in full of the
outstanding principal and accrued interest of the Debenture, except for those
representations and warranties of the Company made in the Preferred Agreement
and incorporated herein, which shall survive as provided in the Preferred
Agreement.
10.8 Prior Agreements. This Agreement, the Debenture, the Warrant, and
----------------
the instruments in documents referred to herein constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
10.9 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware (excluding the choice of laws
provisions thereof).
17
<PAGE>
10.10 Headings. Article, Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
10.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
10.12 Further Assurances. From and after the date of this Agreement, upon
------------------
the request of Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Debenture, the Debenture Shares and the other
agreements and instruments contemplated hereby.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first above written.
CONCORDE CAREER COLLEGES, INC.
By:___________________________________________________
Name: Jack L. Brozman
Title: President and Chief Executive Officer
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By: _________________________________________________
Name: David L. Warnock
Title: a General Partner
19
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
SUBORDINATED DEBENTURE AND
WARRANT PURCHASE AGREEMENT
DATED AS OF FEBRUARY 25, 1997
BY AND BETWEEN
CONCORDE CAREER COLLEGES, INC.
AND
STRATEGIC ASSOCIATES, L.P.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
SECTION 1
Authorization, Purchase and Sale of Debenture. Issuance of warrant.............. 1
------------------------------------------------------------------
1.1 Authorization of the Debenture........................................ 1
------------------------------
1.2 Authorization of the Warrant.......................................... 1
----------------------------
1.3 Purchase and Sale of Debenture........................................ 1
------------------------------
1.4 Issuance of Warrants................................................. 2
---------------------
SECTION 2
Certain Terms of the Debenture and Warrant...................................... 2
------------------------------------------
2.1 Certain Terms of the Debenture........................................ 2
------------------------------
2.2 Certain Terms of the Warrants......................................... 3
-----------------------------
2.3 Replacement of Debenture or Warrant................................... 3
-----------------------------------
2.4 Registration, etc..................................................... 3
-----------------
SECTION 3
Conditions to Purchaser's Obligation............................................ 4
------------------------------------
3.1 Preferred Stock Transfer.............................................. 4
------------------------
3.2 Registration Rights Agreement......................................... 4
-----------------------------
3.3 Certificate that Representations True at Closing...................... 4
------------------------------------------------
3.4 Covenants of the Company.............................................. 4
------------------------
3.5 No Injunction......................................................... 4
-------------
3.6 Approvals............................................................. 5
---------
3.7 Opinion of Seller's Counsel........................................... 5
---------------------------
SECTION 4
Conditions to Company's Obligations............................................. 5
-----------------------------------
4.1. Preferred Stock Transfer.............................................. 5
------------------------
4.2 Certificate That Representations True at Closing...................... 5
------------------------------------------------
4.3 Covenants of Purchaser................................................ 5
----------------------
4.4 No Injunction......................................................... 5
-------------
4.5 Opinion of Purchaser's Counsel........................................ 6
------------------------------
SECTION 5
Representations and Warranties of the Company................................... 6
---------------------------------------------
5.1 Authority; Validity................................................... 6
-------------------
5.2 No Conflicts.......................................................... 6
------------
5.3 Consents and Approvals................................................ 6
----------------------
5.4 Representations and Warranties Regarding the Company.................. 6
----------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.5 Accuracy of Information.............................................. 7
-----------------------
SECTION 6
Representations and Warranties of Purchaser..................................... 7
-------------------------------------------
6.1 Authority............................................................ 7
---------
6.2 No Conflicts......................................................... 7
------------
6.3 Investment Representations........................................... 7
--------------------------
SECTION 7
Events of Default.............................................................. 8
------------------
7.1 Events of Default.................................................... 8
-----------------
7.2 Annulment of Defaults................................................ 9
---------------------
SECTION 8
Covenants of the Company........................................................ 10
------------------------
8.1 General Covenants of the Company..................................... 10
--------------------------------
SECTION 9
Subordination of Debentures..................................................... 14
---------------------------
9.1 Subordinate to Senior Indebtedness................................... 14
----------------------------------
9.2 Payment Over of Proceeds Upon Dissolution, Liquidation, Etc. of the 14
Company.............................................................. 14
-------
9.3 Subrogation to Rights of Holders of Senior
Indebtedness......................................................... 14
------------
9.4 No Payment on Debentures When Senior
Indebtedness in Default.............................................. 14
-----------------------
9.5 Definition of Senior Indebtedness.................................... 14
---------------------------------
SECTION 10
Miscellaneous................................................................... 15
-------------
10.1 Indemnification...................................................... 15
---------------
10.2 No Waiver; Cumulative Remedies....................................... 15
------------------------------
10.3 Amendments, Waiver and Consents...................................... 15
-------------------------------
10.4 Notices.............................................................. 16
-------
10.5 Costs and Expenses................................................... 17
------------------
10.6 Binding Effect; Assignment........................................... 17
--------------------------
10.7 Survival of Representations and Warranties........................... 17
------------------------------------------
10.8 Prior Agreements..................................................... 17
----------------
10.9 Governing Law........................................................ 17
-------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.10 Headings............................................................ 17
--------
10.11 Counterparts........................................................ 18
------------
10.12 Further Assurances.................................................. 18
------------------
</TABLE>
<PAGE>
SUBORDINATED DEBENTURE AND WARRANT PURCHASE AGREEMENT
THIS SUBORDINATED DEBENTURE AND WARRANT PURCHASE AGREEMENT (the "Debenture
---------
Agreement") is made as of February 25, 1997, by and between CONCORDE CAREER
- ---------
COLLEGES, INC., a Delaware corporation (the "Company") and STRATEGIC ASSOCIATES,
-------
L.P., a limited partnership organized under the laws of the State of Delaware
(the "Purchaser").
---------
WHEREAS, the Company has agreed to issue 52,252 shares of the Company's
Class B Voting Convertible Preferred Stock, par value $0.10 per share, to the
Purchaser pursuant to the Convertible Preferred Stock Purchase Agreement, of
even date herewith, between the Company and Purchaser (the "Preferred
---------
Agreement");
- ---------
WHEREAS, the Company wishes to sell to Purchaser, and Purchaser wishes to
purchase from the Company, the Company's Debenture and non-detachable Warrant;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale
of Debenture; Issuance of Warrant
---------------------------------
1.1 Authorization of the Debenture. The Company has authorized the
------------------------------
issuance and sale to Purchaser of the Company's Debenture in the original
principal amount of One Hundred Eighty Three Thousand Seven Hundred Fifty
Dollars ($183,750). Such Debenture shall be substantially in the form set forth
as Exhibit 1.1 (the "Debenture"). The Debenture shall be repayable at the times
------- ---------
and under the terms and conditions specified therein.
1.2 Authorization of the Warrant. The Company has authorized the
----------------------------
issuance of a Warrant as part of the consideration for the loan evidenced by the
Debenture. The Warrant entitles Purchaser to purchase an aggregate of 135,110
shares of the Company's Common Stock, at an exercise price of $1.36 per share,
subject to any adjustment as set forth in Section 3.3 of the Warrant. The
Warrant shall be substantially in the form set forth as Exhibit 1.2 (the
-------
"Warrant"). The Company has reserved a sufficient number of shares of Common
-------
Stock for issuance upon exercise of the Warrant. (The shares of Common Stock
issuable upon exercise of the Warrant are referred to as the "Warrant Shares.")
--------------
1.3 Purchase and Sale of Debenture.
------------------------------
(a) The Closing. The Company agrees to issue and sell to Purchaser,
-----------
and subject to and in reliance upon the representations, warranties, terms and
conditions of this
<PAGE>
Agreement, Purchaser agrees to purchase, the Debenture for the purchase price
(the "Purchase Price") of One Hundred Eighty Three Thousand Seven Hundred Fifty
--------------
Dollars ($183,750). Such purchase and sale shall take place at a closing (the
"Closing") to be held by exchange of documents on February 25, 1997, or on such
other date as may be mutually agreed, at the offices of Bryan Cave LLP, One
Kansas City Place, Suite 3500, Kansas City, Missouri (the date of such Closing
is the "Closing Date"). At the Closing, the Company will issue to Purchaser the
------------
Debenture. At the Closing, Purchaser will deliver to the Company, by wire
transfer of immediately available funds to an account designated by the Company
by written notice to Purchaser, the Purchase Price.
(b) Use of Proceeds. The Company agrees to use the full proceeds,
---------------
to the extent required, from the sale of the Debenture to settle, redeem, and
release its financial obligations to CenCor, Inc. ("CenCor"), pursuant to the
------
Fourth Amendment to the Restructuring, Security and Guaranty Agreement, dated
December 30, 1996, by and among CenCor, the Company and certain of the Company's
affiliates (the "CenCor Obligations").
------------------
1.4 Issuance of Warrants. At the Closing, the Company agrees to issue to
--------------------
Purchaser, as part of the consideration for the loan evidenced by the Debenture,
the Warrant substantially in the form as set forth in Exhibit 1.2.
-------
SECTION 2
Certain Terms of the Debenture and Warrant
------------------------------------------
2.1 Certain Terms of the Debenture. All principal, interest and amounts
------------------------------
outstanding under the Debenture shall be due and payable in full on February 25,
2003. The Debenture shall bear interest at an annual rate of five percent (5%).
Accrued and unpaid interest shall be due and payable quarterly in arrears on
February 28, May 31, August 31, and November 30 of each year until maturity.
The Debenture may be prepaid or redeemed, in whole or in part, by the Company
prior to maturity, without penalty, with twenty (20) days prior written notice
thereof to the Purchaser. In the event that the Company consummates an
underwritten registered public offering covering the offer and sale of Common
Stock for the account of the Company in which net proceeds to the Company of the
public offering equals or exceeds $15 million (a "Public Offering"), then the
---------------
Company must apply, at the request of Purchaser, the proceeds of such Public
Offering (to the extent available after payment of all Senior Indebtedness (as
defined in Section 9.5)) to prepay the unpaid principal amount and outstanding
interest on the Debenture. Payments of principal and interest on the Debenture
shall be made directly by wire transfer to an account designated by Purchaser by
written notice to the Company or by check duly mailed or delivered to Purchaser
at its address set forth in Section 8.4 of the Agreement. The Debenture (and
any rights of the Purchaser hereunder or related thereto) is non-transferable
except to a person or entity controlled by, or under common control with,
Purchaser. No sinking fund or
-2-
<PAGE>
similar provision shall be required to fund payment of principal or interest
under the Debenture. Payment of principal and interest on the Debenture is
unsecured.
2.2 Certain Terms of the Warrants. The Warrant shall initially be
-----------------------------
exercisable into 135,110 shares of Common Stock. The Warrant shall initially be
exercisable at any time between August 25, 1998 and February 25, 2003, subject
to earlier termination upon redemption of the Debenture (the "Exercise Period").
---------------
The Warrant entitles Holder to purchase an aggregate of 135,110 shares of the
Company's Common Stock, at an exercise price ("Exercise Price") of $1.36 per
--------------
share, subject to any adjustments as set forth in Section 3.3 of the Warrant.
During the Exercise Period, in the event that Holder fails to exercise this
Warrant after the Company has provided Holder (i) twenty (20) days prior written
notice of its intention to pay in full and redeem the Debenture on a particular
date (the "Repayment Date"), and (ii) thirty (30) days after the Redemption Date
--------------
within which to exercise this Warrant, then this Warrant shall terminate and
thereafter be null and void. Notwithstanding the preceding sentence, in the
event that the Company repays and redeems the Debenture in full on or before
August 25, 1998, this Warrant shall remain in full force and effect until
September 25, 1998, when it shall then expire. The Warrant may be exercised in
whole or in part by payment in cash, bank cashier's check, certified check, or,
at the option of Purchaser, by reduction in the principal amount of the
Debenture (or forgiveness of any accrued and unpaid interest thereon), in an
amount equal to the exercise price with respect to the Warrant being exercised.
The Warrant shall have an initial exercise price of $1.36 per share of Common
Stock.
2.3 Replacement of Debenture or Warrant. Upon receipt of evidence
-----------------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Debenture or Warrant and, if requested in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond or other agreement or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of such Debenture or Warrant, the Company will
issue a new Debenture or Warrant, of like tenor and amount, in lieu of such
lost, stolen, destroyed or mutilated Debenture or Warrant; provided, however, if
-------- -------
any Debenture or Warrant of which Purchaser, its nominee, or any of its
partners, officers or principals is the registered holder is lost, stolen or
destroyed, the affidavit of such principal or general partner or any principal
or corporate officer of such holder setting forth the circumstances with respect
to such loss, theft or destruction, together with an agreement to indemnify the
Company with respect thereto shall be accepted as satisfactory evidence thereof,
and no bond or other security shall be required as a condition to the execution
and delivery by the Company of a new Debenture or Warrant in replacement of such
lost, stolen or destroyed Debenture or Warrant.
2.4 Registration, etc. The Company shall maintain at its principal office
-----------------
a register with respect to the Debenture and Warrant and shall record therein
the name(s) and address(es) of the respective registered holder(s) thereof, to
which notices are to be sent and the address(es) to which payments (in the case
of the Debenture) are to be made as designated by the registered holder if
other than the address of such holder, and the particulars of all permitted
transfers, exchanges and replacements of the Debenture and Warrant. Provided
that such transfer is
-3-
<PAGE>
permitted herein, the Company shall record on such register any and all
transfers of the Debenture and Warrant by or for the registered holder or such
holder's executors or administrators or their duly appointed attorney, in form
reasonably satisfactory to the Company, in order to maintain an accurate record
of the holder(s) thereof. Each Debenture and Warrant issued hereunder, whether
originally or upon transfer, exchange or replacement, shall be registered on the
date of execution thereof by the Company. The registered holder of a Debenture
and Warrant issued hereunder shall be that individual, corporation, partnership,
joint venture, trust or unincorporated organization or other entity (a "Person")
------
in whose name the Debenture and Warrant has been so registered by the Company. A
registered holder shall be deemed the owner of a Debenture or Warrant for all
purposes of this Agreement and, subject to the provisions hereof, shall be
entitled to all of the benefits thereof and rights thereunder free from all
equities or rights of set off or counterclaim between the Company and the
transferor of such registered holder or any previous registered holder of such
Debenture or Warrant.
SECTION 3
Conditions to Purchaser's Obligation
------------------------------------
The obligation of Purchaser to purchase and pay for the Debenture at the
Closing is subject to the following conditions, which may be waived by Purchaser
at its sole discretion:
3.1 Preferred Stock Transfer. The Preferred Agreement between the Company
------------------------
and Purchaser shall have been fully executed and the closing of the transactions
provided for therein, including but not limited to the execution of the
Stockholders' Agreement, of even date herewith, by and among the Company, the
Purchaser and other stockholders (the "Stockholders' Agreement"), shall have
------------ ---------
closed and be complete prior to or simultaneously with the issuance of the
Debenture and payment therefor.
3.2 Registration Rights Agreement. The Company and Purchaser shall have
-----------------------------
entered into the Registration Rights Agreement substantially in the form set
forth as Exhibit 3.2 hereto.
-------
3.3 Certificate that Representations True at Closing. Purchaser shall
------------------------------------------------
have received the executed certificate of an executive officer of the Company to
the effect that each of the Company's representations and warranties herein and
in any document or instrument delivered to Purchaser hereunder shall be true and
correct on the Closing Date with the same force and effect as though such
representations and warranties had been made again on and as of such time.
3.4 Covenants of the Company. The Company shall have duly performed all
------------------------
of the covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, including but not limited to the closing deliveries required of
it.
-4-
<PAGE>
3.5 No Injunction. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit, or obtain
substantial damages in respect of, or that is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business of the Company, if such action,
proceeding, investigation, regulation or legislation, in the reasonable judgment
of Purchaser, would make it inadvisable to consummate such transactions.
3.6 Approvals. The execution and the delivery of this Agreement and the
---------
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities whose approvals are required by law and by all third
parties whose approvals are required by an agreement binding upon the Company.
It is acknowledged by all parties that the approval of the Department of
Education is not required to close this transaction.
3.7 Opinion of Seller's Counsel. Purchaser shall have received from Bryan
---------------------------
Cave, LLP, counsel to the Company, an opinion addressed to Purchaser, dated the
Closing Date, in substantially the form of Exhibit A hereto.
SECTION 4
Conditions to Company's Obligations
-----------------------------------
The obligation of the Company to issue and sell the Debenture at the
Closing is subject to the following conditions, which may be waived by the
Company at its sole discretion:
4.1. Preferred Stock Transfer. The Preferred Agreement between the Company
------------------------
and Purchaser shall have been fully executed and the closing of the transactions
provided for therein, including but not limited to the execution of the
Stockholders' Agreement, of even date herewith, by and among the Company, the
Purchaser and other stockholders (the "Stockholders' Agreement"), shall have
------------ ---------
closed and be complete prior to or simultaneously with the issuance of the
Debenture and payment therefor.
4.2 Certificate That Representations True at Closing. The Company shall
------------------------------------------------
have received the executed certificate of the Purchaser to the effect that each
of the Purchaser's representations and warranties herein and in any document or
instrument delivered to the Company hereunder shall be true and correct on the
Closing Date with the same force and effect as though such representations and
warranties had been made again on and as of such time.
4.3 Covenants of Purchaser. Purchaser shall have duly performed all of
----------------------
the covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, including but not limited to the closing deliveries required of
it.
-5-
<PAGE>
4.4 No Injunction. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit, or obtain
substantial damages in respect of, or that is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business of Purchaser, if such action,
proceeding, investigation, regulation or legislation, in the reasonable judgment
of Company, would make it inadvisable to consummate such transactions.
4.5 Opinion of Purchaser's Counsel. Purchaser shall have received from
------------------------------
Wilmer, Cutler & Pickering, counsel to Purchaser, an opinion addressed to the
Company, dated the Closing Date, in substantially the form of Exhibit B hereto.
SECTION 5
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to Purchaser as follows:
5.1 Authority; Validity. The Company has the full legal right, power and
-------------------
authority to enter into this Agreement and to issue the Debenture and Warrant in
accordance with the terms of this Agreement. This Agreement has been duly and
validly executed by the Company and this Agreement, the Debenture and Warrant
constitute legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that rights to
indemnification and contribution under this Agreement may be limited by federal
or state securities laws or public policy thereto.
5.2 No Conflicts. Subject to the repayment and satisfaction of the CenCor
------------
obligations, the execution, delivery and performance of this Agreement, the
Debenture and Warrant and the consummation of the transactions by the Company
contemplated hereby and thereby will not conflict with, violate or result in a
breach or constitute a default under any mortgage, indenture, loan agreement or
other agreement or instrument binding upon the Company, or any order, decree,
statute, ordinance, regulation or other law applicable to the Company.
5.3 Consents and Approvals. Subject to the repayment and satisfaction of
----------------------
the CenCor obligations, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or any
third party is required in connection with the execution, delivery and
performance of this Agreement, the Debenture and Warrant by the Company and the
consummation of the transactions by the Company hereunder.
-6-
<PAGE>
5.4 Representations and Warranties Regarding the Company. In order to
----------------------------------------------------
induce the Purchasers to enter into this Agreement, the Company hereby
represents and warrants that each of the representations and warranties
regarding the Company set forth in Section 4 of the Preferred Agreement is true,
complete and accurate in all material respects.
5.5 Accuracy of Information. To the knowledge of the executive officers
-----------------------
of the Company, none of this Agreement, the Debenture, the Warrant nor any
certificate, instrument or other agreement (including, but not limited to, the
Preferred Agreement and Stockholders' Agreement) furnished or to be furnished by
or on behalf of the Company, contains or will contain any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
SECTION 6
Representations and Warranties of Purchaser
-------------------------------------------
6.1 Authority. Purchaser is duly organized and validly existing and has
---------
the full legal right, power and authority to enter into this Agreement. This
Agreement has been duly and validly authorized, executed and delivered by the
Purchaser and constitutes a valid and binding obligation of Purchaser,
enforceable in accordance with its terms.
6.2 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the consummation of the transactions by Purchaser contemplated
hereby will not conflict with, violate or result in a breach or constitute a
default under, any mortgage, indenture, loan agreement or other agreement or
instrument, or any order, decree, statute, ordinance, regulation or other law
applicable to the Purchaser.
6.3 Investment Representations. Purchaser hereby represents and warrants
--------------------------
to the Company as follows:
(a) It is acquiring the Debenture and the Warrant for its own
account for investment, and not with a view to the distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act");
--------------
(b) It is an "Accredited Investor" as defined under the Securities
-------------------
Act;
(c) It is aware and it acknowledges that neither the Debenture nor
the Warrant is registered under the Securities Act or any state securities laws,
and that the Debenture and the Warrant are each subject to certain restrictions
on the subsequent transfer and/or sale thereof; and
-7-
<PAGE>
(d) It is not acquiring the Debenture or the Warrant for purposes of
acquiring or changing "control" (as defined under Rule 405 of the Securities
Exchange Act of 1934, as amended) of the Company.
SECTION 7
Events of Default
------------------
7.1 Events of Default. For so long as any indebtedness under the
-----------------
Debenture shall be outstanding, the following events shall constitute an event
of default hereunder ("Events of Default"):
-----------------
(a) The Company shall fail to pay any installment of principal of or
interest on the Debenture when due and any such failure shall not be cured by
full performance thereof within ten (10) days after written notice thereof shall
have been given to the Company by any registered holder of the Debenture; or
(b) The Company shall default in the performance of any covenant
contained in Section 7 of this Agreement, any covenant set forth in the
Preferred Agreement, or any covenant in the Stockholders' Agreement, and any
such failure shall not be cured by full performance thereof within ten (10) days
after written notice thereof shall have been given to the Company by any
registered holder of the Debenture; or
(c) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or by the Company or any Subsidiary (or any
officers of the Company or any Subsidiary) in any certificate, instrument or
written statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, the Preferred Agreement, or the Stockholders'
Agreement, shall prove to have been incorrect when made in any material respect;
or
(d) The Company or any Subsidiary shall fail to perform or observe
any other term, covenant or agreement contained in the Preferred Agreement, the
Stockholders' Agreement, the Debenture, or Warrant on its part to be performed
or observed and any such failure shall not be cured or by full performance
thereof within ten (10) days after written notice thereof shall have been given
to the Company by any registered holder of the Debenture; or
(e) The Company or any Subsidiary shall (i) admit in writing its
inability to pay its debts generally as they become due; (ii) commence a
voluntary case under Title 11 of the United States Code as from time to time in
effect, or authorize, by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary case; (iii) file an
answer or other pleading omitting or failing to deny the material allegations of
a petition filed against it commencing an involuntary case under such Title 11,
or seek, consent to or acquiesce in
-8-
<PAGE>
the relief therein provided, or fail to controvert timely the material
allegations of any such petition; (iv) suffer the entry of an order for relief
in any involuntary case commenced under said Title 11; (v) seek relief as a
debtor under any applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the modification
or alteration of the rights of creditors, or consent to or acquiesce in such
relief; (vi) suffer the entry of an order by a court of competent jurisdiction
(A) finding it to be bankrupt or insolvent, (B) ordering or approving its
liquidation, reorganization or any modification or alteration of the rights of
its creditors, or (C) assuming custody of, or appointing a receiver or other
custodian for, all or a substantial part of its property (not otherwise covered
by subsection (f) below); or (vii) make an assignment for the benefit of, or
enter into a composition with, its creditors, or appoint or consent to the
appointment of a receiver or other custodian or all or a substantial part of its
property; or
(f) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against the property of the Company or any
Subsidiary in an aggregate amount which exceeds $2,500,000 and such judgment,
writ, or similar process shall not be released, vacated or fully bonded or
stayed pending appeal within sixty (60) days after its issue or levy; or
(g) The Company fails to prepay the unpaid principal amount of the
Debenture and outstanding interest thereon in the event of a Public Offering to
the extent available after payment of all Senior Indebtedness.
Upon the occurrence of any Event of Default, and in any such event, Purchaser or
any other holder of any Debenture may, by notice to the Company, declare the
entire unpaid principal amount of such Debenture, all interest accrued and
unpaid thereon and all other amounts payable to such holder under such Debenture
or this Agreement to be forthwith due and payable, whereupon such Debenture, all
such accrued interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under Section
6.1(e) in which case all such accounts shall automatically become due and
payable without such declaration), without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Company with respect to itself and its Subsidiaries. Upon the occurrence of any
Event of Default, the Warrant shall immediately become exercisable, at the
option of the Holder, for that number of shares of Common Stock issuable upon
exercise of the Warrant.
7.2 Annulment of Defaults. Section 7.1 is subject to the condition that,
---------------------
if at any time after the principal of any Debenture shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due
shall have been entered, all arrears of interest upon such Debenture and all
other sums payable to the holder of such Debenture under or such Debenture and
under this Agreement (except the principal amount which by such declaration
shall have become payable) shall have been duly paid, and every other default
and Event of Default shall have been made good or cured, then and in every such
case the holder of such Debenture, by written instrument delivered to the
Company, may rescind and annul such declaration and its
-9-
<PAGE>
consequences; but no such rescission or annulment shall extend to or affect any
other or subsequent default or Event of Default or impair any right of the
holders of any other Debenture consequent thereon.
SECTION 8
Covenants of the Company
------------------------
8.1 General Covenants of the Company. Without limiting any other
--------------------------------
covenants and provisions hereof, the Company covenants and agrees that, as long
as any of the Debenture is outstanding, it will perform and observe the
following covenants and provisions and will cause each Subsidiary to perform and
observe such of the following covenants and provisions as are applicable to such
Subsidiary:
(a) Punctual Payment. The Company shall pay the principal of and interest
----------------
on the Debenture at the times and place and in the manner provided in the
Debenture and herein.
(b) Payment of Taxes. The Company shall pay and discharge, and cause each
----------------
Subsidiary to pay and discharge, all material taxes, assessments and
governmental charges or levies imposed on it or upon its income or profits or
business, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might likely
(in the Company's opinion) become a lien or charge upon any properties of the
Company or any Subsidiary, provided that neither the Company nor the Subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested and/or negotiated in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate (in the Company's opinion) reserves with respect thereto. The
Company shall pay, when due, or in conformity with customary trade terms, all
material lease obligations, all material trade debt, and all other material
indebtedness incident to the operations of the Company, except such as are being
contested in good faith and by appropriate proceedings if the Company shall have
set aside on its books adequate reserves with respect thereto.
(c) Maintenance of Insurance. The Company shall maintain, and cause each
------------------------
Subsidiary to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Company or such Subsidiary operates.
(d) Preservation of Corporate Existence. The Company shall preserve and
-----------------------------------
maintain, and cause each Subsidiary to preserve and maintain, its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each Subsidiary to
qualify and remain qualified, as a foreign corporation in each jurisdiction in
which such qualification is necessary or desirable in view of its business and
operations or the ownership
-10-
<PAGE>
of its properties; the Company shall preserve and maintain, and cause each
Subsidiary to preserve and maintain, all licenses and other rights to use
patents, processes, licenses, trademarks, trade names, inventions, intellectual
property rights or copyrights owned or used by and necessary to the conduct of
its business; provided, however, that the Company shall not be required to
preserve any such Subsidiary, license or right if the Board of Directors shall
determine that the preservation is no longer desirable in the conduct of the
Company's business and that the loss thereof is not, and will not be, adverse in
any material respect to the holder of the Debenture.
(e) Compliance with Laws. The Company shall use its best efforts to
--------------------
comply, and cause each Subsidiary to comply, with all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with which
could materially adversely affect its business or condition, financial or
otherwise.
(f) Access to Information. In the Event of a Default (as defined in
---------------------
Section 7.1 above), the Company shall permit Purchaser or any representatives
thereof, at any reasonable time and from time to time, to receive, to examine
and make copies of and extract from the records and books of account of
(including, but not limited to unaudited balance sheets of the Company as at the
end of each month and unaudited statements of income and of cash flows of the
Company for each month and for the current fiscal year to the end of each month,
setting forth in comparative form the Company's budget for the corresponding
periods for the current fiscal year, all in reasonable detail and duly certified
by the chief financial officer of the Company as having been prepared in
accordance with generally accepted accounting principles consistently applied),
and visit and inspect the properties of, the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of their officers or directors and independent accountants. Purchaser
agrees and acknowledges that, upon access to and receipt of such information, it
shall keep such information confidential and that such information may
constitute proprietary information and/or trade secrets of the Company.
(g) Keeping of Records and Books of Account. The Company shall keep, and
---------------------------------------
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries shall be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
(h) Maintenance of Properties, etc. The Company shall maintain and
------------------------------
preserve, and cause each Subsidiary to maintain and preserve, all of its
properties, necessary or useful in the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted, except as
otherwise determined by the Board of Directors.
(i) Compliance with ERISA. The Company shall use its best efforts to
---------------------
comply, and cause each Subsidiary to comply, with the provisions of ERISA and
the Code, and the rules and regulations thereunder, which are applicable to any
Plan. Neither the Company nor any
-11-
<PAGE>
Subsidiary shall permit any event or condition it knows to exist which would
likely permit any such plan to be terminated under circumstances which would
cause the lien provided for in Section 4068 of ERISA to attach to the assets of
the Company or any Subsidiary.
(j) Dealings with Affiliates. Except for employee or director
------------------------
compensation, stock bonus, stock option or similar plans or arrangements
approved by the Board of Directors, the Company will not enter or permit any
Subsidiary to enter into any transaction with any holder of five percent (5%) or
more of any class of capital stock of the Company, or any member of their
families or any corporation or other entity in which any one or more of such
stockholders or members of their immediate families directly or indirectly holds
five percent (5%) or more of any class of capital stock except in the ordinary
course of business and on terms not less favorable to the Company or the
Subsidiary than it would obtain in a transaction between unrelated parties.
(k) SEC Reports. The Company shall file all reports and other information
-----------
and documents which it is required to file with the Securities and Exchange
Commission ("SEC") pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"). The Company will cause
any quarterly and annual reports, proxy statements and any other documents which
it mails to its stockholders to be mailed to the registered holder of the
Debenture.
If the Company is not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Company will prepare, for the first three
quarters of each fiscal year, quarterly financial statements substantially
equivalent to the financial statements required to be included in a report on
Form 10-Q under the Exchange Act. The Company will also prepare, on an annual
basis, complete audited consolidated financial statements, including, but not
limited to, a balance sheet, a statement of income and retained earnings, a
statement of changes in financial position and all appropriate notes. All such
financial statements will be prepared in accordance with generally accepted
accounting principles consistently applied, except for changes with which the
Company's independent accountants concur, and except that quarterly statements
may be subject to year-end adjustments. The Company will cause a copy of such
financial statements to be mailed to the registered holder of the Debenture as
soon as available within sixty (60) days after the close of each of the first
three quarters of each fiscal year and within one hundred twenty (120) days
after the close of each fiscal year.
The holder of the Debenture and prospective purchasers designated by such
holder will have the right to obtain from the Company upon request by such
holder or prospective purchasers, during any period in which the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the information required by
paragraph d (4)(i) of Rule 144A under the Securities Act.
(l) Debt. The Company shall not and shall not permit any Subsidiary to
----
create, incur, assume or suffer to exist any secured debt in excess of $5
million outstanding principal amount, excluding purchase money indebtedness for
office equipment or fixtures.
-12-
<PAGE>
(m) Proceeds from Public Offering. The Company will apply, at the request
-----------------------------
of Purchaser, the proceeds of a Public Offering to prepay the unpaid principal
amount and outstanding interest on the Debenture, to the extent that proceeds
are available after payment in full of any Senior Indebtedness (as defined in
Section 9.5).
SECTION 9
Subordination of Debentures
---------------------------
9.1 Subordinate to Senior Indebtedness. The Company agrees, and Purchaser
----------------------------------
by its acceptance hereof likewise agrees, that the payment of the principal of
and interest on this Debenture is hereby expressly made subordinate and junior
in right of payment to the prior payment in full of all principal of and
interest on all Senior Indebtedness (as defined below) whether now outstanding
or hereafter incurred, created or assumed.
9.2 Payment Over of Proceeds Upon Dissolution, Liquidation, Etc. of the
-----------------------------------------------------------
Company. In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection herewith, relative to the Company or to its creditors, as such, or to
its property, and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether or not involving
insolvency or bankruptcy, then the holders of the Senior Indebtedness shall be
entitled to receive payment in full of all principal and any interest on all
Senior Indebtedness before the Holder of this Debenture is entitled to receive
any payment on account of principal or interest upon this Debenture and to that
end (but subject to the power of a court of competent jurisdiction to make other
equitable provision reflecting the rights conferred by the provisions of this
Section upon the Senior Indebtedness and the holders thereof with respect to
this Debenture and the Holder thereof by a lawful plan of reorganization under
applicable bankruptcy law) the holders of the Senior Indebtedness shall be
entitled to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or property or securities
which may be payable or deliverable in any such proceedings in respect of this
Debenture.
9.3 Subrogation to Rights of Holders of Senior Indebtedness. Subject to
-------------------------------------------------------
the payment in full of all principal and interest on all Senior Indebtedness,
the Holder of this Debenture shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets or
securities of the Company applicable to the Senior Indebtedness.
9.4 No Payment on Debentures When Senior Indebtedness in Default. In the
------------------------------------------------------------
event and during the continuation of any default in the payment of principal or
interest on any Senior Indebtedness beyond any applicable grace, notice or cure
period, or if any Event of Default (as defined in Section 7.1) with respect to
Senior Indebtedness shall have occurred and be continuing permitting the holders
of such Senior Indebtedness to accelerate the maturity thereof, unless and
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<PAGE>
until such default or Event of Default shall have been cured or waived or shall
have ceased to exist, then no payment of principal or interest shall be made by
the Company on this Debenture.
9.5 Definition of Senior Indebtedness. The term "Senior Indebtedness," as
--------------------------------- -------------------
used in this Agreement, shall mean the principal and interest on the following,
whether outstanding at the date of execution of this Agreement or thereafter
incurred, created, assumed, modified, renewed or extended: (w) indebtedness of
the Company for money borrowed (including the loan with Security Bank); (x) the
financial obligations of the Company to CenCor existing as of the date hereof
(which will be repaid in full and released at Closing); (y) obligations of the
Company as lessee under any lease of property which is reflected on the
Company's balance sheet as a capitalized lease in accordance with generally
accepted accounting principles ("GAAP"); and (z) guarantees by the Company of
----
indebtedness for money borrowed by a Subsidiary or of any obligations of a
Subsidiary under any lease of property which is reflected on the Subsidiary's
balance sheet as a capitalized lease in accordance with GAAP.
SECTION 10
Miscellaneous
-------------
10.1 Indemnification. The Company hereby agrees to indemnify, exonerate
---------------
and hold Purchaser and each of its partners, and their stockholders, officers,
directors, employees and agents free and harmless from and against any and all
actions, causes of action, suits, litigation, losses, liabilities and damages,
investigations or proceedings instituted by any governmental agency or any other
Person, and expenses in connection therewith, including without limitation
reasonable attorneys' fees and disbursements, incurred by the indemnitee or any
of them as a result of, or arising out of, or relating to (a) any transaction
financed or to be financed in whole or in part directly or indirectly with
proceeds from the sale by the Company of any securities hereunder, or (b) the
execution, delivery, performance or enforcement of this Agreement or any
instrument contemplated hereby by any of the indemnitees, except in each such
case to the extent any such indemnified liabilities arise on account of such
indemnitee's gross negligence, willful misconduct or bad faith. Purchaser
hereby agrees to indemnify, exonerate and hold the Company and its stockholders,
officers, directors, employees and agents free and harmless from and against any
and all actions, causes of action, suits, litigation, losses, liabilities and
damages, investigations or proceedings instituted by any governmental agency or
any other Person, and expenses in connection therewith, including without
limitation reasonable attorneys' fees and disbursements, incurred by the
indemnitee or any of them as a result of, or arising out of, or relating to the
execution, delivery, performance or enforcement of this Agreement or any
instrument contemplated hereby by any of the indemnitees, except in each such
case to the extent any such indemnified liabilities arise on account of such
indemnitee's gross negligence, willful misconduct or bad faith.
-14-
<PAGE>
10.2 No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
any party in exercising any right, power or remedy hereunder or thereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder or thereunder. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
10.3 Amendments, Waiver and Consents. No amendment, modification or
-------------------------------
addition to this Agreement, and no waiver of or consent to noncompliance with
any covenant or other provision of this Agreement, or the Debenture shall be
effective unless in writing and duly executed by the party against whom
enforcement of such amendment, modification, addition, waiver or consent is
sought. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. In
addition, no amendment, modification or addition to this Agreement or the
Debenture that is material or affects the economic or subordination provisions
hereof (but excluding any postponement, delay or extensions of the Exercise
Period of the Warrants) shall be effective without the prior written consent of
Security Bank of Kansas City (for so long as such bank is a lender to the
Company).
10.4 Notices. All notices, demands, requests, or other communications
-------
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows:
(a) if to the Company:
Concorde Career Colleges, Inc.
1100 Main Street
Suite 416
Kansas City, MO 64105
Facsimile No.: (816) 474-7610
Attn: Jack L. Brozman
with a copy to:
Bryan Cave, L.L.P.
7500 College Boulevard
Suite 1100
Overland Park, KS 66210-4035
Facsimile No.: (913) 338-7777
Attn: Thomas W. Van Dyke
-15-
<PAGE>
(b) if to Purchaser:
c/o Cahill, Warnock & Company
One South Street, Suite 2150
Baltimore, MD 21202
Attn: David L. Warnock
Facsimile No.: (410) 895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: John B. Watkins, Esq.
Facsimile No.: (410) 986-2828.
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the affidavit of
messenger being deemed conclusive (but not exclusive) evidence of such delivery)
or at such time as delivery is refused by the addressee upon presentation.
10.5 Costs and Expenses. The Company agrees to pay all Purchaser's
------------------
reasonable legal fees and expenses (incurred by Wilmer, Cutler & Pickering for
the period on or after February 10, 1997) in connection with the preparation,
execution and delivery of this Agreement, the Debenture, the Warrant and other
instruments and documents to be delivered hereunder.
10.6 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Company and Purchaser and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of Purchaser. The parties hereto agree that the Warrant is attached to
the Debenture and the Warrant may not be assigned separately from the Debenture.
10.7 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement, the Debenture or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof until the payment in full of the
outstanding principal and accrued interest of the Debenture, except for those
representations and warranties of the Company made in the Preferred Agreement
and incorporated herein, which shall survive as provided in the Preferred
Agreement.
-16-
<PAGE>
10.8 Prior Agreements. This Agreement, the Debenture, the Warrant, and
----------------
the instruments in documents referred to herein constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
10.9 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware (excluding the choice of laws
provisions thereof).
10.10 Headings. Article, Section and subsection headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
10.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
10.12 Further Assurances. From and after the date of this Agreement, upon
------------------
the request of Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Debenture, the Debenture Shares and the other
agreements and instruments contemplated hereby.
[Balance of Page Left Blank Intentionally -- Signature Page Follows]
-17-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first above written.
CONCORDE CAREER COLLEGES, INC.
By:____________________________________________________
Name: Jack L. Brozman
Title: President and Chief Executive Officer
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC
its General Partner
By:____________________________________________________
Name: David L. Warnock
Title: Managing Member
-18-
<PAGE>
REVOLVING CREDIT, SECURITY AND GUARANTY AGREEMENT
THIS REVOLVING CREDIT, SECURITY AND GUARANTY AGREEMENT ("AGREEMENT"), made
and entered into as of March 13, 1997, is by and among SECURITY BANK OF KANSAS
CITY, a Kansas banking corporation ("BANK"); CONCORDE CAREER COLLEGES, INC., a
Delaware corporation ("BORROWER"); UNITED HEALTH CAREERS INSTITUTE, INC., a
California corporation ("UNITED"); SOUTHERN CALIFORNIA COLLEGE OF MEDICAL AND
DENTAL ASSISTANTS, INC., a California corporation ("SOUTHERN CALIFORNIA");
CONCORDE CAREERS - FLORIDA, INC., a Florida corporation ("FLORIDA"); COLLEGES OF
DENTAL AND MEDICAL ASSISTANTS, INC. a California corporation ("DENTAL"); CAREER
ASSISTANCE, INC., a Missouri corporation ("CAI"); and COMPUTER CAREER INSTITUTE,
INC., an Oregon corporation ("COMPUTER") (hereinafter, United, Southern
California, Florida, Dental, CAI, and Computer shall sometimes be collectively
referred to as "GUARANTORS" and each individually as a "GUARANTOR").
WITNESSETH THAT:
WHEREAS, Borrower has requested that Bank extend to Borrower a secured line
of credit for working capital purposes; and
WHEREAS, Bank is willing to extend the secured line of credit to Borrower,
and Borrower is willing to accept loans from Bank pursuant to the secured line
of credit, on the terms, covenants and conditions contained in this Agreement;
and
WHEREAS, the proceeds of Bank's loans to Borrower will be used by Borrower,
in part, to satisfy the working capital needs of Guarantors by paying, for the
respective accounts of Guarantors, expenses incurred by them in the operation of
their respective businesses, and Guarantors, thus, will receive tangible
benefits from Bank's loans to Borrower, and each of them has determined that it
is in its respective best interest to guarantee the repayment of Bank's loans to
Borrower and the interest which will accrue thereon and to secure its guaranty
by granting Bank a security interest in all or substantially all of its assets,
all so as to provide a material inducement to Bank to extend credit pursuant
hereto for the respective benefits of Borrower and Guarantors;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, Borrower, Bank and Guarantors agree as follows:
ARTICLE I
Definitions
-----------
1.01. Certain Defined Terms. The following terms used herein shall have
the meanings set forth in this Article and in the other parts of this Agreement
referred to in this Article, and such meanings shall apply to both the singular
and plural forms of such terms:
When spelled with initial capital letters, "ACCOUNTS", "CHATTEL
-------- -------
PAPER", "CONSUMER GOODS", "DOCUMENTS", "EQUIPMENT", "FARM PRODUCTS", "FIXTURES",
- ----- -------------- --------- --------- ------------- --------
"GENERAL INTANGIBLES", "INSTRUMENTS", "INVENTORY", and "PROCEEDS" shall have the
------------------- ----------- --------- --------
same respective meanings as are given to those terms in the Uniform Commercial
Code as enacted and in force at the date of this Agreement in the State of
Kansas. Without limiting the generality of the foregoing, "Accounts" shall
--------
include all rights to payment (not evidenced by an Instrument or Chattel Paper)
of tuition and fees due or to become due (whether or not fully earned) from any
Person in respect of a course of study in which such Person or some other Person
has enrolled or contracted to enroll at any of the schools operated by Borrower
and Guarantors or other educational program offered by Borrower or any
Guarantor, and shall include both Eligible Accounts and Accounts which are not
Eligible Accounts; "General Intangibles" shall include any and all claims and
-------------------
rights to repayment of loans or advances, whether or not evidenced by receipt,
ledger entry, book account or otherwise; and "Instruments" shall include shares
-----------
of capital stock, notes and other securities of Subsidiaries of Borrower,
Eligible Notes and Student Notes which are not Eligible Notes.
<PAGE>
"ADDITIONAL PLEDGED SECURITIES" is defined in the Section of this
-----------------------------
Agreement entitled "Pledge Provisions".
-----------------
"AFFILIATE" means, when used with reference to a given Person, any
---------
Person controlling, controlled by or under common control with such Person,
within the meaning of such terms hereinafter in this Section set forth.
"AGREEMENT" means this Revolving Credit, Security and Guaranty
---------
Agreement, including all Exhibits attached hereto and all amendments,
modifications, restatements, substitutions and replacements hereof.
"ASSETS" (only when spelled with an upper case "A") shall mean all
------
Collateral (as hereafter defined) and all tangible and intangible assets,
rights, and property (whether real, personal or mixed) in which Borrower and
Guarantors have a direct or indirect interest, including, without limitation,
all the capital stock of each of the Guarantors.
"BANK" is defined in the first paragraph hereof.
----
"BANKING DAY" means any day other than Saturday, Sunday or any other
-----------
day on which commercial banks in the State of Kansas are required to close under
applicable law or executive order.
"BANK LIABILITIES" means and includes all present and future
----------------
liabilities and obligations owed by Borrower to Bank under the Note (as
hereinafter defined) and all obligations of Borrower and Guarantors under this
Agreement and all other Loan Documents.
"BORROWER" is defined in the first paragraph hereof.
--------
"BORROWING BASE" means, at any point in time, (i) eighty percent
--------------
(80%) of the Eligible Accounts (after deducting all payments, adjustments,
credits, and that portion of the Accounts and Notes representing unearned
tuition) plus (ii) fifty percent (50%) of the aggregate principal amount (after
deducting all payments, adjustments, credits and 100% of the aggregate principal
amount of all Eligible Accounts and Eligible Notes with respect to which the
obligor has not made any payment for 90 or more days) of the then-existing
Eligible Notes, plus (iii) eighty percent (80%) of the net book value of
Borrower's and all Guarantor's Equipment appearing on their books being kept in
accordance with generally accepted accounting principles ("GAAP") as promulgated
by the Financial Accounting Standards Board (the "FASB").
"CAPITALIZED LEASE" shall mean any lease which is or should be
-----------------
capitalized on the balance sheet of the lessee in accordance with GAAP,
including (without limitation) Statement of Financial Accounting Standards No.
13 promulgated by the FASB.
"CAPITALIZED LEASE OBLIGATIONS" shall mean the amount of the
-----------------------------
liability reflecting the aggregate obligations under Capitalized Leases
calculated in accordance with GAAP, including (without limitation) Statement of
Financial Accounting Standards No. 13 promulgated by the FASB.
"CLOSING" means disbursement by Bank to Borrower of the first Loan.
-------
"CODE" means the Internal Revenue Code of 1986, as amended from time
----
to time, together with all regulations from time to time in force thereunder.
"COLLATERAL" is defined in the Section of this Agreement entitled
----------
"Definition of Collateral; Security Documents".
- ---------------------------------------------
2
<PAGE>
"CONSOLIDATED CURRENT ASSETS" means the current assets of Borrower
---------------------------
and all Guarantors, consolidated in accordance with GAAP.
"CONSOLIDATED CURRENT LIABILITIES" means the current liabilities of
--------------------------------
Borrower and the Guarantors, consolidated in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of the time of any
-------------------------------
determination thereof, the difference between total stockholders' equity and the
sum of the values, as carried on the books of Borrower and Guarantors, of all
unamortized debt discount and expense, goodwill, trademarks, trade names,
patents, copyrights, deferred charges, and other intangible assets, all
determined on a consolidated basis for Borrower and all Guarantors in accordance
with GAAP consistent with those followed in the preparation of the financial
statements referred to in the Sections of this Agreement entitled "Financial and
-------------
Other Information" and "Financial Statements".
- ----------------- --------------------
"CONSOLIDATED TOTAL ASSETS" means the total assets of Borrower and
-------------------------
the Guarantors, consolidated in accordance with GAAP.
"CONSOLIDATED TOTAL LIABILITIES" means the total liabilities of
------------------------------
Borrower and the Guarantors, consolidated in accordance with GAAP.
"CONSOLIDATED WORKING CAPITAL" means the excess of Consolidated
----------------------------
Current Assets over Consolidated Current Liabilities, provided that there shall
not be included in Consolidated Current Assets for this purpose (a) any loans or
advances (whether or not permitted by this Agreement) made by Borrower or any
Guarantor to any Person other than a Guarantor except loans or advances to
officers or employees in the ordinary course of business for travel and like
expenses, or (b) any assets located outside (including any amounts payable by
Persons located outside) the United States of America and Canada.
"CONTRACT RIGHTS" has the meaning given to such term in the Uniform
---------------
Commercial Code.
"CONTROL" (including the terms "controlling, "controlled by" and
-------
"under common control with", and whether spelled with an upper case or lower
case "c") means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise. Without
precluding the existence of a control relationship in other circumstances, a
Person conclusively shall be deemed to control another Person if the first
Person has the power to vote or direct the voting of five percent (5%) or more
of the outstanding voting stock of the second Person.
"DAY" (whether spelled with an upper case or lower case "d") means
---
a calendar day, unless otherwise specified.
"DEFAULT" means an Event of Default, as defined in the Section of
-------
this Agreement entitled "Defaults and Remedies", or an event or condition which,
---------------------
with the passage of time or giving of notice, or both, would become an Event of
Default.
"DENTAL" is defined in the first paragraph of this Agreement.
------
"ELIGIBLE ACCOUNT" means an Account now or hereafter owing to
----------------
Borrower or a Guarantor, which meets the following specifications at the time it
first is included in computing the Borrowing Base and continues to meet the same
so long as it continues to be so included:
(a) To the best of Borrower's knowledge, based upon information
available to Borrower at Borrower's corporate headquarters, the Account is
currently due and payable and neither the Account nor
3
<PAGE>
any installment or other payment scheduled to be made on the Account has
been written off by Borrower;
(b) The Account arose from a bona fide, outright sale of goods
by Borrower or the Guarantor, from a bona fide contract for the outright
sale of goods entered into by Borrower or the Guarantor, from the
performance of services by Borrower or the Guarantor or from a bona fide
contract for the performance of services by Borrower or the Guarantor;
(c) The Account is owned by Borrower or the Guarantor and is not
subject to any assignment, claim, Lien or security interest of any
character except the security interest of Bank or any other Liens
permitted under Section 9.02 hereof;
(d) The amount of the Account shown on Borrower's or the
Guarantor's books is unconditionally owing to Borrower or the Guarantor,
subject, in the case of an Account arising under a contract for the
performance of services which have not been fully performed, to the
performance of such services;
(e) The Account arose in the ordinary course of Borrower's or
the Guarantor's business, and Borrower has not received any notice of the
appointment of a receiver for the account debtor or any of its property or
of the death, dissolution, termination of existence, bankruptcy or
insolvency, or any material adverse change in the financial condition, of
the account debtor;
(f) The Account did not arise out of a contract with or order
from an account debtor which by its terms forbids or makes void or
unenforceable the assignment to Bank of the Account arising therefrom;
(g) The Account is not evidenced by a judgment, an Instrument or
Chattel Paper;
(h) Bank has not notified Borrower that Bank has determined the
collectibility of the Account to be materially impaired (any such
determination to be made by Bank in the reasonable exercise of its
discretion); and
(i) In the case of an Account arising under a contract for the
sale of goods or the performance of services by Borrower or a Guarantor,
which contract has not been fully performed by Borrower or the Guarantor,
no default in the performance of Borrower's or the Guarantor's obligations
under the contract or any other contract between Borrower (or the
Guarantor) and the account debtor has occurred and is continuing.
"ELIGIBLE NOTE" means a Student Note now or hereafter owned by Borrower
-------------
or a Guarantor, which meets the following specifications at the time it first is
included in computing the Borrowing Base and continues to meet the same so long
as it continues to be so included:
(a) One or more of the scheduled installment payments on the
Student Note have become due and payable, and neither the Student Note nor
any installment payment has been written off by Borrower;
(b) The Student Note arose from a bona fide, outright sale of
goods by Borrower or the Guarantor, from a bona fide contract for the
outright sale of goods entered into by Borrower or the Guarantor, from the
performance of services by Borrower or the Guarantor or from a bona fide
contract for the performance of services by Borrower or the Guarantor;
(c) The Student Note is owned by Borrower or the Guarantor and
is not subject to any assignment, claim, lien or security interest of any
character except the security interest of Bank or any other Liens
permitted under Section 9.02 hereof;
4
<PAGE>
(d) The amount of the Student Note shown on Borrower's books is
unconditionally owing to Borrower or the Guarantor, subject, in the case
of a Student Note arising under a contract for the performance of services
which have not been fully performed, to the performance of such services;
(e) The Student Note arose in the ordinary course of Borrower's
or the Guarantor's business, and Borrower has not received any notice of
the appointment of a receiver for the maker or any of its property or of
the death, dissolution, termination of existence, bankruptcy or
insolvency, or any material adverse change in the financial condition, of
the maker;
(f) The Student Note does not, by its terms, forbid or make void
or unenforceable the assignment thereof by Borrower to Bank;
(g) Bank has not notified Borrower that Bank has determined the
collectibility of the Student Note to be materially impaired (any such
determination to be made by Bank in the reasonable exercise of its
discretion);
(h) In the case of a Student Note arising under a contract for
the sale of goods or the performance of services by Borrower or a
Guarantor, which contract has not been fully performed by Borrower or the
Guarantor, no default in the performance of Borrower's or the Guarantor's
obligations under the contract or any other contract between Borrower (or
the Guarantor) and the maker has occurred; and
(i) The Student Note is listed in the last Alpha Accounts
Receivable report from NLSC prepared each month.
"ENVIRONMENTAL LAW" means and includes the Comprehensive
-----------------
Environmental Response, Compensation, and Liability Act; the Hazardous Materials
Transportation Act; the Resource Conservation and Recovery Act, as amended by
the Hazardous and Solid Waste Amendments of 1984; the Toxic Substance Control
Act; the Federal Insecticide, Fungicide and Rodenticide-Act; and any other
applicable federal, state, or local law, regulation, ordinance, or requirement
(including consent decrees and administrative orders) relating to or imposing
liability or standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material, including, without limitation, asbestos and
petroleum products; all as amended or hereafter amended.
"ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time, together with all regulations from time to time in
force thereunder.
"EVENT OF DEFAULT" is defined in the Section of this Agreement
----------------
entitled "Events of Default".
-----------------
"GUARANTOR" and "GUARANTORS" include those Persons defined in the
--------- ----------
first paragraph of this Agreement as "Guarantors" and all "New Subsidiaries" as
defined in the Section of this Agreement entitled, "Additional and Replacement
--------------------------
Subsidiaries".
- ------------
"INCOME" is defined in the Section of this Agreement entitled
------
"Pledge Provisions".
- ------------------
"INDEBTEDNESS" means all obligations for the payment of money,
------------
absolute or contingent, matured or unmatured, direct or indirect, joint or
several or joint and several, including, without limitation, all liabilities
secured by a Lien now or hereafter existing on property owned or acquired by a
Person (whether or not the liability secured thereby shall have been assumed by
such Person), all Capitalized Lease Obligations and all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others.
"LIEN" means, with respect to any Asset, (i) any mortgage, lien,
----
pledge, charge, security interest, hypothecation or encumbrance of any kind with
respect to such asset, whether created by contract, operation of law, levy,
attachment, garnishment, other legal process or otherwise; (ii) the interest of
a vendor, lessor or other Person under any conditional sale agreement, financing
lease or other title retention agreement relating to such asset; or (iii) any
agreement to grant a Lien within the meaning of the foregoing clauses (i) and
(ii).
5
<PAGE>
"LOAN" means a loan pursuant to Article II of this Agreement.
----
"LOAN DOCUMENTS" means this Agreement, the Note, and all other
--------------
documents now or hereafter executed by Borrower or Guarantor to evidence or
secure any Loan, including all modifications, renewals and replacements thereof.
"MAXIMUM CREDIT" means Three Million Dollars ($3,000,000.00) or such
--------------
other amount as may from time to time be determined by written agreement duly
executed by Borrower and Bank.
"NOTE" is defined in the Section of this Agreement entitled "Note;
---- -----
Repayment".
- ---------
"OTHER PLEDGED PAPER" and "OTHER PLEDGED PROPERTY" are defined in
------------------- ----------------------
the Section of this Agreement entitled "Pledge Provisions".
-----------------
"PBGC" means the Pension Benefit Guaranty Corporation or any
----
successor entity.
"PER ANNUM" means a calculation based on a year having 360 days, for
---------
the actual number of days elapsed.
"PERSON" means any natural person, corporation, association, joint
------
venture, partnership, trust, organization or business, or any government or
governmental or quasi-governmental agency, commission, board or other
organization or any other political subdivision.
"PLAN" shall mean any employee pension benefit plan (as defined in
----
Section 3(2) of ERISA, and specifically including any multi-employer plan, as
defined in Section 4001(a)(3) of ERISA), the funding requirements of which
(under Section 302 of ERISA or Section 412 of the Code) are, or were at any time
within the six years immediately preceding the date as of which a Plan's status
as such is being determined, in whole or in part, the responsibility of the
Borrower.
"PLEDGED COLLATERAL", "PLEDGED NOTES", and "PLEDGED STOCK" are
------------------ ------------- -------------
defined in the Section of this Agreement entitled "Pledge Provisions".
-----------------
"PRIME RATE" means the Per Annum prime or base rate of interest
----------
determined by Bank and distributed to its officers and employees from time to
time for their use in setting and adjusting interest rates on loans, regardless
of whether such prime or base rate is otherwise published or utilized and
irrespective of the rates charged by Bank on loans to Persons other than
Borrower. Borrower acknowledges that the Prime Rate is not necessarily the best
available rate or even a favorable rate.
"REPORTABLE EVENT" means (a) any of the events set forth in Section
----------------
4043(b) (other than a Reportable Event as to which the provision of 30 days'
notice to the PBGC is waived under applicable regulations), 4062 or 4063(a) of
ERISA, (b) an event requiring the Borrower or any Guarantor to provide security
to a Plan under Section 401(a)(29) of the Code and (c) any failure to make
payments required by Section 412(m) of the Code.
"SECURITY DOCUMENTS" is defined in the Section of this Agreement
------------------
entitled "Definition of Collateral; Security Documents".
--------------------------------------------
"SOUTHERN CALIFORNIA" is defined in the first paragraph of this
-------------------
Agreement.
"STUDENT NOTE" means a promissory note payable to or to the order of
------------
Borrower or a Guarantor to evidence Borrower's or such Guarantor's right to
payment of tuition and fees due or to become due (whether or not fully
6
<PAGE>
earned) from any Person in respect of a course of study in which such Person or
some other Person has enrolled or contracted to enroll at any of the schools
operated by Borrower or such Guarantor or pursuant to any education program
offered by Borrower or such Guarantor.
"SUBORDINATED 5% DEBENTURES" means the 5% Debentures dated February
--------------------------
25, 1997, in the aggregate principal amount of $3,500,000.00 issued by Borrower
to Cahill, Warnock Strategic Partners Fund, L.P. and Strategic Associates, L.P.
(collectively, "DEBENTURE HOLDERS").
"SUBSIDIARY" means, when used with reference to a given Person, any
----------
Person controlled by such Person, within the meaning of the term "controlled" as
defined above.
"UNIFORM COMMERCIAL CODE" means, except where otherwise provided or
-----------------------
otherwise required by law, the Uniform Commercial Code as enacted in the State
of Kansas, as amended or modified from time to time.
1.02. Accounting Terms. All accounting terms used herein and not
----------------
otherwise defined shall be construed and interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles and practices in effect from time to time in the United
States, applied on a consistent basis.
ARTICLE II
Line of Credit
--------------
2.01. Loans; Conditions Precedent. Bank agrees, on the terms and subject
---------------------------
to the conditions of this Agreement, to make loans (each a "LOAN") to Borrower,
from time to time during the period ending on the earlier of the expiration or
termination of Bank's commitment pursuant to the Section of this Agreement
entitled "Termination" (but not during the pendency of any suspension of Bank's
-----------
commitment pursuant to said Section), in such amounts as Borrower shall request;
provided, however, Bank shall have no obligation to make a Loan to Borrower if,
after the making of such Loan, the aggregate unpaid principal balance of all
Loans to Borrower would exceed the lesser of the Maximum Credit or the then
Borrowing Base based upon the most recent Borrowing Base Certificate provided by
Borrower to Bank.
2.02. Note; Repayment. The Loans shall initially be evidenced by and
---------------
repaid in accordance with a single promissory note duly executed on behalf of
Borrower, substantially in the form of Exhibit 2.02, attached hereto, dated as
------------
of the date of Closing, in a principal amount equal to the Maximum Credit as
initially fixed herein, and payable to the order of Bank. Such note and any and
all amendments, extensions, modifications, renewals, reaffirmations,
restatements, replacements and substitutions thereof and therefor are herein
referred to as the "NOTE".
2.03. Interest Rate and Payments. Interest shall accrue on the unpaid
--------------------------
principal balance of the Note outstanding from time to time at a rate or rates
specified in or calculated as provided in the Note. Bank intends to give notice
to Borrower of each change in the Prime Rate and of the anticipated amount of
each interest payment scheduled under the Note, but Bank shall have no liability
to Borrower or any other Person for failure to give any such notice. If Borrower
does not pay any interest when due, Bank shall have the right, at its option, as
attorney-in-fact of Borrower under an irrevocable power, to effect payment of
such interest by making a Loan or a charge to any account or accounts maintained
by Borrower with Bank in the amount of such interest.
2.04. Line of Credit Procedures. Within fifteen (15) days after the end
-------------------------
of each calendar month, Borrower shall deliver to Bank a Borrowing Base
Certificate, substantially in the form of Exhibit 2.04, attached hereto, showing
------------
the Borrowing Base as of the end of the month just ended. Upon Borrower's
request for a Loan and Borrower's satisfaction of the conditions precedent for
such Loan, Bank will disburse such Loan to or for the benefit or account of
7
<PAGE>
Borrower. Requests may be made by Borrower in person, in writing, or by
telephone; provided, however, Bank shall have no responsibility whatsoever to
verify the authority of the individual making request for a Loan on behalf of
Borrower by telephone. Bank shall set up and establish a loan account for
Borrower on the books of Bank in which will be recorded all Loans made by Bank
to Borrower pursuant to this Agreement ("LOAN ACCOUNT"). Bank shall enter all
Loans as debits in Borrower's Loan Account. Bank shall also record in Borrower's
Loan Account, in accordance with customary accounting practice, all other taxes,
charges, expenses and other items which are chargeable to Borrower under the
expressed terms of the Loan Documents, all payments received by Bank, all
proceeds of Collateral which are finally paid to Bank in cash or solvent credits
and all other appropriate debits and credits. The debit balance of Borrower's
Loan Account shall reflect the amount of Borrower's Indebtedness to Bank from
time to time by reason of Loans and other appropriate charges hereunder. Bank
intends to prepare, monthly, a statement of interest for Borrower's Loan
Account. Each such statement shall be considered correct and accepted by
Borrower, unless Borrower notifies Bank to the contrary within thirty (30) days
after the sending of said statement by Bank to Borrower.
ARTICLE III
Guaranty
--------
3.01. Guaranties. Guarantors hereby unconditionally, jointly and
----------
severally, guarantee payment when due of all Bank Liabilities. Guarantors,
further, jointly and severally agree to pay, if and to the extent not prohibited
by applicable law, any and all expenses (including but not limited to reasonable
attorneys' fees and expenses) incurred by Bank in endeavoring to collect any
Bank Liabilities and in enforcing their respective guaranties. With respect to
all Bank Liabilities, the liability of the Borrower and Guarantors shall be
joint and several, with the same effect as if all of Guarantors had executed a
joint and several guaranty separate from this Agreement.
3.02. Waivers. Guarantors hereby severally waive presentment, demand and
-------
protest, notice of acceptance of their respective guaranties, of the creation of
Bank Liabilities, of any default and of protest, dishonor or other action taken
in reliance on their respective guaranties, and any and all demands and notices
of any kind in connection with the protection of or realization upon any Bank
Liabilities, any obligation hereunder or any security for any of the foregoing.
Each Guarantor unconditionally and irrevocably waives any and all defenses,
claims and counterclaims any or all of them may ever have which are based upon
(a) any action or omission by Bank with respect to the preservation of the value
of any Collateral, but not any act or omission that is determined to constitute
intentional misconduct; (b) Bank's exercise, or failure to exercise, any right
or remedy against Borrower, any Guarantor or any Collateral; and (c) any failure
to attach, perfect, or realize upon any Lien or other security interest or
encumbrance upon any Collateral.
3.03. Bank's Rights. Bank may, from time to time and without in any way
-------------
affecting any of Guarantors' respective liabilities or any of Bank's rights
under this Agreement, any other of the Loan Documents or applicable law, take
any one or more of the following actions, successively or concurrently, and in
any order: demand payment of or accelerate any Bank Liabilities following an
Event of Default, alter, extend, renew, or change the time, place, manner or
terms of payment of, or grant indulgences with respect to, any Bank Liabilities;
increase or decrease the rate of interest on any Bank Liabilities; obtain the
primary or secondary liability of any party or parties, in addition to
Guarantors, with respect to any Bank Liabilities; release or compromise any
liability of any of Guarantors or of any other party or parties primarily or
secondarily liable on any Bank Liabilities; take, exchange, sell, release or
otherwise deal in any manner or in any order with any Collateral or other
property securing any Bank Liabilities or any obligation of any of Guarantors
following an Event of Default; apply to Bank Liabilities in such order as Bank
shall determine any sum received by it from whatsoever source; or resort to
Guarantors or any one or more of them for payment of any or all Bank Liabilities
following an Event of Default, whether or not Bank shall have resorted to any
Collateral or other property securing any Bank Liabilities or shall have
proceeded against any other party primarily or secondarily liable on any Bank
Liabilities.
3.04. Preservation of Liability. Guarantors jointly and severally agree
-------------------------
that should Bank repay (either by reason of court order or judgment or in
settlement of a controversy) to Borrower or the estate or trustee of Borrower or
to Borrower as debtor-in-possession, any sum previously received by Bank in
respect of any Bank Liabilities, as a result
8
<PAGE>
of a claim of a voidable preference or fraudulent transfer or otherwise, then
Guarantors shall immediately reimburse Bank for the sum so repaid, with interest
on such sum from the date Bank makes such payment until paid in full at the
Default Rate specified in Exhibit 2.02, attached hereto, and, if and to the
------------
extent not prohibited by applicable law, any and all expenses (including but not
limited to reasonable attorneys' fees and expenses) incurred by Bank in
enforcing such reimbursement and in resisting such repayment.
3.05. Financial Condition of Borrower. Bank may grant or continue credit
-------------------------------
or financial accommodations to Borrower from time to time, without notice to or
authorization from any of Guarantors, regardless of Borrower's financial
condition at the time of such grant or continuation and regardless of any other
fact concerning Borrower which Bank knows or should know at such time. Bank
shall have no obligation to disclose to or discuss with any of Guarantors Bank's
assessment of the financial condition of, or any other matter concerning,
Borrower or any other Guarantor
3.06. Bankruptcy. The obligations of all Guarantors shall in no way be
----------
affected, diminished, or impaired by the voluntary or involuntary bankruptcy,
assignment for the benefit of creditors, appointment of a receiver,
reorganization or similar proceeding at law or in equity affecting the duties of
Borrower or any Guarantor under this Agreement. Nor shall the obligations of any
Guarantor be affected, diminished, or impaired by the release of Borrower or any
other Guarantor by the operation of law or otherwise from the performance or
observance of any of the covenants contained herein or in any Loan Agreement.
3.07. Waiver of Claims Against Borrower and Other Guarantors. Each
------------------------------------------------------
Guarantor hereby waives all claims, rights and remedies, whether under theories
of reimbursement, indemnity, or subrogation to Bank's rights or otherwise, which
any Guarantor may now have or hereafter acquire against Borrower or any other
Guarantor that arises hereunder or from the performance by such Guarantor
hereunder, including, without limitation, all claims, remedies and rights of
subrogation, reimbursement, exoneration, contribution, indemnification, and
participation in any claim, right or remedy of Bank against Borrower or any
Guarantor or any security which Bank now has or hereafter acquires, whether or
not such claim, right or remedy arises in equity, under contract, by statute,
under common law or otherwise. No Guarantor shall be deemed a "creditor" of
Borrower or any other Guarantor with respect to the Bank Liabilities, as said
term "creditor" is defined in the U.S. Bankruptcy Code, as amended. Each
Guarantor further waives all rights to require the marshaling of any assets of
Borrower and the other Guarantors, which right of marshaling might otherwise
arise from any partial payment of the Bank Liabilities by Guarantor.
3.08. Defenses of Borrower and other Guarantors. The guaranty obligations
-----------------------------------------
of each Guarantor shall remain fully enforceable irrespective of any defenses or
counterclaims that Borrower or any other Guarantor may assert on the Bank
Liabilities, including but not limited to failure of consideration, breach of
warranty, fraud, payment, statute of frauds, bankruptcy, infancy, statute of
limitations, lender liability, accord and satisfaction, and usury.
3.09. Joint Application. Each Guarantor hereby acknowledges that the
-----------------
extension of credit by Bank as referenced herein has been made upon the joint
application of Borrower and all Guarantors, and such extension of credit would
not have been made based solely upon the credit worthiness of Borrower or any
individual Guarantor.
3.10. Subrogation; Subordination. No Guarantor shall exercise any right or
--------------------------
remedy it may acquire against Borrower or any other Guarantor by way of
subrogation, as a result of a payment of Bank Liabilities pursuant to a guaranty
contained in this Article or otherwise, until all Bank Liabilities have been
paid in full. Each Guarantor hereby subordinates all sums presently or hereafter
owed by Borrower to Guarantors to all Bank Liabilities presently or hereafter
owed by Borrower to Bank. This subordination shall cover all forms of debt and
claims that are presently or hereafter owed to Guarantor, including but not
limited to income, fees, expenses, loans and other sums Borrower or any other
Guarantor may owe to such Guarantor. Upon demand by Bank after the occurrence of
and during the continuance of any Event of Default, no Guarantor shall demand or
accept payment of any consideration or debt from Borrower or any other Guarantor
unless and until the Bank Liabilities have been satisfied in full; provided,
however, Guarantors may continue to receive usual and customary expense
payments, rental payments and other payments typically made by Borrower to or on
behalf of Guarantors in the ordinary course of business. Any sums received by
any Guarantor in
9
<PAGE>
violation of this paragraph shall be held by Guarantor in trust for Bank, and
such Guarantor shall immediately notify Bank in writing of all such sums
received. Upon receiving demand from Bank, all sums received and held in trust
pursuant to this paragraph shall be immediately paid over to Bank.
3.11. Burden and Benefit; No other Conditions or Limitations. The
------------------------------------------------------
guaranties set forth in this Article shall inure to the benefit of Bank, its
successors and assigns, and shall be binding upon Guarantors and their
respective successors and assigns. There are no conditions or limitations to
such guaranties except as expressly set forth in this Article.
3.12. Additional and Replacement Subsidiaries. Borrower represents and
---------------------------------------
warrants that the Guarantors and those subsidiaries listed on Exhibit 3.12
------------
comprise all Subsidiaries and other business entities in which Borrower owns
(legally or beneficially) a controlling interest. Should Borrower or any
Guarantor acquire any controlling interest in any other Subsidiary or other
business entity other than those listed on Exhibit 3.12 ("NEW SUBSIDIARY"), then
------------
Borrower and all Guarantors covenant and warrant that each such New Subsidiary
shall guarantee all Bank Liabilities on the same terms and conditions as those
contained within this Article, and all terms and conditions of this Agreement
pertaining to, or binding upon, the Guarantors shall pertain to and bind each
New Subsidiary. Any failure or refusal of any New Subsidiary to immediately join
in the execution of this Agreement and a separate guaranty agreement containing
the same terms and conditions as those appearing within this Article shall be
deemed an Event of Default hereunder.
ARTICLE IV
Security for Loans
------------------
4.01. Grant of Security Interests by Borrower to Bank. To secure the full
-----------------------------------------------
performance of all Bank Liabilities, Borrower hereby mortgages, pledges, conveys
and assigns to Bank, and grants Bank a continuing security interest in, all
personal property of the following types which is now owned or hereafter shall
be owned or acquired by Borrower, whether now in existence or hereafter coming
into existence, and all products and proceeds of such property:
All Equipment, Farm Products, Consumer Goods, Inventory,
Accounts, Contract Rights, Deposit Accounts, General Intangibles,
Instruments, Documents, Chattel Paper, and money (including money
in bank accounts), including but not limited to all accounts
receivable, promissory notes, contracts, furniture, fixtures,
computers, books, supplies, records, and other assets of any kind
owned by Borrower.
4.02. Grant of Security Interests by Guarantors to Bank. To secure its
-------------------------------------------------
guaranty contained in Article III hereof, and all other present and future
liabilities and obligations owed by it to Bank, of every kind or description,
now existing or hereafter created or incurred, matured or unmatured, direct or
indirect, absolute or contingent, joint or several or joint and several, whether
or not evidenced by promissory note, receipt, ledger entry, book account or
otherwise, including interest accrued or accruing thereon and any extensions or
renewals thereof and substitutions therefor, and whether similar or dissimilar
to its guaranty contained in Article III hereof, each Guarantor hereby
mortgages, pledges, conveys and assigns to Bank, and grants Bank a continuing
security interest in, all personal property of the following types which is now
owned or hereafter shall be owned or acquired by such Guarantor, whether now in
existence or hereafter coming into existence, and all proceeds of such property:
All Equipment, Farm Products, Consumer Goods, Inventory,
Accounts, Contract Rights, Deposit Accounts, General Intangibles,
Instruments, Documents, Chattel Paper and money (including money
in bank accounts), including but not limited to all accounts
receivable, promissory notes, contracts, furniture, fixtures,
computers, books, supplies, records, and other assets of any kind
owned by Guarantors.
4.03. Grant of Security Interests by Guarantors to Borrower. To secure any
-----------------------------------------------------
and all present and future liabilities
10
<PAGE>
and obligations owed by it to Borrower, of every kind or description, now
existing or hereafter created or incurred, matured or unmatured, direct or
indirect, absolute or contingent, joint or several or joint and several, whether
or not evidenced by promissory note, receipt, ledger entry, book account or
otherwise, including interest accrued or accruing thereon and any extensions or
renewals thereof and substitutions therefor, each Guarantor hereby mortgages,
pledges, conveys and assigns to Borrower, and grants Borrower a continuing
security interest in, all personal property of the following types which is now
owned or hereafter shall be owned or acquired by such Guarantor, whether now in
existence or hereafter coming into existence, and all proceeds of such property:
All Equipment, Farm Products, Consumer Goods, Inventory,
Accounts, Contract Rights, Deposit Accounts, General Intangibles,
Instruments, Documents, Chattel Paper and money (including money
in bank accounts), including but not limited to all accounts
receivable, promissory notes, contracts, furniture, fixtures,
computers, books, supplies, records, and other assets of any kind
owned by Guarantors.
The security interests granted in this Section shall be junior and subordinate
to the security interests granted in favor of Bank, irrespective of the order in
which such security interests are perfected.
4.04. Assignment by Borrower to Bank of Security Interests Granted by
---------------------------------------------------------------
Guarantors to Borrower. Borrower acknowledges and agrees that the property in
- ----------------------
which it has granted Bank a security interest in Section 4.01 hereof includes
all of the Indebtedness, liabilities and obligations of the Guarantors to
Borrower and the security interests which Guarantors have granted to Borrower in
Section 4.03 hereof to secure such indebtedness, liabilities and obligations.
Borrower shall execute and deliver to Bank, promptly upon Bank's request
therefor, such further instruments of assignment regarding the security
interests granted by Guarantors to Borrower as Bank may request.
4.05. Definition of Collateral; Security Documents. All of the property
--------------------------------------------
described in Sections 4.01 through 4.03 is herein referred to as the
"COLLATERAL." Borrower and Guarantors shall execute and furnish to Bank any and
all financing statements, continuation statements, termination statements, UCC
information and copies certificates and other documents, information and
materials pertaining to the Collateral (collectively referred to herein as the
"SECURITY DOCUMENTS") as Bank may reasonably request from time to time to fully
perfect, preserve, protect, maintain and determine the priority of Bank's
security interest in the Collateral. A carbon, photographic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
4.06. Pledge Provisions. The following provisions shall apply to all
-----------------
shares of capital stock (of all classes), whether now owned or hereafter
acquired, of all Guarantors and all New Subsidiaries (the "PLEDGED STOCK"), all
Student Notes now or hereafter owned by Borrower or any Guarantor (the "PLEDGED
NOTES"), any and all other Instruments, Chattel Paper and Documents now or
hereafter owned by Borrower or a Guarantor ("OTHER PLEDGED PAPER"), and any and
all other property, now or hereafter owned by Borrower or any Guarantor, which
is now or at any time hereafter in the possession of Bank ("OTHER PLEDGED
PROPERTY"); provided, however, that (i) nothing in this Section shall be deemed
to limit the application or effect of any of the provisions of any other Article
hereof or any other provision of this Agreement, it being intended that the
provisions of this Section be cumulative with all other provisions of this
Agreement, (ii) the terms "COLLATERAL" and "OTHER PLEDGED PAPER" shall not
include any Student Notes transferred to CenCor, Inc., a Delaware corporation
("CENCOR") pursuant to the terms hereof, and (iii) the term "OTHER PLEDGED
PROPERTY" shall not include certificates of deposit pledged by the Borrower to
Mark Twain Bank as of the date of this Agreement:
(a) Borrower and all Guarantors hereby pledge, assign, convey, and
transfer unto Bank all the Pledged Stock, Pledged Notes, Other Pledged Paper,
and Other Pledged Property as security for the payment and performance of all
the Bank Liabilities. At or prior to the execution of this Agreement, Borrower
and Guarantors shall deliver to Bank (i) the certificates evidencing all of the
Pledged Stock which is then owned by Borrower or any Guarantor, each
11
<PAGE>
duly endorsed or accompanied by a stock power or other instrument of assignment
duly executed in blank; (ii) all Other Pledged Paper then owned by Borrower or a
Guarantor; and (iii) all of the Pledged Notes which are owned by Borrower or any
Guarantor as of the date of this Agreement. Borrower and each Guarantor
represents and warrants that all Pledged Stock, Other Pledged Paper, and Other
Pledged Property that is owned or controlled by any of them as of the date of
this Agreement is fully and accurately identified on Exhibit 4.06(a), attached
---------------
hereto and incorporated herein by reference. All additional securities received
by Borrower or any Guarantor in distributions in respect of any of the Pledged
Stock by the issuer thereof (or any successor of any such issuer), by way of
stock dividend, split-up, reorganization, recapitalization or other similar
proceedings ("ADDITIONAL PLEDGED SECURITIES"), shall be delivered to Bank, duly
endorsed or accompanied by a stock power or other instrument of assignment duly
executed in blank, promptly after Borrower's or any Guarantor's receipt thereof.
All Student Notes and Other Pledged Paper hereafter acquired by Borrower or any
Guarantor also shall be promptly delivered to Bank. The Pledged Stock, Pledged
Notes, Additional Pledged Securities, Other Pledged Paper and Other Pledged
Property are herein referred to as the "PLEDGED COLLATERAL". Each item of the
Pledged Collateral shall be accompanied, at the time it is delivered to Bank, by
a transmittal letter identifying each item of the Pledged Collateral by date of
execution, the party who executed same, the number of shares and the corporation
issuing same (in the case of Pledged Stock), the stated principal balance (in
the case of Pledged Notes), and other information that reasonably identifies the
other Pledged Collateral. Borrower and Guarantors hereby irrevocably constitute
and appoint Bank, and each of its present and future officers, the agents and
attorneys-in-fact of Borrower and Guarantors, under powers coupled with
interests, with full power of substitution in each, to endorse, in Bank's name
or in the name of Borrower or any Guarantor, any of the Pledged Stock, Pledged
Notes, Additional Pledged Securities or Other Pledged Paper which is not
endorsed prior to the delivery thereof to Bank, and after an Event of Default to
execute, in Bank's name or in the name of Borrower or any Guarantor, any other
writing which Bank deems necessary or appropriate in order to realize on any of
the Pledged Collateral.
(b) Borrower and each Guarantor represents and warrants (i)
Borrower and Guarantors are the only legal and beneficial owners of all the
Pledged Collateral; and (ii) all the Pledged Collateral is and shall remain free
and clear all liens, encumbrances and adverse interests of any kind other than
the pledges and security interests contained herein and the other Liens
permitted by Section 9.02 hereof.
(c) Without limiting the generality of the grants of security
interests in the foregoing Sections, Borrower and Guarantors hereby assign to
Bank any and all cash dividends, redemptions, payments of principal and
interest, and all other distributions and other income (hereinafter collectively
referred to by the term "INCOME") which may become payable on the Pledged
Collateral while this Agreement is in force; provided, however, that until an
Event of Default has occurred and is continuing, Borrower shall have the right
to collect and receive all income payable on the Pledged Collateral. Following
and during the continuance of an Event of Default, Borrower and Guarantors
hereby authorize Bank to direct all issuers and makers of, and all other Persons
obligated on, any of the Pledged Collateral to pay all such Income directly to
Bank or in accordance with Bank's directions, and release such issuers, makers
and other Persons from any and all liability any of them otherwise might have to
Borrower or any Guarantor for paying any such Income directly to Bank. Each such
issuer, maker or other Person may rely and act on the foregoing assignment and
direction with respect to any of the Pledged Collateral until, and the foregoing
release shall be effective with respect to all Income on any of the Pledged
Collateral paid to Bank prior to, the time such issuer, maker or other Person
receives a written notice signed by Bank and acknowledging that it no longer
claims a security interest in the Pledged Collateral or the item thereof in
question. Bank shall have the further authority, after an Event of Default shall
have occurred or be continuing, to endorse, in Bank's own name or in that of
Borrower or any Guarantor, any and all Instruments by which any Income on any of
the Pledged Collateral may be paid, and to take such action as it may deem
appropriate from time to time, in its own name or in that of Borrower or any
Guarantor, to enforce collection of any of the Pledged Collateral or realization
on Borrower's or any Guarantor's rights in any real or personal property
securing the same. To effectuate the foregoing, Bank is hereby granted an
irrevocable power of attorney, coupled with an interest, by Borrower and each
Guarantor, to endorse all such Instruments and related documents and
correspondence in the names of Borrower and Guarantors. Bank may hold any Income
received by it pursuant to this paragraph as additional security for the Bank
Liabilities or may, at its sole option, apply the same to the payment of the
Bank Liabilities in such
12
<PAGE>
order as it may determine. Unless an Event of Default shall have occurred and
be continuing, each of Borrower and Guarantors shall be entitled to exercise any
voting rights carried by any of the Pledged Collateral owned by it and to give
consents, waivers and ratifications in respect thereof; provided, however, no
vote shall be cast, nor shall any consent, waiver, ratification or other action
be given or taken, which would be inconsistent with or violate the terms of any
of the Bank Liabilities or of any instrument or agreement evidencing or relating
to any of the Bank Liabilities.
(d) Upon request by Bank after the occurrence of an Event of
Default, Borrower and Guarantors promptly shall deliver to any issuer or maker
of, or other Person obligated on, any of the Pledged Collateral, and to each
such issuer's transfer agent and/or registrar, if any, written notice of Bank's
security interest in the Pledged Collateral, and shall request each such issuer
and its transfer agent and/or registrar, if any, and each such maker or other
Person to deliver to Bank a written acknowledgment of receipt of such notice,
including a statement that a notation of Bank's security interest has been made
in the records of such issuer or its transfer agent and/or registrar or such
maker or other Person.
(e) Upon payment and performance in full of the Bank Liabilities in
accordance with their terms, if Bank has no further obligation to extend credit
to Borrower or any Guarantor, Borrower and Guarantors shall be entitled to the
return, at their own expense, of such (if any) of the Pledged Collateral as then
is held by Bank under this Agreement, together with any funds then held by Bank
hereunder and a notice of the nature contemplated by paragraph (b) of this
Section, in such number of signed counterparts as Borrower or any Guarantor may
require.
(f) In the event any of the Pledged Collateral is lost, damaged or
destroyed through no fault of Borrower or any Guarantor while in the possession
of Bank and, as a result, Borrower or a Guarantor incurs a loss, Bank shall
reimburse Borrower or the Guarantor for such loss; provided, however, in the
case of Pledged Stock, Pledged Notes, Additional Pledged Securities or Other
Pledged Paper, that Borrower or the Guarantor has retained and can produce a
photocopy of, and prove the existence of, the lost Pledged Collateral. In any
action to enforce Bank's obligations under this paragraph, Borrower or the
Guarantor, as the case may be, must establish by a preponderance of the evidence
that it has exhausted all other avenues of recovery of the alleged loss and
shall otherwise bear the ultimate burden of persuasion with respect to the
issues of causation and amount of loss.
(g) So long as Bank's commitment hereunder is in effect and until
such time as all Loans and all other Bank Liabilities have been fully paid and
discharged, the Bank reserves the right to assess Borrower and Guarantors a fee
(not to exceed $200.00 per month) to offset the personnel expense incurred by
Bank in handling and accounting for the Pledged Collateral. Such fee shall be
payable in accordance with Bank's customary practices.
4.07. Assignment of Servicing Agreement. At or before Borrower's execution
---------------------------------
of this Agreement, Borrower shall cause to be executed and delivered to Bank an
assignment of the agreement between Borrower and National Loan Servicing
Corporation ("NLSC") regarding the servicing and collection by NLSC of all
Student Loans and Student Accounts in the form attached hereto as Exhibit 4.07,
------------
incorporated herein by reference.
ARTICLE V
Conditions Precedent to Loans
-----------------------------
Bank's obligations under this Agreement and the other Loan
Documents, including its obligations to make and to continue making Loans, are
in all events subject to Borrower's and Guarantors' satisfaction of the
following conditions precedent: (a) the continuing truth and accuracy of all of
Borrower's and Guarantors' representations and warranties set forth in this
Agreement; (b) the full and timely performance of all of Borrower's and
Guarantors' covenants and obligations to be performed hereunder; (c) the due
execution and delivery of this Agreement and the other Loan Documents; (d) the
receipt by Bank of all of the Security Documents requested by Bank prior to the
Closing, duly executed and filed or recorded where appropriate; (e) the non-
occurrence of any Default; and (f) the receipt by Bank (at or before the Closing
unless otherwise specified or waived by Bank) of all of the following
instruments, documents and
13
<PAGE>
other items, in form and substance reasonably satisfactory to Bank:
5.01. Evidence of Insurance. Policies or certificates of casualty
---------------------
liability and workers' compensation insurance, naming Bank as an additional
insured or loss payee, in form and substance reasonably satisfactory to Bank and
with limits of liability as prescribed in the Section of this Agreement entitled
"Insurance";
- ----------
5.02. Corporate Authority. Current certificates of good standing issued by
-------------------
the Secretaries of State of Delaware, Tennessee, Colorado, and Missouri
certifying that Borrower is in good standing in each such state; as to each
Guarantor, a current certificate of good standing issued by the Secretary of
State of the state in which it is incorporated and each other jurisdiction in
which it is qualified as a foreign corporation, certifying that such Guarantor
is in good standing in each such state or other jurisdiction; a copy of
Borrower's current certificate of incorporation, including all amendments
thereto, certified to be true and complete by the Secretary of State of
Delaware; a copy of Borrower's current by-laws, including all amendments
thereto, certified to be true and complete by its Secretary or Assistant
Secretary; copies of the current certificate or articles of incorporation and
current by-laws of each Guarantor, including all amendments thereto, certified
to be true and complete by the Secretary or an Assistant Secretary of such
Guarantor; copies of the resolutions adopted by the Boards of Directors of
Borrower and each Guarantor which authorize the execution, delivery and
performance of this Agreement and all other Loan Documents to which Borrower or
such Guarantor is to be a party, certified in each case by the Secretary or
Assistant Secretary of the corporation in question as having been duly adopted
by the Board of Directors of such corporation and as being in full force and
effect as of the date of the Closing; and certificates of Borrower's Secretary
or Assistant Secretary and of the Secretary or Assistant Secretary of each of
Guarantors as to the incumbency and signatures of the officers authorized to
sign, on behalf of Borrower or such Guarantor, as the case may be, this
Agreement, such other of the Loan Documents to which the corporation in question
is to be a party, and, in the case of Borrower, requests for Loans and Borrowing
Base Certificates;
5.03. Borrowing Base Certificate. A duly executed Borrowing Base
--------------------------
Certificate substantially in the form attached hereto as Exhibit 2.04 for each
------------
calendar month prior to the date of the requested Loan;
5.04. Opinion of Counsel. The written opinion of Bryan Cave LLP, counsel
------------------
for Borrower, in the form attached hereto as Exhibit 5.04; and
------------
5.05. Subordination Agreements. Subordination Agreements executed by the
------------------------
Debenture Holders in form and content satisfactory to Bank in its sole
discretion.
5.06. Other Documents. All other documents, instruments and other items
---------------
reasonably requested by Bank.
ARTICLE VI
Representations and Warranties
------------------------------
As an inducement to Bank to enter into this Agreement and to make the Loans
hereunder, Borrower and Guarantors jointly and severally represent and warrant
to Bank that:
6.01. Organization, Guarantors and Qualification. Borrower is a
------------------------------------------
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware. Each Guarantor is a corporation duly organized and
existing in good standing under the laws of the jurisdiction in which it is
incorporated, as indicated in the first paragraph of this Agreement. Borrower is
the record and beneficial owner of all of the outstanding shares of capital
stock of each Guarantor (except that Southern California is the record and
beneficial owner of all of the outstanding shares of capital stock of Dental).
Each of Borrower and the Guarantors has all requisite power and authority to own
its properties and assets and to carry on its business as now being conducted,
and each of them is duly qualified as a foreign corporation and in good standing
in every jurisdiction where the nature of the business transacted or property
owned by it is such that
14
<PAGE>
applicable law requires such qualification, except where the failure to so
qualify would not have a material adverse effect on Borrower, and is duly
authorized, qualified and licensed under all laws, regulations, ordinances or
orders of public authorities, or otherwise, to carry on its business in the
places and in the manner presently conducted.
6.02. Corporate Authority and Authorization. Each of Borrower and
-------------------------------------
Guarantors has all requisite power and authority to enter into and perform this
Agreement and to execute, deliver and perform its obligations under such other
of the Loan Documents to which it is or is to be a party. This Agreement and the
other Loan Documents have been duly authorized by all necessary corporate action
by and have been (or, in the case of any of the Loan Documents except this
Agreement, will be) duly executed and delivered by authorized officers of, such
of Borrower and Guarantors as are or are to be parties thereto, and are (or, in
the case of any of the Loan Documents except this Agreement, will be upon
execution thereof) valid agreements and obligations of such of Borrower and
Guarantors as are or are to be parties thereto, legally binding upon and
enforceable against such of Borrower and Guarantors as are or are to be parties
thereto, in accordance with their respective terms.
6.03. Financial and Other Information. Borrower has heretofore furnished
-------------------------------
to Bank (a) the consolidated balance sheets of Borrower and all Guarantors as of
December 31, 1995 and 1994 and as of September 30, 1996 and 1995, (b) the
consolidated statements of income and cash flows of Borrower and all Guarantors
for the years and partial years ended said dates, and (c) the consolidated
statements of stockholders' equity of Borrower and all Guarantors for the years
ending on said dates. Said consolidated balance sheets and consolidated
statements referred to above fairly present the financial position of Borrower
and all Guarantors as of the dates of such balance sheets and the results of
their operations and cash flows and, in the case of full years, changes in their
stockholders' equity during the years and partial years ended said dates, and
were prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved. Neither Borrower nor any
of the Guarantors had, on September 30, 1996, any contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments, unrealized or
anticipated losses from any unfavorable commitments, or other liabilities,
except as referred to or reflected or provided for in the consolidated balance
sheet as of such date or as disclosed in public documents filed with the
Securities and Exchange Commission.
6.04. Changes in Condition, Since September 30, 1996, there has been no
--------------------
material change in the business, operations, financial condition or prospects of
Borrower and Guarantors, taken as a whole, and neither Borrower nor any of the
Guarantors has entered into any material transaction outside of the ordinary
course of business, except as disclosed on Exhibit 6.04, attached hereto.
------------
6.05. Assets. Borrower has good and marketable title, either directly or
------
indirectly through a Guarantor, to all of the Assets, subject to no Liens,
charges or encumbrances except for those, if any, disclosed on Exhibit 6.05,
------------
attached hereto.
6.06. Litigation. There is no litigation, at law or in equity, or any
----------
proceeding before any federal, state, provincial or municipal board or other
governmental or administrative agency pending, or known to Borrower to be
threatened, which may result in an adverse judgment against, liability of or
loss to Borrower or any of the Guarantors, the amount of which may exceed
$250,000.00 and which is not fully covered by insurance, or which might
otherwise result in any material adverse change in or to the business,
operations, prospects or financial condition of Borrower and the Guarantors
taken as a whole, and no judgment, decree, or order of any federal, state,
provincial or municipal court, board or other governmental or administrative
agency has been issued, or is known to be probable, which has, or is likely to
have, any material adverse effect on the business, operations, prospects or
financial condition of Borrower and the Guarantors taken as a whole, all except
as disclosed on Exhibit 6.06, attached hereto.
------------
6.07. Tax Returns. With the exception of those returns listed on Exhibit
----------- -------
6.07, Borrower and the Guarantors have filed all tax returns which are required
- ----
to be filed and have paid, or made adequate provision for the payment of, all
taxes which have or may become due pursuant to said returns or pursuant to
assessments received. Borrower knows of no material additional assessments for
which adequate reserves determined in accordance with generally accepted
accounting principles have not been established. Borrower and all Guarantors
have made adequate provision for all
15
<PAGE>
current taxes.
6.08. No Legal Obstacle to Agreement. Neither the execution nor the
------------------------------
delivery of the Loan Documents, nor Borrower's and Guarantors' performance of
and compliance with the terms and provisions thereof, will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of, any
Lien upon any of the Assets of Borrower or any of the Guarantors other than
Liens in favor of Bank created hereby. Nor will such execution, delivery,
performance or compliance require any authorization, consent, approval,
exemption or other action by or notice to or filing with any court, governmental
body, administrative agency or other Person pursuant to the charter or by-laws
of Borrower or any of the Guarantors, any material agreement (including any
agreement with stockholders), lease, indenture, mortgage, security agreement or
other instrument, or any order, judgment, decree, arbitration award, law, rule
or regulation to or by which Borrower or any of the Guarantors or any of
Borrower's Assets is subject or bound. Neither Borrower nor any Guarantor is a
party to, or otherwise subject to any provision contained in, any instrument
evidencing Indebtedness of Borrower or such Guarantor, any agreement relating
thereto or any other contract or agreement (including its charter) which limits
the amount of Indebtedness which Borrower or such Guarantor may incur or
otherwise imposes restrictions on the incurring of Indebtedness by Borrower or
such Guarantor, except as set forth in Exhibit 6.08, attached hereto.
------------
6.09. Defaults. Neither Borrower nor any Guarantor is in default under or
--------
in violation of any provision of its charter or bylaws, any provision of any
agreement, lease, indenture, mortgage, security agreement or other instrument,
or any order, judgment, decree, arbitration award, law, rule or regulation to or
by which Borrower or any Guarantor or any of Borrower's Assets is subject or
bound, which default or violation has had, or may have in the future, a material
adverse effect on the business, operations, financial condition or prospects of
Borrower and the Guarantors, taken as a whole.
6.10. Pension Plans. All Plans (if any) existing at the date hereof are
-------------
identified on Exhibit 6.10 hereto. Each Plan is in compliance with the
------------
applicable provisions of ERISA and the Code in all material respects. At the
date hereof, there are no unfunded benefit liabilities (as determined under
Section 4001(a)(18) of ERISA) under any Plan. Neither Borrower nor any Guarantor
has any obligations under any multi employer plan (as defined in Section
4001(a)(3) of ERISA). Borrower has met all of the funding standards applicable
to the Plans, and there exists no event or condition which would permit or
require the institution of proceedings to terminate any Plan under Section 4042
of ERISA. No material liability to the PBGC has been, or is expected by Borrower
to be, incurred by Borrower or any Guarantor.
6.11. Margin Stock. Neither Borrower nor any Guarantor is engaged in the
------------
business of extending credit for the purpose of purchasing or carrying margin
stock, within meaning of Regulation U of the Board of Governors of the Federal
Reserve System. Neither Borrower nor any Guarantor owns any margin stock, and
none of the proceeds of any of the Loans will be used, directly or indirectly,
for the purpose of purchasing or carrying margin stock.
6.12. Disclosure. Neither this Agreement nor any agreement, document,
----------
certificate, statement or information furnished to Bank by or on behalf of
Borrower in connection with the transactions contemplated hereby contains or
will contain any untrue statement of material fact or omits or will omit a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to Borrower which materially and
adversely affects or in the future may (so far as Borrower can now foresee)
materially and adversely affect the business, operations, prospects or financial
condition of Borrower and the Guarantors taken as a whole, except to the extent
that the same may be affected by future general economic conditions and except
as has been disclosed to Bank in writing prior to the execution hereof.
ARTICLE VII
Representations, Rights, Duties
and Covenants with Respect to Collateral
----------------------------------------
16
<PAGE>
7.01. Representations Concerning Collateral. Borrower and Guarantors
-------------------------------------
jointly and severally represent and warrant to Bank that:
(a) The Collateral is and shall be used primarily for business
purposes and such thereof as consists of tangible property is and will be kept
at Borrower's and Guarantors' respective business locations set forth in Exhibit
-------
7.01(a), attached hereto, except that parts of the Collateral may be kept at
- -------
other locations if the type of Collateral in question and the location at which
it is or will be kept are disclosed in writing to Bank either in Exhibit 7.01(a)
---------------
or in a separate notice given not less than 30 days prior to such Collateral
being moved to such location.
(b) As of the effective date of any Borrowing Base Certificate
signed and delivered to Bank on behalf of Borrower, Borrower shall be deemed to
have warranted as to each Account or Student Note included as an Eligible
Account or Eligible Note in the calculation of the Borrowing Base in such
Certificate that such Account or Student Note is an Eligible Account or Eligible
Note, as the case may be, as defined herein.
(c) Except for the security interests granted to Bank herein and
those permitted under the Section entitled, "Restrictions on Liens", Borrower or
---------------------
a Guarantor is, and as to Collateral acquired after the date hereof Borrower or
a Guarantor shall and will be, the owner of the Collateral free from any Lien or
other right, title or interest of any other Person and free from any restriction
on transfer except such as may be imposed by applicable securities laws, and
Borrower and Guarantors shall defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to Bank.
(d) All of Borrower's and Guarantors' records pertaining to
Accounts, Instruments, Contract Rights and Inventory are kept at the addresses
set forth in Exhibit 7.01(a), except as may be disclosed in writing to Bank in
---------------
an Exhibit to this Agreement designated Exhibit 7.01(d).
---------------
(e) The address of each place of business and the chief executive
office of each of Borrower and Guarantors is as set forth on Exhibit 7.01(e).
---------------
(f) Except as set forth on Exhibit 7.01(f), if any, neither
---------------
Borrower nor any Guarantor owns any property subject to a certificate of title
law or any judgments, tort claims, ships or aircraft.
7.02. Rights and Duties Respecting the Collateral. Borrower and Guarantors
-------------------------------------------
jointly and severally agree as follows:
(a) Except for the Liens created herein and those permitted under
the Section entitled "Restrictions on Liens", Borrower and Guarantors shall keep
---------------------
and maintain the Collateral intact and free and clear of all Liens.
(b) Neither Borrower nor any Guarantor shall use the Collateral
illegally or improperly or in any manner differing from usual and ordinary
business usage.
(c) Neither Borrower nor any Guarantor shall transfer any interest
in the Collateral or transfer or dispose of any of the same except for (i) sales
or disposal of obsolete equipment in the ordinary course of business; (ii)
transfers to Borrower or a Guarantor; and (iii) transfers expressly permitted
pursuant to Sections 9.01 and 9.03, below.
(d) Bank shall have the rights, exercisable at any time after an
Event of Default has occurred and during the continuance thereof and whether or
not Borrower and Guarantors were theretofore making collections on their
respective Accounts, (i) to notify the account debtors obligated on any or all
of the Accounts of Borrower and Guarantors to make payment thereof directly to
Bank, (ii) to demand, collect, receive, receipt for, sue for, compound and give
acquittance for, in its own name or that of Borrower, any and all amounts due
and to become due on the Accounts of Borrower and Guarantors, (iii) to endorse,
in its own name or that of Borrower or any Guarantor, as agent and attorney-in-
fact of Borrower and Guarantors under an irrevocable power, any and all
commercial paper given in payment or part payment of the Accounts of Borrower
and Guarantors, (iv) in its discretion, to file any claim or take any other
action
17
<PAGE>
which Bank may deem necessary or appropriate to protect and preserve and realize
upon the security interest of Bank in the Accounts of Borrower and Guarantors
and Proceeds thereof, and (v) to take control of all Proceeds of any or all of
the Accounts of Borrower and Guarantors and retain such Proceeds as security for
or apply them against the Bank Liabilities, the order and method of any such
application to be in the discretion of Bank. Until such time as Bank elects to
exercise any such rights by giving notice to Borrower, Borrower and Guarantors
are authorized to collect and enforce said Accounts in their own respective
names. The costs of such collection and enforcement, including reasonable
attorneys' fees and out-of-pocket expenses, and all other expenses and
liabilities resulting therefrom shall be borne solely by Borrower and Guarantors
whether the same are incurred by Borrower, any Guarantor or Bank.
(e) Bank shall not have any duty as to the protection or collection
of the Collateral or any income thereon, or as to the preservation of any rights
pertaining thereto, beyond the duty to use reasonable care in the custody and
preservation of any of the Collateral in its possession. "Reasonable care" shall
not include taking necessary steps to preserve rights against adverse claimants
or other persons or to ascertain or notify Borrower, any Guarantor or any other
Person of declines in the market value of the Pledged Collateral; maturity, call
or redemption dates; or the accrual or impending expiration of any right, option
or privilege.
7.03. Covenants. Borrower and Guarantors jointly and severally covenant
---------
and agree that so long as Bank's commitment hereunder remains in effect and
until all Loans and other Bank Liabilities have been fully paid and discharged:
(a) They shall keep and maintain at their own respective cost and
expense, at their respective chief executive offices, records relating to the
Collateral which are accurate and complete in all material respects.
(b) They shall keep and maintain such of the Collateral as consists
of tangible property in good repair, condition and operating order and shall
replace the same as reasonably necessary.
(c) They shall furnish to Bank from time to time statements and
schedules further identifying and describing any of the Collateral and its
location.
(d) They shall advise Bank promptly, in reasonable detail, of any
Lien (other than any lien permitted under the Section entitled "Restrictions on
---------------
Liens") or material claim made or asserted against any of the Collateral after
- ------
the date hereof, any material change in the composition of the Collateral, and
of the occurrence of any event which would have a material adverse effect on the
aggregate value of the Collateral or the security interests created hereunder or
the ability of Bank to obtain value from any of the Collateral upon foreclosure.
(e) They shall not permit any of the Collateral which consists of
tangible property to be moved into any state in which one or more financing
statements covering such Collateral are required to be filed to perfect or
maintain the perfection of Bank's security interest in such Collateral, unless
such financing statements have been filed in all required offices.
(f) They shall observe and perform all terms, covenants and
agreements in this Agreement relating to the Collateral, regardless of the
termination of any right or obligation under this Agreement.
(g) If any of them should receive any promissory note, trade
acceptance, chattel mortgage, or other Instrument (except a check or draft which
is promptly deposited in a bank account) in payment of or to evidence the
indebtedness owed on any of their respective Accounts or Instruments, the
recipient shall immediately deliver the same to Bank, except that Student Notes
shall not be required to be delivered more frequently than monthly,
appropriately endorsed or assigned with recourse to Bank's order and, regardless
of the form of such endorsement or assignment, Borrower and Guarantors hereby
waive presentment, demand, notice of dishonor, protest and all other notices
with respect to any such Instrument.
(h) At such times as Bank may request, Borrower or any Guarantor
shall execute and deliver a
18
<PAGE>
schedule or other form of identification, in form reasonably required by Bank,
of all Accounts and Instruments of Borrower or such Guarantor, together with
such other evidences of the existence, status and identity of such Accounts and
Instruments as Bank may reasonably require. At such times as Bank may request,
Borrower shall deliver to Bank copies of all management reports produced in the
ordinary course of Borrower's business which concern payments made with respect
to Accounts or Instruments.
ARTICLE VIII
Other Affirmative Covenants
---------------------------
Borrower and Guarantors jointly and severally covenant and agree that so
long as Bank's commitment hereunder is in effect and until such time as all
Loans and all other Bank Liabilities have been fully paid and discharged,
Borrower and, where indicated, Guarantors shall duly perform and observe each
and all of the following covenants and agreements unless Bank shall otherwise
consent in writing:
8.01. Maintenance of Corporate Existence; Compliance with Laws. Each of
--------------------------------------------------------
Borrower and Guarantors shall maintain its corporate existence, rights and
franchises; shall do or cause to be done all things necessary to become and
remain duly qualified to do business in all jurisdictions where such
qualification is required; shall comply with all applicable laws and all
applicable rules, orders and regulations of and restrictions imposed by federal,
state and local (or foreign, if applicable) governmental bodies, agencies and
instrumentalities, specifically including but not limited to any law, rule,
order, regulation or restriction promulgated or enforceable by the United States
Department of Education ("DOE"), or relating to securities (including, without
limitation, the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Securities and Exchange
Commission under such acts), employee benefits (including, without limitation,
ERISA and the Code), fair labor standards, environmental protection and
pollution control (including, without limitation, all Environmental Laws), land
use and zoning, energy and industrial facilities siting, or occupational health
and safety, where any failure to comply would or could have a material adverse
effect on the business, operations, financial condition or prospects of Borrower
or any Guarantor; and shall obtain, preserve and keep in force any and all
licenses, permits, franchises, patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights, trade secrets and other
authorizations and rights necessary to the ownership of its properties or
necessary to or useful in the conduct of its business.
8.02. Financial Statements.
--------------------
(a) As soon as available and in any event within one hundred
five (105) days after the end of each of its fiscal years, Borrower shall
deliver to Bank a consolidated balance sheet of Borrower and all Guarantors as
at the end of such fiscal year and consolidated statements of income,
stockholders' equity and cash flows of Borrower and all Guarantors for such year
(all hereinafter collectively referred to as "financial statements"), in
reasonable detail, setting forth in comparative columnar form the corresponding
figures for the preceding fiscal year, and accompanied by a report of a firm of
independent certified public accountants acceptable to Bank, stating that such
accountants have audited such financial statements in accordance with generally
accepted auditing standards, that such accountants believe that their audits
provide a reasonable basis for their opinion, and that, in the opinion of such
accountants such financial statements present fairly, in all material respects,
the consolidated financial position of Borrower and all Guarantors as of the
dates indicated and the consolidated results of their operations and their cash
flows for the years then ended, in conformity with generally accepted accounting
principles. Such accountants, however, shall not be liable to anyone by reason
of their failure to obtain knowledge of any Event of Default which would not be
disclosed in the course of an audit conducted in accordance with generally
accepted auditing standards.
(b) Within thirty (30) days after the end of each calendar month
(excluding each December), Borrower shall deliver to Bank (i) consolidated
financial statements of Borrower and all Guarantors, combined financial
statements of Borrower and all Guarantors, all as of the end of and for such
month and the part of Borrower's current fiscal year ended at the end of such
month, in form and detail acceptable to Bank, setting forth in comparative
columnar form the figures for the corresponding period of the preceding fiscal
year and certified by the chief financial officer or
19
<PAGE>
principal accounting officer of Borrower to present fairly, in all material
respects, the financial position of Borrower and all Guarantors as of the end of
such month and the results of their operations for the period then ended, in
conformity with generally accepted accounting principles consistently applied,
(ii) a certificate signed by the chief executive officer, chief financial
officer or principal accounting officer of Borrower demonstrating (with
computations in reasonable detail) compliance by Borrower with the provisions of
this Article VIII and Article IX hereof and stating that there exists no
Default, or, if any Default exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto, and (iii) a listing of all Eligible Notes as prepared by NLSC.
8.03. Notices and Reports. Borrower shall also provide to Bank:
-------------------
(a) Forthwith upon learning of (i) the occurrence of any
Default, (ii) the institution of, or any adverse determination in, any
litigation, arbitration proceeding or administrative or other governmental
proceeding which involves an asserted liability of Borrower or any of the
Guarantors exceeding $250,000.00 or which is otherwise material to Borrower and
the Guarantors, taken as a whole, or (iii) any other material adverse action
taken by any private or governmental commission, board, agency or other Person
with respect to the accreditation, or eligibility to receive funds under or to
otherwise participate in student financial assistance programs, of any school,
or other educational institution or program operated by Borrower or any of the
Guarantors, written notice setting forth the details thereof and the steps being
taken by Borrower with respect thereto;
(b) Forthwith upon receipt of any written communication from any
surety on any bond in which Borrower or any of the Guarantors is a named
principal, a true and complete copy of such communication;
(c) Concurrently with the transmission thereof to the Securities
and Exchange Commission or Borrower's security holders, copies of all
registration statements, proxy statements, reports and other communications
filed by Borrower with the Securities and Exchange Commission or distributed to
Borrower's security holders as such; and
(d) From time to time, such additional information regarding the
financial position, business, properties or affairs of Borrower or any of the
Guarantors as Bank may reasonably request.
8.04. Insurance. Borrower and each Guarantor shall maintain:
---------
(a) Extended coverage hazard insurance on all tangible property
that is part of the Collateral and all other of their respective assets and
properties of an insurable nature and of a character usually insured by persons
engaged in the same or similar businesses, in amounts equal to the full
insurable value (determined in a manner reasonably acceptable to Bank) of the
insured property, insuring against all risks customarily insured against by
persons engaged in the same or similar businesses, including, without
limitation, fire, malicious mischief, vandalism and other casualty coverage, and
naming Bank as loss payee as its interest appears;
(b) Liability insurance against claims for personal injury or
death or property damage suffered by members of the public or others in or about
any of Borrower's or any Guarantor's premises or occurring by reason of
Borrower's or any Guarantor's ownership, maintenance, use, operation or
construction of any plants, shops, machinery or other facilities, with limits of
liability not less than $1,000,000 combined single limit per occurrence, and
naming Bank as an additional insured; and
(c) Any and all workers' compensation or similar insurance
required under the laws of any jurisdiction in which any of its places of
business may be situated.
All such casualty, liability and workers' compensation insurance shall be
effected under valid and enforceable policies issued by insurers reasonably
acceptable to Bank and shall be maintained in full force and effect until all
Bank Liabilities are paid. Each such insurance policy shall include an
endorsement prohibiting cancellation or material change of the policy within at
least 30 days prior written notice to Bank, without any disclaimer of liability
for failure to give such
20
<PAGE>
notice.
8.05. Taxes, Other Liens and Indebtedness. Borrower and each Guarantor
-----------------------------------
shall promptly pay and discharge when due, or in conformity with customary trade
terms, all taxes, assessments, and other governmental charges or levies imposed
upon Borrower or such Guarantor or upon their respective incomes or upon any of
Borrower's Assets, or upon any part thereof, as well as all other Indebtedness
incident to the operations of Borrower or such Guarantor; provided, however,
that Borrower and Guarantors shall not be required to pay any such tax,
assessment, charge, levy or other Indebtedness (other than the Bank Liabilities)
if the amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings diligently conducted and if Borrower or
such Guarantor shall have set up adequate reserves therefor as determined by
Bank in its reasonable discretion.
8.06. Maintenance of Properties. Borrower and each Guarantor shall, and
-------------------------
Borrower shall cause all employees, agents or other operators authorized to
operate or use or have custody of any of Borrower's Assets to, maintain
Borrower's Assets generally in good and workable condition at all times and make
all repairs, replacements, additions and improvements thereto as are reasonably
needed for the proper and efficient conduct of the businesses carried on in
connection therewith. Borrower and each Guarantor shall comply at all times,
with the provisions of all leases and other agreements to which Borrower or any
Guarantor is a party and which (i) relate to real or personal property useful in
the business of Borrower or of any Guarantor, or (ii) are, or the lapse of which
is or would be, material to the business, operations financial condition or
prospects of Borrower and the Guarantors, taken as a whole, so as to prevent any
loss or forfeiture thereof or thereunder, unless compliance therewith is being
currently contested in good faith by appropriate proceedings and Borrower shall,
in accordance with generally accepted accounting principles, have set aside on
its books adequate reserves with respect thereto as determined by Bank in its
reasonable discretion;
8.07. Nature of Business; Books and Records; Other Information; Inspection
--------------------------------------------------------------------
and Audit. Borrower and Guarantors shall continue their respective businesses
- ---------
without material change or interruption and, without the written approval of
Bank, Borrower and Guarantors shall not engage in any material business other
than their respective regular businesses as carried on as of the date hereof.
Borrower and Guarantors shall keep proper books and records of account
pertaining to their respective operations. Promptly upon receipt thereof,
Borrower shall furnish a copy of any report, not otherwise required to be
delivered hereunder, submitted to Borrower by independent public accountants in
connection with any annual, interim or special audit made by them of the books
of Borrower or any Guarantor. From time to time upon the reasonable request of
any authorized officer of Bank to Borrower, Borrower will furnish or will cause
its independent certified public accountants to furnish to Bank such other
information regarding the business, affairs and condition, financial or
otherwise, of Borrower and the Guarantors as such officer may reasonably
request. The authorized officers, agents, independent auditors, employees and
representatives of Bank shall have the right, during normal business hours and
upon reasonable notice, to visit and inspect any premises occupied by Borrower
or a Guarantor or any other of Borrower's Assets and to examine and audit the
books and records of Borrower and the Guarantor to make copies, notes and
abstracts therefrom, and to discuss the affairs, finances and accounts of
Borrower and the Guarantor with the principal officers of and independent public
accountants for Borrower and the Guarantors, all at such reasonable times and as
often as Bank may reasonably request.
8.08. Bank Accounts. Borrower shall maintain its principal banking
-------------
relationship and accounts with Bank, and shall pay fees and other charges for
depository services at the same rates as are customarily charged to other
similar commercial deposit customers of Bank.
8.09. Cooperation; Further Assurances, Borrower and Guarantors shall
-------------------------------
cooperate fully with Bank in preparing, submitting, furnishing, filing and
recording at Borrower's expense any reports, financing statements, instruments,
documents or other items that may be required of or reasonably requested by
Bank. Borrower and Guarantors shall, upon Bank's request, provide such further
documents and assurances concerning the transactions contemplated hereunder as
may be necessary or desirable to establish Borrower's and Guarantor's
willingness and ability to fully perform the terms and obligations contained in
this Agreement and the other Loan Documents.
8.10. Compliance with Loan Documents. Borrower and Guarantors shall cause
------------------------------
all payments to be made on
21
<PAGE>
the Note as the same shall become due and payable and shall promptly and fully
perform the Bank Liabilities and all the agreements and undertakings of Borrower
under the Loan Documents and refrain from doing any act or acts that would
violate any covenant or agreement contained in the Loan Documents.
8.11. Indemnification Against Environmental Liability. Borrower and
-----------------------------------------------
Guarantors jointly and severally agree that they shall indemnify and hold
harmless Bank, any other financial institution which purchases a participation
in the Loans, and their respective officers, directors, employees, agents,
successors and assigns, and the officers, directors, employees and agents of any
successor or assign of either Bank or any such other financial institution,
against any and all claims, demands, losses, liabilities, costs and expenses
(including without limitation reasonable attorneys' fees, whether or not suit be
commenced and including fees incurred in connection with proceedings in
appellate courts) which (a) arise out of or relate to any investigatory or
remedial action, pursuant to any Environmental Law, which relates to or involves
operations or property (including but not limited to the real property
encumbered by the Mortgage) of Borrower or any of the Guarantors, or (b) on
account of injury to any person or damage to any property arising out of, in
connection with or in any way relating to the breach of any covenant contained
in this Agreement, including but not limited to covenants regarding compliance
with Environmental Laws.
8.12. Net Worth, Current Ratio and Working Capital. Based upon the monthly
--------------------------------------------
financial statements delivered by Borrower pursuant to Section 8.02(b), Borrower
and Guarantors shall maintain (a) Consolidated Tangible Net Worth not less than
$6,400,000.00; (b) Consolidated Current Assets equal to not less than 100% of
Consolidated Current Liabilities; (c) Consolidated Quick Ratio (as defined under
FASB) of 1:1; and (d) Consolidated Working Capital of not less than $1,000.00.
Borrower and Guarantors shall remain in compliance with all federal statutes,
regulations and orders binding upon them and enforceable by the DOE, including
but not limited to the Factors of Financial Responsibility as required by the
DOE in regulations published in the Federal Register on June 30, 1995, 34 CFR
Section 688.15: "Factors of Financial Responsibility@, and all amendments
thereto as of the end of each fiscal quarter or other period for which Borrower
is required to submit compliance reports to the DOE.
ARTICLE IX
Other Negative Covenants
------------------------
Borrower and Guarantors jointly and severally covenant and agree that so
long as Bank's commitment hereunder is in effect and until such time as all
Loans and all other Bank Liabilities have been fully paid and discharged,
Borrower and Guarantors shall observe each and all of the following covenants
and agreements unless Bank shall otherwise consent in writing:
9.01. Merger; Liquidation; Sale of Assets. Borrower and Guarantors shall
-----------------------------------
not become a party to any merger or consolidation with any Person other than
Borrower or a Guarantor, nor shall Borrower or any Guarantor dissolve or
liquidate, or sell, convey, lease, transfer or otherwise dispose of, in any
single transaction or series or related transactions, all or any substantial
part of the respective assets of Borrower or any Guarantor to any Person other
than Borrower or a Guarantor; provided, however, (a) the liquidation or sale in
any calendar year of Assets having an aggregate book value of no greater than
$100,000.00, and (b) the transfer to CenCor of accounts that have been written-
off by Borrower in the usual and ordinary course of its business, shall not be
deemed a violation of this Section.
9.02. Restrictions on Liens. Borrower and Guarantors shall not, and
---------------------
Borrower shall not permit any Guarantor to, (a) create or incur or suffer to be
created or incurred or to exist any Lien upon any of Borrower's Assets, whether
now owned or hereafter acquired, or upon the income or profits therefrom; (b)
enter into or permit to exist any arrangement or agreement which prohibits it
from creating such Liens, except to the extent any such prohibition is imposed
by applicable law or a regulatory agency; (c) transfer any of Borrower's Assets,
or any interest therein, for the purpose of subjecting the same to the payment
of Indebtedness or performance of any other obligation in priority to payment of
its general creditors (other than a transfer to Bank); (d) acquire or agree or
have an option to acquire any property or assets upon conditional sale or other
title retention agreement, device or arrangement; (e) suffer to exist, for
22
<PAGE>
a period of more than 30 days after the same shall have been incurred, any
Indebtedness which if unpaid might by law or upon bankruptcy or insolvency, or
otherwise, be given any priority whatsoever over its general creditors; or (f)
subject to the provisions of Section 9.01, sell, assign or otherwise transfer
any of its Accounts, Instruments or Chattel Paper, with or without recourse;
provided, however, that Borrower may create or incur or suffer to be created or
incurred or to exist:
(i) Liens incidental to the conduct of Borrower's or any Guarantor's
business or the ownership of Borrower's Assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or
credit, and which do not in the aggregate --
(A) materially impair the use of the assets subject to such Liens in
the operation of the business of Borrower and the Guarantors, taken as
a whole; or
(B) materially detract from the value of the assets subject to such
Liens for the purpose of the business of the Borrower and the
Guarantors, taken as a whole;
(ii) Liens to secure taxes, assessments and other governmental charges or
claims for labor, material or supplies to the extent that and so long as
payment thereof is not required to be made in accordance with the Section
of this Agreement entitled "Taxes, Other Liens and Indebtedness";
-----------------------------------
(iii) Deposits or pledges made in connection with, or to secure payment
of, workmen's compensation, unemployment insurance, old age pensions or
other employment related claims or charges or in connection with any
litigation, administrative proceeding, dispute or contest in respect of any
such claims or charges to the extent that and so long as payment thereof is
not required to be made in accordance with the Section of this Agreement
entitled "Taxes, Other Liens and Indebtedness";
-----------------------------------
(iv) Liens on property or assets of a Guarantor to secure obligations of
such Guarantor to the Borrower or another Guarantor;
(v) Liens arising from Capitalized Leases; and
(vi) Liens on certificates of deposit pledged by Borrower as of the date
hereof to secure contingent obligations to Mark Twain Bank.
9.03. Indebtedness. Neither Borrower nor any Guarantor shall directly or
------------
indirectly, incur, create, assume, guarantee, become contingently liable in
connection with, or suffer to exist any Indebtedness except (a) the Bank
Liabilities, (b) trade payables and other Indebtedness (excluding any
Indebtedness for borrowed money) that arise in the ordinary and usual course of
the business of Borrower and Guarantors, (c) obligations for the payment of rent
on real property necessary to the operation of the business of Borrower and
Guarantors, (d) Capitalized Leases Obligations and loans not exceeding an
aggregate principal amount of $750,000.00 and annual payment obligations thereon
not exceeding $250,000.00; (e) leases other than Capitalized Leases for the
possession and use of real and personal property; (f) the Subordinated 5%
Debentures; and (g) contingent obligations owed to Mark Twain Bank of Kansas
City ("MARK TWAIN BANK") relating solely to letters of credit issued by that
Bank in favor of the DOE and the States of California and Colorado.
Notwithstanding the foregoing, Bank acknowledges that Borrower and Guarantors
owe certain indebtedness ("CENCOR DEBT") to CenCor. Borrower and each Guarantor
represents and warrants the CenCor Debt (x) is a non-recourse, unsecured
obligation; (y) does not exceed $480,000.00; and (z) is collectible solely from
Borrower's and Guarantors' Accounts that (i) have not had any payments made for
180 or more days; (ii) do not qualify as Eligible Accounts; and (iii) have been
written-off as uncollectible Accounts in accordance with Borrower's and
Guarantors' usual and customary accounting practices ("BAD ACCOUNTS"). Bank
agrees that Borrower and Guarantors may continue to assign their Bad Accounts to
CenCor solely to satisfy the remaining balance of the CenCor Debt.
9.04. Rental Obligations. Neither Borrower nor any Guarantor shall incur
------------------
any obligation for the payment of rent which causes the aggregate obligations of
Borrower and the Guarantors for the payment of rent (excluding
23
<PAGE>
obligations under Capitalized Leases) to exceed $3,300,000.00 during any fiscal
year of Borrower.
9.05. Maintenance of Location of Records and Chief Executive Office.
-------------------------------------------------------------
Neither Borrower nor any Guarantor shall move any of its records relating to
Accounts, Contract Rights or Inventory to a new location, or change the location
of its Chief Executive Office, except upon not less than thirty (30) days prior
notice to Bank.
ARTICLE X
Defaults and Remedies
---------------------
10.01. Events of Default. The occurrence of one or more of the following
-----------------
events shall constitute an "EVENT OF DEFAULT" under this Agreement:
(a) Any failure by Borrower to pay when due any installment of
principal or interest on the Note or any costs, fees, reimbursable expenses or
other amounts payable by Borrower hereunder or under any of the other Loan
Documents, which failure is not cured within five (5) Banking Days after the
payment shall have become due; or
(b) Any failure by Borrower or any Guarantor to perform or
observe any other term, covenant or provision of the Bank Liabilities, which
failure is not remedied or cured within thirty (30) days after written notice
thereof shall have been given by Bank to Borrower; provided, however, that in
the case of any such failure which by its nature can be cured but cannot
possibly be cured within such thirty-day period, such failure shall not
constitute an Event of Default so long as (i) Borrower or the affected Guarantor
shall have commenced action to cure the same within such thirty-day period; (ii)
Borrower or the affected Guarantor shall be diligently pursuing action to cure
the same as promptly as possible; and (iii) such default is not materially
impairing the value of the Collateral or the validity or enforceability of the
Liens; or
(c) Any representation or warranty made by Borrower herein or in
any report, certificate, financial statement or other writing furnished in
connection with or pursuant to this Agreement or the Loan Documents proving to
have been false or materially incorrect or misleading as of the date on which it
was made or to have become incorrect in any material respect; or
(d) The occurrence of a default or event of default with respect
to, or of any other event which permits the holder thereof to accelerate the
maturity of, any Indebtedness owing by Borrower to any Person other than Bank;
or
(e) The validity or enforceability of this Agreement, any of the
Loan Documents or any transaction contemplated hereunder being contested by
Borrower or any Guarantor, or Borrower or any Guarantor denying that it has any
further liability or obligation hereunder when any Bank Liabilities remain
unpaid; or
(f) Commencement by Borrower of a voluntary case under Title 11
of the United States Code, or any similar law, federal or state, whether now or
hereafter existing; or
(g) Entry by a court of an order for relief against Borrower in
an involuntary case under Title 11 of the United States Code or any such similar
law, appointment of a trustee or receiver for Borrower or all or a substantial
part of the properties of Borrower in any involuntary proceeding, or the taking
by any court of jurisdiction of all or a substantial part of the properties of
Borrower in any involuntary proceeding for the reorganization, dissolution,
liquidation or winding up of the business of Borrower, unless such order is
vacated or stayed on appeal or otherwise or such trustee or receiver is
discharged or such jurisdiction is relinquished within 60 days of the event in
question; or
(h) Borrower becoming insolvent, or making an assignment for the
benefit of creditors or admitting in writing its inability to pay its debts
generally as they become due, or consenting to the appointment of a
24
<PAGE>
receiver or trustee or liquidator of all its properties or a substantial part
thereof, or failing within 60 days to pay bond or otherwise discharge any
judgment or attachment which is not stayed on appeal or otherwise being
contested in good faith; or
(i) Jack L. Brozman ("BROZMAN") shall cease to be Chairman of
the Board of Directors of Borrower for any reason whatsoever and a substitute
Chairman acceptable to Bank in its reasonable discretion is not appointed within
a reasonable period of time; or
(j) the total percentage of Borrower's outstanding common stock
owned by Brozman, the Estate of Robert F. Brozman, deceased, or other Persons
controlled by Brozman, declines to less than 20% for any reason whatsoever.
All Events of Default described within Section 10.01(a) shall be deemed
continuing unless such amounts are paid and accepted by Bank within the calendar
month in which they are due. All other Events of Default described in Section
10.01 shall be deemed continuing unless expressly waived by Bank in writing.
10.02. Acceleration of Note; Remedies. At any time after the
------------------------------
occurrence of any Event of Default, Bank may, without prior notice to Borrower
or any other Person, declare the unpaid balance of the Note, all accrued and
unpaid interest thereon and all other Bank Liabilities to be immediately due and
payable notwithstanding the stated maturity thereof. Upon such declaration, the
unpaid balance and accrued interest on the Note and all other sums owing under
this Agreement and the other Loan Documents shall become immediately due and
payable without presentment, protest or further demand or notice of any kind,
all of which are hereby expressly waived, and notwithstanding any subsequent
cure of all Events of Default. Bank may thereupon proceed to enforce its rights
and remedies under this Agreement, the Loan Documents and the Uniform Commercial
Code and to collect the Note, by suit at law or in equity or otherwise. Bank's
rights include, without limitation, all other collection rights under this
Agreement and the rights to:
(a) transfer any of the Collateral into its name or that of its
nominee on the books of the issuer thereof (if any), without thereby effecting a
foreclosure of its security interest or a retention of the Collateral in
satisfaction of the Bank Liabilities or any thereof, unless otherwise
acknowledged in writing by Bank;
(b) exercise any voting rights carried by any of the Collateral
and give all consents, waivers and ratifications in respect thereof and
otherwise act with respect thereto as though it were the outright owner thereof
(Borrower and Guarantors hereby for such purpose irrevocably constituting and
appointing Bank and each of its present and future officers the proxies and
attorneys-in-fact of Borrower and Guarantors, under powers coupled with
interests, with full power of substitution in each, and hereby releasing Bank
from any liability it otherwise might have to Borrower or any Guarantor as a
result of any action taken pursuant to this authorization);
(c) require Borrower and Guarantors to assemble the Collateral
and to make it available to Bank at a place reasonably convenient to both
parties; and
(d) sell, assign and deliver, at any time or from time to time,
in one or more lots, any or all of the Collateral, at any private or public
sale, for cash, for credit or for other property, for immediate or future
delivery, and for such price or prices and on such terms as Bank, in its
reasonable discretion, may determine, Borrower and Guarantors hereby waiving and
releasing any and all right or equity of redemption whether before or after sale
hereunder.
Bank, if permitted by law under the circumstances, may bid for and purchase the
whole or any part of the Collateral so sold free from any such right or equity
of redemption. Any notification required by law to be given in connection with
any sale shall conclusively be deemed reasonable if given as provided in the
Section of this Agreement entitled "Notices" hereof not less than ten (10) days
-------
prior to the time of any public sale or the time after which any private sale is
to be made. For the purpose hereof, an agreement to sell all or any part of the
Collateral shall be treated as a sale thereof, and Bank shall be free to carry
out such sale pursuant to such agreement and Borrower and Guarantors shall
25
<PAGE>
not be entitled to the return of any of the Collateral subject thereto,
notwithstanding that subsequent to the Pledgee's entry into such an agreement
Borrower and Guarantors may have paid in full the Bank Liabilities. In
connection with any sale of all or any part of the Collateral, Bank may adopt
such procedures and require such representations from and impose such
restrictions on the purchaser as Bank may reasonably deem necessary to avoid
violation of federal or state securities laws, without thereby detracting from
the commercial reasonableness of the sale.
10.03. Right of Set-Off. In addition to any other remedies provided for
----------------
herein, in the Loan Documents, in the Uniform Commercial Code, or otherwise at
law or in equity, upon the occurrence of an Event of Default, Bank shall have
the right of set-off, without demand or notice to anyone, against any funds of
Borrower or any Guarantor on deposit with it.
10.04. Collection of Accounts. Bank shall have the right to control the
----------------------
collection of Accounts as provided in Section 7.02(d) of this Agreement, but
shall have no obligation to exercise such right.
10.05. Performance of Contracts. At any time after the occurrence of an
------------------------
Event of Default, if Bank determines in good faith that such action is necessary
or appropriate in the interest of preserving and realizing on the Collateral,
Bank may take over, either directly or by contracting with a third party, at
Borrower's expense, the performance of Borrower's obligations under any contract
under which an Account has arisen and which has not been fully performed by
Borrower.
10.06. Remedies Cumulative. All rights and remedies of Bank provided in
-------------------
this Agreement, the other Loan Documents, the Uniform Commercial Code or
otherwise at law or in equity are cumulative, and Bank may exercise any or all
such rights and remedies at any time and from time to time. No single or
partial exercise of any right, power, or privilege under any Loan Document shall
constitute a waiver of or prejudice or preclude any other or future exercise
thereof or the exercise of any other right, power, or privilege.
10.07. No Cure. The exercise of any right or remedy of Bank shall not
-------
constitute a cure of any Event of Default unless all sums then due and payable
to Bank with respect to the Loan Documents are repaid and Borrower has cured
all other Events of Default.
10.08. Borrower's and Guarantor's Schools. Part of the Collateral is
----------------------------------
owned and used by Borrower and Guarantors in connection with the operation
of"ConCorde Career Institutes" located in various states (collectively,
"Schools"). Borrower, Guarantors and Bank acknowledge and agree the value of
the Schools as going concerns significantly exceeds the combined value of their
individual assets sold on a piecemeal basis. In order to maximize the value of
such Collateral, Borrower and each Guarantor covenants and agrees that upon
demand by Bank following any Event of Default and during the continuance
thereof, they shall relinquish possession and control of such Schools demanded
by Bank to either Bank or any Person designated by Bank ("TRUSTEE"). The
Trustee shall be permitted to operate such Schools pending final sale or other
disposition thereof, either by Borrower or Guarantors, or by Bank in the
exercise of its remedies under the Uniform Commercial Code. Should Bank
commence any litigation against Borrower or any Guarantor following any Event of
Default and during the continuance thereof, Borrower and all Guarantors hereby
unconditionally and irrevocably consent to the appointment of one or more
receivers (individually, "RECEIVER") for the operation of any one or more
Schools pending final disposition of such litigation. Notwithstanding the
foregoing, nothing contained herein shall obligate Bank to demand the
appointment of a Trustee or Receiver or to take possession or control of all or
any part of the Collateral subsequent to an Event of Default and during the
continuance thereof, and the decision of whether to take any such action or
remedy shall be in the sole and exclusive discretion of Bank. Neither Bank, any
Trustee, nor any Receiver shall be personally liable for any loss whatsoever
occurring after the transfer of possession of any School other than for those
losses directly and proximately caused by the intentional or wilful misconduct
of the party sought to be charged with such loss.
ARTICLE XI
Miscellaneous
-------------
26
<PAGE>
11.01. Place and Crediting of Payments. All payments of interest,
-------------------------------
principal, fees, expenses and other amounts payable by Borrower hereunder shall
be made promptly when due, in immediately available funds and lawful money of
the United States, at Bank's office at 701 Minnesota, One Security Plaza, Kansas
City, Kansas 66117, or at such other office as Bank shall direct in writing from
time to time. Payments received by Bank after 2:00 p.m. shall be credited on the
next Banking Day.
11.02. Payment on Non-Banking Days. Whenever any payment to be made
---------------------------
pursuant to this Agreement or the Note or the other Loan Documents shall be
stated to be due on a day that is not a Banking Day, payment shall be due and
made on the next succeeding Banking Day and such extension of time shall in such
case be included in computing interest, if any, in connection with such payment.
11.03. No Waiver. Neither any course of dealing between Borrower Bank nor
---------
any omission or delay by Bank in exercising any right, power or privilege under
this Agreement or any other Loan Documents shall impair such right, power or
privilege or be construed to be a waiver of or acquiescence in any Event of
Default, and any single or partial exercise of any right, power or privilege
shall not preclude other or further exercise of that or any other right, power
or privilege and no waiver shall be valid unless in writing and signed by Bank
and then only to the extent specified.
11.04. Authority to Act. Bank shall be entitled to act upon any notices
----------------
and instructions (telephonic or written) reasonably believed by Bank to have
been delivered by any person authorized to act on behalf of Borrower or any
Guarantor pursuant hereto, regardless of whether any such notice or instruction
was in fact delivered by a person so authorized to act, and Borrower and
Guarantors hereby agree to indemnify Bank and hold it harmless with respect to
any losses or expenses ensuing from any such action.
11.05. Termination. Unless sooner terminated as hereinafter provided,
-----------
Bank's commitment to make Loans hereunder shall expire on April 30, 1998,
provided that Bank's commitment may be extended by written instrument specifying
the duration of the extension and signed on behalf of Bank by an authorized
officer of Bank. Without any prior notice to Borrower in either case, Bank may
suspend its commitment to make Loans under this Agreement at any time during the
existence of any uncured Default and may terminate its commitment at any time
after the occurrence of any Event of Default, notwithstanding any subsequent
cure of such Event of Default. In the event Bank suspends its commitment and
thereafter all existing Defaults are cured before becoming Events of Default,
Bank's commitment shall be reinstated upon the cure of the last of such Defaults
to be cured. Neither the suspension nor the termination of Bank's commitment
shall affect any other of the rights, liabilities or obligations of Bank and
Borrower under this Agreement.
11.06. Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns except that neither Borrower nor any Guarantor may assign
or transfer any of its rights or obligations under this Agreement or any of the
Loan Documents or any interest in any moneys due or to become due under any of
the Loan Documents without the prior written consent of Bank. Borrower
recognizes that in making the Loans hereunder Bank is relying upon Borrower's
expertise and reputation and Bank's knowledge of Borrower.
11.07. Notices. All notices, requests, demands and other communications
-------
required or permitted by this Agreement shall be in writing and shall be given
to or made upon the respective parties hereto by depositing the same in the
United States mail, certified or registered, postage prepaid, or by telegram or
private courier service, charges prepaid, or by delivery in person, to the
appropriate address set forth below, and shall be deemed given or made when so
deposited in the mail, delivered to the telegraph company or personally
delivered.
If to Borrower:
---------------
ConCorde Career Colleges, Inc.
Attention: Jack L. Brozman
12th & Baltimore, City Center Square
P.O. Box 26610
27
<PAGE>
Kansas City, Missouri 64196
with copies to:
Bryan Cave, LLP
Attention: Thomas W. Van Dyke
One Kansas City Place, Suite 3500
1200 Main Street
Kansas City, Missouri 64105
If to Bank:
-----------
Security Bank of Kansas City
P.O. Box 171297
One Security Plaza
Kansas City, Kansas 66117
with a copy to:
Dunn & Keller, L.C.
Attention: John M. Keller
800 W. 47th, Suite 406
Kansas City, Missouri 64112
Either party may change its notice address by giving written notice to the
other party. When given to Borrower as herein provided, notice shall also
be deemed to have been given to all Guarantors.
11.08. Amendments. Borrower, Bank and Guarantors may from time to time
----------
enter into written agreements supplemental hereto for the purpose of modifying
or adding any provision to this Agreement or changing the rights and privileges
of Bank, Borrower or any Guarantor hereunder. Any such supplemental agreement
shall be binding upon Borrower, Bank and Guarantors and their respective
successors and assigns. The provisions of this Section shall not, under any
circumstances, limit the Bank's rights, or Borrower's or any Guarantor's
obligations, under any other provision of this Agreement.
11.09. Severability. Should any court or bankruptcy tribunal hold any
------------
provision of this Agreement to be invalid, void or unenforceable for any reason
whatsoever, then such provision shall be deemed automatically severed from this
Agreement and all other provisions hereof shall remain fully and completely
enforceable according to their original terms. Should Borrower, any Guarantor,
or any other Person upon whom any provision of this Agreement is binding be
discharged or released of any obligation hereunder, such discharge or release
shall not affect the liability of any other party to this Agreement. A judicial
determination in any jurisdiction that any provision hereof is invalid, void or
unenforceable shall not preclude the operation or binding effect of such
provision in any other jurisdiction.
11.10. Survival of Representations, Rights and Obligations. All
representations, warranties, conditions, covenants and other terms herein shall
survive the Closing and the execution hereof and all other Loan Documents and
the making of the Loans hereunder. The rights of Bank and the obligations of
Borrower under this Agreement shall survive the maturity of the Note (whether
such maturity occurs by acceleration or otherwise) and shall continue in full
force and effect until all amounts due under the Note and all other Bank
Liabilities have been fully paid and discharged.
11.11. Governing Law. This Agreement, the Note and the other Loan
-------------
Documents shall be construed in accordance with and governed by the laws,
statutes and decisions of the State of Kansas.
11.12. Headings. Article and Section headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
11.13. Expenses of Bank. Borrower and Guarantors jointly and severally
----------------
agree to pay or reimburse Bank, on demand, for all reasonable out-of-pocket
costs, fees and expenses, including but not limited to reasonable attorneys'
28
<PAGE>
fees and expenses (whether or not suit be commenced and including fees and
expenses in connection with proceedings in bankruptcy and appellate courts), if
and to the extent not prohibited by applicable law, incurred or paid by Bank in
connection with the negotiation, preparation, execution, interpretation and
enforcement of this Agreement and the other Loan Documents, or in connection
with the collection or enforcement of any of the Bank Liabilities or the
exercise of any of Bank's rights and remedies under the Loan Documents, all of
which costs, fees and expenses shall become and remain a part of the Bank
Liabilities until paid or reimbursed and shall bear interest from the date of
Bank's demand until paid or reimbursed in full at the Default Rate specified in
the Note; provided, however, Borrower and Guarantors shall not be obligated to
reimburse more than $10,000.00 to Bank for attorneys' fees incurred in
connection with the negotiation, preparation and execution of this Agreement and
the other Loan Documents.
11.14. Certain Decisions. Where this Agreement, the Note, the other Loan
-----------------
Documents or related materials provide that any matter, document, instrument,
item or thing is subject to the discretion, consent, satisfaction, approval or
determination of Bank, then, unless expressly otherwise provided, such
discretion, consent, satisfaction, approval or determination may be exercised,
made or withheld by Bank in the exercise of its sole and absolute discretion and
shall not be subject to review under any standard other than Bank's subjective
good faith in conformity with its customary standards and practices.
11.15. Entire Agreement. This Agreement and the Exhibits attached hereto
----------------
embody the entire agreement and understanding between the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
11.16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
11.17. NO ORAL AGREEMENTS. The following is included in this Agreement
------------------
pursuant to K.S.A. Section 16-118(b):
THIS AGREEMENT, THE NOTE, AND THE LOAN DOCUMENTS COLLECTIVELY
CONSTITUTE THE WRITTEN CREDIT AGREEMENT WHICH IS THE COMPLETE AND
FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND BANK
WITH REGARD TO THE EXTENSION OF CREDIT AND/OR FINANCIAL
ACCOMMODATION REFERRED TO HEREIN AND CONTAINS ALL NONSTANDARD TERMS
RELATING THERETO.
SUCH WRITTEN CREDIT AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE
OF ANY PRIOR ORAL CREDIT AGREEMENT OR OF ANY CONTEMPORANEOUS ORAL
CREDIT AGREEMENT BETWEEN THE PARTIES.
BORROWER AND BANK AFFIRM THAT THERE ARE NO UNWRITTEN ORAL CREDIT
AGREEMENTS.
Bank's Initials: ______ Borrower's Initials: ______
11.18. Venue. Borrower and each Guarantor irrevocably agrees that
-----
subject to Bank's sole and absolute election, Bank may bring suit, action, or
other legal proceedings arising out of this Agreement in courts located in
Kansas, whether local, state, or federal. Borrower and each Guarantor hereby
consents to the jurisdiction of such courts and waives any rights they may have
to request a change of venue or a removal to another court.
11.19. WAIVERS OF JURY TRIAL. ALL PERSONS WHO SIGN THIS AGREEMENT: A)
---------------------
WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT, THE NOTE OR THE
LOAN DOCUMENTS BROUGHT BY ANY PARTY; B) HAVE MADE THIS WAIVER KNOWINGLY,
INTENTIONALLY, AND VOLUNTARILY; C) ACKNOWLEDGE NO RELIANCE UPON ANY ORAL OR
WRITTEN STATEMENTS MADE BY ANY OTHER PARTY OR IN ITS BEHALF, EITHER TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR TO MODIFY OR NULLIFY ITS EFFECT, OTHER THAN
THOSE CONTAINED HEREIN; AND D) ACKNOWLEDGE HAVING READ AND UNDERSTANDING THE
MEANINGS AND RAMIFICATIONS OF THIS WAIVER PROVISION. TO EFFECTUATE THE
FOREGOING, BANK IS HEREBY GRANTED A POWER OF ATTORNEY TO FILE, AS ATTORNEY-IN-
FACT FOR ALL OF THE PERSONS WHO SIGN THIS AGREEMENT, A COPY OF THIS AGREEMENT IN
ANY COURT DESCRIBED IN THE SECTION OF THIS AGREEMENT ENTITLED "VENUS" . tHIS
GRANT IS TO ALLOW BANK TO RECEIVE THE BENEFIT OF THIS WAIVER OF TRIAL BY
29
<PAGE>
JURY PURSUANT TO ANY APPLICABLE LAW. THE COPY OF THIS AGREEMENT SO FILED SHALL
CONCLUSIVELY BE DEEMED TO CONSTITUTE THE WAIVER OF TRIAL BY JURY BY ALL PERSONS
WHO SIGN THIS AGREEMENT IN ANY PROCEEDING ARISING OUT OF OR OTHERWISE RELATING
TO THIS AGREEMENT, THE NOTE, ANY OTHER LOAN DOCUMENT, OR BANK'S CONDUCT WITH
RESPECT TO ANY OF THE FOREGOING. THIS POWER OF ATTORNEY IS COUPLED WITH AN
INTEREST AND IS IRREVOCABLE. ALL PERSONS WHO SIGN THIS AGREEMENT ACKNOWLEDGE
THE FOREGOING WAIVER HAS BEEN REVIEWED WITH AN ATTORNEY OF SUCH PERSON'S CHOICE
AND THE MEANING AND EFFECT OF THE FOREGOING WAIVER ARE FULLY UNDERSTOOD.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the day and
year first above written.
SECURITY BANK OF KANSAS CITY
By: __________________________________
Authorized Officer
CONCORDE CAREER COLLEGES, INC.
By: __________________________________
Jack L. Brozman
Chairman of the Board and
Chief Executive Officer
ATTEST:
_________________________
Lisa M. Henak, Secretary
ACKNOWLEDGMENT
--------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this _____ day of March 1997, before me, the
undersigned, a notary public in and for said state, came Jack L. Brozman,
Chairman of the Board and Chief Executive Officer of ConCorde Career Colleges,
Inc., a Delaware corporation, to me personally known to be such officer and the
same person who executed as such officer the foregoing instrument on behalf of
said corporation, and such person duly acknowledged the execution of the same to
be the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
_______________________________________
Notary Public in and for said County and State
My commission expires:
_____________________
31
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
UNITED HEALTH CAREERS
INSTITUTE, INC.
By: __________________________________
Asa E. Johnson, President
ATTEST:
_________________________
Lisa M. Henak, Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this _____ day of March, 1997, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of United Health Careers Institute, Inc., a California corporation, to
me personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last
above mentioned.
_______________________________________________
Notary Public in and for said County and State
My commission expires:
_____________________
33
<PAGE>
SOUTHERN CALIFORNIA COLLEGE OF
MEDICAL AND DENTAL ASSISTANTS, INC.
By: __________________________________
Asa E. Johnson, President
ATTEST:
_________________________
Lisa M. Henak, Secretary
AKNOWLEDGEMENT
--------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this _____ day of March, 1997, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of United Health Careers Institute, Inc., a California corporation, to
me personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
_______________________________________
Notary Public in and for said County and State
My commission expires:
_____________________
34
<PAGE>
CONCORDE CAREERS - FLORIDA, INC.
By: __________________________________
Asa E. Johnson, President
ATTEST:
_________________________
Lisa M. Henak, Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this _____ day of March, 1997, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of ConCorde Careers - Florida, Inc., a Florida corporation, to me
personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last
above mentioned.
_______________________________________________
Notary Public in and for said County and State
My commission expires:
_____________________
35
<PAGE>
COLLEGES OF DENTAL AND MEDICAL
ASSISTANTS, INC.
By: __________________________________
Asa E. Johnson, President
ATTEST:
_________________________
Lisa M. Henak, Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this _____ day of March, 1997, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of Colleges of Dental and Medical Assistants, Inc., a California
corporation, to me personally known to be such officer and the same person who
executed as such officer the foregoing instrument on behalf of said corporation,
and such person duly acknowledged the execution of the same to be the act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
_______________________________________
Notary Public in and for said County and State
My commission expires:
_____________________
36
<PAGE>
CAREER ASSISTANCE, INC.
By: __________________________________
Patrick J. Debold, President
ATTEST:
_________________________
Lisa M. Henak, Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this _____ day of March, 1997, before me,
the undersigned, a notary public in and for said state, came Patrick J. Debold,
President of Career Assistance, Inc., a Delaware corporation, to me personally
known to be such officer and the same person who executed as such officer the
foregoing instrument on behalf of said corporation, and such person duly
acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
_______________________________________
Notary Public in and for said County and State
My commission expires:
_____________________
37
<PAGE>
COMPUTER CAREER INSTITUTE, INC.
By: __________________________________
Asa E. Johnson, President
ATTEST:
_________________________
Lisa M. Henak, Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this _____ day of March, 1997, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of Computer Career Institute, Inc., an Oregon corporation, to me
personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
_______________________________________
Notary Public in and for said County and State
My commission expires:
_____________________
38
<PAGE>
EXHIBIT 21
CONCORDE CAREER COLLEGES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Southern California College of Medical and Dental Assistants, Inc.
United Health Careers Institute, Inc.
Computer Career Institute, Inc.
Colleges of Dental and Medical Assistants, Inc.
Concorde Careers--Florida, Inc.
Concorde Career Institute, Inc., (Florida Corporation)
Career Assistance, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-26093) of Concorde Career Colleges, Inc. of our
report dated March 13, 1997 appearing in Part II Page 13 in this Annual Report
on Form 10-K.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 31, 1997
(The remainder of this page was left blank intentionally.)
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