<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CALIFORNIA CULINARY ACADEMY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
625 Polk Street
San Francisco, California 94102
May __, 1999
Dear Shareholder:
On behalf of California Culinary Academy, Inc. (the "Academy"), I
cordially invite you to attend the 1999 Annual Meeting of Shareholders, which
will begin at 2:00 p.m. local time, on Friday, June 11, 1999, at the offices of
the Academy, 625 Polk Street, San Francisco, California. At the meeting,
shareholders will be asked to vote on the election of seven directors.
Shareholders will also be asked to approve the issuance of Common Stock of the
Academy issuable in connection with the conversion of Convertible Notes and
Series B Preferred Stock and the exercise of Warrants which, subject to
shareholder approval and certain other conditions, will be sold by the Academy
to raise gross proceeds of $7 million. The principal purpose of this financing
is to fund the development of a new regional campus in New Orleans, Louisiana.
In addition, shareholders will be asked to approve an amendment to the Academy's
by-laws authorizing a minimum of six and a maximum of nine directors, with the
exact number to be six unless otherwise fixed by the Board of Directors and to
ratify the selection of Deloitte & Touche LLP as the independent auditors for
the 2000 fiscal year.
These are very important matters that may have significant impact on
the future of the Academy. The accompanying Notice and Proxy Statement describe
these proposals. We urge you to read this information carefully and vote your
shares promptly. The directors and officers of the Academy hope that as many
shareholders as possible will be present at the meeting. BECAUSE THE VOTE OF
EACH STOCKHOLDER IS IMPORTANT, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU NOW PLAN TO ATTEND THIS
MEETING. This will not limit your right to attend the meeting or to change your
vote at the meeting.
We appreciate your cooperation and interest in the Academy. To
assist us in preparation for the meeting, please return your proxy card at your
earliest convenience.
Sincerely yours,
Keith H. Keogh
President and Chief Executive Officer
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
--------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 11, 1999
--------------------------
May __, 1999
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
California Culinary Academy, Inc. (the "Academy") will be held at the Academy's
principal offices at 625 Polk Street, San Francisco, California, on Friday, June
11, 1999, at 2:00 P.M., local time, for the following purposes:
1. To elect six directors to hold office until the 1999
Annual Meeting of Shareholders and until their
successors are elected and qualified.
2. To approve the issuance of shares of the Academy's
Common Stock, $.01 par value per share (the "Common
Stock"), issuable upon conversion of the Academy's
Convertible Notes (the "Convertible Notes") and Series B
Preferred Stock (the "Series B Preferred Stock"), and
upon exercise of warrants to purchase shares of Common
Stock (the "Warrants"), under Nasdaq Rule 4460(i)(1)(D).
3. To approve amendment of the by-laws of the Academy to
authorize a minimum of six and a maximum of nine
directors, with the exact number to be set at six
directors until otherwise fixed by the board of
directors or shareholders of the Academy.
4. To ratify the selection of Deloitte & Touche LLP as
independent accountants for the fiscal year ending
June 30, 1999.
5. To transact such other business as may properly come
before the meeting or any adjournment thereof.
All of the above matters are more fully described in the
accompanying Proxy Statement. Only shareholders of record at the close of
business on April 12, 1999, are entitled to notice of and to vote at the meeting
or any postponement or adjournment thereof.
<PAGE>
All stockholders are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy as promptly as possible in the
postage prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Sincerely yours,
Keith H. Keogh
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT. ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE
ANNUAL MEETING. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, TO ENSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY IN THE RETURN ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. THE GIVING OF A PROXY WILL NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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<PAGE>
PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS OF
CALIFORNIA CULINARY ACADEMY, INC.
TO BE HELD ON JUNE 11, 1999
-------------------------------
GENERAL
The enclosed proxy is solicited by and on behalf of the Academy for
use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Friday, June 11, 1999 at 2:00 P.M., California time, or at any adjournment or
adjournments thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the
principal executive offices of the Academy, located at 625 Polk Street, San
Francisco, California. All expenses incurred in connection with this
solicitation, including postage, printing, handling and the actual expenses
incurred by brokerage houses, custodians, nominees and fiduciaries in forwarding
proxy material to beneficial owners, will be paid by the Academy. In addition to
solicitation by mail, certain officers, directors and regular employees of the
Academy, who will receive no additional compensation for their services, may
solicit proxies by telephone, telegram or personal call. These proxy
solicitation materials are being mailed on or about May 14, 1999, to all
shareholders entitled to vote at the Annual Meeting.
A copy of the Academy's Annual Report to Shareholders for the fiscal
year ended June 30, 1998 is being mailed with this Proxy Statement to each of
the Academy's shareholders of record at the close of business on April 12, 1999.
The report includes financial statements examined and reported upon by Deloitte
& Touche LLP, independent auditors for the Academy.
OUTSTANDING SHARES AND RIGHTS
Only shareholders of record at the close of business on June 11,
1999 (the "record date") are entitled to notice of and to vote at the Annual
Meeting. At the record date, there were 3,815,431 shares of common stock, no par
value (the "Common Stock"), issued and outstanding. The presence in person or by
proxy of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting will constitute a quorum for the purpose
of transacting business at the Annual Meeting.
Each share of Common Stock is entitled to one vote on each matter
that may come before the Annual Meeting, subject to the provision regarding
cumulative voting in the election of directors as described below. An
affirmative vote of a majority of the shares present and voting at the Meeting
is required for approval of all items being submitted to the shareholders for
their
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<PAGE>
consideration, other than the election of directors, which is determined by a
plurality of the votes cast if a quorum is present and voting. Abstentions
and broker-non-votes are each included in the determination of the number of
shares present and voting for purposes of determining the presence of a
quorum. Abstentions will be included in tabulations of the votes cast on
proposals presented to the shareholders and therefore will have the effect of
a negative vote. Broker non-votes will not be counted for purposes of
determining the number of votes cast for a proposal.
Under California law and the Academy's Articles of Incorporation and
By-Laws, cumulative voting is permitted in the election of directors. Under
cumulative voting rules, every shareholder voting in the election of directors
may cumulate such shareholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of votes
to which the shareholder's shares are entitled, or distribute the shareholder's
votes among the number of directors to be elected, or for any two or more of
them, as the stockholder may see fit, provided, however, that no shareholder
will be entitled so to cumulate votes unless the name of the candidate or
candidates for whom such votes would be cast has been placed in nomination prior
to the voting and any shareholder has given notice, at the Annual Meeting and
prior to the commencement of voting, of such shareholder's intention to cumulate
his votes. The candidates receiving the highest number of votes, up to the
number of directors to be elected, shall be elected. The persons authorized to
vote shares represented by executed proxies in the enclosed form (if authority
to vote for the election of directors is not withheld) will have full discretion
and authority to vote cumulatively and to allocate votes among any or all of the
Board of Directors' nominees as they may determine or, if authority to vote for
a specified candidate or candidates has been withheld, among those candidates
for whom authority to vote has not been withheld.
REVOCABILITY OF PROXIES
At the Annual Meeting, valid proxies will be voted as specified by
the shareholder. Any shareholder giving a proxy in the accompanying form retains
the power to revoke the proxy at any time prior to the exercise of the powers
conferred in the proxy and may do so by taking any of the following actions: (i)
delivering written notice that the proxy is revoked to the Secretary of the
Academy; (ii) delivering to the Secretary of the Academy a duly executed proxy
bearing a later date; or (iii) voting in person at the Annual Meeting. A
shareholder who attends the Annual Meeting but does not vote will not revoke the
shareholder's proxy. Please note that if shares are held of record by a broker,
bank or other nominee and the shareholder wishes to vote at the Annual Meeting,
the shareholder must obtain from the record holder a proxy issued in the name of
the shareholder.
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<PAGE>
ELECTION OF DIRECTORS
Seven directors are to be elected at the Annual Meeting to serve
until the next Annual Meeting of Shareholders and until their respective
successors are elected or appointed and qualified. All of the nominees are
presently members of the Board of Directors of the Academy. Unless marked to the
contrary, the proxies received will be voted FOR the election of the nominees
named below. In the event any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for the
balance of those named and for such other nominee as the Board may select.
INFORMATION WITH RESPECT TO NOMINEES
RALPH BRENNAN, DIRECTOR. Mr. Brennan is the co-owner of Mr. B's
Bistro and owner of Bacco and Ralph Brennan's Red Fish Grill in New Orleans'
French Quarter. Mr. Brennan was elected to the Academy's Board of Directors in
1998. He is 47 years old.
JAMES D. COCKMAN, DIRECTOR. He formerly served as Chief Executive
Officer of Sara Lee International and is a partner in Woof Gang Brand
Development. Mr. Cockman serves on the boards of Ryans Family Steak House,
Greenville, South Carolina, and Clayton Homes, Inc., Knoxville, Tennessee.
Mr. Cockman was elected to the Board of Directors in 1997. Mr.
Cockman is 64 years old.
BERT P. CUTINO, DIRECTOR. Since October 1968, Mr. Cutino has been
Executive Chef and Owner of the Sardine Factory Restaurant in Monterey,
California. Mr. Cutino served as a member of the Board of Advisors to the
California Culinary Academy from 1994 to 1998. Mr. Cutino was elected to the
Board of Directors in July 1998. Mr. Cutino is 59 years old.
KEITH H. KEOGH, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr.
Keogh joined the Academy as Executive Vice President of Education in June 1995.
In April 1996, he was appointed as President and Chief Operating Officer of the
Academy, and in May, 1998, he was appointed as Chief Executive Officer of the
Academy and joined the Board of Directors. From 1971 until 1995, Mr. Keogh was
employed at Walt Disney World, Orlando, Florida, and held various positions,
most recently as Executive Chef, Research and Development - Theme Parks. Mr.
Keogh was the Manager of the Culinary Team USA (the US Culinary Olympic Team)
from 1988 to 1996 and past president of the World Association of Cooks Societies
and the American Culinary Federation. Mr. Keogh is 46 years old.
PAUL H. PRUDHOMME, DIRECTOR. For more than five years, Chef Paul
Prudhomme has been the proprietor of K-Paul's Louisiana Kitchen, located in the
French Quarter of New Orleans, Louisiana. Chef Prudhomme also has developed and,
for more than five years, has been distributing a line of natural herbs and
spices, "Chef Paul Prudhomme's Magic Seasoning Blends." Chef Prudhomme is also
the author of several cookbooks. Chef Prudhomme was elected to the Board of
Directors in 1997. Chief Prudhomme is 57 years old.
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<PAGE>
LEENIE RUBIN, DIRECTOR. Ms. Rubin is the founder and since 1982 has
been president of Marketing Spectrum, a marketing and research firm with major
clients in the food service industry. Ms. Rubin was elected to the Board of
Directors in 1998. Ms. Rubin is 56 years old.
DAVID WARNOCK, NOMINEE FOR DIRECTOR. Mr. Warnock is a founding
partner of Cahill, Warnock & Company. Prior to founding Cahill, Warnock &
Company, Mr. Warnock was employed from 1983 to 1995 at T. Rowe Price Associates,
Inc. He was founder and President of T. Rowe Price Strategic Partners and T.
Rowe Price Strategic Partners II, private equity partnerships with committed
capital of over $72 million. He also served as an Executive Vice President of
the T. Rowe Price New Horizons Fund. He is on the board of directors of several
portfolio companies and charitable organizations. David received a BA from the
University of Delaware, an MS (in finance) from the University of Wisconsin and
is a CFA.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors has two standing committees: the Compensation
Committee and the Audit Committee. The Board does not have a nominating
committee.
The Audit Committee consists of Ralph Brennan, James D. Cockman and
Keith H. Keogh. The Audit Committee recommends engagement of the Academy's
independent accountants, approves services performed by such accountants and
reviews, in consultation with the independent accountants, the Academy's
accounting system and system of internal controls. The Audit Committee met one
time during the fiscal year ended June 30, 1998.
The Compensation Committee consists of James D. Cockman, Bert P.
Cutino and Leenie Rubin. The Compensation Committee administers the Academy's
stock option plans and employee benefit plans and approves salaries, bonuses and
other compensation arrangements for the Academy's executive officers. The
Compensation Committee met two times during the fiscal year ended June 30, 1998.
During the fiscal year ended June 30, 1998, the Board of Directors
held nine meetings. Each incumbent director attended more than 75% of the
aggregate number of all board meetings and meetings of committees on which such
director served during the fiscal year ended June 30, 1998.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the General Corporation Law of California (the
"Corporations Code"), the Academy's Articles of Incorporation eliminate, to the
fullest extent permitted under California law, the personal liability of a
director to the Academy for monetary damages in an action brought by or in the
right of the Academy for breach of a director's duties to the Academy and its
shareholders. In addition, the Academy's Articles of Incorporation and By-Laws
provide for indemnification, to the fullest extent permitted under the
Corporations Code, of directors, officers and agents of the
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Academy and persons who serve at the request of the Academy as a director,
officer, employee, trustee or agent of another corporation, partnership,
joint venture, trust or other enterprise.
The Academy has also entered into indemnification agreements with
its directors and executive officers, as permitted under the By-Laws. The
indemnification agreements provide that the directors and executive officers
will be indemnified to the fullest extent permitted by applicable law against
all expenses (including attorneys' fees), judgments, fines and amounts
reasonably paid or incurred by them for settlement in any threatened, pending or
completed action, suit or proceeding, including any derivative action, on
account of their services as a director or executive officer of the Academy of
any subsidiary of the Academy or of any other Academy or enterprise in which
they are serving at the request of the Academy.
EXECUTIVE OFFICERS
The following are executive officers but not directors of the
Academy:
Laura Rivera joined the Academy in March 1999 as Vice President of
Marketing. From July 1994 to July 1998, Ms. Rivera was Director of Marketing and
Publicity of the Feature Animation Division of The Disney Academy. Ms. Rivera
holds a B.A. and a Masters degree from University of Wisconsin and an M.B.A. in
Marketing from Harvard Graduate School.
Thomas A. Spanier joined the Academy in May 1998 as Vice President -
Development and Chief Operating Officer. From February 1998 to May 1998, he
consulted with the Academy as interim CFO. From August 1994 until May 1998, he
was an independent business consultant, providing interim management services as
well as consulting services to a range of high technology and marketing
companies. From April 1993 to August 1994, Mr. Spanier was Executive Vice
President and Chief Operations Officer of the Academy. Mr. Spanier holds a B.S.
degree in Business (Managerial Economics) from the University of California,
Berkeley and an M.B.A. from Harvard Business School.
Charles E. White joined the Academy in May 1998 as Vice President
and Chief Financial Officer. Mr. White has provided consulting and turn-around
management services to a range of companies in the restaurant, real estate
development and hospitality industries. From 1996 until 1998, he was Chief
Operating Officer of Stars Restaurants. From June 1993 to June 1995, he was
General Manager and Chief Executive officer of Lummi Casino, and since 1986, he
has been President and Chief Executive Officer of Pea Soup Andersen's. Mr. White
is a C.P.A. and Certified Hotel Administrator. He holds a B.S. degree in
Accounting from San Diego State University, an M.B.A. from Southland University
and an L.L.B. degree from La Salle Extension University.
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<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Directors who are employees of the Academy are not separately
compensated for their services as directors or as members of committees of the
Board of Directors. During fiscal 1998, directors who were not employees of the
Academy and who resided in Northern California received $9,000 per annum as an
annual retainer for serving on the Board. During fiscal 1998, directors who were
not employees of the Academy and who resided outside Northern California
received $12,000 per annum as an annual retainer for serving on the Board.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid to Keith H.
Keogh, the Academy's Chief Executive Officer, and Theodore G. Crocker, who was
Chief Executive Officer of the Academy until May 1, 1998 (the "Named
Executives"). No other executive officer received total annual salary and bonus
exceeding $100,000 for the fiscal year ended June 30, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
----------
Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year ($) Options/SARs (#) ($)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Keith H. Keogh 1998 $195,000 0 $ 10,522(1)
President and Chief 1997 184,769 0 10,010(2)
Executive Officer 1996 153,846 120,000 564(3)
Theodore G. Crocker 1998 0 0 $ 72,000(4)
Chief Executive Officer 1997 X X 72,000(4)
1996 X X 72,000(4)
</TABLE>
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(1) Includes $772 in payments on life insurance policies and $9,750 in
employer contributions to the 401(k) Plan
(2) Includes $772 in payments on life insurance policies and $9,238 in
employer contributions to the 401(k) Plan.
(3) Represents payments on life insurance policies.
(4) Represents $72,000 reimbursement for office space and costs.
The following table shows certain information regarding options held
at June 30, 1998 by the Named Executives:
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FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Options in-the-Money Options at Fiscal
at Fiscal Year-End Year-End
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Theodore G. Crocker
Keith H. Keogh 140,000 40,000 $84,000 $42,000
</TABLE>
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(1) Calculated based on the difference between the closing price of the
Common Stock on the NASDAQ National Market at June 30, 1998 of $7.75 and
the average option exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, certain Directors exercised options issued under
the Academy's 1992 Stock Option Plan to purchase Common Stock in the aggregate
amount of 122,840 shares. The payment for these exercises was in the form of
unsecured promissory notes in the aggregate amount of $571,271, each due with
interest at the rate of 9.5% per annum in a single payment on or before June 30,
1998. A note from Theodore G. Crocker was extended to December 31, 1999. The
note has not been paid and at March 15, 1999, the amount outstanding, including
accrued but unpaid interest, was $519,956.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1,
1999 with respect to the shares of Common Stock beneficially owned by (i)
persons known by the Academy to own more than five percent of the outstanding
shares of Common Stock; (ii) each director and nominee for director; (iii) the
executive officers named in the Summary Compensation Table (see "Executive
Compensation") and (iv) all directors and executive officers of the Academy as a
group. Ownership information is based upon information furnished by the
respective individuals.
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<TABLE>
<CAPTION>
Beneficial Ownership(2)
Directors, Nominees, Executive Officers ----------------------------------
and & 5% Shareholders(1) Number of Shares Percent
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Ralph Brennan 500 *
James D. Cockman 40,000(2) 1.05%
Theodore Crocker 1,170,576(4) 30.7%
Bert Cutino 0 --
Keith Keogh 147,590(5) 3.9%
Paul H. Prudhomme 40,000(3) 1.05%
Leenie Ruben 0 --
David Warnock 0 --
Thomas Green
c/o Thomas Green Securities
601 S. Figueroa Street, Suite 2750 697,276(6) 18.3%
Los Angeles, CA 90017
All Directors and Executive Officers as a group (9 Persons) 2,128,642 55.8%
</TABLE>
* Less than 1%
(1) Except as otherwise noted the address of each listed person is c/o
California Culinary Academy, Inc., 625 Polk Street, San Francisco, CA
94102.
(2) Beneficial ownership of directors, officers and 5% or more shareholders
includes both outstanding Common Stock, shares issuable upon exercise of
Warrants or options, or through conversion of a security that are
currently exercisable or will become exercisable within 60 days after
the date of this Proxy Statement. Shares which the person has the right
to acquire within 60 days of the date of this Proxy Statement are deemed
to be beneficially owned by such person and to be outstanding in
calculating the percentage ownership of the person (or group) but are
not deemed to be outstanding as to any other person.
(3) Includes 40,000 shares of Common Stock issuable upon exercise of current
exercisable options.
(4) Includes 137,990 shares of Common Stock
issuable upon exercise of current exercisable options.
(5) Include 140,000 shares of Common Stock issuable upon exercise of current
exercisable options.
(6) Includes 292,407 shares held by Thomas Green Securities, Inc.
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<PAGE>
PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF THE
ACADEMY'S COMMON STOCK IN CONNECTION WITH THE CONVERTIBLE
NOTES, THE SERIES B PREFERRED STOCK AND THE WARRANTS
UNDER NASDAQ RULE 4460(i)(1)(D).
GENERAL
The Academy's shareholders are being asked to approve the issuance
of shares of the Academy's common stock issuable in connection with the
placement of $7,000,000 aggregate principle amount of Convertible Notes
("Convertible Notes"), warrants to acquire 250,000 shares of Common Stock (the
"Warrants") and one share of a new series of Preferred Stock (the "Series B
Preferred Stock"), all on the terms and conditions as set forth below
(collectively, the "Transaction"), to Cahill, Warnock Strategic Partners Fund,
L.P. and Strategic Associates, L.P. (collectively, the "Purchasers"). As
discussed below, subject to the approval of the majority of the Academy's
shareholders and the satisfaction of certain conditions to closing, the closing
of the Transaction (the "Closing") shall take place on or before June 30, 1999.
RATIONALE FOR TRANSACTION
The gross proceeds to the Academy from the proposed financing will
be $7,000,000. The Academy plans to use the proceeds from the Transaction
primarily to finance a portion of the costs associated with the development of a
second Core Campus to be opened in New Orleans, Louisiana (the "New Orleans
Project"). Any remaining proceeds may be used to finance in part the expansion
of the College of Food division, for strategic acquisitions and for working
capital.
The Convertible Notes, the Warrants, and the Series B Preferred
Stock are convertible into shares of Common Stock at the election of the
holders. In certain circumstances, in order to maintain listing of the Academy's
Common Stock on the Nasdaq National Market, Nasdaq Stock Market, Inc. rules
require that the Academy seek shareholder approval to issue shares of Common
Stock in excess of 20% of the outstanding shares of Common Stock. Assuming the
conversion of the Convertible Notes and the Series B Preferred Stock and the
exercise of the Warrants, the Academy will be required to issue Common Stock in
excess of that 20% limit; accordingly, the Academy is seeking shareholder
approval of such issuance.
DESCRIPTION OF THE SECURITIES PURCHASE AGREEMENT
The Convertible Notes, the Warrants, and Series B Preferred Stock
will be sold pursuant to Securities Purchase Agreement, dated as of April 28,
1999 among the Academy and the Purchasers (the "Securities Purchase Agreement").
The following summary of the material provisions of the Securities Purchase
Agreement. It is not intended to be complete and is subject to and qualified in
its entirety by reference to, all of the provisions of such agreement.
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ISSUANCE AND SALE OF CONVERTIBLE NOTES, WARRANTS AND SERIES B PREFERRED STOCK
Pursuant to the Securities Purchase Agreement, the Academy will
sell, and the Purchasers will purchase, for $7,000,000 newly issued Convertible
Notes of the Academy with an aggregate principal amount of $7,000,000, Warrants
to purchase 250,000 shares of Common Stock of the Academy and one share of
Series B Preferred Stock.
CERTAIN REPRESENTATIONS AND WARRANTIES
Under the Securities Purchase Agreement, the Academy has made
certain representations and warranties to the Purchasers as to the Academy
including (i) due corporate organization and qualification to do business; (ii)
the capital structure of the Academy; (iii) the lack of subsidiaries; (iv) the
Academy's interest in other entities; (v) the due authorization, execution,
delivery and performance of the Securities Purchase Agreement and related
agreements and their enforceability; (vi) required consents from governmental
authorities or other third parties; (vii) compliance with laws and absence of
pending and threatened litigation; (viii) insurance; (ix) intellectual property;
(x) no conflict with or violation of the Academy's organizational documents or
bylaws, any of the Academy's material agreements and applicable law; (xi)
permits; (xii) employee benefits plans; (xiii) absence of agreements to sell
assets, noncompete covenants, expenditures, transactions with related parties,
or licenses; (xiv) registration rights; (xv) delivery of documents; (xvi) real
property assets; (xvii) tangible assets; (xviii) environmental matters; (xix)
the reports and other documents filed by the Academy with the SEC and the
accuracy of the information contained therein; (xx) state accreditation and
licensure; (xxi) federal educational certification and eligibilities; (xxii)
absence of certain changes to the Academy's business, financial condition, or
capitalizations; (xxiii) taxes; (xxiv) qualified small business; (xxv) labor and
employment matters; (xxvi) absent of certain pending transactions; (xxvii)
pending and threatened litigation; (xxviii) indebtedness; (xxix) year 2000
compliance; (xxx) full disclosure; (xxxi) books and records; (xxxii) brokers'
fees; (xxxiii) absence of status as an Investment Company; and (xxxiv) absence
of status as a Real Property Holding Company.
Under the Securities Purchase Agreement, each Purchaser has made
certain representations and warranties to the Academy as to (i) status as
"accredited investor" and investment intent; (ii) the due authorization,
execution, delivery and performance of the Securities Purchase Agreement and
related agreements and their enforceability; (iii) required consents from
governmental authorities or other third parties; and (iv) no conflict with or
violation of organizational documents or bylaws, any material agreements, and
applicable law.
CERTAIN COVENANTS
GENERAL. The Securities Purchase Agreement contains various
covenants by the parties with respect to the Transaction. It requires each of
the Academy and Purchasers to make required filings, use all reasonable efforts
to cooperate with the other in such filings, and use all reasonable efforts to
do other things reasonably necessary to consummate the transactions contemplated
by the Securities Purchase Agreement.
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NOTICE TO PURCHASERS UPON AN EVENT OF DEFAULT. The Academy has
agreed, pursuant to the Securities Purchase Agreement, to notify the Purchasers
upon the occurrence or existence of an Event of Default (see "Events of Default"
below).
RESTRICTIVE COVENANTS. Pursuant to the Securities Purchase
Agreement, the Academy has agreed that from April 28, 1999 through the Closing
Date, without the prior written consent of the Purchasers, the Academy will not
issue securities, operate its business out of the ordinary course, violate
section 5 of the Purchaser Rights Agreement described below, or incur certain
unsecured indebtedness in excess of $1,000,000.
CONDITIONS TO CLOSING
CONDITIONS TO PURCHASERS' OBLIGATIONS. The Securities Purchase
Agreement provides that the obligations of the Purchasers to consummate the
transactions contemplated by the Securities Purchase Agreement are subject to
the fulfillment prior to or on the Closing Date of certain conditions precedent,
or the waiver thereof, including the following: (i) the representations and
warranties of the Academy shall be true and correct in all material respects as
of the Closing Date as though made on or as of the Closing Date; (ii) the
Academy shall have performed and complied in all material respects with all
covenants, agreements and conditions contained in the Securities Purchase
Agreement required to be performed or complied with by the Academy prior to the
Closing; (iii) there shall not have occurred any events or circumstances that
would have a material adverse effect on the business, financial condition,
property or results of operations of the Academy or a matter that has prevented
or would reasonably be expected to prevent the consummation of the transactions
contemplated by the Securities Purchase Agreement (excluding general changes in
the educational service industry, economic conditions or the securities
markets); (iv) the Academy shall have received all registrations, qualifications
and permits required under applicable state securities laws and by any other
governmental regulatory agency; (v) the Academy shall have obtained the approval
of its shareholders in accordance with the rules and regulations of NASDAQ; (vi)
the Academy shall have issued the Convertible Notes, Warrants and Preferred
Stock and delivered certain related instruments; (vii) the Academy shall have
provided evidence of a firm commitment for a sale and leaseback transaction
involving the New Orleans Project providing annual lease payments no greater
than 15% of such purchaser's total investment in the project; (viii) the Academy
shall have executed and delivered the Registration Rights Agreement; (ix) David
Warnock, or another individual designated by Cahill Warnock, shall have been
appointed to the Academy's Board; (x) certain of the Academy's executives shall
have confirmed that the transactions contemplated by the Securities Purchase
Agreement do not trigger change of control provisions in their employment
agreements; (xi) the Academy shall have implemented an operation and management
plan for lead-based paint at its headquarters; (xii) no Event of Default shall
have occurred or then exist; (xiii) the Academy shall have executed and
delivered the Purchaser Rights Agreement; (xiv) Keith H. Keogh shall have
executed and delivered the Shareholders Agreement; (xv) the Purchasers shall
have received a legal opinion from counsel to the Academy with respect to
certain matters; (xvi) the Academy shall have delivered to Purchasers
certificates, executed by the Academy's president or vice president, as to
certain matters; (xvii) the Academy shall have
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received or obtained all required consents, approvals, permits or waivers
from other parties required to consummate the transactions contemplated the
Securities Purchase Agreement; (xviii) the Academy shall have delivered
certificates from the Secretary of State of California, the Secretary of
State of each state with the Academy is qualified to do business, and the
secretary or the assistant secretary of the Academy regarding certain
matters; (xix) Keith H. Keogh shall have entered into a two year employment
contract; and (xx) the Academy shall have provided the Purchasers with
certain assurances regarding the Academy's records with the U.S. Department
of Education.
CONDITIONS TO THE ACADEMY'S OBLIGATIONS
The obligations of the Academy to consummate the transactions
contemplated by the Securities Purchase Agreement are subject to the fulfillment
prior to or on the Closing Date of certain conditions precedent, or the waiver
thereof, including the following: (i) the representations and warranties of the
Purchasers shall be true and correct in all material respects as of the Closing
Date as though made on and as of the Closing Date; (ii) the Purchasers shall
have delivered to the Academy certificates as to certain matters; (iii) the
Purchasers shall have executed and delivered the Purchaser Rights Agreement, the
Standstill Agreement and the Registration Rights Agreement; (iv) the Purchasers
shall have obtained all registrations, qualifications and permits required under
applicable state securities laws; (v) the Academy shall have received approval
of its shareholders in accordance with the rules and regulations of NASDAQ; (vi)
the Academy shall have received or obtained all required consents, approvals,
permits and waivers from governmental entities or other parties required to
consummate the transactions contemplated by the Securities Purchase Agreement;
and (vii) the Purchasers shall have transferred $7,000,000 in cash to the
Academy's account.
TERMINATION; TERMINATION FEES
The Securities Purchase Agreement may be terminated at any time
prior to the Closing Date (i) by unilateral action of the Academy; (ii) by the
Academy or the Purchasers if (a) Academy's shareholders fail to approve the
transaction or (b) if the Closing has not occurred on or before June 30, 1999,
provided that a party may not terminate if it has failed to perform its
obligations under the Securities Purchase Agreement; or (iii) by either party if
the other party is in breach of any of its representations, warranties or
covenants, the breach of which would reasonably be expected to have a material
adverse effect, and such condition either is incapable of being satisfied prior
to the Closing Date or the other party is not using its best efforts to cure
such breach in as timely a manner as practicable.
If the Securities Purchase Agreement is terminated as provided
above, there shall be no further liability on the part of any party, except that
the Academy shall pay the Purchasers an aggregate termination fee of $140,000 as
liquidated damages if (i) the Academy unilaterally terminates the Securities
Purchase Agreement; (ii) the Purchasers terminate the agreement after June 30,
1999 and the Purchasers have performed their obligations under the Securities
Purchase Agreement; (iii) the Purchasers have terminated due to the Academy's
breach of any representation, warranty or covenant which condition is incapable
of being satisfied prior to the
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Closing Date or the Academy is not using its best efforts to cure the breach;
or (iv) the Academy's shareholders do not approve the Transaction, and within
six months after the shareholders' meeting the Academy enters into a
definitive agreement to sell equity or debt securities to a third party where
the aggregate net proceeds to the Academy would exceed $5 million.
INDEMNIFICATION
The Securities Purchase Agreement provides that the Academy and the
Purchasers will indemnify and hold harmless the other and certain of the other's
related persons from and against any and all actual losses, claims, damages,
liabilities, costs and expenses incurred by or asserted or awarded in connection
with or arising out of inaccuracy or breach of such party's representations,
warranties or covenants contained in the Securities Purchase Agreement.
All representations and warranties made in the Securities Purchase
Agreement survive for a period of 15 months after execution of the Securities
Purchase Agreement; provided, however, that the representations and warranties
as to environmental matters, employee benefits, and taxes survive for the
applicable statutory period of limitations. The covenants of the Academy and the
Purchasers, the events of default, determination and abandonment provisions, and
lack of third party beneficiary provisions shall survive and remain in force so
long as any Convertible Note or Warrant remains issued and outstanding.
DESCRIPTION OF CONVERTIBLE NOTES
The following summary of the material terms of the Convertible Notes
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all of the provisions of the Securities Purchase Agreement and
the Form of Note attached as an exhibit thereto.
INTEREST
The Notes bear interest at a rate of 10% per annum; provided,
however, that if an Event of Default, as defined in the Securities Purchase
Agreement occurs, the Notes shall bear interest at a rate of 15% per annum.
PRINCIPAL
Principal on the Notes shall be due and payable quarterly on the
last day of March, June, September and December in an amount equal to $175,000,
commencing on December 31, 2001; provided, however, that the Purchasers may
defer repayment of principal. Upon a change of control of the Academy, at the
election of the Purchasers, one-half of the outstanding principal shall be due
and payable on the first and second anniversaries of such change of control. All
outstanding principal shall finally be due and payable on the six-year
anniversary of the issuance of the Notes.
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EVENTS OF DEFAULT
Upon any of the following events, and following specified grace
periods (each an "Event of Default"), the Purchasers may declare all outstanding
principal and unpaid accrued interest on the Convertible Notes immediately due
and payable and from and after the date of any such Event of Default the unpaid
principal shall bear interest at a rate of 15% per annum until repaid in full:
(i) the Academy fails to pay an installment of principal or interest when due;
(ii) the Academy fails to perform or defaults in the performance of any material
term or covenant contained in the Securities Purchase Agreement or any other
material agreement with the Purchasers, and such failure or default has a
material adverse effect; (iii) a breach of a representation or warranty of the
Academy in any certificate, instrument or written statement made or delivered
pursuant to any Transaction Document was incorrect when made and has a material
adverse effect; (iv) the Academy suffers certain events of bankruptcy or
insolvency; (v) a final judgment against the Academy in excess of $1 million is
not discharged within 30 days after the Academy has exhausted all rights to
appeal; (vi) a breach by the Academy of its agreements having a material adverse
effect; (vii) upon the removal of the Purchasers' representative on the Board of
Directors; (viii) certain adverse events with respect to the Academy's
participation in Title IV programs; or (ix) the Academy fails to maintain $1
million in its accounts until the end of the tenth quarter after the Closing
Date, and thereafter for so long as the Preferred Stock remains outstanding,
fails to maintain certain financial ratios.
REDEMPTION
The Academy may redeem the outstanding principal of the Notes, at a
price which causes a minimum internal rate of return to the Purchasers of 25%,
(i) on or after the third anniversary of the Closing Date or (ii) in the event
of certain mergers or qualified public offerings involving the Academy.
CONVERSION
The holders of the Notes may convert them into shares of Common
Stock at a conversion price equal to $8 or, if converted after December 31,
2001, the lesser of $8 or the average closing sales price of the Common Stock on
the twenty (20) business days prior to September 30, 2001; provided, however,
that in no event will the conversion price be less than $6. The conversion price
is subject to adjustment for dividends, stock splits or combinations,
reorganizations, mergers, and sales of substantially all of the Academy's
assets. If the Academy sells Common Stock or issues options, warrants or the
rights to purchase shares of Common Stock of the Academy (except pursuant to
employee or director stock option plans or in connection with acquisitions) at a
price less than the conversion price of the Convertible Notes, then the
conversion price of the Convertible Notes shall be reduced to equal such lower
conversion price.
DESCRIPTION OF THE WARRANTS
Pursuant to the Securities Purchase Agreement, the Academy shall
issue and sell to the Purchasers the Warrants to purchase up to an aggregate of
$250,000 shares of Common Stock of
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the Academy. The Warrants shall have a term of six years and will be
exercisable in full or in part from time to time by means of payment of the
exercise price (which shall be equal to the conversion price on the
Convertible Notes) in cash or by the election of the holder of the Warrant to
receive the net value of the Warrants in shares. The Warrants are subject to
customary adjustments to the Exercise Price in the event of certain dividends
and distributions to holders of Common Stock, stock splits, combinations,
sales of Common Stock at less than market value and mergers, tender offers
and similar transactions.
DESCRIPTION OF THE SERIES B PREFERRED STOCK
Pursuant to the Securities Purchase Agreement, the Academy shall
issue and sell to Cahill Warnock one share of the Series B Preferred Stock. The
Series B Preferred Stock provides the holder with certain of the same rights
granted to the Purchasers under the Transaction Documents. The Series B
Preferred Stock automatically converts into a single share of Common Stock upon
(i) a merger involving the Academy or a sale of substantially all of the
Academy's assets, (ii) the repayment by the Academy of 50% of the principal
amount of the Convertible Notes, (iii) the conversion by 50% of the holders of
the Convertible Notes, or (iv) the sale or transfer of the Series B Preferred
Stock to any person other than Cahill Warnock.
PUT OPTION
Under the Securities Purchase Agreement, the Academy has the right
under certain circumstances to sell an additional $3 million aggregate principal
amount of Convertible Notes to the Purchasers (the "Put Option"). The Academy
may exercise the Put Option if the Academy achieves 90% of certain cumulative
EBITDA targets. The Academy has agreed to issue to the Purchasers additional
Warrants to acquire 25,000 shares of Common Stock as additional consideration
under the Put Option.
The Academy may exercise the Put Option on one occasion and between
June 30, 2000 and the last day of the twenty-first full month following the
Closing Date. Additionally, in connection with the Put Option, the Academy and
the Purchasers have agreed to make the same representations and warranties as
were made at the Closing, but subject to a new schedule of exceptions, provided
that such exceptions would not have a material adverse affect.
If the Academy chooses to exercise the Put Option, Purchasers shall
be entitled to appoint one additional person to the Academy's Board of
Directors.
REGISTRATION RIGHTS
The Securities Purchase Agreement provides that on the Closing Date
the Academy shall enter into a Registration Rights Agreement with the Purchasers
(the "Registration Rights Agreement"), pursuant to which the Purchasers or its
transferees (a "Holder") will be entitled to certain additional rights with
respect to the registration under the Securities Act of shares of Common Stock
issuable upon conversion of the Convertible Notes or upon the exercise of
Warrants (or certain securities issuable with respect to such Common Stock by
way of a stock
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dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or reorganization ) ("Registrable
Securities").
The Registration Rights Agreement provides for demand and piggyback
registration rights. Holders of a majority of the Registrable Securities then
outstanding may demand up to two registrations of the Registrable Securities,
provided that the minimum anticipated aggregated net offering price must be at
least $5 million based on the then-current trading price of the Common Stock.
Additionally, the Academy is not required to file a demand registration
statement during the period from 60 days prior to 180 days after the effective
date of any other registration statement pertaining to a public offering by the
Academy, the Academy need not effect more than one registration in any 12-month
period, and the Academy has certain rights to delay such registration for 120
days, one time in any 12-month period.
The Registration Rights Agreement also provides for unlimited
"piggyback" registration rights. If the Academy proposes to register any of its
capital stock under the Securities Act, the Holders will be entitled to include
Registrable Securities in any such registration.
The Academy shall bear all expenses relating to any demand and
piggyback registrations, although the Holders and the Academy shall ratably pay
all underwriting discounts and commissions.
FEES AND EXPENSES
Under an agreement dated July 8, 1998, the Academy agreed to issue
to Legg Mason Wood Walker, Incorporated ("Legg Mason") warrants to purchase
150,000 shares of Common Stock upon the closing of a private placement described
in such agreement. The Academy and Legg Mason are currently in discussions
concerning the warrants to be issued to Legg Mason based on the Transaction.
While the outcome of such discussions is uncertain as of the date hereof, in no
event will such warrants entitle Legg Mason to purchase more than 150,000
shares. These warrants will be exercisable at 120% of the price per share at the
Closing. Additionally, under an agreement dated June 2, 1998, the Academy is
obligated to pay the Atlantis Group a finder's fee of 1% of the gross proceeds
from the Transaction.
PURCHASER RIGHTS AGREEMENT
On the Closing Date, the Securities Purchase Agreement provides that
the Academy shall enter into a Purchaser Rights Agreement with the Purchasers
(the "Purchaser Rights Agreement"), pursuant to which the Academy will grant to
Purchasers certain additional rights. Pursuant to the Purchaser Rights
Agreement, the Academy agrees to deliver to the Purchasers certain information,
including (i) monthly, quarterly and annual financial statements; (ii) notice of
any material litigation; (iii) notice of any material contact or agreement; (iv)
any reports or applications to its shareholders, the U.S. Department of
Education, the financial community, the NASDAQ stock market, the National
Association of Securities Dealers or any other market exchange system; (v)
accountants' management letters and correspondence; (vi) lists of shareholders
(up to once per year); (vii) annual budget; (viii) school profit and loss
statements,
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budgets and initial projections; (ix) accrediting agency
communications; (x) U.S. Department of Education communications and reports;
(xi) state licensing body communications; and (xii) such other information the
Purchasers may reasonably request.
Additionally, the Academy and the Purchasers agreed to the following
additional covenants: (i) access by the Purchasers to certain of the Academy's
documents; (ii) the Academy shall maintain its current directors' and officers'
liability insurance policy, but not above 200% of its current annual premiums;
(iii) each of the Academy and purchasers will hold, and cause certain related
persons to hold, information learned in connection with the Transaction in
confidence; (iv) the Academy shall maintain a cash balance of $1 million in its
accounts until 10 quarters after the closing date, and thereafter maintain
certain financial ratios; (v) maintenance of Academy properties; (vi) payment of
taxes; (vii) maintenance of insurance policies; (viii) preservation of corporate
existence; (ix) compliance with laws; (x) keeping of records and books of
account; and (xi) in connection with the New Orleans Project, the Academy must
have the approval of its board of directors to spend amounts in excess of such
product's budget. So long as the Series B Preferred Stock remains outstanding,
the Academy may not, without the consent of the Purchasers, (i) declare or pay
any dividends or stock redemptions; (ii) enter certain agreements; (iii) amend
its articles of incorporation or bylaws adversely to the Purchasers; (iv)
increase the size of its board of directors to more than nine; (v) merge or sell
substantially all of its assets; (vi) liquidate, dissolve or wind up; (vii) or
incur indebtedness other than a described below.
ALLOWED INDEBTEDNESS
The Academy may not incur any debt other than (i) debt incurred in
connection with the New Orleans Project; (ii) debt in excess of $1 million
(excluding debt incurred with the Put Option) (iii) a working capital facility
secured by accounts receivable or (iv) debt which would not cause the Academy to
be out of compliance with certain financial ratios.
NOMINATION AND ELECTION OF DIRECTORS
As long as the Series B Preferred Stock is outstanding, the
Purchasers have the right to elect one director to the Academy's board of
directors; if the Purchasers cease to own the Series B Preferred Stock, the
Academy shall use its best efforts to nominate and recommend a director
nominated by the Purchasers. If the Academy exercises the Put Option and the
Purchasers own at least 10% of the Academy's outstanding shares, the Purchasers
shall have the right to nominate two directors. If the Purchasers are no longer
entitled to nominate directors, the Purchasers shall cause any person designated
by them to resign promptly.
PREEMPTIVE RIGHTS
In the Purchaser Rights Agreement, the Academy grants to each
Purchaser the right of first refusal to purchase its pro-rata share of any
securities it proposes to sell after the date of the Securities Purchase
Agreement other than (i) options granted to officers, directors, consultants or
other employees pursuant to stock incentive plans; (ii) securities issued in
connection with an
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acquisition; (iii) securities issued in a stock split or stock dividend; or
(iv) securities issued in connection with any employee stock purchase plan.
TERMINATION
All covenants and agreements set forth in the Purchaser Rights
Agreement shall terminate on the sixth anniversary of the Closing Date or when
the Purchasers cease to own the Series B Preferred Stock or less than 10% of the
Academy's capital stock on a fully diluted basis.
STANDSTILL AGREEMENT
On the Closing Date, the Securities Purchase Agreement provides that
the Academy shall enter into a Standstill Agreement (the "Standstill
Agreement"), pursuant to which the Purchaser agrees that, unless specifically
invited to do so by the Academy, it will not, and will cause each of its
affiliates not to, directly or indirectly, for ten full calendar quarters after
the Closing Date, (i) acquire the Academy's securities or options, other than
pursuant to the Warrants, Convertible Notes or the Preferred Stock; (ii) make a
proposal for an acquisition or any merger, consolidation or business combination
involving the Academy or with respect to a substantial portion of the Academy's
assets; (iii) solicit proxies or participate in an election contest; (iv)
propose any matter for a shareholder vote; (v) form or join a "group," as
defined in the Securities Exchange Act, with respect to the Academy's
securities; (vi) grant a proxy with respect to any securities of the Academy to
any person not approved by the Academy; (vii) deposit the Academy's securities
in a voting trust or similar arrangement; (viii) take an action which would
reasonably require the Academy to make a public announcement regarding any of
these matters; (ix) enter into negotiations, arrangements or understandings with
a third party regarding these restrictions; (x) seek to influence the management
or policies of the Academy or (xi) publicly disclose any intention, plan or
arrangement inconsistent with the foregoing.
Pursuant to the Standstill Agreement, the Purchasers agree that,
prior to the expiration of ten full calendar quarters after the Closing Date,
they will not transfer shares of the Academy's Common Stock to any person who
would beneficially own 5% or more of the total voting power of the Academy's
equity securities following such transfer.
SHAREHOLDER'S AGREEMENT
On the Closing Date, the Securities Purchase Agreement provides that
the Keith Keogh, President and Chief Executive Officer of the Academy, and the
Purchasers shall enter into a Shareholders' Agreement (the "Shareholders'
Agreement"), pursuant to which the Keogh and the Purchasers grant to each other
certain rights of first refusal to buy each others' shares upon the receipt of
certain offers by third parties to purchase such shares, subject to certain
exceptions. Additionally, the parties grant each other certain "tag-along
rights" to participate in sales to third parties and "drag-along" rights to
force the other parties to sell a portion of their shares in certain sales to
third parties.
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VOTING CONSIDERATIONS
The Board of Directors of the Academy, in voting unanimously to
approve the Transaction, considered the following factors among others. Such
factors should also be considered by Academy's shareholders in deciding whether
or not to approve the proposed issuance.
NEW ORLEANS PROJECT
The Academy believes that the New Orleans Project promises to meet
what the Academy believes to be a currently unfulfilled demand for culinary
education in the southeastern region of the United States. The Academy's San
Francisco headquarters annually receives approximately six thousand inquires
from that region of the country concerning culinary education. The Academy also
believes that the city New Orleans, as a major culinary capital, would provide a
different culinary culture and a broader range of educational opportunities for
the Academy's students. The Academy intends to develop the complex over the next
two years into a regional core campus similar in size and scope to the Academy's
campus in San Francisco, California. The Academy's management and Board of
Directors feel that the New Orleans Project is an important step in the
Academy's plan to increase market penetration and enhance the Academy's brand
identity.
THE ACADEMY'S STRATEGIC PLAN
In connection with the New Orleans Project, the Academy recently
purchased a complex of six buildings (approximately 153,000 square feet) in the
central business district of New Orleans, Louisiana. The Academy also plans to
open at least five additional College of Food locations in California and in the
Southeast section of the United States during the next two years. These new
campuses will be similar in size and scope to the existing College of Food
Campuses in Salinas and San Diego, California. The strategic plan of the Academy
also contemplates the acquisition of companies in the culinary consumer
education, post-secondary education and media sectors to create a "learning
ladder" that offers course work from the consumer education level to a B.A.
degree and beyond through on-site classes and distance learning. The Academy
also plans to produce programs such as the highly acclaimed and successful
"Cooking at the Academy" series for a wide range of audiences to further promote
the Academy's brands and products. Together with cash flow from operations, the
Transaction will provide the required funding to develop the Academy's strategic
plan.
CAHILL WARNOCK
Cahill, Warnock Strategic Partners Fund, L.P., Strategic Associates,
L.P and its affiliates ("Cahill, Warnock") are based in Baltimore, Maryland and
have successfully invested in the education sector in the past. The Academy
believes that its association with Cahill, Warnock will enhance the Academy's
standing in the financial community and provide the Academy's shareholders the
opportunity to benefit from Cahill, Warnock's financial strength and
understanding of the education sector. The Academy believes that, while there is
no legal obligation to do so, it will be in the interests of the Purchasers as
significant creditors or shareholders to make
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available to the Academy the Purchasers' resources and expertise in capital
markets, acquisitions and strategic alliances.
EXPANSION OF ACADEMY
The Transaction will provide significant funds and operating
flexibility to enable the Academy to take advantage of opportunities for
expansion through the acquisition of other companies in the education, media and
technology industries in order to create long-term value for its stockholders.
LACK OF DIVIDENDS
As described more fully below, the Transaction Documents impose
limitations on the Academy's ability to declare dividends or issue stock. As a
result, it is unlikely that the Academy will be in a position to declare or pay
dividends during the term of the Transaction.
TERMINATION FEE
As set forth more fully below, the Academy may terminate the
Securities Purchase Agreement by paying a termination fee to the Purchasers of
$140,000. The ability to pay such a fee gives the Academy flexibility prior to
closing to accept a proposal for an alternative transaction that may be
preferable to the Transaction.
SIGNIFICANT SHAREHOLDER
Theodore Crocker, the Academy's former Chairman of the Board,
remains a significant shareholder of the Academy and has previously expressed a
potential desire to liquidate his stock holdings. Additionally, the Purchasers,
though subject to the Standstill Agreement, may, after December 31, 2001, freely
acquire shares, including potentially the shares of Mr. Crocker. In such an
event, the Purchasers could potentially acquire control of the Academy without
paying to the other shareholders any control premium.
NO DISSENTERS' RIGHTS OR PREEMPTIVE RIGHTS
The Academy's shareholders have no dissenters' rights or preemptive
rights in connection with the issuance of the Convertible Notes, Warrants and
Preferred Stock.
SUBSTANTIAL DEBT
After the Transaction, the Academy will have a significant amount of
indebtedness. The interest payments on the Convertible Notes, before any
repayment of principal, would be $700,000 annually. The Transaction Documents
also limit the Academy's ability to incur additional indebtedness. This
substantial indebtedness could have important consequences to the Academy's
shareholders. For example, it could (i) make it difficult for the Academy to
satisfy its obligations with respect to the Convertible Notes, (ii) increase the
Academy's vulnerability to
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general adverse economic and industry conditions, (iii) limit the Academy's
ability to fund future working capital, capital expenditures and other
general corporate requirements, (iv) require the Academy to dedicate a
substantial portion of its cash flow from operations to payments on its
indebtedness, thereby reducing the availability of its cash flow to fund
working capital, capital expenditures and other general corporate purposes,
(v) limit its flexibility in planning for, or reacting to, changes in its
business and the educational services industry, (vi) place the Academy at a
competitive disadvantage compared to its competitors that have less debt, and
(vii) along with the financial and other restrictive covenants in the
Transaction Documents, limit, among other things, its ability to borrow
additional funds.
POSSIBLE INABILITY TO SERVICE DEBT
The Academy's ability to repay or refinance its debt, including the
Convertible Notes, depends on its successful financial and operating
performance. The Academy's financial and operating performance depends upon a
number of factors, many of which are beyond its control. These factors include
(i) the economic and competitive conditions in the educational services
industry; (ii) any operating difficulties, increased operating costs or pricing
pressures the Academy may experience; (iii) the passage of legislation or other
regulatory developments that may adversely affect the Academy; and (iv) any
delays in implementing any strategic projects. If the Academy cannot repay or
refinance its debts, it may be forced to reduce or delay the expansion of its
business, sell some of its assets, obtain additional equity capital or refinance
or restructure its debt. If the Academy cannot meet its debt service obligations
or comply with its covenants, a default under the Transaction Documents would
result.
RESTRICTIVE DEBT COVENANTS
The terms of Convertible Notes contain a number of significant
restrictive covenants. These covenants will limit the Academy's ability to,
among other things, borrow additional money, make certain expenditures and other
investments, pay dividends or make distributions in respect of capital stock,
merge, consolidate, or dispose of its assets, enter into transactions with its
stockholders or affiliates, or engage in certain other transactions. The Academy
cannot be certain these covenants will not adversely affect its ability to
finance future operations or capital needs or engage in other business
activities that may be in its interest. In addition, a breach of these covenants
or its inability to comply with the required financial ratios could result in a
default under the Transaction Documents and the Convertible Notes could become
immediately due and payable. If this occurs, the Academy may not be able to
repay the Convertible Notes or borrow sufficient funds to refinance the
indebtedness. Even if new financing is available, it may not be on terms that
are acceptable to the Academy.
DIMINISHED ABILITY TO SELL THE ACADEMY AND TO RAISE ADDITIONAL EQUITY CAPITAL OR
DEBT
As a result of Purchasers' rights, it may be more difficult for a
third party to acquire control of the Academy without Purchasers' approval. In
addition, the consent of the majority of the holders of the Convertible Notes,
voting separately as a class, will be required for approval of certain business
combination transactions that would be beneficial to shareholders.
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<PAGE>
SHAREHOLDER DILUTION
The full exercise by the Purchasers of the Warrants and conversion
of the Convertible Notes would result in substantial dilution to the Academy's
current shareholders, giving the Purchasers between 23 and 27 percent of the
outstanding Common Stock. Additionally, if the Academy issues options or sells
common shares of the Academy for a per share price lower than $8 or if the
Academy defaults on its obligations under the Transaction Documents, the
dilution to current shareholders would be greater. Finally, if an Event of
Default occurs, the exercise price per share for the Warrants shall be reduced
to $.01, substantially increasing the dilution of current shareholders.
VOLATILITY OF COMMON STOCK
The Company is a small public company with limited trading in its
shares. The sale of a large number of shares of the Academy's Common Stock in
the public market following conversion of the Convertible Notes and exercise of
the Warrants could have an adverse effect on the market price of the Academy's
Common Stock.
LIQUIDITY
Upon funding of the proposed transaction, the Academy's cash
reserves will be substantially increased. Management and the Board of Directors
feel that the funds provided by the proposed transaction, together with cash
flow from operations, will be sufficient to pay recurring operating expenses,
fund the planned new campuses, and to service the Convertible Notes and other
debt obligations. However, if unforeseen events take place in the future, such
as a significant decrease in enrollment of students or if the ramp up of
enrollment at the planned new campuses were significantly slower than
anticipated, the Academy would be forced to seek additional financing. If
additional financing is not available, the Academy may default on the
Convertible Notes.
NASDAQ LIMITATION OF COMMON STOCK ISSUANCE
The Academy's Common Stock is listed on the Nasdaq National Market.
In order to maintain listing on the Nasdaq National Market, the Academy must
comply with certain rules and listing standards promulgated by the Nasdaq Stock
Market, Inc. ("Nasdaq"). In particular, Rule 4460(i)(1)(D) of Nasdaq requires
companies listed on the Nasdaq National Market to obtain approval of the
stockholders prior to issuing common stock (or securities convertible into or
exercisable for common stock) in a private financing at a price less than the
market value of the common stock or where the number of shares of common stock
to be issued (or issuable) is at least 20% of the common stock or voting power
of the Academy outstanding prior to the issuance. Therefore, the Academy is
required to obtain the approval of the holders of a majority of its Common Stock
prior to consumation of the Transaction.
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<PAGE>
POTENTIAL FOR CHANGE OF CONTROL
Note also that, under Nasdaq rules and listing standards, the
Academy must obtain stockholder approval for transactions that result in a
"change of control." Although the Academy does not believe that sale of the
Convertible Notes and Warrants, and issuance of Common Stock on conversion and
exercise thereof, constitutes a change of control under these rules, if the
transactions were to be so construed, the approval sought under this proposal
will be effective to satisfy the shareholder vote required for a change of
control. Shareholders should consider also that the potential for the issuance
of a significant number of shares of Common Stock on conversion of the
Convertible Notes and exercise of Warrants may tend to have the effect of
discouraging tender offers for the Academy or delaying, deferring or preventing
a change of control of the Academy.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that shareholders vote FOR the
proposal to approve the issuance of shares of the Academy's Common Stock
issuable upon conversion of the Convertible Notes and Series B Preferred Stock
and upon exercise of the Warrants.
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<PAGE>
PROPOSAL TO APPROVE AMENDMENT TO THE BY-LAWS OF THE
ACADEMY TO AUTHORIZE A MINIMUM OF SIX AND A MAXIMUM
OF NINE DIRECTORS, WITH THE EXACT NUMBER TO BE SET AT
SEVEN DIRECTORS UNTIL OTHERWISE FIXED BY THE BOARD
OF DIRECTORS OR SHAREHOLDERS OF THE ACADEMY
GENERAL
The Academy's shareholders are being asked to approve the Amendment
of the By-Laws of the Academy to provide that the number of members of the
Academy's Board of Directors (the "Board of Directors" or the "Board") shall be
a minimum of six and a maximum of nine, with the exact number to be set at seven
unless otherwise fixed by the board of directors or shareholders of the Academy.
The proposed text of the By-Laws, as amended and restated, would be
as follows:
Section 17. NUMBER AND QUALIFICATION OF
DIRECTORS. The Corporation shall have an authorized Board of
Directors of no less than six (6) nor more than nine (9)
members. The exact number of directors shall be set at
seven (7) until changed, within the limits specified above,
by a resolution amending such exact number, duly adopted
by the Board of Directors or by the shareholders; provided,
however, that an amendment reducing the fixed number or the
minimum number of directors to a number less than five (5)
cannot be adopted if the votes cast against its adoption at
a meeting, or the shares not consenting in the case of an
action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled
to vote thereon.
This amendment to the By-Laws will provide the Board of Directors
with flexibility to change the number of Board members from time to time should
the Board deem it desirable to add a new director in connection with an
acquisition or otherwise or should the Board decide not to replace a current
director who has resigned. Currently, the number of directors is fixed at seven
and cannot be changed without a vote of shareholders. In voting on the proposed
Amendment, shareholders should be aware that if the Amendment is approved the
Board will be able to expand the number of directors up to nine and appoint
directors to fill the vacancies created by expansion of the Board without the
prior consent of shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that shareholders vote FOR the
proposed Amendment of By-Laws.
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<PAGE>
PROPOSAL TO RATIFY THE SELECTION
OF DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS
FOR THE FISCAL YEAR ENDING JUNE 30, 1999
The Board of Directors has selected Deloitte & Touche LLP as the
Academy's independent auditors for the fiscal year ending June 30, 1999 and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Annual Meeting. Deloitte & Touche
has audited the Academy's financial statements since 1996. Representatives of
Deloitte & Touche are expected to be present at the Annual Meeting. They will
have an opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
If the shareholders fail to ratify the selection of Deloitte &
Touche LLP, the Audit Committee and the Board of Directors will reconsider
whether or not to retain that firm. Even if the selection is ratified, the Audit
Committee and the Board of Directors, in their discretion, may direct the
appointment of a different independent accounting firm at any time if they
determine that such a change would be in the best interest of the Academy and
its shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
ratification of Deloitte & Touche LLP as the Academy's independent auditors for
the fiscal year ending June 30, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") requires the Academy's executive officers and directors and
persons who own more than ten percent of a registered class of the Academy's
equity securities to file with the Securities and Exchange Commission ("SEC")
reports of ownership and changes in ownership of Common Stock and other equity
securities of the Academy. Executive officers, directors and greater than ten
percent shareholders are required by SEC regulations to furnish the Academy with
copies of all Section 16(a) forms they file. Based on an examination of these
reports and on written representations provided to the Academy, all such reports
required to be filed for the fiscal year ended June 30, 1998, were timely filed.
SHAREHOLDER PROPSALS
A shareholder proposal not included in the Academy's proxy statement
for the 2000 Annual Meeting will be ineligible for presentation at the meeting
unless the shareholder gives timely notice of the proposal in writing to the
Secretary of the Academy at the principal executive offices of the Academy and
otherwise complies with the provisions of the Academy By-laws. To be considered
for inclusion in the Academy's proxy statement and form of proxy for its 2000
Annual Meeting of Shareholders, a shareholder proposal must be received at the
principal executive offices of the Academy not later than March 30, 2000.
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<PAGE>
OTHER MATTERS
The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting. If other matters are properly
brought before the Annual Meeting, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
By Order of the Board of Directors
Chuck White
CORPORATE SECRETARY
May 14, 1999
-----------
A COPY OF THE ACADEMY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1998, IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO INVESTOR RELATIONS, CALIFORNIA CULINARY ACADEMY,
INC., 625 POLK STREET, SAN FRANCISCO, CALIFORNIA 94102.
THE ACADEMY'S AUDITED FINANCIAL STATEMENTS, INCLUDING ITS BALANCE SHEET OF JUNE
30, 1998 AND ITS STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS FOR THE
FISCAL YEARS ENDED JUNE 30, 1997 AND 1998 AND THE MATERIAL UNDER THE CAPTION
"MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" EACH AS SET FORTH IN THE ACCOMPANYING ANNUAL REPORT TO SHAREHOLDERS,
ARE INCORPORATED HEREIN BY REFERENCE.
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF CALIFORNIA CULINARY ACADEMY, INC.
Annual Meeting of Stockholders
June 11, 1999
The undersigned shareholder of California Culinary Academy, Inc., a California
corporation (the "Academy"), hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated May __, 1999 and the
Annual Report to Shareholders for the fiscal year ended June 30, 1998, and
hereby constitutes and appoints Keith H. Keogh and Charles E. White and each of
them, proxies and attorneys-in-fact with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Annual Meeting of Shareholders of the Academy to be held on June 11, 1999, 1999
at 2:00 p.m., Pacific Daylight Time, at 625 Polk Street, San Francisco,
California, and at any adjournment or adjournments thereof, and to vote all
shares of Common Stock to which the undersigned would be entitled, if then and
there personally present, on the matters set forth below:
1. To elect six directors to hold office until the 2000 Annual Meeting of
Shareholders and until their successors are elected and qualified.
<TABLE>
<S> <C> <C>
ELECTION OF DIRECTORS FOR ALL nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) (to vote for ALL nominees listed below)
/ / / /
</TABLE>
(Instruction: To withhold the authority to vote for any individual nominee, mark
the box next to the nominee's name below.)
Ralph Brennan James D. Cockman Bert Cutino Keith H. Keogh
/ / / / / / / /
Paul Prudhomme Leenie Ruben David Warnock
/ / / / / /
2. To approve the issuance of shares of the Academy's Common Stock, $.01 par
value per share (the "Common Stock"), issuable upon conversion of the Academy's
Convertible Notes and Series B Preferred Stock, and upon exercise of warrants to
purchase shares of Common Stock, under Nasdaq Rule 4460(i)(1)(D).
FOR AGAINST ABSTAIN
/ / / / / /
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<PAGE>
3. To approve amendment of the By-laws of the Academy to authorize a minimum of
six and a maximum of nine directors, with the exact number to be set at six
directors until otherwise fixed by the board of directors or shareholders of the
Academy.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify the selection of Deloitte & Touche LLP as independent accountants
for the fiscal year ending June 30, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER HEREIN SPECIFIED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE
VOTED IN FAVOR OF PROPOSALS 2, 3 AND 4, AND FOR ALL NOMINEES LISTED IN PROPOSAL
1, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS TO
COME BEFORE THE ANNUAL MEETING.
DATED_____________________, 1999
---------------------------------------------
(Signature)
---------------------------------------------
(Signature)
(This proxy should be marked, dated, signed by the shareholder(s) exactly as his
name appears hereon and returned promptly in the enclosed envelope.
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<PAGE>
Executors, administrators, guardians, officers of corporations and others
signing in a fiduciary capacity should state their full titles as such. If
shares are held by joint tenants or as community property, both should sign.)
DO NOT FOLD, STAPLE OR MUTILATE.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
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