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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
Information Required In Proxy Statement
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by 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 ss. 240.14a-11(c) or ss. 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):
[ ] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[x] 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: California Culinary Academy, Inc. Common Stock
2) Aggregate number of securities to which transaction applies:
3,815,431
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): 5.25
4) Proposed maximum aggregate value of transaction: $20,031,013
5) Total fee paid: $4,006.20
[ ] 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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CALIFORNIA CULINARY ACADEMY, INC.
625 Polk Street
San Francisco, California 94102
January , 2000
Dear Shareholder:
On behalf of California Culinary Academy, Inc. (the "Academy"), I
cordially invite you to attend the reconvened Annual Meeting of Shareholders,
originally held on June 28, 1999, adjourned to August 11, 1999 and subsequently
adjourned, which will begin at 2:00 p.m. local time, on , 2000, at
the offices of the Academy, 625 Polk Street, San Francisco, California.
Shareholders will also be asked to consider and vote upon a proposal to approve
the principal terms of a merger of the Academy with an indirect, wholly owned
subsidiary of Career Education Corporation, pursuant to which, among other
things, each outstanding share of the Academy's common stock will be converted
into the right to receive $5.25 in cash, all pursuant to an Agreement and Plan
of Merger among Career Education Corporation, CCA Acquisition, LLC, and the
Academy, dated as of December 6, 1999. At the meeting, shareholders will also be
asked to vote on the election of nine directors.
These are very important matters that may have significant impact on
the future of the Academy. The accompanying Notice and Annual Report 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 SHAREHOLDER 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
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CALIFORNIA CULINARY ACADEMY, INC.
--------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
, 2000
--------------------------
January , 2000
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the reconvened Annual Meeting of
Shareholders of California Culinary Academy, Inc. (the "Academy"), originally
held on June 28, 1999, adjourned to August 11, 1999 and subsequently adjourned,
will be held at the Academy's principal offices at 625 Polk Street, San
Francisco, California, on , at 2:00 P.M., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve the principal terms
of a merger of the Academy with an indirect, wholly owned subsidiary of Career
Education Corporation, pursuant to which, among other things, each outstanding
share of the Academy's common stock will be converted into the right to receive
$5.25 in cash, all pursuant to an Agreement and Plan of Merger among Career
Education Corporation, CCA Acquisition, LLC, and the Academy, dated as of
December 6, 1999.
2. To elect nine directors to hold office until the next Annual Meeting
of Shareholders and until their successors are elected and qualified.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
THE ACADEMY'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS
ADVISABLE, FAIR AND IN THE BEST INTERESTS OF THE ACADEMY AND RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE PRINCIPAL TERMS OF THE MERGER.
All of the above matters are more fully described in the accompanying
Annual Report and Proxy Statement, and we urge you to read it carefully. Only
shareholders of record at the close of business on [RECORD DATE], 2000, are
entitled to notice of and to vote at the meeting or any postponement or
adjournment thereof. Approval of the merger will require the affirmative vote of
the holders of Academy stock representing a majority of the outstanding shares
of Academy common stock entitled to vote. The holders of approximately 41% of
the outstanding common stock have already agreed to vote in favor of the merger.
The Academy's shareholders may demand dissenters' rights in
connection with the merger, but only if the Academy receives demands with
respect to 5 percent or more of the shares of outstanding common stock. In
that event, any shares of Academy common stock as to
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which dissenters' rights are properly exercised may be converted into the
right to cause the Academy to purchase such shares in cash for their fair
market value, as may be determined pursuant to the laws of the State of
California. In order for such shares to have dissenters' rights, a
shareholder must follow certain procedures, including, but not limited to,
(i) making a written demand BEFORE THE ANNUAL MEETING that the Academy
purchase his or her shares, (ii) voting his or her shares against the
proposed merger, and (iii) submitting his or her shares for endorsement
within thirty days of receiving notice of the approval of the merger. Failure
to execute a proxy with respect to approval of the merger will not be
sufficient to constitute the demand described above. Please see "Dissenters'
Rights" in the enclosed Annual Report and Proxy Statement and Chapter 13 of
the California General Corporation Law attached as Annex D thereto, the
contents of which are incorporated herein by reference.
All shareholders 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 shareholder 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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ANNUAL REPORT AND PROXY STATEMENT
-----------------------
ANNUAL MEETING OF SHAREHOLDERS OF
CALIFORNIA CULINARY ACADEMY, INC.
TO BE HELD ON , 2000
------------------------
This Annual Report and Proxy Statement is solicited by and on behalf of
the Academy for use at the reconvened Annual Meeting of Shareholders (the
"Annual Meeting") to be held on , 2000 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. 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, in addition to this
solicitation by mail.
This Annual Report and Proxy Statement relates to the proposed
Agreement and Plan of Merger, dated as of December 6, 1999 (the "Merger
Agreement"), among the Academy, Career Education Corporation, and CCA
Acquisition, LLC, and the transactions contemplated thereby. Pursuant to the
merger, each share of the Academy's common stock issued and outstanding
immediately prior to the effective time of the merger would be converted into
the right to receive $5.25 in cash without interest.
Approval of the merger requires the affirmative vote of the majority
of the outstanding shares of the Academy's common stock held by shareholders
entitled to vote on [RECORD DATE], 2000 (the "Record Date"). Pursuant to and
subject to the terms of an Option Agreement, dated as of December 6, 1999
(the "Option Agreement") between Theodore G. Crocker, William DeMar, and
Thomas Green, owners of approximately 41% of the outstanding shares of the
Academy's common stock, the shareholders have agreed to vote all of their
shares of the Academy's common stock in favor of the merger. A copy the
Merger Agreement is attached as Annex A to this Annual Report and Proxy
Statement and a copy of the Option Agreement is attached as Annex B, and each
is incorporated herein by reference. This Annual Report and Proxy Statement
describes the material provisions of the Merger Agreement; however, the
descriptions set forth herein are subject to, and are qualified in their
entirety by reference to, the text of such agreements. The Board of
Directors, after careful consideration, has determined that the merger is
advisable, fair to and in the best interests of the Academy, has adopted and
approved the Merger Agreement and recommends that you vote FOR approval of
the principal terms of the merger. In reaching its determination, the Board
of Directors considered, among other things, the opinion of Sutter Securities
Incorporated ("Sutter")
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delivered on December 6, 1999, to the effect that, as of such date, and based
upon the assumptions made, matters considered and limits of review set forth
in such opinion, the proposed consideration to be received by the holders of
Academy common stock in the merger was fair from a financial point of view to
such holders. A copy of the Sutter opinion, which sets forth the assumptions
made, matters considered and certain limitations on the scope of the review
undertaken by Sutter, is attached as Annex C to this Annual Report and Proxy
Statement. Shareholders are urged to read such opinion in its entirety. These
proxy solicitation materials are being mailed on or about ,
2000, to all shareholders entitled to vote at the Annual Meeting. A copy of
this Annual Report and Proxy Statement is being mailed to each of the
Academy's shareholders of record at the close of business on [RECORD DATE],
2000. The report includes financial statements examined and reported upon by
Rooney Ida Nolt & Ahern, Certified Public Accountants, independent auditors
for the Academy, and Deloitte & Touche LLP.
Only shareholders of record at the close of business on 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, 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 Annual
Meeting is required for approval of all items being submitted to the
shareholders for their consideration, provided that California law requires that
directors be elected by cumulative voting if a proper request for cumulative
voting is received from a shareholder prior to the voting and that approval of
the merger will require the affirmative vote of a majority of the outstanding
shares of the common stock of the Academy. 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 shareholder 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
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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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TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THE MERGER......................................1
AVAILABLE INFORMATION.......................................................3
FORWARD-LOOKING STATEMENTS..................................................3
SUMMARY.....................................................................4
The Academy...........................................................4
CECO and Merger Sub...................................................4
The Annual Meeting....................................................5
PRICE OF ACADEMY COMMON STOCK..............................................11
THE ACADEMY................................................................12
THE ANNUAL MEETING.........................................................22
Matters to be Considered.............................................22
Required Vote........................................................22
Voting and Revocation of Proxies.....................................22
Record Date; Stock Entitled to Vote; Quorum..........................23
Dissenters' Rights...................................................23
Solicitation of Proxies..............................................25
THE MERGER.................................................................27
Background of the Merger.............................................27
Reasons for Merger; Recommendation of the Board of Directors.........31
Reasons of Two Directors for Voting Against the Merger...............33
Opinion of the Academy's Financial Advisor...........................33
DESCRIPTION OF ACADEMY CAPITAL STOCK.......................................37
Common Stock.........................................................37
Cumulative Voting....................................................38
Dividend Policy......................................................38
Preferred Stock......................................................38
Charter Documents of Academy Following the Merger....................38
THE MERGER AGREEMENT.......................................................39
Exchange of Academy Stock Certificates...............................39
Representations and Warranties.......................................40
Conduct of Business of the Academy Prior to the Effective Time.......41
No Solicitation of Transactions......................................43
Indemnification and Insurance........................................44
Conditions to the Merger.............................................44
Termination45
Termination Fees and Expenses........................................46
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FEES AND EXPENSES..........................................................46
RISK FACTORS...............................................................46
Defaults on Obligations; Lack of Adequate Capital Resources..........46
Risk of Failure to Complete Proposed Merger..........................47
Recent Operating Results.............................................47
Regulations..........................................................48
Competition..........................................................49
Risks Associated with Expansion Plans................................50
Substantial Debt.....................................................50
Possible Inability to Service Debt...................................51
Volatility of Common Stock...........................................51
THE OPTION AGREEMENT.......................................................51
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS..................................52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................................53
Overview ............................................................53
Results of Operations................................................54
Comparison of the three months ended September 30, 1998 and 1999.....54
Comparison of Fiscal Years Ended June 30, 1998 and 1999..............56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............62
Section 16(A) Beneficial Ownership Reporting Compliance..............63
Election of Directors......................................................58
Information With Respect To Nominees.................................58
Board of Directors Meetings and Committees...........................60
Indemnification Of Directors And Officers............................60
Executive Officers...................................................61
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS...........................63
Compensation of Directors............................................63
Compensation of Executive Officers...................................63
Summary Compensation Table...........................................64
Fiscal Year-End Option/SAR Values....................................64
Certain Relationships and Related Transactions.......................65
REGULATORY APPROVALS.......................................................65
CERTAIN PENDING LITIGATION.................................................65
INDEPENDENT AUDITORS.......................................................66
CHANGE IN ACCOUNTANTS......................................................66
SHAREHOLDER PROPOSALS......................................................67
OTHER MATTERS..............................................................67
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CALIFORNIA CULINARY ACADEMY, INC. FINANCIAL STATEMENTS....................F-1
ANNEX A - THE MERGER AGREEMENT............................................A-1
ANNEX B - THE OPTION AGREEMENT............................................B-1
ANNEX C - OPINION OF SUTTER SECURITIES INCORPORATED.......................C-1
ANNEX D - CHAPTER 13 OF CALIFORNIA GENERAL CORPORATION LAW................D-1
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. PLEASE DESCRIBE THE MERGER TRANSACTION.
A. The Academy, Career Education Corporation and CCA Acquisition, LLC, an
indirect, wholly owned subsidiary of Career Education Corporation,
entered into the Merger Agreement on December 6, 1999. The Merger
Agreement provides that once the shareholder approval process has been
completed and the other conditions to the merger have been satisfied,
CCA Acquisition, LLC will merge with and into the Academy, which will
be the surviving corporation in the merger and become a wholly owned
subsidiary of Career Education Corporation.
Q. PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A. In the merger, each share of Academy common stock that you own will be
cancelled and converted into the right to receive $5.25 in cash.
Q. WHAT SHAREHOLDER APPROVAL IS REQUIRED?
A. Approval of the proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby, including the merger, requires
the affirmative vote of a majority of the outstanding shares of Academy
common stock held by shareholders entitled to vote on [RECORD DATE],
2000. Pursuant to and subject to the terms of an Option Agreement,
dated as of December 6, 1999, between Career Education Corporation and
Theodore G. Crocker, William DeMar and Thomas Green, the owners of
approximately 41% of the outstanding shares of Academy common stock,
such shareholders have agreed to vote all of their shares of common
stock in favor of the merger.
Q. WHAT REGULATORY APPROVALS ARE REQUIRED?
A. The merger requires that the waiting period (and any extension thereof)
applicable to the merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, shall have been terminated or
shall have expired, and certain approvals from regulatory and
accrediting bodies shall have been received.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working toward completing the merger as quickly as possible.
Depending on certain regulatory approvals, we hope to complete the
merger by April 26, 2000.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in
this document, please indicate on your proxy how you want to vote and
mail your signed and dated proxy in the enclosed return envelope as
soon as possible.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
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A. Just send in a later-dated, signed proxy to the applicable person
listed below before the Annual Meeting or attend your meeting in person
and vote.
Q. SHOULD ACADEMY SHAREHOLDERS SEND IN THEIR SHARE CERTIFICATES NOW?
A. No. After the merger is completed, the payment agent will send Academy
shareholders written instructions for exchanging their share
certificates.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME WITHOUT MY INSTRUCTIONS?
A. No. You should instruct your broker to vote your shares, following the
directions provided by your broker. The failure by the Academy's
shareholders to instruct their brokers to vote their shares will be the
equivalent of voting against the merger.
Q. WHAT IF I PLAN TO ATTEND MY MEETING IN PERSON?
A. We recommend that you send in your proxy in any event.
Q. WHO CAN HELP ANSWER YOUR QUESTIONS?
A. Academy shareholders who have more questions about the merger should
contact:
Secretary of the Academy
California Culinary Academy, Inc.
625 Polk Street
San Francisco, California 94120
(415) 292-8280
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AVAILABLE INFORMATION
The Academy is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Academy with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the web site (http://www.sec.gov)
maintained by the Commission, or at its regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Academy common
stock is listed on the Nasdaq National Market. Reports and other information
concerning the Academy can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
FORWARD-LOOKING STATEMENTS
This Annual Report and Proxy Statement includes "forward-looking
statements" within the meaning of various provisions of the Securities Act of
1933, as amended, and the Exchange Act, including, without limitation,
statements under `THE ACADEMY" and "THE MERGER --Background of the Merger."
All statements included in this Annual Report and Proxy Statement, other than
statements of historical facts, that address activities, events or
developments that the Academy experts or anticipates will or may occur in the
future, including such things as future capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of the Academy's
business and operations, plans, references to future success and other such
matters are forward-looking statements. Such statements represent the
Academy's reasonable judgment on the future and are subject to risks and
uncertainties that could cause the Academy's actual results and financial
position to differ materially. See "RISK FACTORS" beginning on page 46.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS ANNUAL REPORT AND PROXY
STATEMENT, IN CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE ACADEMY. THIS ANNUAL REPORT AND PROXY STATEMENT DOES NOT
CONSTITUTE A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO OR FROM
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN SUCH
JURISDICTION. THE DELIVERY OF THIS ANNUAL REPORT AND PROXY STATEMENT SHALL
NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE ACADEMY
SINCE THE DATE HEREOF.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS ANNUAL REPORT AND PROXY STATEMENT. REFERENCE IS MADE TO THE
MORE DETAILED INFORMATION CONTAINED IN THIS ANNUAL REPORT AND PROXY STATEMENT
AND THE ANNEXES HERETO. SHAREHOLDERS OF THE ACADEMY ARE URGED TO READ THIS
ANNUAL REPORT AND PROXY STATEMENT AND THE ANNEXES HERETO IN THEIR ENTIRETY.
THE ACADEMY
The Academy is one of the largest publicly held, for-profit
professional culinary arts training schools in the United States (based on
the number of students enrolled in its programs), offering a variety of
programs to culinary arts professionals, serious amateurs and other members
of the public who may be interested in specific culinary subjects. The
Academy operates at three locations: the main campus located in San
Francisco, California and at extension campuses in Salinas and San Diego,
California. In conjunction with its education activities, the Academy
operates two public restaurants and a small retail shop at its San Francisco
campus, serving a clientele that consists of students, staff and the general
public.
The Academy has been in operation since 1977, offering its core
programs, consisting of the Associate of Occupational Studies Culinary Arts
Degree Program ("AOS Degree"), the Baking & Pastry Arts Certificate program
("B&P Certificate"), weekend continuing education programs for professionals,
and other courses or workshops for interested non-professional students.
The predecessor to the Academy was incorporated in June 1977, as a
Pennsylvania corporation. In October 1986, the Academy was incorporated in
the State of California under the name CCA Acquisition Corporation and was
the surviving corporation in a merger with the Pennsylvania corporation. Upon
completion of the merger, CCA Acquisition Corporation changed its name to
California Culinary Academy, Inc. The principal executive offices of the
Academy are located at 625 Polk Street, San Francisco, California 94102,
telephone number: (415) 292-8280. See "THE ACADEMY".
CECO AND MERGER SUB
Career Education Corporation, or CECO is a provider of private,
for-profit postsecondary education in North America, with approximately
23,500 students enrolled as of October 31, 1999. CECO operates 26 campuses
located in 16 states and two Canadian provinces. CECO's schools enjoy long
operating histories and offer a variety of bachelor's degree, associate
degree and non-degree programs in career-oriented disciplines. CECO has
experienced significant growth both internally and through acquisitions with
its net revenue increasing from $7.5 million in 1994 to $144.2 million in
1998. In addition, its net income increased to $4.3 million in 1998 from a
net loss of $1.6 million in 1994.
CECO was founded in January 1994 by John M. Larson, its President
and Chief Executive Officer, who has over 25 years of experience in the
career-oriented education industry. CECO was formed to capitalize on
opportunities in the large and highly fragmented
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postsecondary school industry. Since its inception, CECO has completed
numerous acquisitions. CECO has acquired schools that it believes possess
strong curricula, leading reputations and broad marketability but that have
been undermanaged from a marketing and financial standpoint. CECO seeks to
apply its expertise in operations, marketing and curricula development, as
well its financial strength, to improve the performance of these schools.
CCA Acquisition, LLC, a Delaware limited liability company ("Merger
Sub"), is an indirect, wholly owned subsidiary of CECO. Merger Sub's principal
executive office is located at 2800 West Higgins Road, Suite 790, Hoffman
Estates, Illinois 60195.
THE ANNUAL MEETING
TIME AND PLACE; RECORD DATE
The Annual Meeting of Shareholders of the Academy will be held on
, 2000, at 2:00 p.m. local time, at 625 Polk Street, San Francisco,
CA 94102. Shareholders of record at the close of business on the Record Date
will be entitled to notice of, and to vote at, the Annual Meeting. The date of
the mailing of this Annual Report and Proxy Statement to shareholders of the
Academy will be on or about , 2000. At the close of business on
the Record Date, there were 3,815,431 shares of Academy common stock outstanding
and entitled to vote.
MATTERS TO BE CONSIDERED
At the Annual Meeting, the shareholders of the Academy will consider
and vote upon the proposal to approve the principal terms of a merger, pursuant
to which Merger Sub will merge with and into the Academy.
The Merger Agreement provides that, following the approval of the
merger by a vote of a majority of the outstanding shares of Academy common stock
entitled to vote thereon and the satisfaction or waiver of the other conditions
to the merger, Merger Sub will be merged with and into the Academy, and the
Academy will continue as the surviving corporation in the merger. Upon
consummation of the merger, each issued and outstanding share of Academy common
stock issued and outstanding immediately prior to the effective time (other than
shares owned by CECO or any subsidiary of CECO including Merger Sub, or by the
Academy, or dissenting shares, if applicable) shall be converted into the right
to receive an amount equal to $5.25 per share in cash without interest. See "THE
MERGER AGREEMENT--Terms of the Merger."
REQUIRED VOTE
Approval of the merger will require the affirmative vote of a
majority of the outstanding shares of Academy common stock held by
shareholders entitled to vote on the Record Date. Pursuant to and subject to
the terms of the Option Agreement, the owners of approximately 41% of the
outstanding shares of Academy common stock have agreed to vote all of their
shares of common stock in favor of the merger.
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VOTING PROXIES
All shares of Academy common stock represented by a properly
executed proxy received in time for the Annual Meeting will be voted in the
manner specified in the proxy. Proxies that do not contain any instruction to
vote for or against or to abstain from voting on a particular matter will be
voted in accordance with the recommendation of the Board of Directors. See
"THE ANNUAL MEETING--Voting and Revocation of Proxies."
It is not expected that any matter other than as referred to herein
will be brought before the shareholders at the Academy Meeting. If, however,
other matters are properly presented, the persons named as proxies will vote in
accordance with their best judgment with respect to such matters, unless
authority to do so is withheld in the proxy.
ADJOURNMENT; REVOCABILITY OF PROXIES
If the Annual Meeting is adjourned for any reason, approval of the
merger shall be considered and voted upon by shareholders at the subsequent,
reconvened meeting, if any.
You may revoke your proxy at any time prior to its exercise (i) by
attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not in and of itself constitute revocation of a proxy),
(ii) by giving notice of revocation of your proxy at the Annual Meeting or
(iii) by delivering (a) a written notice of revocation of your proxy or (b) a
duly executed proxy relating to the matters to be considered at the Annual
Meeting, bearing a date later than the proxy previously executed, to the
Secretary of the Academy, 625 Polk Street, San Francisco, CA 94102. Unless
revoked in one of the manners set forth above, proxies in the form enclosed
will be voted at the Annual Meeting in accordance with your instructions or,
if no instructions are given, in accordance with the recommendations of the
Board of Directors.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Academy. The
Academy may solicit proxies and the Academy's directors, officers and
employees may also solicit proxies by telephone, telecopier or personal
interview. Such directors, officers and employees will not be compensated for
any such solicitation but may be reimbursed for reasonable out-of-pocket
expenses in connection therewith. Arrangements will be made to furnish copies
of proxy materials to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of Academy common stock. Such persons will be
paid reasonable out-of-pocket expenses.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICIATES WITH THEIR PROXIES.
SEE "THE MERGER AGREEMENT--Exchange of Academy Stock Certificates."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors, after careful consideration, has determined
that the merger is advisable, fair to and in the best interests of the Academy,
has adopted and approved the Merger Agreement and recommends that the Academy's
shareholders approve the principal terms of the merger. The determination of the
Board of Directors with respect to the merger is based on
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a number of factors. See "THE ANNUAL MEETING--Background of the Merger" and
"--Reasons for the Merger; Recommendation of the Board of Directors."
OPINION OF SUTTER
On December 6, 1999, Sutter delivered its written opinion, (the
"Sutter Opinion") to the Board to the effect that, as of such date, and based
upon the assumptions made, matters considered and limits of review set forth
in such opinion, the proposed consideration to be received by the holders of
Academy common stock in the merger is fair from a financial point of view to
such holders. A copy of the Sutter Opinion, which sets forth the assumptions
made, matters considered and certain limitations on the scope of review
undertaken by Sutter, is attached as Annex C to this Annual Report and Proxy
Statement. Shareholders are urged to read such opinion in its entirety. See
"THE ANNUAL MEETING--Opinion of Sutter."
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, directors and executive officers of the
Academy were beneficial owners of an aggregate of 1,741,573 shares
(approximately 45.7% of the outstanding shares) of Academy common stock,
380,000 shares of which were represented by immediately exercisable options
to acquire Academy common stock. The directors and executive officers of the
Academy have indicated that they intend to vote their shares of Academy
common stock in favor of the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Academy may have
interests, described herein, that present them with potential conflicts of
interest in connection with the merger. The Board of Directors was aware of the
potential conflicts described below and considered them in its approval and
adoption of the Merger Agreement in addition to the other matters described
under "THE ANNUAL MEETING-- Reasons for the Merger; Recommendation of the Board
of Directors and "THE ANNUAL MEETING--Interests of Certain Persons in the
Merger."
CONDITIONS OF THE MERGER
Our respective obligations to complete the merger are subject to the
satisfaction of waiver of each of the following conditions:
- The approval of the merger by the Academy's shareholders;
- Clearing of all SEC comments to the proxy statement;
- No temporary restraining order, injunction, or court order
preventing the consummation of the merger; and
- The expiration of the waiting period under the
Hart-Scott-Rodino Anti-Trust Improvement Act of 1976 and
obtaining of all approvals and consents from governmental and
regulatory authorities where necessary to complete the merger,
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except for Department of Education ("DOE") approval and
approvals whose absence would not have a material adverse
effect on the Academy's or CECO's ability to consummate the
merger.
The Academy's obligation to complete the merger also depends on the
satisfaction or waiver of each of the following conditions:
- CECO's representations and warranties being true and correct
in all material respects when made and as of the closing date;
- CECO having performed or complied in all material respects
with all obligations to be performed by it under the Merger
Agreement at or prior to the closing date; and there having
been no material adverse effect on CECO between the date of
the Merger Agreement and the closing of the merger.
CECO's obligation to complete the merger also depends on the
satisfaction or waiver of each of the following conditions:
- The Academy's representations and warranties being true and
correct in all material respects when made and as of the
closing date;
- The Academy having performed or complied in all material
respects with all obligations to be performed by it under the
Merger Agreement at or prior to the closing date;
- CECO having received all consents necessary to consummate the
merger, except approval from the DOE and such other consents
that would not reasonably be expected to have a material
adverse effect on the Academy if not obtained;
- There having been no material adverse effect on the Academy
between the date of the Merger Agreement and the closing of
the merger; and
- The Academy having received the renewal of its accreditation
approved by the Accrediting Commission of Career Schools and
Colleges of Technology ("ACCSCT") and no "show cause" orders
being outstanding.
See "THE MERGER AGREEMENT--Conditions to the Consummation of the
Merger" and "REGULATORY APPROVALS."
REGULATORY APPROVALS
In order to consummate the merger, certain regulatory agencies must
approve the transfer of control of the Academy to CECO. The Academy and CECO
began filing joint applications seeking these approvals in December 1999.
CONDUCT TO BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Academy has agreed that prior
to the effective time its business will be conducted in the usual, regular
and ordinary course of business in all
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material respects. See "THE MERGER AGREEMENT--Conduct of Business of the
Academy."
TREATMENT OF ACADEMY STOCK OPTIONS
Immediately prior to the closing, each existing option to purchase
the Academy's common stock that has not then become vested and exercisable
shall become vested and exercisable, and the Academy shall exchange each
existing option for cash equal to the difference, if any, between $5.25 and
the exercise price for such option.
TERMINATION OF THE MERGER AGREEMENT
The merger may be abandoned, at any time before the merger is
completed, in the following circumstances:
- By the Academy's and CECO's mutual consent;
- By CECO if the Academy's representations and warranties become
untrue or because the Academy breaches any material
representation, warranty or covenant that the Academy has not
cured within twenty days after written notice by CECO,
provided that CECO is not in material breach of the Merger
Agreement;
- By CECO if (a) the Academy's board adversely amends, withholds
or withdraws its recommendation of the merger, or (b) the
Academy's board resolves or publicly announces its intention
to recommend an alternative acquisition proposal, or (c) a
tender offer or exchange for 20% or more of the Academy's
outstanding shares of common stock is commenced and the
Academy's board fails to recommend against or takes no
position with respect to acceptance of that tender offer, or
(d) the Academy breaches the no solicitation provisions of the
Merger Agreement;
- By the Academy if CECO's representations and warranties become
untrue or because CECO breaches any material representation,
warranty or covenant that CECO has not cured within twenty
days after written notice by the Academy, provided that the
Academy is not in material breach of the Merger Agreement
- By the Academy in certain circumstances relating to an
unsolicited bona fide written acquisition proposal (see "THE
MERGER AGREEMENT -- No Solicitation of Transactions");
- By the Academy or CECO if (a) court order prevents
consummation of the merger; (b) an action by a governmental or
regulatory entity or accrediting body would prevent the merger
or require CECO to dispose of or hold separately all or a
material portion of its business or assets, (c) the Academy's
shareholders do not approve the merger, or (d) the merger is
not consummated by April 26, 2000, except that either party
may extend this date until June 30, 2000 if the only
unfulfilled condition as of April 26, 2000 is the approval of
the merger by the State of California or the ACCSCT.
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If the Merger Agreement is terminated under certain circumstances,
the Academy will be obligated to pay up to $1.25 million plus expenses. See
`THE MERGER AGREEMENT--Termination Fees and Expenses."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is generally anticipated that each shareholder will recognize
capital gain or loss equal, in each case, to the difference between the cash
proceeds received pursuant to the merger and the shareholder's adjusted tax
basis in the Academy common stock surrendered in exchange therefor. For a
more detailed summary of the material U.S. federal income tax consequences of
the merger, see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, IT IS RECOMMENDED THAT
HOLDERS OF ACADEMY COMMON STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE
FEDERAL (AND ANY STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN
THEIR PARTICULAR CIRCUMSTANCES.
DISSENTING SHAREHOLDERS' RIGHTS
The Academy's shareholders may exercise dissenters' rights in
connection with the merger, but only if the Academy receives demands with
respect to 5 percent or more of the shares of outstanding common stock. In
that event, any shares of Academy common stock as to which dissenters' rights
are properly exercised may be converted into the right to cause the Academy
to purchase such shares in cash for their fair market value, as may be
determined pursuant to the laws of the State of California. In order for such
shares to have dissenters' rights, a shareholder must follow certain
procedures, including, but not limited to, (i) making a written demand BEFORE
THE ANNUAL MEETING that the Academy purchase his or her shares, (ii) voting
his or her shares against the proposed merger, and (iii) submitting his or
her shares for endorsement within thirty days of receiving notice of the
approval of the merger. Failure to execute a proxy with respect to approval
of the merger will not be sufficient to constitute the demand described
above. See "THE ANNUAL MEETING--Dissenters' Rights" and Chapter 13 of the
California General Corporation Law attached as Annex D.
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<PAGE>
PRICE OF ACADEMY COMMON STOCK
Academy common stock is traded on the Nasdaq National Market under
the symbol "COOK." The following table sets forth the range of high and low
sale prices of Academy common stock for each fiscal quarter since October 1,
1997. The Academy's first fiscal quarter ends September 30, the second fiscal
quarter ends December 31, the third fiscal quarter ends June 30.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
FISCAL YEAR 1998
First Quarter ................................ $ 8.125 $ 7.750
Second Quarter ............................... 8.000 7.500
Third Quarter ................................ 10.000 7.750
Fourth Quarter ............................... 8.250 7.000
FISCAL YEAR 1999
First Quarter ................................ 8.000 6.750
Second Quarter ............................... 8.500 7.500
Third Quarter ................................ 8.500 6.875
Fourth Quarter ............................... 7.625 5.625
FISCAL YEAR 2000
First Quarter ................................ 7.250 4.438
Second Quarter ...............................
</TABLE>
On December 6, 1999, the last trading day before public announcement of
the execution of the Merger Agreement, the last sale price of Academy common
stock on Nasdaq was $3.8125 per share. On January , 2000, the most recent
practicable date prior to the distribution of this Annual Report and Proxy
Statement the last sale price of Academy common stock on Nasdaq was
$ per share. Academy shareholders should obtain current market
prices for Academy common stock. The Academy has not paid cash dividends on
Academy common stock and does not anticipate that any cash dividends will be
paid in the foreseeable future. Beginning September 30, 1996, the Academy was
required to pay, and did pay, quarterly dividends on its outstanding Series A
Preferred Stock at the annual rate of $.4125 per share. An aggregate of $21,688
in cash dividends was paid during the fiscal year ended June 30, 1998. Pursuant
to the terms of the Series A Preferred Stock Agreement, the Academy converted
the outstanding preferred stock to common stock in February 1998.
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THE ACADEMY
The California Culinary Academy, Inc. is one of the largest publicly
held, for-profit professional culinary arts training schools in the United
States (based on the number of students enrolled in its programs), offering a
variety of programs to culinary arts professionals, serious amateurs and other
members of the public who may be interested in specific culinary subjects. The
Academy operates at three locations: the main campus located in San Francisco,
California and at extension campuses in Salinas and San Diego, California. In
conjunction with its education activities, the Academy operates two public
restaurants and a small retail shop at its San Francisco campus, serving a
clientele that consists of students, staff and the general public.
The Academy has been in operation since 1977, offering its core
programs, consisting of the Associate of Occupational Studies Culinary Arts
Degree Program, the Baking & Pastry Arts Certificate Program, weekend
continuing education programs for professionals, and other courses or
workshops for interested non-professional students.
In October 1996, the Academy introduced a new concept in culinary
education when it opened its College of Food at its extension campus in Salinas.
A second College of Food was opened in San Diego, California in February 1998.
The strategy of the College of Food is to increase the students' basic knowledge
of kitchen skills, sanitation and supervisory skills, as well as offering
specialized courses in baking and pastry. The College of Food concept is
designed to attract students who wish to enter the culinary field, food service
workers who need specialized training or individuals who simply want to expand
their culinary knowledge.
As of September 1, 1999, the Academy has graduated approximately
5,600 students from its professional programs. In addition, thousands of
individuals have attended one or more of its continuing education classes.
For the year ended June 30, 1999, the Academy averaged approximately 617
full-time students in its AOS Degree and B&P Certificate programs. These
programs are designed to accommodate up to 25 students in each of
approximately 25 enrollment periods per year for the AOS Degree program and
25 in each of the seven enrollment periods for the B&P Certificate program.
The Colleges of Food, each of which can accommodate up to approximately 150
students with new enrollments occurring approximately every three to four
weeks, averaged 174 students during the year ended June 30, 1999. Because the
curriculum at the Academy focuses on practical skills and techniques that the
Academy believes are critical to success in the food industry, the Academy
has historically enjoyed a high job placement rate among its graduates.
The predecessor to the Academy was incorporated in June 1977, as a
Pennsylvania corporation. In October 1986, the Academy was incorporated in the
State of California under the name CCA Acquisition Corporation and was the
surviving corporation in a merger with the Pennsylvania corporation. Upon
completion of the merger, CCA Acquisition Corporation changed its name to
California Culinary Academy, Inc.
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EDUCATION PROGRAMS
The Academy's professional programs are designed to prepare students
for entry-level professional positions or for individual advancement to
supervisory positions in food service operation. The primary educational
offerings of the Academy are the AOS Degree and B&P Certificate programs. The
Academy has also applied for certification of its Basic Professional Culinary
Skills Program at the College of Food. Completed coursework from the College of
Food's Basic Professional Culinary Skills Program is transferable into the
Academy's AOS Degree program. In addition to its degree and certificate
programs, the Academy also offers a large variety of non-degree programs for
professionals and other students. All professional programs emphasize "hands on"
practical experience.
Full-time classes at the main campus in San Francisco are offered in
two seven-hour shifts, from 7 AM to 10 PM, Monday through Friday. At the
Colleges of Food, classes are offered in a choice of four hour shifts, from 9
AM to 1 PM or from 6 PM to 10 PM for part-time students. Part-time students
typically have full or part-time jobs and the choice of classes accommodates
their employment schedules. Continuing education courses are offered on
weekends at the Academy's main campus.
AOS PROGRAM
The Culinary Arts Program provides an intensive 16-month course of
study leading to an AOS Degree in Culinary Arts. The program is divided into
two academic terms. Enrollment periods begin every two weeks, providing
students with flexible scheduling options and efficiently utilizing the
services of the Academy's chef instructors and the Academy's facilities.
The curriculum of the AOS Degree program, which integrates classical
and modern culinary techniques with strong kitchen management skills, is
designed to prepare students for professional entry into the food service
industry. Courses include Food Science and Technology, Food History and
Anthropology, Baking and Pastry, Skill Development, Garde Manger, Hospitality
Management, Production Kitchens, Wine Appreciation and other related
subjects. In these courses students learn how to prepare breads, pastries,
desserts, appetizers, soups, sauces, vegetables, salads, sandwiches, hors
d'oeuvres, cold buffets, and entrees. They also learn to identify, fabricate
and portion meats, poultry and fish. The professional kitchen management
courses include such topics as sanitation, hygiene, safety procedures, cost
control, human resource management and styles of table service.
Integral to the coursework is experience operating the Academy's two
restaurants and participating in an externship (see "Restaurants, Retail and
Media"). In connection with the Academy's restaurant operations, students
rotate through kitchen stations in order to gain proficiency in various
skills needed to perform at professional standards in a commercial kitchen,
and serve the general public clientele in both sit-down and buffet-style
settings. The AOS Degree program provides a sequential course of study
culminating in a three-month off-site externship where students gain actual
experience working under a highly qualified professional chef.
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<PAGE>
As of September 10, 1999, tuition and fees for the AOS Degree program
totaled approximately $31,755 for the full 16-month course of study. This fee
includes textbooks, uniforms, knife kits, the cost of food used in the
classrooms and one meal per day, in addition to the cost of course instruction.
Tuition is payable in installments during the two academic terms. Financial
assistance is available to eligible students (see "Government Financial Aid
Programs and Regulation").
BAKING & PASTRY CERTIFICATE PROGRAM
The B&P Certificate program is designed for those students interested
in professional baking. The program provides 30 weeks of comprehensive study,
with an emphasis on the hands-on application of fundamental techniques and
ingredients. The program is divided into four modules: (i) breads and doughs;
(ii) cakes; (iii) service pastry and desserts; and (iv) chocolate, confectionery
and showpieces. In addition, the curriculum includes professional development
courses on safety and sanitation, nutrition and human resource management.
Although not included as a required part of the curriculum, externships are
available. Enrollment periods begin approximately every seven weeks and each
session can accommodate up to 25 students.
As of September 10, 1999, tuition and fees for the B&P Certificate
program total approximately $14,228 for the full 30-week course of study. This
fee includes textbooks, uniforms, knife kits, cost of food, one meal per day and
supplies. Deferred payment plans and financial assistance are available to
eligible students (see "Government Financial Aid Programs and Regulations")
BASIC PROFESSIONAL CULINARY SKILLS PROGRAM
The California Bureau for Private Postsecondary and Vocational
Education ("BPPVE") has certified the Academy's 12-credit course of study
offered at the College of Food.
The College of Food Basic Skills Program requires completion of 352
hours of study for 12 credits as follows: 32 hours of Safety and Sanitation; 128
hours of Kitchen Skills; 64 hours of Basic Baking skills; 64 hours of Garde
Manger; 32 hours in Breakfast Cookery; and 32 hours of Current topics in
Mid-Scale Dining. Credits from the College of Food Basic Skills Program can be
applied toward earning an AOS Degree or a B&P Certificate through the Academy's
core programs at the main campus.
As of September 10, 1999, tuition and fees for the Certificate of Basic
Professional Culinary Skills Program totaled approximately $5,156.
NON-DEGREE OR CERTIFICATE PROGRAMS
In addition to its educational programs leading to the AOS Degree in
Culinary Arts, the B&P Certificate, and the College of Food Certificate of Basic
Professional Culinary Skills, the Academy offers non-degree continuing education
courses for professionals and serious amateurs, as well as other courses of
interest to anyone who likes to cook. The professional non-degree continuing
education programs address traditional kitchen skills with emphasis on palate
development, cooking techniques, and sauces.
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<PAGE>
The courses generally are offered on consecutive weekends, and cover a
variety of subjects. Currently the Academy offers a series of eight-week
culinary courses and a fourteen-week baking and pastry series. Fees for the
non-degree professional programs range from $500 to $1,900. Completed course
work can be applied toward earning an AOS Degree or B&P Certificate.
EDUCATIONAL SERVICES
JOB PLACEMENT FOR PROFESSIONAL PROGRAM STUDENTS AND GRADUATES. The
Academy's Career Services staff assists currently enrolled students and
graduates in obtaining positions in the food industry in a number of ways.
The Career Services Office houses reference material containing current job
openings that include entry level through advanced positions throughout the
United States and foreign countries. For students and graduates who are
unable to access the current job openings on campus, these job openings are
also recorded on the Job Hotline, a telephone announcement that is updated
weekly. Twice per year during the Academy's Spring and Fall Recruitment
Weekend, the Career Services staff coordinates a Career Fair featuring
representatives from all areas of the food industry seeking to hire students
and graduates of the Academy. The Career Services staff also coordinates
interview schedules for companies recruiting students and graduates directly
from the Academy during the Recruitment Weekend. In addition, individual
counseling sessions, resume assistance and other career development materials
are available through the Career Services Office. While the Academy does not
guarantee employment specific positions upon graduation, it believes its
name, reputation, and high job placement rate are factors that attract
students to its professional programs.
Students interested in part-time or full-time jobs while they are
enrolled at the Academy can contact the Career Services Office. The Academy
provides students with names of prospective employers seeking catering staff
or other part-time and full-time assistance. Additionally, the Academy itself
offers part-time employment. For example, the Academy's Food and Beverage
Department hires students to assist with special functions and events, such
as private parties and corporate events held in the Academy's restaurants.
The Academy also offers federal work-study opportunities.
ALUMNI RELATIONS. California Culinary Academy alumni relations and
career services personnel are available to refer graduates to other alumni,
answer questions, and provide programs, activities and professional
opportunities.
RECRUITMENT AND ADMISSIONS. Students are recruited both domestically
and internationally. Statistics compiled show that as of June 30, 1999,
approximately 66% of the full-time students enrolled in the Academy's AOS
Degree or B&P Certificate programs are from California. The Academy's
admissions staff reviews applications for admission to the professional
programs. In considering an applicant for admission to the AOS Degree or B&P
Certificate programs, the admissions staff first determines whether an
applicant meets certain minimum prerequisites, including: (i) demonstrated
motivation towards a career in the culinary arts; (ii) graduation from high
school with at least a 2.0 grade point average or passage of an approved high
school equivalency examination; (iii) a passing score on a general math
admissions test; and (iv) for those whose native language is other than
English, passage of the
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<PAGE>
TOEFL test of English as a Foreign Language with a score of at least 550 out
of a total of 665. Experience in the food industry is viewed favorably by the
admissions staff but is not considered a prerequisite for admission to any of
the Academy's programs. Applicants to the Academy's College of Food programs
are not required either to have a high school diploma or to have passed an
approved high school equivalency examination, or pass an entrance examination.
The Academy has evaluation agreements with 18 regional junior
colleges allowing certain courses to be transferred to the Academy for
credit. The Academy believes this arrangement enables it to recruit more
effectively from junior colleges. The Academy believes that an important
recruiting tool is its media exposure. A 13-part series, COOKING AT THE
ACADEMY, was developed and written by the Academy and produced by the San
Francisco public television station KQED. This series has been shown in its
entirety since 1991 through the Public Broadcasting System to over 250 major
media markets in the United States. In the spring of 1995, a new 26-episode
series of COOKING AT THE ACADEMY began airing on public television stations
throughout the country. Additionally, the Academy has been featured in a
syndicated radio talk show, FOOD FOR THOUGHT, airing in the Monterey Bay area
on KCSO radio, as well as DINING AROUND WITH GENE BURNS on KGO radio in San
Francisco. The Academy believes that such widespread exposure has enhanced
the Academy's name recognition, reputation and new student recruitment
efforts (see "Restaurants Retail and Media"). During the fiscal year, the
Academy entered into an agreement with WYES TV in New Orleans, Louisiana for
the production and distribution of a new 26 part series "The Academy's Global
Cuisine" which WYES TV plans to distribute in early 2000. Under the Agreement
with WYES TV, the Academy will publish a cookbook based on the series.
On-site admissions representatives, who are full-time salaried
employees, are responsible for recruiting students at the Academy. These
admissions representatives consult with prospective students who are referred
by alumni, respond to the Academy's advertising or are otherwise motivated to
contact the school.
EDUCATIONAL PROGRAM DEVELOPMENT. The Academy's ability to attract
new students and place graduating students depends to a significant extent on
its ability to offer educational and training programs that provide students
with skills sought after in the food industry. Given the continual changes in
professional cooking and professional baking, the Academy believes it is
critical that the most current methods are taught. The Academy's Educational
Program Committee (consisting of members of the Academy's faculty,
administration, and focus groups from the food industry), attempts to respond
quickly to both the culinary and business needs of the food industry. Recent
enhancements to the AOS Degree curriculum address profiling the culinary arts
program toward the global cuisine of today's industry. Course work in areas
such as Foods of the Americas, Asian Cuisine and a computer software course
in food industry applications respond directly to existing and current
demands facing the Academy's students upon their graduation.
EDUCATION-OPERATIONS DEPARTMENT. The Education-Operations Department
is responsible for the quality and delivery of the educational process,
including direct responsibility for curriculum content and sequencing, chef
instructor training and development, and teaching and evaluation methods. The
Vice President of Academic Affairs is assisted by chef managers who oversee
each educational area, Basic Skills, Culinary Production, Baking and
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Pastry and Related Subjects in the AOS Degree or B&P Certificate programs and
develop, monitor and update the educational programs offered at the Academy.
STUDENT RETENTION. The Academy continually focuses significant efforts
on maintaining high retention rates for its students. For the fiscal year ended
June 30, 1999, approximately 87% of the students successfully completed the AOS
Degree program on schedule. Based on past experience, it is estimated that an
additional 5% will graduate at a later date. However, as is the case at most
institutions of higher education, some of the Academy's students end their
studies early for personal, financial or academic reasons. The Academy faculty
maintains weekly office hours to provide academic assistance and to advise
students. The Academy faculty and administration are also available to provide
support and referrals to students experiencing personal difficulties.
RESTAURANTS, RETAIL AND MEDIA
RESTAURANTS. The Academy operates two public restaurants at its San
Francisco campus: the Careme Room, a fine dining restaurant with seating for
approximately 325 diners, and the mid-scale Grill, with seating for
approximately 125 diners. The restaurants are open to the public seven days per
week for lunch and dinner, excluding school holidays. The restaurants are
staffed by students under faculty supervision and serve as an important teaching
environment since they provide "hands-on" experience in restaurant food
preparation, service and management. In addition, the restaurants provide an
additional source of revenue (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations"). As part of the AOS Degree
program, the Academy's students are instructed in dining room service styles, as
well as professional cooking and food and beverage management.
RETAIL. The Academy operates a small retail shop at its San Francisco
campus. The retail shop, which services students, staff and the public, is open
five days per week, offering beverages, cookbooks, videotapes, kitchenware and
selected clothing.
MEDIA. The Academy developed and wrote the 13-part television series,
COOKING AT THE ACADEMY, produced in 1991 by San Francisco public television
station KQED, which features cooking instruction on specific topics by the
Academy's chef instructors or former chef instructors. Over 135,000 copies of
the accompanying cookbook, COOKING AT THE ACADEMY, have been distributed under
various distribution agreements. In addition, a series entitled CALIFORNIA
CULINARY ACADEMY COOKBOOKS, which includes 30 titles, has sold over two million
copies since 1985.
In 1995, 26 new episodes of COOKING AT THE ACADEMY began airing on
public television stations throughout the country. Over 85,000 copies of the
accompanying cookbook, FESTIVE FAVORITES, have been distributed under various
distribution agreements.
In 1997, the Academy hosted a radio talk show, FOOD FOR THOUGHT, airing
in the Monterey Bay area on KSCO radio, as well as DINING AROUND WITH GENE BURNS
on KGO radio in San Francisco.
In 1998, the Academy entered into a contract with WYES TV in New
Orleans, Louisiana for the production and distribution of a new 26-part
series, "The Academy's Global Cuisine,"
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which WYES TV plans to distribute in early 2000. As part of the agreement,
the Academy will publish a cookbook based on the series.
The Academy maintains a home page on the Internet at "www.baychef.com"
as a promotion and marketing tool to attract new students. The Academy's website
provides information on the Academy's educational programs and personnel,
program costs and admissions procedures and forms, and allows interested parties
to communicate with the Academy via e-mail and to order selected merchandise
from the Academy's retail store. Information contained in the Academy's website
is not a part of this Annual Report and Proxy Statement.
ACCREDITATION OF THE ACADEMY AND ITS PROFESSIONAL PROGRAMS
Accreditation is a process for evaluating educational institutions and
their professional programs. This evaluation process recognizes the quality of
educational program offerings and entitles the schools to the confidence of the
educational community, federal and state government agencies and the public at
large.
In the United States, this accreditation is given primarily through
non-government, voluntary, institutional or professional associations. Those
groups establish criteria for accreditation, arrange site visits and evaluate
institutions and professional programs that desire accredited status, publicly
designating those that meet their criteria. Accredited schools are subject to
periodic review by accrediting bodies to ensure that the schools maintain the
level of program performance, content, teaching and administrative quality
required by the accrediting body.
The Academy's postsecondary educational programs are recognized by the
U.S. Department of Education ("DOE") and by the California Bureau for Private,
Post-Secondary and Vocational Education ("BPPVE"). The Academy is accredited by
the American Culinary Federation Educational Institute Accrediting Commission
("ACFEI") and by the Accrediting Commission for Career Schools and Colleges of
Technology ("ACCSCT"). The Colleges of Food are not accredited, nor are the
programs offered by the Colleges of Food.
The Academy is approved by BPPVE to grant to students who successfully
complete the full-time Culinary Arts Degree program, an AOS Degree in Culinary
Arts, and a Certificate in Baking and Pastry Arts for those students completing
the full-time B&P Certificate program. Approval from BPPVE is renewed
periodically in accordance with the provisions of the California Education Code.
The Academy has been granted certification for the Basic Professional
Culinary Skills program in the Colleges of Food from BPPVE. The Academy's
courses of instruction for the AOS Degree and B&P Certificate programs are
approved for veterans training by the Federal Department of Veterans Affairs
under the GI Bill of Rights and the Veterans Education Assistance Programs and
for foreign students under the rules and regulations of the Immigration and
Naturalization Service.
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GOVERNMENT FINANCIAL AID PROGRAMS AND REGULATION
The Academy's students finance their education, in whole or in part,
through individual resources, with approximately 75% of students receiving some
form of financial aid assistance. Approximately 42% of the Academy's fiscal 1999
educational program revenues were derived from federal and/or state
government-sponsored financial aid. On the basis of financial information
provided by the student and/or the student's family, the Academy develops an
assistance package for students who are eligible for financial aid. To maintain
financial assistance eligibility, students must demonstrate satisfactory
academic progress.
Extensive and complex regulations govern all of the government grant
and loan programs in which the Academy and its students participate. These
programs are required to be administered in accordance with the standard of care
and diligence of a fiduciary and are subject to annual audits. The Academy's
Director of Financial Aid and one Financial Aid Counselor are certified by the
State of California. Two other Financial Aid Counselors are currently taking the
necessary steps to become certified. Any regulatory violations could be the
basis for suspension, limitation, or termination proceedings. No suspension,
limitation, or termination proceedings have ever been instituted against the
Academy.
In July 1999, the Academy was re-certified by the DOE, and as such, is
eligible to continue to participate in the federal financial aid programs under
Title IV of the Higher Education Act ("HEA") through June 30, 2003. The Colleges
of Food, however, are not certified to participate in Title IV Programs and
students who attend the Colleges of Food do not receive federal financial aid
funds.
An institution is required to meet certain specified financial
standards in order to participate in Title IV financial aid programs
administered by the DOE. Failure of an institution to adhere to those standards
may result in the DOE requiring that institution to post a letter or credit or
other surety to ensure that the institution is able to fulfill its educational
commitments to its students and pay required refunds upon withdrawal. The DOE
could also place an institution on provisional certification and subject it to
additional monitoring and reporting requirements.
The Academy devotes significant time and effort in order to properly
and satisfactorily administer the financial aid programs in accordance with
applicable government regulations and responsibilities. The Academy has
established an internal review committee charged with ongoing compliance
reviews to identify problems, to take expeditious corrective action, and to
implement any and all mandated changes in regulations affecting these
programs on a timely basis. In addition, the Academy has developed job
descriptions that the Academy believes comply with Federal Work Study
employment at for-profit postsecondary institutions, has adopted internal
written procedures to ensure compliance with the Title IV restrictions, and
has established and maintained general ledger control accounts and related
subsidiary accounts to assist in the accurate and timely reporting of
information to the DOE and other interested parties.
The following is a list of government financial aid programs in which
the Academy's students participate:
Federal Pell Grant
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Federal Supplemental Educational Opportunity Grant ("SEOG")
Federal Stafford Loan Program (subsidized)
Federal Stafford Loan Program (unsubsidized)
Federal Perkins Direct Student Loan Programs ("Perkins")
Federal Parent Loans for Undergraduate Students
Federal Work Study
California State Grants A, B, and C
The Academy is also approved to train veterans and, therefore, students
may be eligible to receive benefits from the Veterans Administration. The
Academy's continued eligibility to participate in the Title IV student financial
aid loan programs is dependent, in part, on maintaining an acceptable "cohort"
default rate. The cohort default rate is defined as the default rate of all
federal financial aid loan programs, other than the Perkins program.
Any institution that has a cohort default rate of 25% or greater for
three consecutive years will not be eligible to participate in certain Title IV
student financial aid programs for approximately three years. The Academy's
cohort default rates for the three most recent years for which such date is
available are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR: COHORT DEFAULT
RATE:
<S> <C>
1995 ........................................................ 13.0%
1996 ........................................................ 9.3%
1997 ........................................................ 8.6%
</TABLE>
The Perkins program default rate is calculated separately and is the
smallest of the Academy's federally funded financial aid loan programs. The
Perkins program default rate for the most recent years for which such date is
available are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR: PERKINS
DEFAULT RATE:
<S> <C>
1995 ........................................................ 25.0%
1996 ........................................................ 15.6%
1997 ........................................................ 2.8%
1998 ........................................................ 12.5%
1999 ........................................................ 28.57%
</TABLE>
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Approximately 42% of educational program revenues during fiscal year
1999 were provided by federal and/or state government-sponsored financial aid
programs, a substantial portion of which were derived from various student
loan programs. Participating students make loan application to one of several
federally-approved financial institutions. The ability of private financial
institutions to originate loans to the Academy's students is critical to the
Academy's business.
Grants represent funds made available to eligible students by the
government, which do not have to be repaid. The Academy is eligible to
participate in federal Pell Grant and SEOG programs. Both are federal
programs for undergraduates at post-secondary schools in the United States
who have demonstrated sufficient financial need.
All government-subsidized financial assistance programs for students
are subject to political and budgetary considerations outside the control of
the Academy. No assurance can be given that governmental programs currently
providing financial assistance and subsidies to students attending the
Academy's education programs will remain available at present levels. A
reduction or curtailment of funding levels, or other unanticipated changes in
federal assistance program participation requirements, would result in lower
enrollments and adversely impact the Academy's business. (See "RISK FACTORS").
The Academy has spent no money in the last two fiscal years on
research and development activities. Additionally, costs and effects of the
Academy's compliance with federal, state and local environmental laws have
been negligible.
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THE ANNUAL MEETING
MATTERS TO BE CONSIDERED
At the Annual Meeting, the shareholders of the Academy will consider
and vote upon the proposal to approve the principal terms of a merger of the
Academy with an indirect, wholly owned subsidiary of Career Education
Corporation, pursuant to which, among other things, each outstanding share of
the Academy's common stock will be converted into the right to receive $5.25
in cash, all pursuant to an Agreement and Plan of Merger among Career
Education Corporation, CCA Acquisition, LLC, and the Academy, dated as of
December 6, 1999. See "THE MERGER AGREEMENT--Terms of the Merger."
REQUIRED VOTE
Approval of the merger will require the affirmative vote of a majority
of the outstanding shares of Academy common stock held by shareholders entitled
to vote on the Record Date. Pursuant to and subject to the terms of the Option
Agreement, the owners of approximately 41% of the outstanding shares of Academy
common stock have agreed to vote all of their shares of common stock in favor of
the merger. See "THE OPTION AGREEMENT."
As of the Record Date, directors and executive officers of the Academy
were beneficial owners of an aggregate of 1,741,573 shares (approximately 45.7%
of the outstanding shares) of Academy common stock, 380,000 shares of which were
represented by immediately exercisable options to acquire Academy common stock.
The directors and executive officers of the Academy have indicated that they
intend to vote their shares of Academy common stock in favor of the merger. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
VOTING AND REVOCATION OF PROXIES
Shares of Academy common stock that are entitled to vote and are
represented by a proxy properly signed and received at or prior to the Annual
Meeting, unless subsequently properly revoked, will be voted in accordance with
the instructions indicated thereon. If a proxy is signed and returned without
indicating any voting instructions, shares represented by such proxy will be
voted FOR the merger. The Board of Directors is not currently aware of any
business to be acted upon at the Annual Meeting other than as described herein.
If other matters are properly brought before the Annual Meeting or any
adjournments or postponements thereof, the persons appointed as proxies will
have the discretion to vote or act thereon in accordance with their best
judgment, unless authority to do so is withheld in the proxy.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the shares represented by such proxy are
voted at the Annual Meeting by (i) attending and voting in person at the Annual
Meeting, (ii) giving notice of revocation of the proxy at the Annual Meeting, or
(iii) delivering to the Secretary of the Academy (a) a written notice of
revocation or (b) a duly executed proxy relating to the same shares and matters
to be considered at the Annual Meeting, bearing a date later than the proxy
previously executed. Attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy. All
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written notices of revocation and other communications with respect to
revocation of proxies should be addressed as follows:
Secretary of the Academy
California Culinary Academy, Inc.
625 Polk Street
San Francisco, California 94120
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of the Academy common stock at the close of business on
the Record Date will be entitled to receive notice of and to vote at the Annual
Meeting. At the close of business on the Record Date, the Academy had
outstanding and entitled to vote 3,815,431 shares of Academy common stock.
Shares of Academy common stock represented by proxies which are marked "abstain"
or which are not marked as to any particular matter or matters will be counted
as shares present for purposes of determining the presence of a quorum on all
maters. Proxies relating to street name shares that are voted by brokers will be
counted as shares present for purposes of determining the presence of a quorum
on all matters, but will not be treated as shares having voted at the Annual
Meeting as to any proposal as to which authority to vote is withheld by the
broker.
The presence, in person or by proxy, at the Annual Meeting of the holders of at
least a majority of the shares entitled to vote at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Pursuant to
the terms of the Option Agreement, the owners of approximately 41% of the
outstanding shares of Academy common stock have granted CECO a proxy to vote all
of their shares of common stock in favor of the merger. Abstentions will be
counted as present for the purposes of determining whether a quorum is present
but will not be counted as votes cast in favor of the merger. Because the vote
on the merger requires the approval of a majority of the outstanding shares of
Academy common stock, abstentions will have the same effect as a negative vote
on the merger.
DISSENTERS' RIGHTS
The Academy's shareholders may exercise dissenters' rights under
Chapter 13 of the California General Corporate Law ("CGCL") in connection with
the merger. Any shares of Academy common stock as to which dissenters' rights
are properly exercised may, in certain circumstances, be converted into the
right to receive such consideration as may be determined to be due with respect
to such dissenting shares pursuant to the laws of the State of California. The
following summary of the provisions of Chapter 13 is not intended to be a
complete statement of such provisions and is qualified in its entirety by
reference to the full text of Chapter 13, a copy of which is attached hereto as
Annex D.
The CGCL states that, generally, there are no dissenters' rights in
connection with securities that are listed on a national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 of the CGCL. The Academy's shares of common stock are listed on the Nasdaq
National Market System, which has been so certified by
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<PAGE>
the Commissioner of Corporations. Therefore, the Academy's common stock is
not, generally, subject to dissenters' rights. However, the CGCL provides
that dissenters' rights will exist even for securities so certified in the
event that demands for payment, as described below, are filed with respect to
5 percent or more of the outstanding shares of that class.
If the merger is approved by the required vote of the shareholders and
is not abandoned or terminated, any holder of Academy common stock outstanding
as of the Record Date may, by complying with the provisions of Chapter 13 of the
CGCL, demand that the Academy purchase for cash at fair market value the shares
owned by such holder which were voted against the merger. The fair market value
shall be determined as of the day before the first announcement of the terms of
the proposed merger, excluding any appreciation or depreciation in consequence
of the proposed merger. HOWEVER, THE ACADEMY WILL BE UNDER NO OBLIGATION TO
PURCHASE SUCH SHARES UNLESS IT RECEIVES SIMILAR DEMANDS WITH RESPECT TO 5
PERCENT OR MORE OF THE SHARES OF OUTSTANDING COMMON STOCK.
The dissenting shareholder wishing to be eligible to have the Academy
to purchase his or her shares of Academy common stock must:
(a) make written demand upon the Academy or its transfer agent to
require the Academy to purchase such dissenting shareholders'
shares prior to the date of this Annual Meeting, setting forth
in his or her demand, name and address, and the number and
class of shares which he or she demands that the Academy
purchase and a statement as to what he or she believes the
fair market value of such shares to have been, based upon the
standard set forth above;
(b) vote against the merger with respect to any of the shares he
or she wishes to be dissenting shares; and
(c) submit for endorsement, within 30 days after the date on which
notice of the approval of merger was mailed to the
shareholder, at the principal office of the Academy or at the
office of the transfer agent for the Academy common stock, the
certificates representing any shares in regard to which demand
for purchase is being made, with a statement regarding which
of the shares are dissenting shares.
Failure to execute a proxy with respect to approval of the merger will
not be sufficient to constitute the demand described above. In addition, the
dissenting shareholder may not withdraw his or her demand for purchase of
dissenting shares without the Academy's consent.
If the Academy has received demands with respect to 5 percent or more
of the shares of outstanding common stock, within 10 days after the date of the
approval of the merger, the Academy will mail to each shareholder who has made
such a demand and voted against the merger a notice of approval of the merger
together with a statement of the price determined by the Academy to represent
the fair market value of dissenting shares, and a brief description of the
procedure to be followed if the shareholder desires to exercise dissenters'
rights under the CGCL. The statement of the price of the shares will constitute
an offer by the Academy to purchase at the price stated therein any dissenting
shares.
If the Academy and the dissenting shareholder agree that the shares are
"dissenting shares" and agree upon the price of the shares, the dissenting
shareholder will be entitled to the
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<PAGE>
agreed price plus interest thereon at the legal rate on judgments from the
date of such agreement. Subject to the provisions of the CGCL, payment of the
fair market value of the dissenting shares will be made within 30 days after
such agreement or after satisfaction of any statutory or contractual
condition to the merger, whichever is later, and upon surrender of the
certificates therefor.
If the Academy denies that the shares are dissenting shares or if the
Academy and the dissenting shareholder fail to agree upon the fair market value
of the shares, then the dissenting shareholder, within six months after the date
on which notice of approval of the merger is mailed to such shareholder, and not
thereafter, may file a complaint in superior court, requesting the court to
determine whether the shares are dissenting shares, or the fair market value of
the dissenting shares, or both, or may intervene in any pending action for the
appraisal of any shares of Academy common stock. If a complaint is not filed
within six months, the shares will lose their status as dissenting shares. Two
or more dissenting shareholders may join as plaintiffs or be joined as
defendants in such an action. If the eligibility of the shares is at issue, the
court will first decide this issue. If the fair market value of the shares is in
dispute, the court will determine, or shall appoint one or more impartial
appraisers to assist in the determination of, the fair market value. The costs
of the action will be assessed or apportioned as the court considers equitable,
but if the appraisal exceeds the price offered to the shareholder, the Academy
will be required to pay such costs, including, in the discretion of the court,
attorneys' fees, expert witnesses' fees and interest if the value awarded by the
court for the shares is more than 125% of the price offered by the Academy to
the shareholder.
Any demands, notices, certificates or other documents required to be
delivered to the Academy described herein may be sent by mail to Chuck White,
Secretary of the Academy, 625 Polk Street, San Francisco, California 94102.
Failure to comply fully with these procedures will cause the shareholder to lose
his or her dissenters' rights.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF CALIFORNIA LAW,
SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT THEIR
LEGAL ADVISORS. THIS DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY CHAPTER 13 WHICH
IS ATTACHED AS ANNEX D HERETO.
SOLICITATION OF PROXIES
The Academy will bear the cost of the solicitation of proxies and the
cost of printing and mailing this Annual Report and Proxy Statement. In addition
to solicitation by mail, the directors, officers and employees of the Academy
may solicit proxies from shareholders of the Academy by telephone, telegram or
by personal interview. Such directors, officers and employees will not be
additionally compensated for any such solicitation but may be reimbursed for
reasonable out-of-pocket expenses in connection therewith. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of shares held of record by such persons and the Academy will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith.
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If you have any questions or require additional material, please
contact Chuck White, Secretary of the Academy, 625 Polk Street, San Francisco,
CA 94102, (415) 292-8280.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. See
"THE MERGER AGREEMENT--Exchange of Academy Stock Certificates."
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<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
In April 1999, the Academy executed an agreement to sell convertible
notes and warrants to purchase common stock to an investor group that
included Cahill, Warnock Strategic Partners Fund, L.P. and Strategic
Associates, L.P. (collectively, "Cahill Warnock"). The principal purpose of
the proposed financing was to fund the construction and development of a
second regional campus in New Orleans, Louisiana. The completion of the
financing was subject to the approval by the shareholders of the Academy of
the issuance of shares of common stock of the Academy issuable upon
conversion of the convertible notes and exercise of the warrants. Shareholder
approval was necessary under the rules for maintaining the Academy's listing
in the Nasdaq Stock Market because the financing involved the potential
issuance of more than 20% of the Academy's outstanding common stock.
Following the execution of the agreement, David Warnock, a general partner of
the general partner of Cahill Warnock Strategic Partners Fund, L.P., was
appointed to the Academy's board.
At a meeting on May 14, 1999, Keith Keogh, Chief Executive Officer of
the Academy, received a letter signed by Theodore G. Crocker, William G. DeMar
and Thomas Green which stated that the group owned a majority of the Academy's
shares and that it was the group's intention to vote against the financing and
to vote against the current board of directors and in favor of a new board of
directors. The letter also called for a special meeting of shareholders to elect
directors. Mr. DeMar and Mr. Green, who attended the meeting with Mr. Keogh,
further indicated the shareholder group's desire that the Academy be sold.
Mr. Crocker was the Chief Executive Officer of the Academy until May
1998 and was a member of the board of directors of the Academy until his
resignation in February 1999. According to Mr. Crocker's filing with the SEC on
December 6, 1999, he is the beneficial owner of 1,199,348 shares of the
Academy's common stock, representing approximately 31.4% of the total number of
outstanding shares. Mr. DeMar was the Chief Operating Officer of the Academy
from April 1992 to May 1994 and was a director from October 1986 to March 1999,
December 1997 to July 1998 and from July 1999 to the present. Mr. DeMar's
December 7, 1999 filing with the SEC indicates that he is the beneficial owner
of 150,935 shares of common stock, or approximately 4.0% of the total shares
outstanding.
The Academy understands that Thomas Green is a principal of Thomas
Green Securities, which makes a market in the Academy's common stock. Mr. Green
has never held a position as an employee, officer or director of the Academy.
Mr. Green has represented in connection with the Option Agreement that he owns
at least 172,000 shares of common stock.
On May 17, 1999, Mr. Keogh, other members of senior management of the
Academy and a representative of Pillsbury Madison & Sutro LLP, outside counsel
to the Academy, met with Mr. DeMar and William Waterman of W.E.W. & Co., an
investment advisor to the shareholder group. At the meeting, Mr. DeMar and Mr.
Waterman advised that during the prior approximately ten day period they had
initiated discussions with CECO and a second company with substantial operations
in the post-secondary education business ("Second Company"). Both CECO and the
Second Company were familiar to the Academy. The Academy, principally
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<PAGE>
through Mr. Crocker (in his capacity as Chief Executive Officer), had held
preliminary merger discussions with each of these companies at various times
during 1997 and 1998.
Also on May 17, the Academy's board met and management advised the
board concerning the May 14 letter and the meeting with representations of the
shareholder group earlier that day. At that meeting, the Academy's board
authorized management to explore and report to the board with respect to the
Academy's opportunities for a business combination transaction, including with
CECO and the Second Company. The board also voted to engage Legg Mason Wood
Walker, Incorporated (the placement agent for the proposed financing) as its
financial advisor and voted to postpone the Academy's 1999 Annual Meeting from
June 11 to June 28, 1999.
Promptly following these meetings, Mr. Keogh was contacted by
representatives of CECO and the Second Company, who each expressed interest in
entering into negotiations with respect to a business combination transaction.
On May 26, 1999, the Academy issued a press release describing the actions taken
by the shareholder group and stating that board "will give appropriate
consideration to any business combination proposal that the Academy may receive"
and that it intended to "meet with any potential acquirers who express
appropriate interest."
During the period between May 17 and June 28, 1999, the Academy met
with representatives of CECO and the Second Company and provided information to
each of them concerning its business. Throughout this period, representatives of
the shareholder group participated in discussions between the Academy and each
of CECO and the Second Company. The shareholder group also continued to hold
separate discussions with each potential acquirer concerning the purchase price
and other issues. The Second Company initially proposed a stock-for-stock merger
in which Academy shareholders would receive publicly traded shares of the Second
Company with a value of approximately $7 per share. In late June, after further
review of the Academy's business, the Second Company indicated that it was
prepared to discuss a transaction at $6.50 per share, subject to further due
diligence and negotiation of definitive agreements. CECO initially proposed a
stock-for-stock merger at $5 per share. During this period, management of the
Academy also contacted several groups that had expressed interest in
participating in the Academy's planned financing, as well as certain others, to
determine their interest in a business combination or other buy-out transaction
involving the Academy. None of the parties contacted expressed an interest in
pursuing such a transaction with the Academy within the range of value under
discussion with CECO and the Second Company.
Prior to the Academy's Annual Meeting of Shareholders on June 28, 1999,
Mr. DeMar, on behalf of the shareholder group, and members of Academy's board
determined to vote to adjourn the Annual Meeting for 45 days, expand the size of
the Academy's board by two, appoint Mr. DeMar and David Berger, counsel for Mr.
Crocker, to the board and form a special committee of the board consisting of
Mr. DeMar, Mr. Berger and Mr. Keogh to explore opportunities for a business
combination. It was also determined that a vote on the proposed financing should
be postponed until the Annual Meeting was recommenced. These actions were taken
and the Annual Meeting was adjourned until August 11, 1999.
Because the financing was not approved at the Annual Meeting, the
Academy had to postpone implementation of its strategic plan, which involved, in
addition to the new regional
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campus in New Orleans, Louisiana, the opening of additional College of Food
locations and the production of a new television series. Furthermore, the
announced intention of the shareholder group adversely impacted the Academy's
other financing plans, negatively affecting the Academy's short term
liquidity. Prior to the receipt of the May 14 letter, the Academy had planned
to effect a $10 million sale and leaseback of the property it acquired in New
Orleans, which was expected to result in the immediate return of the
Academy's investment in the property of approximately $1.2 million. The
prospective sale and leaseback investors indicated their unwillingness to
proceed without assurances as to the outcome of the matters to be voted upon
at the Annual Meeting. The Academy also had contractual obligations primarily
related to the development of the new campus and the television series which
called for the Academy to make payments of more than $700,000 in the
following 45 days. The Academy's cash on hand and available credit under
existing facilities were not sufficient to meet those payment obligations.
Without alternative financing, the Academy faced default on certain of its
obligations and the possible termination of its other strategic plans. In
addition, without the proceeds of the proposed financing or a sufficient
alternative financing, the Academy may have been, and may continue to be, in
violation of the financial responsibility requirements of the U.S. Department
of Education. If the Academy does not meet these financial responsibility
requirements, its participation in the Title IV student financial assistance
programs will be jeopardized.
In July 1999, CECO and the Second Company continued their due
diligence and the Academy began substantive discussions with the Second
Company concerning a merger agreement. On July 15, 1999, the Academy's board
met with representatives of Legg Mason to review financial due diligence
information concerning CECO and the Second Company. The board also discussed
the status of discussions with the Second Company. The board was advised by
the management that the Second Company and the Academy had reached an impasse
over several issues, including, principally, the Second Company's requirement
that the Academy agree to reimburse the Second Company for all of the Second
Company's expenses if, for any reason, the parties were unable to enter into
a merger agreement. The Second Company terminated discussions with the
Academy on July 21, 1999 after the Academy's board indicated that it would
not approve the expense reimbursement agreement. The Second Company has
subsequently experienced a substantial decrease in its share price. There
have been no further discussions between the Academy and the Second Company.
On July 23, 1999, CECO sent a letter to the special committee
indicating its interest in pursuing an acquisition of the Academy for $6.25 per
share in cash, subject to completion of due diligence and execution of
definitive agreements. On July 29, 1999, the Academy and CECO entered into a
non-binding letter of intent to merge on those terms and containing a binding
"no shop" agreement providing that the Academy would not solicit interest from,
negotiate with or enter into an agreement with any third party with respect to a
business combination transaction for a 60 day period. On August 2, 1999, the
Academy and CECO issued a press release reporting that they had signed a letter
of intent for a merger at $6.50 per share.
On August 11, 1999, the Academy's Annual Meeting of Shareholders was
reconvened and the proposed financing did not receive the requisite vote,
resulting in the failure of a necessary condition and allowing the Academy to
terminate its agreement with Cahill Warnock.
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<PAGE>
The shareholders also voted to adjourn the Annual Meeting again before any
vote was taken on the election of directors.
CECO continued its extensive review of the Academy's business
throughout the period beginning in August and continuing until the execution of
a definitive merger agreement on December 6, 1999. Preliminary negotiation of a
merger agreement commenced in early September and continued until shortly before
the merger agreement was signed on December 6, 1999.
At the end of the exclusivity period with CECO on October 1, 1999, the
Academy's management made inquiries of various fund managers and potential
investors and engaged the services of venture capitalists to explore potential
alternatives to the merger. The Academy was advised that other companies either
were not interested in pursuing a combination transaction with the Academy, or,
given the extent of the due diligence investigation that CECO had already
conducted, were not prepared to do so in the same time frame as CECO.
On October 7, 1999, the special committee was advised by Mr. DeMar
that, based on CECO's review of the Academy's business, CECO had indicated to
him that it would be willing to pay $5.25 per share in cash. Mr. DeMar indicated
to the special committee that the shareholder group would support a transaction
at the reduced price. On October 20, 1999, Legg Mason made a presentation to the
Academy's board with respect to the financial terms of the proposed merger.
Counsel reviewed with the board their fiduciary duties as directors in
considering the proposed merger and described the status of merger agreement
negotiations. The board also considered the other matters described below under
"Reasons for the Merger."
On November 18 and 19, 1999, members of management of the Academy and
CECO and their respective legal advisors met at the Academy's offices to discuss
unresolved points in the merger agreement.
On November 18, 1999, Mr. Keogh received a letter from Mr. Crocker and
Mr. DeMar requesting a special meeting for the election of a new board of
directors. The Academy has been advised by counsel that the proper time under
California law for the election of directors is at an annual meeting, rather
than a special meeting. The Academy intends to elect directors at the Annual
Meeting, as described elsewhere in this Annual Report and Proxy Statement.
On November 22, 1999, Legg Mason advised the Academy that it held a
substantial number of Academy shares in margin accounts that were in default.
Legg Mason indicated that this created a conflict of interest and accordingly
that it would be unable to deliver a fairness opinion with respect to the
proposed transaction. The board of the Academy promptly engaged Sutter to advise
the board with respect to the financial aspects of the proposed merger.
On December 3, 1999, a representative of Sutter presented to the board
its views and analysis of the financial aspects of the proposed combination.
Counsel to the Academy again reviewed the fiduciary duties of the directors
under California law and the terms of the merger agreement.
On December 6, 1999, the Academy's board convened again. Sutter
delivered its opinion to the Academy's board to the effect that, as of December
6, 1999, the merger transaction is fair,
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<PAGE>
from a financial point of view, to the shareholders of the Academy. After
further deliberation, the board of the Academy approved the merger agreement
and authorized its execution on behalf of the Academy by a vote of seven
votes in favor and two votes against. Later that day, representatives of the
Academy and CECO executed the merger agreement.
REASONS FOR MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Academy's board has determined that the merger is advisable,
fair and in the best interests of the Academy. In reaching this conclusion,
the board gave significant consideration to a variety of factors, including,
without limitation, those described below. In view of the wide variety of
factors bearing on its decision, the board did not consider it practical to,
nor did it attempt to, quantify or assign relative or specific weight to the
factors it considered in reaching it decision. In addition, individual
directors may have given differing weights to different factors. The board
received the advice of its senior management, financial advisors and
independent counsel throughout its consideration of the merger agreement. The
Academy's board does not intend the following discussion of the information
and factors to be exhaustive but believes the discussion includes the
material factors it considered.
In reaching the determination to approve the merger agreement and the
transactions contemplated by the merger agreement, the board considered the
following principal factors:
- the Academy's very limited prospects for obtaining financing
necessary to execute the Academy's strategic plan as a result
of the opposition of shareholders to management's financing
plans;
- the disruption of the Academy's day-to-day operations caused
by the shareholder group's desire to sell the Academy;
- the Academy's deteriorated financial condition, which has
placed the Academy in violation of financial tests and
requirements required to maintain its regulatory status and
accreditation;
- the analyses prepared by Sutter and presented to the board of
directors and the opinion of Sutter, that, as of December 6,
1999, the merger is fair, from a financial point of view, to
the shareholders of the Academy;
- the lack of interest expressed by other potential purchasers
despite the Academy's May 26, 1999 press release indicating
that the board would "give appropriate consideration to any
business combination proposal that the Academy may receive"
and that it intended to "meet with any potential acquirers who
express appropriate interest."
- historical information concerning the Academy's financial
performance, results of operations, assets, liabilities,
operations, management and competitive position;
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<PAGE>
- current market conditions and historical trading information
with respect to the Academy's common stock;
- the premium represented by the $5.25 per share merger
consideration over the closing market price of $3.8125 on the
last trading day prior to the public announcement of the
merger;
- comparable merger transactions in the post-secondary
educational services market;
- the terms and conditions of the merger agreement;
- what actions of the Academy would be prohibited pending
closing of the merger without CECO's consent;
- the circumstances under which a termination fee and
reimbursement of CECO's expenses would be paid and the amount
of the fee and maximum amount of reimbursed expenses;
- the ability of the board to furnish information and enter into
discussions with another party in response to an unsolicited
offer superior to the merger if:
- the board determined in good faith upon advice of counsel that
the failure to engage in those discussions would cause the
board to breach its fiduciary duties to shareholders; and
- if the board determines in good faith that the
unsolicited offer after considering any CECO
counter-proposals would be more favorable from a
financial point of view to shareholders than the
merger, to terminate the merger agreement;
- the Academy's prospects if it continued as an
independent company and the availability of other
strategic alternatives through which similar or
greater value could be achieved for Academy
shareholders;
- the option agreements entered into by CECO and holders of
approximately 41% of the Academy's outstanding common stock;
and
- the interests of the officers and directors of the Academy in
the merger, including the matters described under "Interests
of Certain Persons in the Merger".
The board weighed the advantages and opportunities of the merger
against the risks associated with the merger, including the following:
- the impact of limitations in the merger agreement on the
Academy's ability to undertake new initiatives prior to the
effective time of the merger;
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<PAGE>
- the possibility that the merger would not occur, including the
condition to consummation of the merger requiring regulatory
approvals and accreditation by the State of California or
ACCSCT, and;
- the possibility that the Academy might be able to negotiate a
combination with another company on terms superior to the
proposed merger with CECO.
REASONS OF TWO DIRECTORS FOR VOTING AGAINST THE MERGER
Two directors of the Academy, Ralph Brennan and David Warnock, voted
against approval of the merger agreement. The dissenting directors were of the
view that the Academy could obtain a higher price through additional, more
concerted efforts to seek other buyers. Furthermore, because the share prices of
many for-profit post-secondary education businesses had fallen substantially
since the summer of 1999, they believed that this was not the appropriate time
to sell the Academy.
OPINION OF THE ACADEMY'S FINANCIAL ADVISOR
The Academy retained Sutter to render an opinion to the Academy's Board
as to the fairness, from a financial point of view, of the merger to the
shareholders of the Academy. On December 6, 1999, Sutter rendered its written
opinion to the Board of Directors of the Academy that the merger was fair, from
a financial point of view, to the shareholders of the Academy. Sutter's written
opinion to the Board of Directors of the Academy has been updated to the date of
this Annual Report and Proxy Statement (the "Sutter Opinion").
THE FULL TEXT OF THE SUTTER OPINION IS ATTACHED AS ANNEX C TO THIS ANNUAL REPORT
AND PROXY STATEMENT. SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE SUTTER
OPINION CAREFULLY IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY STATEMENT FOR
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY SUTTER.
The Sutter Opinion addresses only the fairness of the merger, from a
financial point of view, to the shareholders of the Academy and does not
constitute a recommendation to any shareholder of the Academy as to how such
shareholder should vote with respect to the approval of the merger. The summary
of the Sutter Opinion set forth in this Annual Report and Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.
The board of directors engaged Sutter as its financial advisor because
of its record and the experience of Sutter and its principals in rendering
fairness opinions. Sutter, as part of its investment banking business, is
regularly engaged in the valuation of businesses and securities. In requesting
Sutter's fairness opinion, the Special Committee did not give any special
instructions to Sutter or impose any limitations upon the scope of the
investigations that Sutter deemed necessary to enable it to deliver its opinion.
During the past five years, neither Sutter nor any affiliate of Sutter has
performed any investment banking or other financial services for or had any
other material relationship with the Academy except those described herein.
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<PAGE>
In connection with rendering its written opinion, Sutter, among other
things: (i) reviewed the Merger Agreement; (ii) reviewed the Academy's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999, its Annual Reports
to Shareholders and Annual Reports on Form 10-K for the fiscal years ended June
30, 1997 and 1998, and its Quarterly Report on Form 10-Q for the period ended
September 30, 1999; (iii) met with certain members of the Academy's senior
management to discuss its operations, historical financial statements and future
prospects; (iv) visited the Academy's facilities in San Francisco, California;
(v) reviewed certain data with respect to the merger prepared by Legg Mason;
(vi) reviewed the historical market prices and trading volume of the common
stock of the Academy; (vii) reviewed publicly available financial data and stock
market performance data of companies which it deemed generally comparable to the
Academy; (viii) reviewed data with respect to certain acquisitions of companies
which it deemed generally comparable to the Academy; and (ix) conducted such
other studies, analyses, inquiries and investigations as it deemed appropriate.
Sutter relied upon and assumed, without independent verification, the
accuracy and completeness of all of the financial and other information provided
to it by the Academy for purposes of its opinion. Sutter further relied upon the
assurances of the management of the Academy that it is unaware of any facts that
would make the information provided to Sutter incomplete or misleading. Sutter
did not perform or obtain any independent appraisal of the Academy. The Sutter
Opinion is also necessarily based upon the market, economic and other conditions
as in effect on, and the information made available to it as of, the date of the
opinion.
The following is a summary of the financial analyses used by Sutter in
connection with providing its oral opinion to the Academy's Board.
Sutter reviewed and compared the financial and market performance of
the Academy to the financial and market performance of selected publicly traded
companies which it deemed generally comparable to the Academy. Sutter determined
that the best comparable companies for its analysis were those which operate
for-profit educational facilities targeted to high school graduates. The
comparable companies selected were Apollo Group, Inc. ("Apollo"), Argosy
Education Group, Inc., CECO, Computer Learning Centers, Inc., Corinthian
Colleges, Inc., DeVry Inc., Education Management Corporation, EduTrek
International, Inc., ITT Educational Services, Inc., Quest Education Corporation
("Quest"), Strayer Education, Inc., and Whitman Education Group, Inc. Although
the comparable companies were considered similar to the Academy in some
respects, none of such companies possessed a business profile or other
characteristics identical to those of the Academy. Most of the comparable
companies are substantially larger and more profitable than the Academy.
For each of the comparable companies, Sutter examined certain publicly
available financial data, including revenues, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), and current and projected earnings per share. Sutter calculated the
ratio of the market price of each comparable company's stock in relation to each
company's earnings per share and the ratio of the market capitalization (i.e.,
the total market value of the common stock outstanding plus the par value of
total debt, less cash and cash equivalents) of each of the comparable companies
in relation to each company's EBITDA and EBIT. The ratios of the stock prices of
the comparable companies to latest twelve months ("LTM") earnings per share
ranged from 5.7x to 36.3x and had a median of 18.0x and a
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<PAGE>
harmonic mean(1) of 14.7x; the Academy had negative LTM earnings per share.
The ratios of the stock prices of the comparable companies to estimated
current year's earnings per share ranged from 6.3x to 29.6x and had a mean of
16.8x and a harmonic mean of 16.8x; the Academy had no estimate for 1999, but
had negative earnings per share for the nine months ended September 30, 1999.
The ratios of market capitalization to LTM revenues of the comparable
companies ranged from 0.4x to 4.4x, and had a median of 1.2x and a harmonic
mean of 0.8x, compared to 1.0x for the Academy at the $5.25 merger price. The
ratios of market capitalization to LTM EBITDA of the comparable companies
ranged from 2.9x to 18.0x, and had a median of 9.1x and a harmonic mean of
7.3x, compared to 65.8x for the Academy at the $5.25 merger price. The ratios
of the enterprise value to LTM EBIT of the comparable companies ranged from
3.8x to 21.9x and had a median of 11.6x and a harmonic mean of 9.7x; the
Academy had negative LTM EBIT. Sutter indicated that, although the comparable
companies operate businesses somewhat similar to the Academy's business, the
comparable companies were as a group superior to the Academy in many
significant respects.
Sutter also considered acquisitions of companies which it considered
generally comparable to the Academy. All of such acquisitions in the study are
by larger comparable companies included above. The acquisitions considered were
Apollo's acquisitions of College for Financial Planning and Western
International University; CECO's acquisitions of Scottsdale Culinary Institute,
Inc., Intl. Academy of Merchandising & Design, International Academy of Design,
The Katharine Gibbs Schools, Inc., School of Computer Technology, Inc., and
Western Culinary Institute; and Quest's acquisitions of Hesser College and CHI
Institute. The acquired companies are generally similar in size to, or smaller
than, the Academy, but are generally more profitable.
For each of the comparable acquired companies, Sutter examined certain
publicly available financial data, including revenues, EBITDA and EBIT. Sutter
calculated the ratio of the market capitalization (i.e., the total market value
of the common stock outstanding plus the par value of total debt, less cash and
cash equivalents) of each of the comparable acquired companies in relation to
each company's revenues, EBITDA and EBIT. The ratios of market capitalization to
LTM revenues of the comparable acquired companies ranged from 0.7x to 3.1x, and
had a median of 1.0x and a harmonic mean of 1.0x, compared to 1.0x for the
Academy at the $5.25 merger price. The ratios of market capitalization to LTM
EBITDA of the comparable acquired companies ranged from 3.3x to 11.8x, and had a
median of 6.3x and a harmonic mean of 5.9x, compared to 65.8x for the Academy at
the $5.25 merger price.. The ratios of the enterprise value to LTM EBIT of the
comparable acquired companies ranged from 6.5x to 35.3x and had a median of
12.2x and a harmonic mean of 11.6x; the Academy had negative LTM EBIT. Sutter
indicated that, although the comparable acquired companies operate businesses
somewhat similar to the Academy's business, the comparable acquired companies
were as a group superior to the Academy in many significant respects.
- -------------
(1) The harmonic mean is calculated by using the reciprocals of the
multiples. The harmonic mean is used by Sutter because it gives equal
weight to equal dollar investments in the securities whose ratios are
being averaged. Sutter utilizes the harmonic mean in averaging ratios
in which price is the numerator.
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<PAGE>
As management of the Academy had not prepared a projection for 1999 or
for subsequent years, Sutter determined that it was not practical to value the
Academy using a discounted cash flow methodology. Given the Academy's current
financial condition, Sutter noted that a meaningful improvement in earnings
could not be generated without substantial capital expenditures, which required
an influx of capital.
Sutter noted that the Academy's shares are thinly traded and that they
had traded above the $5.25 level since 1996, except for the two months preceding
its written opinion delivered on December 6, 1999. However, Sutter noted that
the then-current $4 price level apparently reflected the market's view of the
Academy's prospects for profitability in the foreseeable future.
Based upon the above, Sutter concluded that the merger was fair, from a
financial point of view, to the shareholders of the Academy.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the Sutter Opinion. In arriving at its opinion, Sutter considered the
results of all such analyses. The analyses were prepared solely for purposes of
providing its opinion as to the fairness of the merger, from a financial point
of view, to the shareholders of the Academy. As described above, the Sutter
Opinion and presentation to the Academy's board was one of many factors taken
into consideration by the Academy's board in making its determination to approve
the merger. The foregoing summary does not purport to be a complete description
of the analyses performed by Sutter.
Pursuant to the engagement agreement, the Academy agreed to pay Sutter
a fee of $80,000 for its fairness opinion. The fee was not dependent upon the
conclusion reached by Sutter. the Academy also agreed to reimburse Sutter for
its reasonable out-of-pocket expenses and to indemnify Sutter and certain
related persons against certain liabilities in connection with the engagement of
Sutter, including certain liabilities under federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Academy may have
interests, described herein, that present them with potential conflicts of
interest in connection with the merger. The Board of Directors was aware of the
potential conflicts described below and considered them in addition to the other
matters described under "--Reasons for the Merger; Recommendation of the Board
of Directors."
Shares of Academy common stock held by officers and directors of the
Academy will be converted into the right to receive $5.25 in cash, the same
consideration received for shares of Academy common stock held by other
shareholders.
Pursuant to the Merger Agreement, CECO has agreed for six years
after the effective time to maintain the current provisions regarding the
indemnification of officers and directors contained in the Academy's Articles
of Incorporation and By-laws and will, subject to certain limitations,
maintain for six years directors' and officers' liability insurance
containing terms and
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conditions which are not less advantageous than any such policies which may be
in effect prior to the effective time. See "THE MERGER
AGREEMENT--Indemnification and Insurance."
In 1998, the Board of Directors approved employment agreements with
change in control provisions with Thomas Spanier and Chuck White. In 1999, the
Board authorized comparable agreements with Keith Keogh (June 1, 1999), Jerald
Chesser (July 1, 1999) and Laura Rivera (March 15, 1999). The purpose of these
agreements is to reinforce and encourage the officers to maintain objectivity
and a high level of attention to their duties without distraction from the
possibility of a change in control of the Academy. These agreements provide that
in the event of a change in control of the Academy, as that term is defined in
these agreements, each officer is entitled to receive certain severance benefits
upon the subsequent termination.
The severance benefits include the payment of the following sums:
<TABLE>
<S> <C>
Keith Keogh $390,000
Chuck White $150,000
Thomas Spanier $150,000
Laura Rivera $100,000 ($125,000 after March 15, 2000)
Jerald Chesser $100,000 ($125,000 after July 1, 2000)
</TABLE>
The occurrence of the merger will constitute a change in control of the
Academy under these agreements. CECO has agreed to the payment of the sums
listed above upon the closing of the merger if due or payable under the
employment agreements.
Additionally, pursuant to a letter agreement with CECO dated
December 4, 1999, Theodore G. Crocker has agreed that as of the closing of
the merger, he will pay the Academy a total of $465,000 plus accrued interest
in full payment of a promissory note he owes to the Academy and release the
Academy from any claims he has against it, including those relating to the
promissory note, and that he will bring any future actions relating to a
certain worker's compensation claim only against the insurance carrier, and
not against the Academy, with the understanding that CECO will, at the
closing, cause the Academy to release any and all claims it has against Mr.
Crocker. See "CERTAIN PENDING LITIGATION."
DESCRIPTION OF ACADEMY CAPITAL STOCK
COMMON STOCK
The Academy has 20,000,000 shares of common stock, no par value,
authorized for issuance. Each share of Academy common stock is entitled to share
pro rata in dividends and distributions with respect to the Academy common stock
when, as and if declared by the Board from funds legally available therefor. No
holder of Academy common stock has any preemptive right to subscribe for any of
the Academy's securities. Subject to the rights of creditors and holders of any
Preferred Stock (as defined below) which may be issued in the future, upon
dissolution, liquidation or winding up of the Academy, the assets will be
divided on a share-for-share basis among holders of the shares of Academy common
stock. All shares of common stock outstanding are fully paid and nonassessable.
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CUMULATIVE VOTING
Each holder of the Academy common stock is entitled to one vote per
share with respect to all matters that are required by law to be submitted to
shareholders. The shareholders are also entitled to cumulative voting in the
election of directors as provided under California law.
DIVIDEND POLICY
The Academy has not paid dividends on the Academy common stock, and
under the terms of the Merger Agreement, is prohibited from paying dividends in
the future.
PREFERRED STOCK
The Academy has 5,000,000 shares of Preferred Stock, no par value
(the "Preferred Stock"), authorized for issuance. There is no Preferred Stock
outstanding. The Board may provide for the issuance from time to time of
authorized and unissued shares of Preferred Stock in series and will
establish as to each series the designation and number of shares to be issued
and the relative rights and preferences of each series, including provisions
regarding voting powers, redemption, dividend rights, rights upon liquidation
and conversion rights. Pursuant to the Academy's Amended and Restated
Articles of Incorporation and a Certificate of Determination of Rights,
Preferences, Privileges and Restrictions of Series A Convertible Preferred
Stock of California Culinary Academy, Inc. filed August 23, 1996, the Academy
has designated shares of Preferred Stock as Series A Preferred Stock, none of
which is currently outstanding. The Merger Agreement prohibits the Academy
from issuing shares of Preferred Stock in the future.
CHARTER DOCUMENTS OF ACADEMY FOLLOWING THE MERGER
The By-Laws and Articles of Incorporation of the Academy in effect at
the effective time will be the By-Laws and Articles of Incorporation of the
Academy following the merger until thereafter changed or amended as provided
therein or by applicable law.
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<PAGE>
THE MERGER AGREEMENT
The following summary of the material provisions of the Merger
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 the Merger Agreement. A
copy of the Merger Agreement is attached as Annex A to this document and is
incorporated in this document by reference. WE URGE YOU TO READ THE MERGER
AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
TERMS OF THE MERGER
GENERAL
The Merger Agreement contemplates the merger of an indirect, wholly
owned CECO subsidiary, CCC Acquisition, LLC, into the Academy. After the merger,
the Academy will be a wholly owned subsidiary of CECO. The merger will be
completed once the parties file the Certificate of Merger with the Delaware
Secretary of State and the Agreement of Merger with the California Secretary of
State. These filings will occur as soon as is practicable after the closing
under the Merger Agreement. Unless the parties agree otherwise, the closing will
occur no later than the 5th business day after the satisfaction or waiver of the
conditions set forth in the Merger Agreement is completed.
CONSIDERATION
Once the parties complete the merger, each of the shares of Academy
common stock will be converted into the right to receive $5.25 in cash, without
interest, upon surrender of the certificate or certificates which immediately
prior to the merger represented Academy common stock. Each share of the
Academy's common stock owned by the Academy, CCA Acquisition, LLC, or CECO,
including shares held as treasury stock, will be cancelled.
STOCK OPTIONS AND OTHER STOCK RIGHTS
Immediately prior to the closing, each existing option to purchase the
Academy's common stock that has not then vested and exercisable shall become
vested and exercisable, and the Academy shall exchange each existing option for
cash equal to the difference, if any, between $5.25 and the exercise price for
such option.
EXCHANGE OF ACADEMY STOCK CERTIFICATES
EXCHANGE AGENT
Once the parties complete the merger, the Harris Trust & Savings Bank,
or another institution selected by CECO, will mail to each Academy shareholder a
letter of transmittal and instructions for use in surrendering its Academy
shares in exchange for the merger consideration. Academy common stock share
certificates will then be cancelled.
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TRANSFERS
As soon as the parties complete the merger, the stock transfer books of
the Academy will be closed, and there will be no further registrations of
transfers of the Academy common stock. The merger consideration paid upon the
surrender of shares of Academy common stock will be deemed to have been paid in
full satisfaction of all rights pertaining to such shares.
TERMINATION OF PAYMENT FUND
CECO will receive any portion of the merger fund which remains
undistributed to the Academy shareholders twelve (12) months after the date the
parties complete the merger. Any Academy shareholder who has not previously
complied with the payment procedures may then look only to CECO for payment,
subject to applicable abandoned property, escheat or similar laws.
NO INTEREST
No interest will be paid or accrued on merger consideration due to
Academy shareholders.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
the Academy relating to, among other things:
<TABLE>
<S> <C>
- - organization and qualification; - the completeness and correctness of the
Academy's Articles of Incorporation and By-laws;
- - capitalization;
- regulatory matters;
- - its lack of voting debt;
- the accuracy of information supplied by the
- - its listing on the Nasdaq National Market; Academy in connection with the merger;
- - its authority relative to the Merger Agreement; - absence of litigation;
- - no violation of laws, accrediting standards or - employee benefit plan;
other agreements in connection with the merger;
- labor matters;
- - receipt of consents and approvals required for
the merger; - accreditation by accrediting bodies;
- - filings with the Securities and Exchange - lack of action with respect to a planned
Commission and its financial statements; computer rollout;
- - the accuracy of accounting books and records; - no impact of anti-takeover statutes;
- - absence of certain changes or events; - no undisclosed change of control payments;
- - absence of undisclosed liabilities; - environmental matters;
- votes necessary to approve the merger;
- absence of pending change of control
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
- - tax matters; transaction;
- - no restrictions on its business activities; - year 2000 preparedness;
- - absence of undisclosed liens and - the accuracy of information supplied in
encumbrances; connection with this document;
- - owned and leased real property; - receiving a fairness opinion from Sutter
Securities Incorporated;
- - intellectual property;
- absence of undisclosed brokerage fees; and
- - absence of undisclosed material contracts;
- accuracy of financial ratios.
- - possession of licenses, permits and other
approvals required for the operation of
business and compliance with laws;
</TABLE>
The Merger Agreement also contains customary representations and
warranties made by CECO and its merger subsidiary as to, among other things:
<TABLE>
<S> <C>
- - their organization and qualification; - possession of sufficient funds for payment of
the merger consideration;
- - the completeness and correctness of their
Certificates of Incorporation and By-laws; - approval of the merger;
- - their authority relative to the Merger - absence of brokers fees;
Agreement;
- interim operations of the merger subsidiary;
- - no violation of laws or other agreements in
connection with the merger; - the accuracy of information supplied in
connection with this document; and
- - consents and approvals required for the merger;
- disclosure of agreements with the Academy's
- - absence of litigation; shareholders.
</TABLE>
CONDUCT OF BUSINESS OF THE ACADEMY PRIOR TO THE EFFECTIVE TIME
The Academy has agreed between the date of the Merger Agreement and the
closing of the merger, except for scheduled exceptions or with the consents of
CECO, it will generally:
- - conduct its business in an ordinary course in the same manner as
previously conducted;
- - pay its debts and taxes consistent with past practice;
- - collect its receivables consistently with past practice;
- - preserve its present business organizations, keep available the
services of its officers and employees, and preserve its relationships
with customers, suppliers, distributors, licensors, licensees, and
others, all consistent with past practice;
- - except as required by its employee benefit plans, not amend any of its
options;
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- - not enter into partnership agreements or joint ventures;
- - not increase the pay or severance benefits of its executive officers or
directors;
- - not modify its rights to its intellectual property or curricula;
- - not commence non-routine litigation, other than where failure to so
commence would impair the Academy's business;
- - not declare or pay dividends, split or reclassify its capital stock, or
redeem or repurchase its capital stock;
- - not issue any shares of its capital stock;
- - not amend its organizational documents or material contracts;
- - other than in the ordinary course of business, not sell, lease,
license, encumber or otherwise dispose off material properties or
assets, or liquidate;
- - not incur any indebtedness for borrowed money in excess of $250,000 or
guarantee any such indebtedness, all other than in the ordinary course
of business;
- - not change the terms of its existing pay or benefits arrangements with
its employees except ordinary course wage increases consistent with
past practices, or enter into any employment contract not in the
ordinary course, or pay any special bonus to any director or employee;
- - not revalue its assets;
- - not commence any operations in connection with its properties in New
Orleans, Louisiana;
- - not pay any claim for liability in excess of $50,000 in any one case or
$150,000 in the aggregate;
- - not make or change any material tax election, accounting method,
amendment of a tax return, closing agreement or settle any claim.
- - not enter into a material contract other than in the ordinary course of
business consistent with past practices;
- - not amend or terminate its insurance policies;
- - not change its tuition, fees, program duration or curricula;
- - not establish or develop additional colleges of food, other than the
Garden Grove Campus;
- - not take any action with respect to the computer roll-out;
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- - not hire, fire (other than for cause), or change work responsibilities
of employees earning over $75,000 annually and whose employment cannot
be terminated on 30 days' notice without liability;
- - not pay the fees or expenses of certain scheduled individuals;
- - not take any action reasonably likely to cause any of the conditions to
closing not to be satisfied; and
- - grant CECO and its representatives reasonable access to information
concerning the Academy.
NO SOLICITATION OF TRANSACTIONS
The Academy has generally agreed that it will not:
- solicit, initiate or encourage any inquiries regarding any
acquisition proposal;
- engage in negotiations or discussions concerning, or provide
information in connection with, any acquisition proposal; or
- agree to, approve, recommend or otherwise any acquisition
proposal.
However, these restrictions do not prohibit the Academy from:
- furnishing information under an appropriate confidentiality
agreement to any person that makes an unsolicited bona fide
written acquisition proposal; or
- engaging in discussions or negotiations with a third party
which has made such an unsolicited proposal.
However, in each case referred to above, the Academy's board must
conclude in good faith, after receipt of written advice from outside legal
counsel, that its action is legally advisable for the Academy's board to satisfy
its fiduciary obligations to its shareholders, and must first consult with
Sutter Securities Incorporated, or another nationally recognized investment
bank. If the Academy's board, after consultation with its outside legal counsel,
concludes that the unsolicited proposal is more favorable, from a financial
point of view, to the Academy's shareholders, based upon the written advice of
the financial adviser, then the Academy's board may (a) withdraw or modify its
approval or recommendation of the merger and recommend the superior proposal or
(b) terminate the Merger Agreement.
If the board receives such a proposal, the Academy must notify CECO of
the material terms and conditions of the proposal and consider in good faith any
improved proposal submitted by CECO, and only take any of the actions outlined
above after the 5th day following delivery of such notice to CECO. The Academy
must also provide CECO with a final written notice at least 24 hours before
accepting any superior proposal.
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INDEMNIFICATION AND INSURANCE
After the merger is completed, CECO will preserve all rights to
indemnification existing as of the date of the closing of the merger, in favor
of any current or former officer, director, or employee of the Academy for a
period of six years following the merger; however, if the annual premiums for
such insurance exceed 150% of the premiums paid in 1999, CECO will only obtain
as much insurance as possible for such amount. In the event of a dispute
regarding indemnification, questions will be conclusively determined by the
opinion of disinterested legal counsel selected by the Academy.
CONDITIONS TO THE MERGER
The respective obligations of the Academy and CECO to complete the
merger are subject to the satisfaction of waiver of each of the following
conditions:
- the approval of the merger by the Academy's shareholders;
- the clearing of all SEC comments to the proxy statement;
- no temporary restraining order, injunction, or court order
preventing the consummation of the merger; and
- the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
obtaining of all approvals and consents from governmental and
regulatory authorities where necessary to complete the merger,
except for DOE approval and approvals whose absence would not
have a material adverse effect on the Academy's or CECO's
ability to consummate the merger.
The Academy's obligation to complete the merger also depends on the
satisfaction or waiver of each of the following conditions:
- CECO's representations and warranties being true and correct
in all material respects when made and as of the closing date;
and
- CECO having performed or complied in all material respects
with all obligations to be performed by it under the Merger
Agreement at or prior to the closing date; and there having
been no material adverse effect on CECO between the date of
the Merger Agreement and the closing of the merger.
CECO's obligation to complete the merger also depends on the
satisfaction or waiver of each of the following conditions:
- the Academy's representations and warranties being true and
correct in all material respects when made and as of the
closing date;
- the Academy having performed or complied in all material
respects with all obligations to be performed by it under the
Merger Agreement at or prior to the closing date;
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- CECO having received all consents necessary o consummate the
merger, except approval from the DOE and such other consents
that would not reasonably be expected to have a material
adverse effect on the Academy if not obtained;
- there having been no material adverse effect on the Academy
between the date of the Merger Agreement and the closing of
the merger; and
- the Academy having received the renewal of its accreditation
approved by ACCSCT and no "show cause" orders being
outstanding.
TERMINATION
The merger may be abandoned, at any time before completion of the
merger, in the following circumstances:
- by the parties' mutual consent;
- by CECO if the Academy's representations and warranties become
untrue or because the Academy breaches any material
representation, warranty or covenant that the Academy has not
cured within twenty days after written notice by CECO,
provided that CECO is not in material breach of the Merger
Agreement;
- by CECO if (a) the Academy's board adversely amends, withholds
or withdraws its recommendation of the merger, (b) the
Academy's board resolves or publicly announces its intention
to recommend an alternative acquisition proposal, (c) a tender
offer or exchange for 20% or more of the Academy's outstanding
shares of common stock is commenced and the Academy's board
fails to recommend against or takes no position with respect
to acceptance of that tender offer, or (d) the Academy
breached the no solicitation provisions of the Merger
Agreement;
- by the Academy if CECO's representations and warranties become
untrue or because CECO breaches any material representation,
warranty or covenant that CECO has not cured within twenty
days after written notice by the Academy, provided that the
Academy is not in material breach of the Merger Agreement;
- by the Academy in certain circumstances relating to an
unsolicited bona fide written acquisition proposal (see "--No
Solicitation of Transactions"); or
- by the Academy or CECO if (a) a court order prevents
consummation of the merger; (b) an action by a governmental or
regulatory entity or accrediting body would prevent the merger
or require CECO to dispose of or hold separately all or a
material portion of its business or assets, (c) the Academy's
shareholders do not approve the merger at the shareholders'
meeting, or (d) the merger is not consummated by April 26,
2000, except that either party may extend this date until June
30, 2000 if the only unfulfilled condition as of April 26,
2000 is the approval of the merger by the State of California
or the ACCSCT.
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TERMINATION FEES AND EXPENSES
Except as otherwise stated in the Merger Agreement, all expenses
incurred in the merger will be paid by the party incurring such expenses.
The Academy has agreed to pay CECO all of its out-of-pocket expenses,
not to exceed $250,000, plus the following termination fees if the merger
agreement is terminated by CECO:
- $500,000 if CECO terminates as a result of the Academy's
willful breach of any representation, warranty, covenant or
agreement set forth in the Merger Agreement; or
- $1,250,000 if CECO terminates due to (1) the Academy's board
adversely amending, withholding or withdrawing its
recommendation of the merger or resolving or publicly
announcing its intention to recommend an alternative
acquisition proposal; (2) there is a tender or exchange offer
for 20% of the Academy's outstanding shares and the Academy's
board recommends such tender offer or publicly announces its
intention to take no position with respect to such offer; (3)
the Academy has materially breached its agreement not to
solicit offers contained in the Merger Agreement; or (4) at
the time of the shareholders' meeting The Academy has received
a bona fide acquisition proposal or a third party has publicly
resolved its intention to make a bona fide acquisition
proposal, the Academy's shareholders do not approve the
merger, and within twelve months after termination of the
Merger Agreement the Academy consummates an acquisition
proposal with a third party.
FEES AND EXPENSES
Under an agreement dated July 8, 1998, the Academy agreed to issue to
Legg Mason warrants to purchase 150,000 shares of common stock upon the closing
of a private placement described in such agreement. On May 19, 1999, the Academy
and Legg Mason amended the agreement to include financial advisory services
relating to a potential business combination transaction. On December 3, 1999,
at CECO's request, the Academy further amended the agreement to provide that any
fees paid by the Academy to Sutter, up to $75,000, will be subtracted from any
fees owed to Legg Mason, and to cap Legg Mason's fees at $300,000 upon the
successful consummation of the merger.
RISK FACTORS
The Board of Directors of the Academy, in voting to approve the merger,
considered the following factors among others. Such factors should also be
considered by Academy's shareholders in deciding whether or not to approve the
merger.
DEFAULTS ON OBLIGATIONS; LACK OF ADEQUATE CAPITAL RESOURCES
The Academy is in default on its San Francisco City tax payments and on
its obligations to various third parties, including those in connection with its
planned development of a regional campus in New Orleans, Louisiana (the "New
Orleans Project") (which plans have been suspended) and certain other business
development initiatives. The amount necessary to cure the
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defaults is approximately $650,000 as of November 1, 1999. The Academy does
not possess the funds necessary to cover such defaults. To raise funds, the
Academy has entered into a contract with a New Orleans based investor group
to sell its New Orleans real estate for a purchase price of $3.3 million. The
sale of the property is expected to result in cash proceeds of approximately
$1.2 million, although there is no assurance that the property will be sold
or what the proceeds will be. Without the sale of the New Orleans based
property, the Academy does not possess the additional funds necessary to cure
all of its defaults. In addition, the Academy does not believe that its cash
shortfall will be solved in the short-term by cash flows from operations and
it currently does not have access to sufficient credit or other financing. In
the event that the merger is not completed, the Academy may require
significant debt or equity financing to meet its obligations. There can be no
assurance that such financing will be available and, if available, that the
terms thereof will not be highly disadvantageous to current shareholders. If
sufficient financing is not available, the Academy may be required to seek
protection from creditors under bankruptcy laws. In the event of bankruptcy,
the Academy's assets will first be available to pay its debts and other
contractual obligations. Holders of common stock would only receive the
assets remaining, if any, after payment of all such obligations.
RISK OF FAILURE TO COMPLETE PROPOSED MERGER
There can be no assurance that the conditions to the merger will be
satisfied. If the merger is not completed, the Academy's current financial
condition presents significant risks for investors in the Academy's common
stock.
RECENT OPERATING RESULTS
The Academy has reported a net loss of ($771,000) and ($869,000) for
the fiscal years ended June 30, 1998 and 1999, respectively, and a net loss of
($237,000) for the quarter ended September 30, 1999. There can be no assurance
that the Academy will operate profitably in future periods. Future operating
results will depend on numerous factors, including, among others, the Academy's
ability to continue to meet the requirements for participation in government
student loan programs (see "Regulations" below) and, if applicable, its ability
to successfully develop and operate any new schools or programs.
Based on the financial condition of the school as of June 30, 1999, the
Academy did not meet the financial responsibility requirements of the DOE. The
DOE regulations require an institution such as the Academy to achieve a minimum
score based on ratios measuring its primary reserves, equity and net income.
These regulations also require institutions to have sufficient cash reserves to
make required refunds, meet repayment obligations to the DOE, and not be in
violation of any loan agreement at the end of its fiscal year. Failure to meet
these requirements may subject the Academy to additional monitoring by and
reporting to the DOE, procedures affecting the disbursement of federal student
financial assistance to its students, and possibly the posting of a letter of
credit in favor of the DOE. If the Academy's financial condition were to fail to
improve sufficiently in subsequent fiscal years, the Academy's participation in
the Title IV student financial assistance programs could be jeopardized, which
would have a material adverse effect on the Academy.
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REGULATIONS
The Academy is subject to extensive regulations by state and federal
governmental agencies and accrediting agencies. At the federal level, HEA and
the regulations promulgated thereunder by the DOE set forth numerous standards
that schools must satisfy in order to participate in the federal student
financial aid programs under Title IV of the HEA ("Title IV Programs"). For the
year ended June 30, 1999, the Academy derived approximately 42% of its revenue
from Title IV Programs.
Significant factors relating to Title IV Programs that could adversely
affect the Academy include the following:
- THE 90/10 RULE OF THE HIGHER EDUCATION ACT ("HEA"): this rule
states that any institution that derives more than 90% of its
revenue from Title IV Programs in one year will be ineligible
to participate in Title IV the following year. In fiscal year
1999, 42% of Academy revenues were derived from Title IV
Programs. Prior to October 1998, the provisions of the HEA
prohibited an institution from deriving more than 85% of its
revenues from Title IV Programs.
- DEFAULT RATES: in order to remain eligible for Title IV
participation, an institution must not exceed a set limit on
student loan default rates. If an institution exceeds a
default rate of 25% for three consecutive years or 40% in one
year, it will lose its eligibility to participate the
following year. The Academy's student loan default rate is for
the three most recent years for which such data are available
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR: COHORT DEFAULT
RATE:
<S> <C>
1995 ...................................... 13%
1996 ...................................... 9.3%
1997 ...................................... 8.6%
</TABLE>
- FINANCIAL STANDARD: The HEA prescribes specific standards of
financial responsibility that a proprietary institution must
satisfy in order to participate in Title IV Programs. The
standards apply three different ratios: an equity ratio, a
primary reserve ratio and a new income ratio, which are
weighted and added together to produce a composite score. The
ratio methodology of these standards takes into account an
institution's total financial resources and determines a
combined score of the measures of those resources along a
common scale (from negative 1.0 to positive 3.0). It allows a
relative strength in one measure to mitigate a relative
weakness in another measure. If an institution achieves a
composite score of at least 1.5, it is financially responsible
without further oversight. If an institution achieves a
composite score from 1.0 to 1.4 it is in the "zone" and is
subject to additional monitoring, but may continue to
participate as a financially responsible institution for up to
three years. These regulations also require institutions to
have sufficient cash
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reserves to make required refunds, to meet repayment
obligations to the Department and not to be in violation of
any loan agreement at the end of its fiscal year.
- CHANGE IN CONTROL: The DOE, most accrediting commissions and
most state education authorities that regulate the Academy
have laws, regulations, and/or standards pertaining to a
change in ownership/change in control of educational
institutions, but these regulations do not uniformly define
what constitutes a change in control. The DOE regulations do
describe certain transactions that constitute a change in
control, including the transfer of a controlling interest in
voting stock or the filing of an 8-K reporting a change in
control. Once an institution is deemed to have experienced a
change in control, it immediately becomes ineligible to
participate in Title IV Programs and must apply for
readmission into the Title IV Programs; however, if an
institution timely files a materially complete application, it
may avoid a cut-off in the funds it derives from the Title IV
Programs.
- RENEWAL OF ACCREDITATION: The Academy is currently seeking
renewal of accreditation from ACCSCT. Failure to obtain
renewal of accreditation would result in the Academy losing
its eligibility to participate in the Title IV Programs.
The Academy is currently out of compliance with these standards. The Academy may
be (i) required to post a letter or credit with the DOE, (ii) subjected to
additional monitoring and reporting, (iii) subjected to procedures affecting the
disbursement of federal financial assistance to its students, and (iv) placed on
provisional certification. Failure to improve its fiscal position in subsequent
fiscal years could jeopardize the Academy's continued participation in the Title
IV student financial assistance programs.
COMPETITION
The Academy is one of the largest professional chef training schools in
the United States, based on enrollment statistics in the 1999 SHAW GUIDE.
However, the market for professional training of chefs is fragmented and
regionally oriented. According to the American Culinary Federation Educational
Institute, there are approximately 500 postsecondary culinary programs offered
worldwide. These programs range from simple food programs offered by vocational
training schools to fully accredited four-year programs.
As of June 30, 1999, admissions statistics show that approximately 66%
of the Academy's students reside in California. However, the Academy believes
that it competes in the professional chef training market with, among others,
two not-for-profit institutions: the Culinary Institute of America, whose main
campus is in Hyde Park, New York, and Johnson & Wales University in Providence,
Rhode Island, which has campuses in Maryland, Colorado and Florida. The Academy
believes that both of these institutions have secured significant financial and
equipment contributions to build new facilities and expand their classrooms. The
Academy's business will be affected by its ability to compete effectively with
the Culinary Institute of America and Johnson & Wales, as well as other
competitors currently operating in, or which may subsequently enter, the
professional chef training market.
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The Academy believes that competition in the professional chef training
market is based primarily on the quality of an educational institution's faculty
and educational services, the job placement of graduates and the quality of the
academic facilities. The Academy believes that there is no assurance that the
Academy will be able to continue to compete favorably on these criteria.
RISKS ASSOCIATED WITH EXPANSION PLANS
The Academy planned to develop a core campus, similar in scope to its
San Francisco facility, in an approximately 153,000 square foot building complex
in New Orleans, Louisiana, which was acquired in December 1998. Through
September 30, 1999, the Academy spent approximately $1,250,000 for architectural
and engineering services, permits, construction and other costs associated with
the development of the campus. In June 1999, the project was postponed pending
the outcome of merger discussions. If the merger does not takes place, the
Academy intends, subject to the availability of sufficient financing, to proceed
with the development of the New Orleans Project and several other College of
Food facilities in other major cities in the United States. The successful
development of the planned facilities would require careful management of
various risks associated with such projects, including construction delays, cost
estimation errors or overruns, equipment or materials delays or shortages and
other factors, many of which are beyond the Academy's control. There can be no
assurance that the Academy would not encounter unforeseen difficulties if it
attempts to establish these new facilities.
The Academy would need to accomplish a number of objectives in order
successfully to complete the development of these new facilities, including
raising capital to cover the costs of architects, engineers, contractors and
equipment, hiring competent staff and recruiting students.
In addition, the establishment of these new facilities would result in
substantial new fixed and operating expenses, including expenses associated with
additional real estate, additional personnel, and depreciation. If the Academy
were unable to attract a sufficient number of students to the facilities to
offset these new expenses, operating results could be materially adversely
affected in future periods.
Furthermore, the development of these new facilities could place a
significant strain on the Academy's management resources and could result in the
diversion of management attention from the day-to-day operation of the Academy's
business. If the Academy is successful in increasing its volume of business, it
will need to continue to implement and improve its operational, financial and
management information systems, procedures, and controls on a timely basis.
SUBSTANTIAL DEBT
The Academy has a significant amount of indebtedness that could have
important consequences to the Academy's shareholders. For example, it could (i)
make it difficult for the Academy to satisfy its obligations, (ii) increase the
Academy's vulnerability to 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
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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) 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 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 its obligations would result.
VOLATILITY OF COMMON STOCK
The Academy 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 could have an adverse effect on the market price of the
Academy's common stock.
THE OPTION AGREEMENT
The following summarizes the material terms of the Option Agreement,
which appears as Annex B to this Annual Report and Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Option Agreement.
In connection with the execution of the Merger Agreement on December 6,
1999, Theodore Crocker, William DeMar, and Thomas Green, the owners of an
aggregate of approximately 41% of the Academy's common stock, and CECO entered
into the Option Agreement. Pursuant to and subject to the terms of the Option
Agreement, such shareholders have agreed to appear at any shareholders' meeting
and vote in favor of any business combination between the Academy and CECO and
against any "Acquisition Proposal" (as defined in the Merger Agreement") and
granted to CECO such shareholders' irrevocable proxy for such actions, revoked
any and all previous proxies, and agreed not to take any other action which
could adversely affect the Option Agreement or the Merger Agreement.
Additionally, such shareholders granted CECO an option to purchase, at any time
prior to the termination of the Merger Agreement, all, but not less than all, of
the such shareholders' common stock of the Academy at a purchase price per share
equal to the price set forth in the Merger Agreement. Such shareholders further
agreed not to solicit or respond to any inquiries constituting or reasonably
expected to lead to an Acquisition Proposal and not to assign such shareholders'
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shares other than to certain permitted transferees, grant any proxies or enter
into any voting trusts in respect to such shares, or take any action which would
be a breach of any representation or warranty in the Option Agreement.
The Option Agreement terminates upon the later to occur of November 1,
1999, or November 1, 2000, if an acquisition proposal is announced or
consummated before November 1, 2000. CECO may exercise the purchase option at
any time prior to the closing of the merger, subject to fulfillment of certain
conditions, including all of the conditions set forth in Article 6 of the Merger
Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
consequences of the merger to the Academy's shareholders. No foreign, state or
local tax considerations are addressed, nor are federal tax considerations other
than income tax considerations. The discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), currently applicable
Treasury regulations, and judicial and administrative decisions and rulings.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations could be retroactive and could
affect the tax consequences to the Academy's shareholders.
ALL SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE MERGER TO THEM WITH SPECIFIC REFERENCE TO THEIR PARTICULAR
TAX SITUATIONS, INCLUDING TAX CONSEQUENCES UNDER FOREIGN, STATE AND LOCAL TAX
LAWS.
The exchange of the shares of Academy common stock for cash will be a
taxable transaction to the holders of such shares for federal income tax
purposes. In general, each shareholder will recognize gain or loss in an amount
equal to the difference between the cash received and such shareholder's tax
basis in the shareholder's shares. Gain or loss will be a capital gain or loss
if a shareholder has held his shares as a capital asset within the meaning of
Section 1221 of the Code. Capital gain or loss will be a long-term capital gain
or loss if a shareholder has held his shares for more than a year as of the date
of completion of the merger. There are certain limitations on the deductibility
of capital losses. Capital gains of individuals derived in respect of capital
assets held for more than one year are eligible for reduced rates of taxation.
It is the responsibility of each shareholder to determine the tax basis of his
shares. The Academy is unable to provide this information to its shareholders.
Cash received in exchange for shares of Academy common stock may be
subject to a backup withholding tax at a rate of 31% unless the relevant
shareholder is an exempt recipient or complies with certain identification
procedures.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE ACADEMY'S FINANCIAL
STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED IN THIS DOCUMENT. THIS
DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE ACADEMY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
INDICATED IN THE FORWARD-LOOKING STATEMENTS. PLEASE SEE THE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ELSEWHERE IN THESE DOCUMENTS.
THE ACADEMY'S FISCAL YEAR ENDS ON JUNE 30.
OVERVIEW
The Academy's revenues are derived primarily from culinary arts
education as well as restaurant, retail and media operations. Culinary arts
education primarily consists of the AOS Degree and B&P Certificate programs, the
College of Food Basic Professional Culinary Skills Program, and weekend
professional skills program offerings. The AOS Degree program enrolls students
on a two-week cycle. The program can accommodate up to 25 students per class.
The 30-week B&P Certificate program enrolls classes on a four week cycle,
typically ranging in size from 15 to 25 students, with five classes enrolled as
of June 30, 1999. The College of Food programs commenced October 14, 1996 at the
Academy's prototype facility in Salinas, California. A second College of Food
campus was opened on the campus of San Diego State University in San Diego,
California in February 1998. The San Diego State University facility was closed
and a new larger campus was opened in La Mesa in San Diego County in December
1998. In July 1999 a College of Food facility was opened in San Francisco within
a block of the core campus. As of September 10, 1999, approximately 232 students
were enrolled in the Basic Professional Culinary Skills program at the College
of Food's three locations. The Colleges of Food enroll students every three to
four weeks. As of September 10, 1999, the Academy has 102 students enrolled in
various weekend professional programs.
Consumer education consists of programs oriented to a part-time
audience. The course length and content address the interests of food industry
professionals, home cooks and individuals who are contemplating a change in
their professional careers. These courses include single topic classes and
various three or four class series covering current topics and basic skills.
Restaurant and retail operations include two restaurants and a private
dining room, banquet services and a small on-site retail shop offering
beverages, cookbooks, video tapes, kitchen wares and selected clothing. Media
operations primarily consist of the marketing of the COOKING AT THE ACADEMY
television series and cookbook royalties. Certain expenses such as food costs
and costs of goods sold are related to both educational services and retail
restaurant operations.
Revenues from the Academy's AOS Degree and B&P Certificate programs
rely exclusively on enrollments in those programs. Tuition is initially recorded
as deferred revenue at the commencement of each enrollment period and recognized
as revenue over the length of program as students complete course work required
for graduation.
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The Academy believes that manageable growth is achievable through the
addition of strategically located core campuses, such as its main campus in San
Francisco, as well as extension campuses, such as the College of Food locations
in Salinas and San Diego, California. While management believes that this
strategy will enable it to significantly increase revenues by providing
additional educational and training resources for the food industry, there can
be no assurance that management will be able to successfully implement such a
strategy.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES
Culinary arts education revenue decreased 4.6%, to $3,791,000, for the
three months ended September 30, 1999, from $3,974,000 in the same period last
year. The decrease in culinary arts education revenue is due primarily to the
temporary decrease in AOS Degree student census, due to a decrease in length of
the program from 18 to 16 months. The Academy thus had more students
matriculating and entering its externship program in the second and third fiscal
quarters of the fiscal year ended June 30, 1999 than in previous fiscal
quarters, resulting in a reduction in both the number of revenue-producing
students and total enrollment. This decrease was partially offset by tuition
increases and increased attendance at the Academy's College of Food locations.
Restaurants, catering and other revenue increased 23.1%, to $836,000,
for the three months ended September 30, 1999, from $679,000 in the same period
last year. The increase in restaurants, catering and other revenue is primarily
due to revenues generated by the Academy's student housing and increased
restaurant and catering sales.
COST OF SALES
Food and beverage costs increased 16.6%, to 450,000, for the three
months ended September 30, 1999, from $386,000 in the same period last year. The
increase in food and beverage cost resulted from higher food costs and increased
College of Food enrollment during the quarter.
Other costs of sales increased 8.8%, to $434,000, for the three months
ended September 30, 1999, from $399,000 in the same period last year. The
increase in other costs of sales is primarily attributable to costs associated
with student supply packages due to increased enrollment at the College of Food
campuses and improved retail sales at the San Francisco campus.
OPERATING EXPENSES
Operating expenses increased approximately $530,000, or 15.4% ,to
$3,971,000 for the three months ended September 30, 1999, from $3,441,000 in the
same period last year. The increase in operating costs was due primarily to the
following factors: (i) increase in occupancy costs of $138,000, or 25.0%, due to
lease of the second residential hotel in San Francisco and the leasing of the
College of Food campuses in La Mesa and Garden Grove, California; (ii) increase
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<PAGE>
in depreciation expense of $57,000, or 21.2%, which was primarily due to the
opening of the La Mesa College of Food; (iii) increase in compensation and
outside service expenses of $166,000, or 8.6%, due to a reorganization of the
sales and marketing functions in the fourth quarter of fiscal year 1999; and
(iv) costs associated with the New Orleans Project.
INTEREST EXPENSE, NET
Interest expense, net consists primarily of interest payments related
to short-term loans which were partially offset by interest on cash equivalents
and short-term investments. The decrease of $51,000 from net interest income
during the same period a year ago to net interest expense in the current fiscal
quarter resulted from a decrease in cash equivalents and short-term investments
due to development activities and an increase in short-term borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Academy has financed its long-term growth through the
issuance of debt and equity securities in both private and public transactions,
borrowings from related parties, lease and debt financing obligations and cash
flow provided by operations.
As of September 30, 1999, the Academy's principal source of liquidity
included cash and cash equivalents of $690,000 and net accounts receivable of
$4,668,000. As of September 30, 1999, the Academy had negative working capital
of $3,427,000. Net cash provided by operating activities during the first fiscal
quarter ended September 30 was $182,000 and ($770,000) in 1999 and 1998,
respectively.
The primary reasons for the decrease in cash balances was the
acquisition of property and equipment and principal payments on short-term
obligations.
The Academy is in default on its San Francisco City tax payments and on
its obligations to various third parties, including those in connection with the
New Orleans Project and certain other business development initiatives. The
amount necessary to cure the defaults is approximately $650,000 as of November
1, 1999. The Academy does not possess the funds necessary to cover such
defaults. To raise funds, the Academy has entered into a contract to sell its
New Orleans real estate for a purchase price of $3.3 million. The sale of the
property is expected to result in cash proceeds of approximately $1.2 million,
although there is no assurance that the property will be sold or what the
proceeds will be. However, without the sale of the New Orleans property, the
Academy does not possess the additional funds necessary to cure all of its
defaults. In addition, the Academy does not believe that its cash shortfall will
be solved in the short-term by cash flows from operations and it currently does
not have access to sufficient credit or other financing. In the event that the
proposed merger with CECO is not completed in the near term, the Academy may
require sufficient debt or equity financing to meet its obligations. There can
be no assurance that such financing will be available and, if available, that
the terms thereof will not be highly disadvantageous to current shareholders. If
sufficient financing is not available, it is possible that the Academy would be
required to seek protection from creditors under bankruptcy laws. In the event
of bankruptcy, the Academy's assets will first be available to pay its debts and
other contractual obligations. Holders of common stock would only receive the
assets remaining, if any, after payment of all such obligations.
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<PAGE>
YEAR 2000 CONSIDERATIONS
The Academy has a number of computer and software systems that are
critical to the efficient and timely processing of information and business
transactions. Most of the Academy's suppliers are also dependent on computerized
systems to process information. The Academy has determined that most of its
computerized systems are year 2000 compliant and that the few systems that are
not compliant can be brought into compliance by the year 2000. The systems that
are currently non-compliant would not pose a significant problem to the Academy
in either cost or disruption of services if they cannot be made compatible.
With the exception of utility companies who supply electricity, gas,
water and telephone service to the Academy's facilities, the Academy estimates
that the year 2000 compliance issue will have minimal effect on its ability to
obtain the products and services required by the Academy. The Academy is unable
to assess the year 2000 issue as it relates to its suppliers of utility
services. Disruption of utilities of any kind could have a major but
undeterminable effect on the Academy's business and profits. Management believes
that a disruption in utilities, and the impact such a disruption would have on
its operations, would be similar in degree and magnitude for the Academy as it
would be for its competitors. There is no assurance, however, that unforeseen
year 2000 problems will not occur that will have a significant negative effect
on the Academy's revenues and profits.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND 1999
The Academy incurred a net loss of $869,000, or ($0.23) per share for
the fiscal year ended June 30, 1999 ("Fiscal 1999"), compared to a loss of
$771,000, or $0.22 per share, for the fiscal year ended June 30, 1998 ("Fiscal
1998").
Total revenues increased $931,000, or 5.6%, from $16,732,000 in Fiscal
1998 to $17,974,000 in Fiscal 1999. Total revenues increased $1,393,000, or
9.1%, from $15,339,000 for the fiscal year ended June 30, 1997 ("Fiscal 1997")
to $16,732,000 in 1998. Revenues from culinary arts education increased
$1,041,000, or 7.8%, from $13,449,000 in 1998 to $14,490,000 in 1999. Revenues
from culinary arts education increased $767,000, or 6.1%, from $12,682,000 in
1997 to $13,449,000 in 1998.
Total student count in the AOS Degree, B&P Certificate and College of
Food programs increased by 31 students, or 4.0%, to 807 students as of June 30,
1999 from 776 students as of June 30, 1998. The increase is primarily
attributable to the introduction of the College of Food programs.
Student Housing revenue increased by $227,000 or 72.8% from $312,000 in
the fiscal year ended June 30, 1998 to $539,000 in the fiscal year ended June
30, 1999. The increase was due to increased occupancy. Fiscal 1998 was the first
year that the Academy provided housing services.
Restaurant, retail, media and other sales decreased to $2,945,000, or
16.4% of total revenues, in Fiscal 1999, compared to $2,971,000, or 17.8% of
total revenues, in Fiscal 1998.
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<PAGE>
Restaurant, retail, media and other sales increased by $314,000 or by 11.8%
from 1997 to $2,971,000 or 17.8% of total revenues in Fiscal 1998.
Operating expenses were $15,539,000, or 86.5% of total revenues in
Fiscal 1999 compared to $14,063,000 or 84.0% of total revenues in Fiscal 1998.
The increase was primarily attributable to the write off of the expenses of the
private placement that was voted down by the shareholders, pre-opening costs
related to the New Orleans project, opening of the College of Food campus in La
Mesa, California, the opening of a second student housing building in San
Francisco, year end charges to the allowance for doubtful accounts due to the
large increase in College of Food receivables and the increase in Sales and
Marketing related expenses in the fourth quarter resulting from a reorganization
of these two areas of the Academy. Operating expenses were $14,063,000 or 84.0%
of revenues for the fiscal year ended June 30, 1998, compared to $11,875,000 or
77.4% of revenues in 1997.
Food and beverage expenses were $1,989,000, or 11.1% of total revenues,
in Fiscal 1999, compared to $1,810,000, or 10.8% of total revenues, in Fiscal
1998. The increase was primarily attributable to an increase in food and
beverage costs. Food and beverage costs were $1,810,000 or 10.8% of revenues for
the fiscal year ended June 30, 1998 compared to $1,744,000 or 11.4% of revenues
in 1997.
In Fiscal 1999, interest income, net of interest expense, was $134,000,
or 0.8% of total revenues, compared to interest income, net of interest expense,
of $13,000, or 0.1% of total revenues, in 1998. The increase in net interest
income was primarily attributable to an increase in cash balances during the
first half of the fiscal year. In Fiscal 1998, interest income, net of interest
expense, was $13,000 or 0.1% of revenues, compared to interest income, net of
expense, of $52,000 or 0.3% of revenues in Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Academy's principal source of liquidity
included cash and cash equivalents of $854,000 and net accounts receivable of
$3,487,000. As of June 30, 1999, the Academy had negative working capital of
$3,134,000. Net cash provided by operating activities was $800,000 and $695,000
in 1999 and 1998, respectively.
The primary reasons for the decrease in cash balances was the purchase
of and development costs for the New Orleans property, tenant improvement costs
for the La Mesa College of Food campus, increases in accounts receivable due to
the increased enrollment at the two College of Food locations, increased sales
and marketing expenses due to a reorganization of the these areas of the Academy
and a reduction in the AOS degree program census of approximately 125 students
in the fourth quarter due to a change in the length of the program from 18 to 16
months in the first half of the fiscal year 1998. During two months of the
fourth quarter of fiscal year 1999, two AOS class groups were graduating while
one class was starting.
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<PAGE>
PRIVATE PLACEMENT
On April 28, 1999, the Academy entered into an agreement to sell $7
million aggregate principal amount of its 10% convertible notes due 2005 and
warrants to acquire 250,000 shares of its common stock, through a private
offering to institutional buyers. The gross proceeds to the Academy, prior to
the exercise of the warrants, would have been $7 million.
The offering was expected to close in June 1999, subject to
satisfaction of customary conditions, including shareholder approval. The
Academy intended to use the net proceeds from the offering together with
approximately $10 million in proceeds from a sale and leaseback of the New
Orleans property, which was contingent on the funding of the private placement,
to pay for the leasehold improvements and equipment for the New Orleans and
various College of Food campuses.
The private placement was disapproved by the shareholders of the
Academy on August 11, 1999. If the merger does not take place, the Academy plans
to proceed with another private placement transaction to fund its strategic
plan.
ELECTION OF DIRECTORS
Nine 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
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<PAGE>
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. Chef Prudhomme is 57 years old.
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.
Mr. Warnock is 41 years old.
WILLIAM De MAR, NOMINEE FOR DIRECTOR. Mr. De Mar was appointed to the
Board of Directors in July 1999. Mr. De Mar is a former Chief Operating Officer,
and Corporate Secretary, and was a member of the Board of Directors of the
Academy from 1987 to 1997. Over the past five years, he has been involved with
Antelope Development, LLC and Avis Car Rental. Mr. De Mar is 51 years old.
DAVID J. BERGER, NOMINEE FOR DIRECTOR. Mr. Berger was appointed to the
Board of Directors in June 1999. Since 1995, he was a member of the law firm of
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<PAGE>
Wilson Sonsini Goodrich & Rosati, a Professional Corporation, where he
specializes in mergers and acquisitions. He is 40 years old.
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, 1999.
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 one time during the fiscal year ended June 30, 1999.
During the fiscal year ended June 30, 1999, the Board of Directors
held sixteen 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, 1999.
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 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.
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<PAGE>
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.
Dr. Jerry Chesser joined the Academy in July, 1999, as Vice President
of Academic Affairs. Prior to joining the Academy, Dr. Chesser was
Dean/Professor at the Chef John Folse Culinary Institute at Nicholls State
University in Louisiana. Dr. Chesser has a Bachelors and Masters in History from
Oklahoma State University and his Ed.D. in Educational Leadership from the
University of Central Florida and is a certified Executive Chef and Culinary
Educator. He is 49 years old.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30, 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.
<TABLE>
<CAPTION>
Directors, Nominees,
Executive Officers and 5%
Shareholders(1) Beneficial Ownership
- ----------------------------------- ------------------------------------------
Number of Shares Percent
---------------------- ------------------
<S> <C> <C>
James D. Cockman 40,500 (2) 1.1%
Paul H. Prudhomme 40,000 (3) 1.0%
Keith Keogh 187,590 (4) 4.9%
Bert Cutino 500 *
William De Mar 1,430,283 (5) (6) 37.5%
Charles E. White 21,500 (7) *
Thomas Spanier 20,200 (7) *
Ralph Brennan 1,000 *
Theodore Crocker 1,430,283 (8) (9) 37.5%
All Directors and Executive
Officers, and 5% shareholders 1,741,573 45.7%
as a group (12 Persons)
</TABLE>
- --------------------------------
* Less than 1%
Beneficial ownership of shares by 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 Annual Report and Proxy Statement. Shares which the person has the right
to acquire within 60 days of the date of this Annual Report and 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.
(1) Includes 40,000 shares of common stock issuable upon exercise of
current exercisable options.
(2) Includes 40,000 shares of common stock issuable upon exercise of
current exercisable options.
(3) Includes 180,000 shares of common stock issuable upon exercise of
current exercisable options.
(4) Includes 1,239,348 shares of common stock owned by Theodore Crocker,
with whom Mr. De Mar has formed a group for the purpose of acquiring,
holding, or disposing of securities of the Academy.
(5) Includes 40,000 shares of common stock issuable upon exercise of
current exercisable options.
(6) Includes 20,000 shares of common stock issuable upon exercise of
current exercisable options.
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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.
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 the period of July 1, 1998, to May 7, 1999, 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. On May 7, 1999, the non-employee directors compensation
was modified. Under the new compensation program each non-employee director
receives a monthly retainer of $1,000, plus $500 for each board meeting attended
in person, $250 for each attended telephone board or committee meeting, and the
reimbursement of reasonable expenses associated with travel to board meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid to Keith H. Keogh,
the Academy's Chief Executive Officer, and Charles E. White, the Academy's Chief
Financial Officer, and Tom Spanier, the Academy's Chief Operating Officer. No
other executive officer received total annual salary and bonus exceeding
$100,000 for the fiscal year ended June 30, 1998.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
AWARDS
Annual ---------------------- All other
COMPENSATION Securities Underlying Compensation
Name and Principal Position Year ($) Options/SARs (#) ($)
- --------------------------- ------ -------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Keith H. Keogh 1999 $ 195,000 0 $ 6,585 (1)
President and Chief 1998 195,000 0 10,522 (2)
Executive Officer 1997 184,769 0 10,010 (3)
Thomas A. Spanier 1999 $ 150,000 0 $ 865 (4)
Vice President of 1998 17,308 (5) 0 865 (4)
Development & COO
Charles E. White 1999 $ 150,000 0 $ 0
Vice President & CFO 1998 17,885 (5) 0 0
</TABLE>
(1) Includes $772 in payments on life insurance policies and $5,813 in
employer contributions to the 401(k) Plan
(2) Includes $772 in payments on life insurance policies and $9,750 in
employer contributions to the 401(k) Plan
(3) Includes $772 in payments on life insurance policies and $9,238 in
employer contributions to the 401(k) Plan.
(4) Employer contributions to 401(k) Plan.
(5) Employment commenced on June 1, 1998.
The following table shows certain information regarding options held at
June 30, 1999 by the Named Executives:
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Unexercised Options Number of Securities Value of in-the-Money
at Fiscal Year-end Underlying Options at Options at Fiscal
Name Fiscal Year-end Year-End
Name Unexercisable Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------- ------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Keith H. Keogh $0 $60,000 $0 $0 (1) $0
$120,000 $0 $6,000(2) $0
Thomas A. Spanier $0 $20,000 $30,000 $0(3) $0(3)
Charles E. White $0 $20,000 $30,000 $0(3) $0(3)
Laura Rivera $0 $0 $25,000 $0 $0(4)
</TABLE>
- -------------------------
(1) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1999, of $6.75 and the option exercise price of $8.00
per share.
(2) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1999, of $6.75 and the option exercise price of $6.70
per share.
(3) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1999, of $6.75 and the option exercise price of $7.25
per share.
(4) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1999, of $6.75 and the option exercise price of $7.3125
per share.
(5) Employment commenced on June 1, 1998.
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<PAGE>
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 November 30, 1999, the amount outstanding,
including accrued but unpaid interest, was $551,649. Pursuant to a letter
agreement with CECO dated December 4, 1999, Mr. Crocker has agreed that as of
the closing of the merger, he will release the Academy from any claims he has
against it, including those relating to the promissory note, and that he will
bring any future actions relating to a certain worker's compensation claim only
against the insurance carrier, and not against the Academy. In return Mr.
Crocker has agreed to pay the Academy a total of $465,000 plus accrued interest
in full payment of the promissory note, with the understanding that CECO will,
at the closing, cause the Academy to release any and all claims it has against
Mr. Crocker.
During the past three years, the Academy has not sold any securities
without registering such securities under the Securities Act.
REGULATORY APPROVALS
Completion of the merger is subject to certain approvals or notice
requirements imposed by certain regulatory and accrediting agencies, including
the Accrediting Commission of Career Schools and Colleges of Technology, the
California Department of Consumer Affairs, the American Culinary Federation
Educational Institute, and the United States Department of Education. The
Academy, with the assistance of CECO, is presently working toward obtaining
these approvals and providing these notices.
Federal antitrust laws prevent the Academy from completing the merger
until a required notification and report form is filed and a required waiting
period has expired or been terminated. In December 1999 the Academy filed the
required notification and report form. Even if the waiting period is
successfully terminated, the Antitrust Division of the Department of Justice or
the Federal Trade Commission could still take action under the antitrust laws
that could adversely affect the merger. However, CECO and the Academy do not
believe that the completion of the merger will result in the violation of any
applicable antitrust laws.
CERTAIN PENDING LITIGATION
The Academy has filed a lawsuit in the Federal District Court in San
Francisco against Theodore G. Crocker, its former Chief Executive Officer and
Chairman of the Board and current holder of greater than five percent of the
common stock of the Academy, to rescind the sale of 112,000 shares of the
Academy's common stock in connection with the exercise of certain options by Mr.
Crocker and to collect damages on
- 65 -
<PAGE>
an unpaid promissory note in the principal
amount of $465,192.20 plus interest owed by Mr. Crocker to the Academy in
connection with the purchase of such shares. On or about September 23, 1999, Mr.
Crocker filed an answer to the Academy's complaint, in which he denied liability
and asserted various defenses to payment of the promissory note. Pursuant to a
letter agreement with CECO dated December 4, 1999, Theodore G. Crocker has
agreed that as of the closing of the merger, he will pay the Academy a total of
$465,000 plus accrued interest in full payment of a promissory note he owes to
the Academy and release the Academy from any claims he has against it, including
those relating to the promissory note, with the understanding that CECO will, at
the closing, cause the Academy to release any and all claims it has against Mr.
Crocker. Mr. Crocker has also agreed to pursue any sums relating to a certain
worker's compensation claim only from the insurance carrier, and not from the
Academy.
INDEPENDENT AUDITORS
The consolidated financial statements of the Academy appearing in the
Academy's Annual Report on Form 10-K for the fiscal year ended June 30, 1999
have been audited by Rooney Ida Nolt & Ahern, Certified Public Accountants, as
set forth in their report thereon included therein and incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. The consolidated financial statements of the
Academy appearing in the Academy's Annual Report on Form 10-K for the fiscal
year ended June 30, 1998 have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. Representatives of Rooney Ida
Nolt & Ahern, Certified Public Accountants, are expected to be present at the
Annual Meeting, where they will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
CHANGE IN ACCOUNTANTS
On August 18, 1999, the Academy informed Deloitte & Touche LLP, its
then-current independent accountants, that effective immediately they had been
dismissed as the Academy's principal independent accountants.
Neither Deloitte's Report dated September 24, 1998 on the Academy's
financial statements for the year ended June 30, 1998 nor its Report dated
September 15, 1997 (October 3, 1997 as to Note 12) on the Academy's financial
statements for the year ended June 30, 1997 contained an adverse opinion or a
disclaimer of opinion, and neither Report was qualified or modified as to
uncertainty, audit scope or accounting principles.
The decision to dismiss Deloitte and engage new auditors was
recommended by Management, and approved by the Audit Committee of the Academy.
During the Academy's fiscal years ended June 30, 1997 and 1998, and
through August 18, 1999, there were no disagreements with Deloitte on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure
- 66 -
<PAGE>
which, if not resolved to Deloitte's satisfaction, would have caused them to
make reference to the subject matter of such disagreement in connection with
their Report on the financial statements for such years.
During the Academy's fiscal years ended June 30, 1997 and 1998, and
through August 18, 1999 there were no reportable events.
On August 18, 1999, the Academy engaged the firm of Rooney Ida Nolt &
Ahern, Certified Public Accountants as accountants to audit the Academy's
financial statements commencing with its 1999 fiscal year.
The Academy did not, during its fiscal years ended June 30, 1997 and
1998 and through August 18, 1999, consult with, or receive any written or oral
advice from, Rooney Ida Nolt & Ahern, Certified Public Accountants, regarding
(i) any matter, including the application of accounting principles to a
specified transaction or the type of audit opinion that might be rendered on the
Academy's financial statements, which advice was an important factor considered
by the Academy in reaching a decision as to such accounting, auditing or
financial reporting issue, or (ii) any disagreement with Deloitte & Touche LLP,
its former accountants, or any reportable event.
SHAREHOLDER PROPOSALS
Due to the contemplated completion of the merger, the Academy does not
currently intend to hold a 1999 annual meeting of shareholders. Under the SEC's
proxy rules, any shareholder proposal to be presented at the 1999 Annual Meeting
of Shareholders must be received by the Academy's Secretary at the Academy's
principal offices in San Francisco not later than January 16, 2000, if it is to
be included in the Board of Directors' Proxy Statement and form of proxy related
to that meeting. In addition, under the SEC's proxy rules, if a shareholder
wishes to bring a matter before the annual meeting of shareholders but does not
provide written notice of the proposal to the Academy at least 45 days before
the anniversary date of the mailing of the proxy materials for the prior year's
annual meeting of shareholders, any proxies received by the Board of Directors
from shareholders in response to its solicitation will be voted by the Board of
Directors' designated proxies in their discretion on such matter, regardless
whether specific authority to vote on such matter has been received from the
shareholders submitting such proxies. Accordingly, any shareholder who wishes to
submit a proposal at the 1999 Annual Meeting of Shareholders and who also wishes
to avoid the possibility of discretionary voting by the Board of Directors'
proxies on such matter, must give written notice of the proposal to the
Secretary of the Academy on or before March 31, 2000.
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
- 67 -
<PAGE>
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
, 2000
-----------
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.
- 68 -
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report...............................................F-2
Balance Sheets as of June 30, 1998 and 1999
and September 30, 1999...................................................F-3
Income Statements for the Years Ended June 30, 1998 and 1999 and
the Three Months Ended September 30, 1998 and 1999.......................F-4
Statements of Stockholders' Equity for the Years Ended June 30, 1998
and 1999 and the Three Months Ended September 30, 1999...................F-5
Statements of Cash Flows for the Years Ended June 30, 1998 and 1999 and
the Three Months Ended September 30, 1998 and 1999.......................F-6
Notes to Financial Statements..............................................F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
California Culinary Academy, Inc.
We have audited the accompanying balance sheet of California Culinary Academy,
Inc. (a California corporation) as of June 30, 1999 and the related statements
of income, stockholders' equity and cash flows for the year then ended. 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 audit. The financial statements of California Culinary Academy, Inc. as of
June 30, 1998, were audited by other auditors whose report dated September 24,
1998, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of California Culinary Academy,
Inc. as of June 30, 1999, and the results of its operations and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ROONEY, IDA, NOLT and AHERN
Certified Public Accountants
Walnut Creek, California
September 21, 1999
F-2
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 September 30
---------------------------
1999 1998 1999
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .............................. 854 2,533 690
Accounts receivable, net of allowance of $325 and $419.. 3,487 3,660 4,668
Inventories ............................................ 233 227 243
Prepaid expense and other assets ....................... 400 191 317
Deferred tax asset ..................................... 0 188 0
-------- -------- --------
Total Current Assets ................................... 4,974 6,799 5,918
-------- -------- --------
Property and equipment, net ............................... 9,186 4,830 9,136
Intangible assets, net .................................... 165 290 132
Other Assets .............................................. 982 357 1,110
-------- -------- --------
Total Assets .............................................. 15,307 12,276 16,296
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes and lease contracts ........... 1,000 75 924
Accounts payable ....................................... 1,822 593 1,995
Accrued liabilities .................................... 684 790 620
Deferred revenue ....................................... 4,017 4,260 5,221
Student prepayments .................................... 585 477 585
-------- -------- --------
Total Current Liabilities .............................. 8,108 6,195 9,345
-------- -------- --------
Notes payable ............................................. 2,124 0 2,124
Capital lease obligations ................................. 0 97 0
-------- -------- --------
Total Liabilities ...................................... 10,232 6,292 11,469
-------- -------- --------
Commitments and Contingencies
Stockholders' Equity:
Common stock, no par value 20,000,000 shares authorized;
1999: 3,815,431 and 1998: 3,795,350 issued and
outstanding ............................................ 11,355 11,351 11,355
Note receivable from stockholder .......................... (533) (489) (544)
Deficit ................................................... (5,747) (4,878) (5,984)
-------- -------- --------
Total Stockholders' Equity ............................. 5,075 5,984 4,827
-------- -------- --------
Total Liabilities and Stockholders' Equity ................ 15,307 12,276 16,296
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
INCOME STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
Years Ended June 30, September 30,
-------------------------- -----------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues
Culinary arts education................... 14,490 13,449 3,791 3,974
Restaurants and catering ................. 2,671 2,726 572 502
Student housing .......................... 539 312 181 153
Retail, media and other .................. 274U 245 83 24
----------- --------- ---------- ---------
Total Revenues ........................... 17,974 16,732 4,627 4,653
Cost of Sales
Food and beverage ........................ 1,989 1,810 436 386
Program supplies ......................... 997 926 258 238
Scholarships and grants .................. 133 226 48 53
Merchandise and other .................... 314 491 142 108
---------- --------- ---------- ---------
3,433 3,453 884 785
---------- --------- ---------- ---------
Gross Margin ............................. 14,541 13,279 3,743 3,868
Operating expenses
Occupancy ................................ 2,455 2,027 690 552
Repairs and maintenance .................. 505 477 88 122
Telephone, security and other ............ 483 433 54 48
Depreciation and amortization ............ 1,216 1,130 326 269
Compensation and benefits ................ 7,277 6,742 1,906 1,818
Outside services ......................... 653 827 188 110
Advertising and promotion ................ 790 777 165 149
Legal and other .......................... 1,375 1,519 524 333
Provision for doubtful accounts .......... 319 131 30 40
---------- --------- ---------- ---------
15,073 14,063 3,971 3,441
Other income and (expenses)
Preopening costs--New Orleans ............ (218) 0 0 0
Abandoned costs of financing ............. (248) 0 0 0
Interest income .......................... 134 13 (9) 42
---------- --------- ---------- ----------
Income (loss) before provision for income taxes (864) (771) 237 469
Income tax provision ........................ 5 0 0 30
---------- --------- ---------- ---------
Net income (loss) ........................... (869) (771) (237) 439
========== ========= ========== =========
Net income (loss) per share: ................
Basic .................................... (0.23) (0.22) (0.06) 0.12
Diluted .................................. (0.23) (0.22) (0.06) 0.11
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE
------------------ ------------------ FROM
SHARES AMOUNTS SHARES AMOUNTS STOCKHOLDER DEFICIT TOTAL
------ ------- ------ ------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of June 30, 1997............. 254,500 953 3,393,900 6,649 (4,085) 6,517
Exercise of stock options ........... 140,650 749 (489) 260
Preferred stock dividend declared.... (22) (22)
Issuance of preferred stock,
Series A .......................... 6,300
Conversion of preferred stock to
Common stock ...................... (260,000) (953) 260,800 953
Net income (loss) ................... (771) (771)
--------- -------- --------- ------ ------- ------- -----
Balance as of June 30, 1998....... 3,795,350 11,351 (489) (4,878) 5,984
Common stock issued to consummate
con of preferred stock............. 19,081
Interest on note .................... (44)
Exercise of stock options............ 1,000 4 4
Net income (loss).................... (869) (869)
--------- -------- ---------- ------- ------- -------- -------
Balances as of June 30, 1999...... 3,815,431 11,355 (533) (5,747) 5,075
UNAUDITED
Interston note....................... (11) (11)
Net income (loss).................... (237) (237)
--------- -------- ---------- ------- ------- --------- -------
Balances as of September 30, 1999 3,815,431 11,355 (544) 5,984 4,827
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
Years Ended June 30, September 30,
------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) ........................ (869) (771) (237) 439
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization ......... 1,207 1,127 326 269
Tax provision ......................... 5 0 - 30
(Gain) on disposal of property ........ 0 (197) - 0
Deferred rent ......................... (135) 157 (36) 41
Changes in assets and liabilities:
Accounts receivable ...................... 173 (183) (1,137) (971)
Prepaid expenses and other assets ........ (455) (148) 83 (771)
Inventories .............................. (6) 114 (10) (70)
Accounts payable ......................... 1,229 (87) (95) (645)
Other Assets ............................. 0 0 95 0
Accrued and other liabilities ............ (106) 265 (11) (11)
Deferred revenues ........................ (243) 1,048 1,204 919
----------- --------- ---------- ---------
Net cash provided by operating activities ... 800 695 182 (770)
Cash Flows From Investing Activities ........
Proceeds from sale of property and
equipment ............................. 336 2,148 -0- -0-
Additions to trademarks .................. (12) 0 -0- -0-
Acquisition of property and equipment .... (5,758) (2,813) (270) 135
----------- ---------- ---------- ----------
Net cash used by investing activities ....... (5,434) (665) (270) 135
Cash Flows From Financing Activities
Proceeds from exercise of stock options
and warrant ............................ 4 0 0 0
Proceeds from loan agreements ............ 3,125 0 0 0
Principal payments on term loan agreements (31) (43) (76) 0
Principal payments on capital lease
Obligations ........................... (143) 260 -0- (5)
Payment of preferred stock dividends ..... 0 (22) -0- 0
---------- ---------- ---------- ----------
Net cash provided by financing activities 2,955 195 (76) (5)
---------- --------- ----------- ----------
Net increase (decrease in cash and
cash equivalents ...................... (1,679) 225 (164) (640)
Cash and cash equivalents, beginning
of period ............................. 2,533 2,308 854 2,533
---------- --------- ---------- ---------
Cash and cash equivalents, end of period 854 2,533 690 1,893
========== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 THE COMPANY
The California Culinary Academy, Inc. (The "Academy") was founded in
1977 to operate a professional school for chef training, emphasizing the
fundamental techniques of modern classical cooking and baking. The operations of
the Academy include an Associate of Occupational Studies ("AOS") Degree Program
in Culinary Arts, a Certificate Program in Baking and Pastry Arts, weekend and
short-course professional and vocational cooking classes, and two public
restaurants and a retail shop located in San Francisco. The Academy is
accredited by the Accrediting Commission of Career Schools and Colleges of
Technology of the Career College Association and the American Culinary
Federation Educational Institute's Accrediting Commission.
The Academy conducts its major programs in San Francisco and offers
certain of its subsidiary programs in schools located in Salinas and San Diego.
During the year ended June 30, 1999, the Academy also acquired and improved a
property in New Orleans with a view to presenting a full schedule of culinary
programs and courses in that city.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Academy considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market and for the most
part comprise food and beverages. Cost is determined using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which range from three to ten years. Leasehold improvements are depreciated
using the straight-line method over the remaining term of the lease or the
useful life of the improvements, whichever is shorter.
Property and equipment comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998
--------- ---------
<S> <C> <C>
Land ............................................. $ 1,359 $ -0-
Kitchen equipment ................................ 1,926 1,859
Furniture, fixtures and equipment ................ 4,507 4,158
Construction-in-progress ......................... 3,057 17
Leasehold improvements ........................... 5,269 4,658
--------- ---------
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C>
$ 16,118 $ 10,692
Less accumulated depreciation .................... (6,932) (5,862)
---------- ----------
$ 9,186 $ 4,830
======== =========
</TABLE>
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets are stated at cost and consist primarily of the
excess of the purchase price over net tangible assets acquired in the original
purchase of the Academy. Intangible assets comprise the following (dollars in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998
--------- ---------
<S> <C> <C>
Favorable lease rights ........................ $ 1,476 $ 1,476
Goodwill ...................................... 249 249
Other ......................................... 17 5
--------- ---------
$ 1,742 $ 1,730
Less accumulated amortization ................. (1,577) $ (1,440)
--------- ---------
$ 165 $ 290
======== ========
</TABLE>
Amortization is computed using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives used
in computing amortization are: favorable lease rights--15 years, goodwill--20
years and other--one year.
REVENUE RECOGNITION
Education revenues primarily comprise fees for the A.O.S. Degree
Program in Culinary Arts, a 16-month program, and the 30-week Certificate
Program in Baking and Pastry Arts. Tuition is initially recorded at the
commencement of each semester or term as deferred revenue and is recognized as
earned income over the course of the programs progressively as students complete
the credit hours required for graduation. Revenue on restaurant, retail and
media sales is recognized at the time services are performed or goods are sold.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
NET INCOME (LOSS) PER SHARE
In 1998, the Academy adopted the provisions of Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings per Share. SFAS 128 requires
a dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS
is computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if common stock options were exercised. EPS for all
F-9
<PAGE>
periods presented have been stated to reflect the adoption of SFAS 128. For
the years ended June 30, 1998 and 1999, stock options were not included in
the diluted EPS share calculation because their effect would have been
antidilutive.
Set forth below are the losses, dividends and outstanding shares used
in computing the basic and diluted EPS for the years ended June 30, 1999 and
1998. Since the conversion of all preferred stock to common was consummated by
the beginning of the 1999 fiscal year, the convertible preferred stock no longer
affects this computation.
<TABLE>
<S> <C>
1999 net income (loss) ................................. $ (869,000)
Dividends on preferred stock ...................... -0-
-----------------
Net income (loss) available to common stockholders. $ (869,000)
================
Number of shares .................................. 3,815,431
================
Earnings (loss) per share, both basic and diluted . $ (0.23)
1998 net income (loss) ................................. $ (771,000)
Dividends on preferred stock ...................... (22,000)
----------------
Net income (loss) available to common stockholders. $ (793,000)
================-
Number of shares (weighted average) ............... 3,660,207
================
Earnings (loss) per share, both basic and diluted . $ (0.22)
</TABLE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Academy to
concentrations of credit risk consist of cash, short-term cash investments such
as money market investments, and accounts receivable. The Academy invests
substantially all of its excess cash funds in money market accounts through
high-quality financial institutions and grants credit to its students. The
Academy believes that the credit risks associated with money market investments
are minimal due to the high quality of the financial institutions through which
investments are made. To reduce credit risk relating to student accounts
receivable, the Academy performs regular evaluations of its students' financial
condition and assists qualified students in obtaining student financial aid.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
The Academy paid interest during the years ended June 30, 1999 and 1998
of $4 and $96 (dollars in thousands), respectively. Income taxes paid during
these two years amounted to $32 in 1999 and $1 in 1998.
Non-cash investing and financing activities included the following: The
Academy received a promissory note of approximately $489,000 from one of its
stockholders, in exchange for the exercise of stock options, for the year ended
June 30, 1998. On February 4, 1998, the closing price of the common stock
equaled or exceeded $8.00 for 20 consecutive trading days. Pursuant to the
automatic conversion provisions of the Series A preferred stock, 23,580 shares
of Series A preferred stock, representing all the remaining Series A preferred
stock outstanding, were automatically converted to 23,580 shares of common
stock.
F-10
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
In 1998, the Academy adopted Statement of Accounting Standards No. 130
("SFAS 130"), Reporting Comprehensive Income. This Statement requires that all
items recognized under the accounting standards as components of comprehensive
income be reported in an annual financial statement that is displayed with the
same prominence as other annual financial statements. Statement also requires
that an entity classify items of other comprehensive income by their nature in
an annual financial statement. For example, other comprehensive income may
include foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities classified
as available-for-sale. Comprehensive income has not differed from net income for
the Academy for its fiscal years ended June 30, 1999 and 1998.
STOCK-BASED COMPENSATION
The Academy accounted for stock-based awards to employees using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. During the year ended June 30, 1999,
the practice of making stock-based awards was discontinued by the Academy.
NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable
and payable and loans are stated at reasonable estimates of their fair values.
Rates currently available to the Academy for debt carrying similar
terms are used to estimate the fair value of its debt.
NOTE 4 RELATED-PARTY TRANSACTIONS
Under a month-to-month consulting agreement with a principal
stockholder and chairman of the Board of Directors, fees were paid for investor
relations and other services in the amount of $72,000 for the year ended June
30, 1998 and $54,000 during the year ended June 30, 1999. This agreement was
terminated during fiscal 1999.
In December 1997, the Chairman of the Board of Directors exercised
stock options under the Company's 1992 stock option plan. In exchange, he
delivered a promissory note for the value of the stock options of $465,000
bearing an interest rate of 9.5% and a due date no later than December 31, 1998.
Interest has been accrued on this note, which is now delinquent, in the amount
of $68,000 through June 30, 1999.
NOTE 5 CAPITAL LEASE OBLIGATIONS
The Academy leases computers, photocopiers and other equipment under
various capital and operating lease agreements. Certain lease agreements include
purchase options and renewal provisions exercisable at the discretion of the
Academy.
F-11
<PAGE>
During the year ended June 30, 1999, capital lease obligations were
substantially reduced leaving balances at the fiscal year end totaling $29,000,
all of which were current.
NOTE 6 BANK AND OTHER CURRENT DEBT
The Academy entered into a business loan agreement with a bank in May
1999, subsequently amended August 31, 1999, for a loan of $500,000 carrying
interest at the Bank's reference rate plus 1%.
This loan is secured by the Academy's accounts receivable, chattel
paper, contract rights and general intangibles. The loan is repayable in
installments beginning in September 1999, with the full principal balance due on
January 1, 2000.
The security agreement contains certain covenants with which the
Academy must comply.
In June, 1999 the Academy contracted with TFC Credit Corporation to
obtain an advance of $250,000 against notes serviced by TFC covering tuition
receivable from students attending the Salinas and San Diego culinary colleges.
The Academy has agreed to repay this advance in full no later than January 31,
2000.
NOTE 7 LONG-TERM DEBT
In conjunction with acquiring real property for a new culinary academy
in New Orleans, the Academy entered into business loan agreements with a bank
and executed promissory notes, secured by the New Orleans property and an
assignment of leases and rents, due December 28, 1999 and December 30, 2003, as
follows:
<TABLE>
<CAPTION>
MONTHLY PAYMENTS
OF PRINCIPAL AND
INTEREST
----------------------------
PRINCIPAL INITIAL COMMENCE- DUE DATE OF
DATE OF NOTE AMOUNT INTEREST RATE AMOUNT MENT DATE BALANCE
- ------------------------- ---------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
12/28/1998 .............. $ 8.75% (Interest only until due) 12/28/99
166,400
12/28/1998 .............. 943,100 8.75% $ 9,496 1/30/2000 12/30/2003
12/28/1998 .............. 1,215,500 8.75% 12,238 1/30/2000 12/30/2003
</TABLE>
The balances outstanding on these loans at June 30, 1999 included the
full principal amounts, aggregating $2,325,000.
The five-year maturities of principal payable on the long-term notes
after June 30, 1999 are as follows:
F-12
<PAGE>
NOTE 8 STOCK OPTION PLANS
Plans still in effect at June 30, 1999 include the 1992 Stock Option
Plan, the 1997 Directors' Non-Qualified Stock Option Plan and the 1998 Stock
Option Plan.
The 1992 plan allocated approximately 384,000 shares for grants and the
1998 plan provides for a maximum of 300,000 shares which may be optioned and
sold under this plan. The 1992 plan requires that the exercise price not be less
than fair market value at the grant date in the case of incentive stock options
and not less than 85% of fair market value for nonstatutory options.
Under the 1998 plan, the option price may not be less than 100% of fair
market value at the date of grant. These options generally expire within 10
years and will vest on a schedule determined by the Academy's Board of
Directors.
Under the 1997 Directors' plan, all options to a maximum of $240,000
had been granted as of September 1, 1998 at fair market value. These options
vested immediately and expire after 10 years. Transactions affecting the
continuity of the options outstanding under all these plans may be summarized as
follows:
<TABLE>
<CAPTION>
OUTSTANDING PRICE
OPTIONS RANGE
----------------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Balance, June 30, 1997 ..................................... 802 $4.18 to $8.00
Options granted 5 $7.50
Options exercised .......................................... (141) $4.18 to $7.75
Options canceled ........................................... (120) $4.18 to $7.75
---------
Balance, June 30, 1998 ..................................... 546 $4.18 to $8.00
Options granted ............................................ 141 $7.25 to $9.19
Options exercised .......................................... (1) $4.18
Options canceled ........................................... (78) $4.18 to $7.75
--------
Balance, June 30, 1999 ..................................... 608 $4.18 to $9.19
=========
Exercisable options as of June 30, 1999 .................... 510 $4.18 to $9.19
=========
</TABLE>
Outstanding and exercisable options at June 30, 1999 included the
following:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE EXERCISE
PRICES OPTIONS LIFE OPTION PRICE OPTIONS PRICE
- ------------------- ----------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
$4.18 and $5.56 49,630 3.76 years $ 4.46 49,630 $ 4.46
$6.25 to $6.70 289,700 8.13 6.51 289,700 6.51
$7.00 to $7.75 207,250 5.32 7.29 109,582 7.32
$8.00 to $9.19 61,500 1.05 8.02 61,500 8.02
----------- ----------
</TABLE>
F-13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
$4.18 to $9.19 608,080 510,412
----------- ----------
</TABLE>
As discussed in Note 2, the Academy accounted for its stock-based
awards using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees, and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
NOTE 9 PREFERRED STOCK
Convertible preferred stock issued by the Academy in August, 1996 was
converted subsequently into common stock, with a final conversion taking place
at the close of the 1998 fiscal year. 19,081 of the common shares issued as a
result of this conversion were not booked by the Academy until July, 1998.
NOTE 10 INCOME TAXES:
The Academy's provision for income taxes comprised the following
amounts for the years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Current .................................. $ -0- $ -0-
Deferred ................................. 5,000 -0-
Totals ................................... $ 5,000 $ -0-
----------- ------------
</TABLE>
Deferred tax assets and liabilities result from differences in the
timing controlling recognition of certain income and expense items for income
tax and financial accounting purposes. Components of the net deferred tax asset
include the following deferred tax assets and liabilities:
<TABLE>
<CAPTION>
(IN THOUSANDS OF
DOLLARS)
JUNE
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Tax effect of deferred tax assets (liabilities):
Accrued vacation ............................................... $ 88 $ 54
Allowance for doubtful accounts ................................ 162 180
Depreciation and amortization .................................. (116) (142)
Net operating loss carryforward ................................ 1,331 940
Other .......................................................... (260) (204)
Valuation allowance ............................................ (887) (505)
--------------- ---------------
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net deferred tax asset ..................................... $ 318 $
---------------
323
---------------
</TABLE>
At June 30, 1999, the Academy had federal and California net operating
loss carryforwards of approximately $3,564,000 and $1,227,000, respectively. The
federal loss carryforwards will expire from years 2005 to 2018. California loss
carryforwards will expire from 2001 to 2004.
The valuation allowance reduces the tax benefit of net future
deductions to an amount of income tax benefit estimated to be realizable within
the foreseeable future.
NOTE 11 401(k) RETIREMENT PLAN
Employees become eligible to participate in a defined 401(k) plan as
soon as they are hired. The plan permits employee contributions and
discretionary employer matching contributions. The plan was amended January 1,
1997 to allow the Academy to make matching contributions in the form of its
common stock.
The Academy's contributions to this plan for the years ended June 30,
1999 and 1998 were approximately $108,000 and $166,000, respectively.
NOTE 12 COMMITMENTS
In September 1994, the Academy had agreed with a supplier of cutlery to
purchase $1,650,000 in hardware including, knives, tools and other items, over
an unlimited term. In return, the supplier underwrote a portion of the
production costs of the television cooking presentations: "Cooking at the
Academy".
By June 30, 1999, this purchase commitment had been satisfied in an
amount of approximately $820,000.
The Academy has rental commitments under leases of real properties in
San Francisco, Salinas, Garden Grove and San Diego. Future minimum payments
under long-term operating leases were as follows for the five years ending after
June 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, AMOUNT
- -------------------------------------------------------------- ---------
<S> <C>
2000 ......................................................... $
2,223,87
2001 ......................................................... 1,850,736
2002 ......................................................... 1,846,866
2003 ......................................................... 1,804,296
2004 ......................................................... 1,747,296
</TABLE>
F-15
<PAGE>
Rent expense for the years ended June 30, 1999 and 1998 was $1,993,000
an d $1,590,000, respectively.
NOTE 13 CONTINGENCIES
STUDENT FINANCIAL ASSISTANCE
The Academy derives approximately 42% of its education program revenues
from students participating in students' financial assistance programs
administered by the Department of Education (DOE) and the State of California.
To continue taking part in Title IV funding administered by the DOE,
The Academy is subject to periodic audit by the DOE to determine the Academy's
compliance with funding requirements. While management believes the institution
is in compliance, adverse findings by the DOE are possible. The financial
consequences of such adverse findings cannot be determined at this time.
LITIGATION
The Academy is involved in several matters which may require litigation
or legal settlement. Its counsel's opinion is that open matters at June 30, 1999
are unlikely to result in any material loss to the Academy.
PROPOSED SALE OF REAL PROPERTY
It is the intent of the Academy's management to sell its real property
in New Orleans within the next fiscal period. It is possible, depending upon the
real estate market in New Orleans at the time, that such a sale will result in
substantial loss to the Academy.
POSSIBLE UNCERTAINTIES
The year 2000 Computer Problem creates risk for the Academy from
unforeseen problems in its own computer systems and from third parties with
whom the Academy deals on financial transactions. Such failures of the
Academy's or third parties' computer systems could have a material impact
on the Academy's ability to conduct its business.
F-16
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF CALIFORNIA CULINARY ACADEMY, INC.
Annual Meeting of Stockholders
, 200
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 Annual Report and Proxy Statement, each dated
January , 2000, and hereby constitutes and appoints and 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 Company to be held on
, 2000 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 consider and vote upon a proposal to approve the principal terms of
a merger of the Academy with an indirect, wholly owned subsidiary of
Career Education Corporation, pursuant to which, among other things,
each outstanding share of the Academy's common stock will be converted
into the right to receive $5.25 in cash, all pursuant to an Agreement
and Plan of Merger among Career Education Corporation, CCA Acquisition,
LLC, and the Academy, dated as of December 6, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
2. To elect nine directors to hold office until the next Annual Meeting of
Shareholders and until their successors are elected and qualified.
ELECTION OF DIRECTORS
FOR ALL nominees listed below WITHHOLD AUTHORITY
(except as marked to (to vote for ALL
the contrary below) nominees listed below)
/ / / /
(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 P. Cutino Keith H. Keogh
/ / / / / / / /
Paul H. Prudhomme Leenie Ruben David Warnock
/ / / / / /
William DeMar David J. Berger
/ / / /
<PAGE>
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
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 PROPOSAL 1, AND FOR ALL NOMINEES LISTED IN PROPOSAL 2, AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS TO COME
BEFORE THE ANNUAL MEETING.
DATED , 2000
------------------------------------------
(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. 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.
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CAREER EDUCATION CORPORATION,
CCA ACQUISITION, LLC
AND
CALIFORNIA CULINARY ACADEMY, INC.
DATED AS OF DECEMBER 6, 1999
A-1
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is made and
entered into as of December 6, 1999 among Career Education Corporation, a
Delaware corporation ( "PARENT"), CCA Acquisition, LLC, a Delaware limited
liability company and an indirect wholly-owned subsidiary of Parent ( "MERGER
SUB"), and California Culinary Academy, Inc., a California corporation (the
"COMPANY").
RECITALS
A. The Board of Directors of each of the Company and Parent and the Manager
of Merger Sub each believes that it is in the best interests of each company
and their respective stockholders or member, as the case may be, that the
Company and Merger Sub combine into a single company through the merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance
thereof, has approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding share of
common stock, no par value, of the Company shall be converted into the right
to receive cash, as set forth herein.
C. The Company, Parent and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. THE MERGER
1.1 THE MERGER . At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Corporations Code of the State of California (
"CALIFORNIA LAW") and the Delaware Limited Liability Company Act ( "DELAWARE
LAW"), Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease and the Company shall continue
as the surviving corporation. The Company as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION."
1.2 EFFECTIVE TIME . Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing the
agreement of merger of Merger Sub and the Company (the "AGREEMENT OF MERGER")
with the Secretary of State of the State of California,
A-2
<PAGE>
EXECUTION COPY
in accordance with the relevant provisions of California Law and a
certificate of merger with the Secretary of State of the State of Delaware
(the "CERTIFICATE OF MERGER"), (the time of such filings being the "EFFECTIVE
TIME") and make all other recordings or filings required by law in connection
with the Merger, including any filings with the California Franchise Tax
Board, as soon as practicable on or after the Closing Date (as herein
defined). The closing of the Merger (the "CLOSING") shall take place at the
offices of Parent at a time and date to be specified by the parties, which
shall be no later than the fifth business day after the satisfaction or
waiver (if permissible) of the conditions set forth in Article 6 (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of those conditions), or at such other
time, date and location as the parties hereto agree (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER . At the Effective Time, the effect of
the Merger shall be as provided in this Agreement and the applicable
provisions of California Law and Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time,
without other transfer, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger
Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 NAME; CERTIFICATE OF INCORPORATION; BYLAWS.
(a) The name of the Surviving Corporation will be the Company's name.
(b) The Amended and Restated Articles of Incorporation of the Company,
as in effect immediately prior to the Effective Time, (the "COMPANY
ARTICLES") shall be the Articles of Incorporation of the Surviving
Corporation at the Effective Time until thereafter amended.
(c) The Bylaws of the Company, as in effect immediately prior to the
Effective Time, (the "COMPANY BYLAWS") shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The Manager of Merger Sub shall be the
director of the Surviving Corporation, until its respective successor or
successors are duly elected or appointed and qualified. The officers of
Merger Sub shall be the officers of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK . At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or
the holders of any of Company Capital Stock (as defined below):
A-3
<PAGE>
EXECUTION COPY
(a) CONVERSION OF COMPANY CAPITAL STOCK. Each share of Common Stock,
no par value, of the Company (the "COMPANY CAPITAL STOCK") issued and
outstanding immediately prior to the Effective Time (other than any
shares of Company Capital Stock to be canceled pursuant to Section
1.6(b)) will be converted into the right to receive $5.25 in cash,
without interest (the "MERGER CONSIDERATION"), upon surrender of the
certificate or certificates which immediately prior to the Effective
Time represented such Company Capital Stock. All shares of Company
Capital Stock, when converted, shall no longer be outstanding and
shall automatically be canceled and retired and each holder of a
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive such
Merger Consideration.
(b) CANCELLATION OF PARENT-OWNED STOCK. Each share of Company
Capital Stock owned by the Company, Merger Sub, Parent, or any direct
or indirect subsidiary of Parent or the Company, including without
limitation, any shares of Company Capital Stock held as treasury stock
of the Company or any direct or indirect subsidiary of the Company,
shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and extinguished without any
conversion thereof.
1.7 DISSENTERS' RIGHTS . Subject to ss.1300 of California Law and
notwithstanding Section 1.6 of thiS Agreement, shares of Company Capital
Stock outstanding immediately prior to the Effective Time and held by a
holder who has not voted in favor of the Merger or consented thereto in
writing and who has demanded appraisal for such shares of Company Capital
Stock in accordance with California Law shall not be converted into a right
to receive the Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses his, her or its right to appraisal. If, after
the Effective Time, such holder fails to perfect or withdraws or loses his
right to appraisal, such shares of Company Capital Stock shall be treated as
if it had been converted as of the Effective Time into a right to receive the
Merger Consideration. The Company shall give Parent prompt written notice of
any demands received by the Company for appraisal of shares of Company
Capital Stock, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
1.8 SURRENDER OF CERTIFICATES .
(a) PAYING AGENT. The Harris Trust and Savings Bank, or another
similar institution selected by Parent and reasonably acceptable to
the Company, shall act as the paying agent (the "PAYING AGENT") in
the Merger.
A-4
<PAGE>
EXECUTION COPY
(b) PARENT TO PROVIDE MERGER CONSIDERATION. Promptly after the
Effective Time, Parent shall deposit immediately available funds with
the Paying Agent in a separate fund established for the benefit of the
holders of shares of Company Capital Stock at the Effective Time for
payment of the Merger Consideration in accordance with this Article 1
through the Paying Agent (the "PAYMENT FUND"). For purposes of
determining the Merger Consideration to be deposited, Parent shall
assume that no holder of Company Capital Stock will perfect his, her or
its right to appraisal of shares of Company Capital Stock. The Paying
Agent shall, pursuant to irrevocable instruction, pay the Merger
Consideration out of the Payment Fund.
(c) PAYMENT PROCEDURES. Promptly after the Effective Time, the Paying
Agent shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately
prior to the Effective Time represented outstanding shares of Company
Capital Stock whose shares were converted into a right to receive the
Merger Consideration pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such
customary form and have such other provisions as Parent may reasonably
specify) and (ii) instructions for use in effecting the surrender of
Certificates in exchange for Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent, together with such
letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor the
Merger Consideration into which the shares represented by the
surrendered Certificate shall have been converted at the Effective Time
pursuant to this Article 1, and the Certificate so surrendered shall
forthwith be canceled. Until so surrendered, each outstanding
Certificate will be deemed from and after the Effective Time, for all
corporate purposes, to evidence the right to receive Merger
Consideration. From and after the date which is one year following the
Closing Date, any portion of the Payment Fund that remains
undistributed to the holders of Certificates shall be promptly
delivered to Parent upon demand, and any holder of Certificates who has
not theretofore complied with this Section 1.8 shall thereafter look
only to the Surviving Corporation for delivery of the Merger
Consideration, subject in all events to applicable abandoned property,
escheat or similar laws.
(d) TRANSFERS OF OWNERSHIP. If any portion of the Merger
Consideration is to be paid to a person other than the person in
whose name the Certificate surrendered in exchange therefor is
registered, it will be a condition of the payment therefor that
the Certificate so surrendered will be properly endorsed and otherwise
in proper form for transfer and that the person requesting such
exchange will have (i) paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the payment to a
A-5
<PAGE>
EXECUTION COPY
person other than the registered holder of the Certificate
surrendered or (ii) established to the reasonable satisfaction of
Parent or any agent designated by it that such tax has been paid or
is not payable.
(e) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, none of the Paying Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of Company Capital Stock or a
payee of Merger Consideration for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or
similar law.
1.9 EXISTING OPTIONS .
(a) Prior to the Closing Date, the Company shall take all action
necessary, including, without limitation, satisfying any applicable
notice requirements, so that each existing option to purchase Company
Capital Stock which is outstanding at the Effective Time (each an
"EXISTING OPTION") that is not then vested and exercisable shall become
vested and exercisable. Immediately prior to the Closing Date, the
Company shall exchange each Existing Option for, and the holder of each
such Existing Option will be entitled to receive, immediately prior to
the Closing upon surrender of such Existing Option for cancellation,
cash equal to the product of (i) the positive difference, if any,
between the Merger Consideration less the exercise price of each such
Existing Option, and (ii) the number of shares of Company Capital Stock
covered by such Existing Option.
(b) The Company shall take all actions reasonably necessary to ensure
that from and after the Effective Time the Surviving Corporation will
not be bound by any options, warrants, rights or agreements which would
entitle any person, other than Parent or Merger Sub, to beneficially
own shares of Surviving Corporation or Parent or receive any payments
(other than as set forth in this Section 1.9(a)) in respect of such
options, warrants, rights or agreements. The Company shall take all
actions necessary to terminate each plan with respect to Existing
Options as of the Effective Time.
1.10 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK . All
Merger Consideration paid upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall be deemed to
have been paid in full satisfaction of all rights pertaining to such shares
of Company Capital Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Capital Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article 1.
A-6
<PAGE>
EXECUTION COPY
1.11 LOST, STOLEN OR DESTROYED CERTIFICATES . In the event any
Certificates shall have been lost, stolen or destroyed, the Paying Agent
shall pay in exchange for such lost, stolen or destroyed certificates, upon
the making of an affidavit of that fact by the holder thereof, the Merger
Consideration payable in exchange for such lost, stolen or destroyed
Certificates; provided, however, that Parent may, in its discretion and as a
condition precedent to the payment thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a customary bond in such sum as
it may reasonably direct as indemnity against any claim that may be made
against Parent, the Surviving Corporation or the Paying Agent with respect to
the Certificates alleged to have been lost, stolen or destroyed.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION . If, at any time
after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Merger Sub, the
officers and directors of the Surviving Corporation are fully authorized in
the name of and on behalf of the Company and Merger Sub to take, and will
take, all such lawful and necessary action, so long as such action is
consistent with this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub,
subject to the exceptions disclosed in writing in the disclosure letter
supplied by the Company to Parent (the "COMPANY DISCLOSURE LETTER") which
identifies the Section and Subsection numbers hereof to which the disclosures
pertain and which is dated as of the date hereof, as follows:
2.1 ORGANIZATION OF THE COMPANY . The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, has the corporate power and authority to own, lease and
operate its property and to carry on its business as now being conducted, and
is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which such qualification is required by
virtue of the nature of the activities conducted by it, except to the extent
that the failure to be so qualified and in good standing could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company (as hereinafter defined). The Company has no
subsidiaries as of the date hereof. Except as set forth in Section 2.1 of the
Company Disclosure Letter, the Company does not, directly or indirectly, own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any interest in, any corporation,
partnership, joint venture or other business association or entity. The
Company is not, and for the past five (5) years has not been, engaged in any
business other than the operation of the California Culinary Academy located
in San Francisco, California (the "SCHOOL"), the development of a campus in
New Orleans, Louisiana and the operation and development of various Colleges
of Food in San Francisco, San Diego, Garden Grove and
A-7
<PAGE>
EXECUTION COPY
Salinas, California and activities directly related thereto. The Company has
delivered or made available to Parent a true, complete and correct copy of
the Company Articles and Company Bylaws, each as amended to the date hereof.
In this Agreement, the term "MATERIAL ADVERSE EFFECT" used in reference to
the Company means any event, change, circumstance, condition or effect which,
when considered with all other events, changes, circumstances, conditions and
effects, has, or any development that could be reasonably expected to have, a
material adverse effect on the results of operations, financial condition,
assets, liabilities, business or prospects of the Company, other than general
changes in economic conditions or the educational services industry, each
considered alone without regard to any other effects, changes, events,
circumstances or conditions, and other than any adverse change, event or
effect that is demonstrated by the Company to be primarily caused by the
pendency of the Merger or the transactions contemplated hereby.
2.2 COMPANY CAPITAL STRUCTURE . The authorized capital stock of
the Company consists of 20,000,000 shares of Common Stock, no par value, of
which there were 3,815,431 shares issued and outstanding as of December 2,
1999, and 5,000,000 shares of Preferred Stock, no par value (the "COMPANY
PREFERRED STOCK"). No shares of Company Preferred Stock are issued and
outstanding as of the date hereof and there will be no such shares
outstanding as of the Effective Time. All outstanding shares of Company
Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute,
the Company Articles or Company Bylaws or any agreement or document to which
the Company is a party or by which it is bound. As of the date hereof, the
Company had reserved (i) 835,595 shares of Company Capital Stock for issuance
to employees pursuant to the Company's 1992 Stock Option Plan (the "1992
PLAN"), under which options are outstanding for 237,080 shares of Company
Capital Stock minus any options exercised on the date hereof, (ii) 240,000
shares of Company Capital Stock for issuances to directors pursuant to the
Company's 1997 Directors' Non-Qualified Stock Option Plan (the "1997 PLAN"),
under which options are outstanding for 240,000 shares of Company Capital
Stock minus any option of exercised on the date hereof and (iii) 300,000
shares of Company Capital Stock for issuances to employees pursuant to the
Company's 1998 Stock Option Plan (the "1998 PLAN"), under which options are
outstanding for 156,000 shares of Company Capital Stock minus options
exercised on the date hereof. The 1992 Plan, 1997 Plan and 1998 Plan are
collectively referred to herein as the "COMPANY OPTION PLANS." All shares of
Company Capital Stock subject to issuance pursuant to the Company Option
Plans, upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, shall be duly authorized, validly
issued, fully paid and nonassessable. Section 2.2 of the Company Disclosure
Letter includes a list for each outstanding option as of the date hereof, of
the following: (i) the name of the holder of such option (ii) the number of
shares subject to such option, and (iii) the exercise price of such option.
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2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK . Except as set
forth in Section 2.2 hereof, as of the date hereof, there are no equity
securities of any class of the Company, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.2 hereof and Section 2.3 of the
Company Disclosure Letter, as of the date hereof, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating
the Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Company or obligating the
Company to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement.
Except as set forth in Section 2.3 of the Company Disclosure Letter, to the
knowledge of the Company, there are no voting trusts, proxies or other
agreements or understandings with respect to the shares of capital stock of
the Company.
2.4 VOTING DEBT . As of the date of this Agreement, (i) no bonds,
debentures, notes or other indebtedness of the Company having the right to
vote under ordinary circumstances are issued or outstanding and (ii) there
are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company.
2.5 LISTING . As of the date hereof, the Company Capital Stock is
listed for trading on the Nasdaq National Market. As of the date hereof, no
other securities of the Company are listed or quoted for trading on any U.S.
or foreign securities exchange.
2.6 AUTHORITY; NO CONFLICTS .
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and, subject to obtaining requisite
shareholder approval, to consummate the Merger and other transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the Merger and other transactions contemplated
hereby have been duly authorized by all necessary corporate action on
the part of the Company, subject only to the approval of the principal
terms of this Agreement and the Merger by the vote of the holders of at
least a majority of the Company Capital Stock. This Agreement has been
duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub,
constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy and other similar laws and general principles
of equity.
(b) Except as set forth in Section 2.6(b) of the Company Disclosure
Letter, the execution and delivery of this Agreement by the Company
does not, and the
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consummation of the Merger and other transactions contemplated
hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or
give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the
Company Articles or Company Bylaws, (ii) any mortgage, indenture,
lease, contract or other agreement to which the Company is a party
or by which the Company or the assets of the Company is bound,
except for any such conflict, violation, default, right or loss
which would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect or (iii) any permit,
concession, franchise, license (including, without limitation, any
liquor license), judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company, or its properties or
assets, or any standard or requirement of any Accrediting Body (as
defined below), except for any such conflict, violation, default,
right or loss which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the
Company.
For purposes of this Agreement, "ACCREDITING BODY" means any
entity or organization, whether governmental, government-chartered,
private or quasi-private, which engages in the granting or withholding
of accreditation of private post secondary schools in accordance with
standards and requirements relating to the performance, operations,
financial condition and/or academic standards of such schools
including, without limitation, ACCSCT and ACFEI (as defined in Section
2.18(d)).
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, arbitrator, administrative
agency or commission or other governmental authority or instrumentality
of the United States or any domestic or foreign state, county, city or
other political subdivision ( "GOVERNMENTAL/REGULATORY ENTITY") or
Accrediting Body, is required by or with respect to the Company or the
School in connection with the execution and delivery of this Agreement
or the consummation of the Merger and other transactions contemplated
hereby, except (i) in connection, or in compliance, with the provisions
of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended
( "HSR ACT"), the Securities Act of 1933, as amended (the "SECURITIES
ACT") and the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), including without limitation the filing of the Proxy
Statement (as herein defined) with the Securities and Exchange
Commission, (ii) the filing of the Agreement of Merger with the
California Secretary of State, the Certificate of Merger with the
Delaware Secretary of State, and appropriate documents with the
relevant authorities of other states in which the Company is qualified
to do business, (iii) those consents and approvals set forth in Section
2.6 of the Company Disclosure Letter and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and
filings, the failure of which to be obtained or made would not
reasonably be
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expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company.
2.7 SEC FILINGS; COMPANY FINANCIAL STATEMENTS .
(a) The Company has filed all forms, reports and documents
required to be filed with the SEC since June 30, 1997. All such
required forms, reports and documents are referred to herein as the
"COMPANY SEC REPORTS." Except as set forth in Section 2.7(c) of the
Company Disclosure Letter, as of their respective dates, or if
amended, as of the date of such last amendment, the Company SEC
Reports (i) complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such
Company SEC Reports, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of the last of such filings) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
(b) Each of the financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Reports (the
"COMPANY FINANCIALS"), including any Company SEC Reports filed after
the date hereof until the Closing, and the audited balance sheet of the
Company as of June 30, 1999 and the audited statements of operations
and cash flows for the fiscal year then ended, true and correct copies
of which were delivered to the Parent prior to the date hereof (the
"COMPANY JUNE 30TH FINANCIALS"), and the unaudited balance sheet and
unaudited statements of operations and cash flows for the Company as of
September 30, 1999, (x) complies or complied, as the case may be, as to
form in all respects with the published rules and regulations of the
SEC with respect thereto, (y) was prepared (or will be prepared, as the
case may be) in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved (except as may be indicated therein or in the notes thereto)
and (z) fairly presented (or will fairly present, as the case may be)
in all material respects the financial position of the Company as at
the respective dates thereof and the results of its operations and cash
flows for the periods indicated, except that the unaudited financial
statements do not include footnote disclosure of the type associated
with audited financial statements and were or are subject to normal and
recurring year-end adjustments and to any other adjustments described
therein. The audited balance sheet of the Company included in the
Company June 30th Financials is hereinafter referred to as the "COMPANY
BALANCE SHEET."
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(c) As of the date hereof, except as set forth in Section 2.7(c)
of the Company Disclosure Letter, there are no amendments or
modifications to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to
the Securities Act or the Exchange Act or any other agreements,
documents or other instruments, which have not yet been filed with
the SEC but which are or will be required to be filed by the Company.
2.8 ACCOUNTING RECORD . The accounting books and records of the
Company: (i) are correct and complete in all material respects, (ii) are
current in a manner consistent with past practice; and (iii) have recorded
therein all the material properties, assets and liabilities of the Company.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS . Since September 30,
1999, except with respect to the actions contemplated by this Agreement, the
Company has conducted its business only in the ordinary course and in a
manner consistent with past practice and, since such date, except as set
forth in Section 2.9 of the Company Disclosure Letter, there has not been (i)
any Material Adverse Effect on the Company; (ii) any property damage,
destruction or loss (whether or not covered by insurance) on the Company that
has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company; (iii) any change by the
Company in its accounting methods, principles or practices; (iv) any
revaluation by the Company of any of its assets, including, without
limitation, writing down the value of deferred tax assets or writing off
notes or accounts receivable other than in the ordinary course of business;
(v) to the Company's knowledge, any labor dispute or charge of unfair labor
practice, which would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, or any activity or
proceeding by a labor union or representative thereof to organize any
employee of the Company or any campaign being conducted to solicit
authorization from employees to be represented by such labor union; (vi) any
waiver by the Company of any rights of material value; (vii) any declaration,
setting aside or payment of any dividend or any distribution in respect of
the Company Capital Stock or any direct or indirect redemption, purchase or
other acquisition of any such stock by the Company; or (viii) any other
action or event that would have required the consent of the Parent pursuant
to Section 4 had such action or event occurred after the date of this
Agreement.
2.10 LIABILITIES . Except (a) for normal or ordinary recurring
liabilities incurred in the ordinary course of business consistent with past
practice, (b) for transaction expenses incurred in connection with this
Agreement, (c) for liabilities set forth on the Company Balance Sheet, or (d)
as set forth in Section 2.10 of the Company Disclosure Letter, since
September 30, 1999, the Company has not incurred any liabilities that either
(i) would be required to be reflected or reserved against in a balance sheet
of the Company prepared in accordance with generally accepted accounting
principles as applied in preparing the Company
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Balance Sheet, or (ii) could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company.
2.11 TAXES .
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all Federal, state, local and foreign, taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured
by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts
and including any liability for taxes of a predecessor entity. For
purposes of this Agreement, a "TAX AGREEMENT" is any agreement to which
the Company is a party under which the Company could reasonably be
expected to be liable to another party under such agreement in respect
of Taxes payable by such other party to any taxing authority.
(b) TAX RETURNS AND AUDITS. Except as set forth in Section 2.11 of
the Company Disclosure Letter:
(i) The Company has timely filed all Federal, state, local and
foreign returns, information statements and reports relating
to Taxes ( "RETURNS") required by applicable Tax law to be
filed by the Company, except for any such failures to file
that could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company.
All Taxes owed by the Company to a taxing authority, or for
which the Company is liable, whether to a taxing authority or
to other persons or entities under a Tax Agreement, as of the
date hereof, have been paid and, as of the Effective Time,
will have been paid, except for any such failure to pay that
could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company. The
Company has made (A) accruals for Taxes on the Company Balance
Sheet and (B) with respect to periods after the date of the
Company Balance Sheet, provisions on a periodic basis
consistent with past practice on the Company's books and
records or financial statements, in each case which are
adequate to cover any Tax liability of the Company determined
in accordance with generally accepted accounting principles
through the date of the Company Balance Sheet or the date of
the provision, as the case may be, except where failures to
make such accruals or provisions could not reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
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(ii) Except to the extent that any such failure to withhold
could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company, the
Company has withheld with respect to its employees all Federal
and state income taxes, FICA, FUTA and other Taxes required to
be withheld.
(iii) There is no Tax deficiency outstanding, proposed or
assessed against the Company, except any such deficiency that,
if paid, could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on
the Company. The Company has not executed or requested any
waiver of any statute of limitations on or extending the
period for the assessment or collection of any Federal or
material state Tax.
(iv) No Federal or state Tax audit or other examination of the
Company is presently in progress, and the Company has not been
notified in writing of any request for such Federal or
material state Tax audit or other examination, except in all
cases for Tax audits and other examinations which could not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(v) The Company has not filed any consent agreement under
Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "CODE"), or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by the
Company.
(vi) The Company is not a party to (A) any agreement with a
party other than the Company providing for the allocation or
payment of Tax liabilities or payment for Tax benefits with
respect to a consolidated, combined or unitary Return which
Return includes or included the Company or any subsidiary or
(B) any Tax Agreement other than any Tax Agreement described
in (A).
(vii) The Company has not ever been a member of an affiliated
group of corporations within the meaning of Sections 1504 of
the Code other than an affiliated group of which it was the
common parent.
(viii) The Company has not agreed to make, and it is not
required to make, any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise.
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(ix) The Company is not, and has not at any time within the
last five years been, a "UNITED STATES REAL PROPERTY HOLDING
CORPORATION" within the meaning of Section 897(c)(2) of
the Code.
(x) The Company has not made any payments, is obligated to
make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments,
that will not be deductible under Section 280G of the Code.
(xi) The Company has federal and California net operating loss
carryforwards, for tax return purposes, of $3,800,000 and
$1,350,000, respectively, as of September 30, 1999.
(xii) The Company does not have any deferred intercompany
gains as defined in the federal consolidated tax return
regulations which, as a result of the transactions
contemplated herein, will result in the recognition of taxable
income.
2.12 RESTRICTIONS ON BUSINESS ACTIVITIES . Except as set forth in
Section 2.12 of the Company Disclosure Letter, there is no agreement,
judgment, injunction, order or decree binding upon the Company or its
properties (including, without limitation, its Intellectual Property and
Curricula (each as defined below)) which has or would reasonably be expected
to have the effect of prohibiting or impairing the conduct of any business by
the Company in a manner which would reasonably be expected to have a Material
Adverse Effect on the Company.
2.13 ABSENCE OF LIENS AND ENCUMBRANCES . The Company has good,
valid, and marketable title to, or, in the case of leased properties and
assets, valid leasehold interests in, all of its properties and assets
(whether real, personal or mixed, and whether tangible or intangible),
necessary for the conduct of its business, free and clear of any liens and
encumbrances, except (i) as reflected in the Company balance sheet as of
September 30, 1999, (ii) liens for Taxes not yet due and payable, (iii) such
liens and encumbrances listed on Section 2.13 of the Company Disclosure
Letter, and (iv) such liens and encumbrances as do not materially impair the
use of the properties or assets subject thereto or affected thereby
(collectively, "PERMITTED LIENS").
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2.14 REAL ESTATE
(a) OWNED REAL PROPERTY. Section 2.14(a) of the Company
Disclosure Letter sets forth a correct and complete list of each parcel
of real property owned by the Company (the "OWNED REAL Estate"),
including a street address. The Company is the sole and exclusive legal
and equitable owner of all right, title and interest in and has good,
marketable and insurable title in fee simple absolute to, and is in
possession of, all Owned Real Estate, including the buildings,
structures and improvements situated thereon and appurtenances thereto,
in each case free and clear of all liens other than Permitted Liens.
Except as set forth in Section 2.14(a) of the Company Disclosure
Letter, the Owned Real Estate is in compliance, in all material
respects, with all applicable zoning ordinances and amendments thereto,
including, without limitation, any ordinances with respect to permitted
or prohibited uses. The purposes for which the Owned Real Estate is
currently used, including without limitation, dormitory, restaurant and
school and office use, are allowed under the zoning classification
applicable to the Owned Real Estate.
(b) LEASED PROPERTIES. Section 2.14(b) of the Company
Disclosure Letter lists all real property that is used or occupied by
the Company in connection with its business but not owned by the
Company (the "RENTAL REAL ESTATE") and the leases, subleases and
agreements by which such Rental Real Estate is used and occupied (the
"LEASES"), correct and complete copies of which have been delivered to
the Parent. Except as otherwise specifically set forth in Section
2.14(b) of the Company Disclosure Letter, (i) assuming that the Leases
have been duly and validly executed and delivered by or on behalf of
the respective other party thereto, which party has the power to enter
into and perform its obligations thereunder, the Leases are legal,
valid, binding, enforceable and in full force and effect; (ii) to the
Company's knowledge, all building, improvements and other property on
the Rental Real Estate have received all approvals of governmental
authorities (including certificates of occupancy, permits and licenses)
required in connection with the operation thereof and have been
operated and maintained in accordance with all applicable legal
requirements and are not in violation of any applicable zoning,
building code or subdivision ordinance, regulations, order or law or
restrictions or covenants of record (iii) all buildings, improvements
and other property thereon are supplied with utilities and other
services necessary for the operation thereof (including gas,
electricity, water, telephone, sanitary and storm sewers and access to
public roads); (iv) to the Company's knowledge, the land of the Rental
Real Estate does not serve any adjoining property for any purpose
inconsistent with the use of the land, and the Rental Real Estate is
not located within any flood plain or subject to any similar type
restriction for which any permits or licenses necessary to the use
thereof have not been obtained; (v) there are not leases, subleases,
licenses, concessions, or other agreements to which the Company is a
party, whether written or
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oral, granting to any Person the right of use or occupancy of any
portion of the Rental Real Estate; and (vi) no Person (other than
the Company) is in possession of such the Rental Real Estate.
(c) The buildings, structures and improvements situated on the
Real Estate (as defined below) and appurtenances thereto are in good
condition (subject to normal wear and tear), and as such are adequate
to conduct the business as present conducted. "REAL ESTATE" shall mean
the Owned Real Estate and the portions of the Rental Real Estate leased
or otherwise possessed or used by the Company. Neither the whole nor
any portion of any Real Estate has been, or, to the Company's
knowledge, is threatened to be, condemned, requisitioned or otherwise
taken by any public authority, and no notice of any such condemnation,
requisition or taking has been received. There are no public
improvements pending or, to the Company's knowledge, threatened which
may result in special assessments against or otherwise affect the Real
Estate.
(d) The Owned Real Estate and the portions of the Rental Real
Estate leased or otherwise possessed or used by the Company are in
material compliance with, include all rights necessary to assure
compliance with, and all buildings, structures, other improvements and
fixtures on such Real Estate and the operations of the Company in or
about any Real Estate therein conducted, conform in all material
respects to, all applicable health, fire, safety, zoning and building
rules. The Company has all easements and rights necessary or
appropriate to conduct its operations as they are currently being
conducted.
2.15 INTELLECTUAL PROPERTY AND CURRICULA .
(a) There are no claims, demands or proceedings instituted,
pending or, to the knowledge of the Company, threatened by any
person contesting or challenging the right of the Company to use any
of the Intellectual Property or Curricula (each as defined below)
currently used by it in the operation of its business, and, to the
knowledge of the Company, no person is infringing upon the Company's
Intellectual Property or Curricula;
(b) Except as set forth in Section 2.15 of the Company Disclosure
Letter, each trademark registration, service mark registration,
copyright registration and patent which is owned by or licensed to the
Company and, with respect to those owned by the Company, has been
maintained in good standing and, with respect to those licensed to the
Company, to the Company's knowledge, has been maintained in good
standing, except where the failure to so maintain would not reasonably
be expected to have a Material Adverse Effect on the Company;
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(c) There are no Intellectual Property or Curricula owned by a person
which the Company is using without license to do so, other than which
use would not reasonably be expected to have a Material Adverse Effect
on the Company;
(d) The Company owns or possesses adequate licenses or other rights
to use all Intellectual Property and Curricula the Company
reasonably believes are necessary to conduct its business as now
conducted;
(e) The consummation of the Merger and the transactions
contemplated by this Agreement will not impair the validity,
enforceability, ownership or right of the Company or the Surviving
Corporation to use its Intellectual Property or Curricula.
(f) For purposes of this Agreement, "INTELLECTUAL PROPERTY" means
patents and patent rights, trademarks and trademark rights, trade names
and trade name rights, service marks and service mark rights, service
names and service name rights, brand names, inventions, processes,
copyrights and copyright rights, trade dress, business and product
names, logos, trade secrets, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
For purposes of this Agreement, "CURRICULA" means curricula, course
materials, instructional video tapes, tape recordings and visual aids.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS . Except as set forth in
Section 2.16 of the Company Disclosure Letter or in the Exhibits to the
Company SEC Reports filed prior to the date of this Agreement, as of the date
of this Agreement, the Company is not a party to, nor is it or its assets
bound by, any Material Contract. For purposes of this Agreement, "MATERIAL
CONTRACT" means:
(a) any collective bargaining agreements;
(b) any employment or consulting agreement, contract or binding
commitment providing for compensation or payments in excess of $50,000
in any year not terminable by the Company on thirty days notice without
liability, except to the extent general principles of wrongful
termination or other employment law may limit the Company's ability to
terminate employees at will;
(c) any Company Plan (as defined in Section 2.28(c)), any of the
benefits of which will be increased, or the vesting of benefits of
which will be accelerated or the right to benefits will be created, by
the occurrence of the Merger or any of the transactions contemplated by
this Agreement;
(d) any agreement of indemnification or guaranty not entered
into in the ordinary course of business with any party in excess of
$50,000 individually or in the
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aggregate, and any agreement of indemnification or guaranty between
the Company and any of its officers or directors, irrespective of
the amount of such agreement or guaranty;
(e) Any agreement, contract or binding commitment containing any
covenant directly or indirectly limiting the freedom of the Company to
engage in any line of business, compete with any person, or sell any
product, or which, following the consummation of the Merger, would so
limit Parent or the Surviving Corporation;
(f) any agreement, contract or binding commitment relating to
capital expenditures and involving future obligations in excess of
$50,000;
(g) any agreement, contract or binding commitment relating to
the disposition or acquisition of material assets not in the
ordinary course of business (since June 30, 1999) or any ownership
interest in any corporation, partnership, joint venture or other
business enterprise;
(h) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit (other than extensions
of credit in the ordinary course of business from vendors);
(i) any Leases;
(j) other than in connection with the Merger and other
transactions contemplated by this Agreement, any other agreement,
contract or binding commitment (excluding real and personal property
leases) which involves payment by the Company of $50,000 or more in
any twelve (12) month period or $50,000 in the aggregate and which
cannot be terminated on 30 days notice without cost or expense to
the Company or its subsidiaries;
(k) any agreements to register the Company's securities; or
(l) any other material agreements, contracts or binding
commitments.
The numerical thresholds set forth in this Section 2.16 shall not be deemed
in any respects to define materiality for other purposes of this Agreement.
The Company has provided or made available to Parent true and complete copies
of all Material Contracts as amended to date.
2.17 NO DEFAULT . Except as set forth in Section 2.17 of the
Company Disclosure Letter, the Company has not breached, or received in
writing any claim or threat that it has
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breached, in any material respect, any Material Contract, and, to the
knowledge of the Company, no event has occurred or state of circumstances or
facts exists which, with the passage of time or the giving of notice or both,
could reasonably be expected to constitute such a breach. Each Material
Contract that has not expired or been terminated in accordance with its terms
is in full force and effect, except for such Material Contracts for which the
failure to be in full force and effect could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company and constitutes the legal and binding obligation of the Company and,
to the knowledge of the Company, constitutes the legal and binding obligation
of the other parties thereto.
2.18 COMPLIANCE WITH LAWS; LICENSES .
(a) Except as set forth in Section 2.18(a) of the Company Disclosure
Letter, neither the Company nor the School is in violation of any legal
requirement (including, without limitation, any liquor control or
similar laws) or Accrediting Body standard or requirement which
violation could reasonably be expected to have a Material Adverse
Effect on the Company or the School, and neither the Company nor the
School has received notice of any such violation. The Company and the
School have filed all material reports, documents, information,
applications and returns required to be filed by them on or prior to
the date hereof with Governmental/Regulatory Entities and Accrediting
Bodies.
(b) The Company currently maintains all licenses, accreditations,
certificates, permits, consents, authorizations, and other
governmental or regulatory approvals (the "LICENSES") necessary to
conduct the business and operations of the Company and the School as
presently being conducted, except where the failure to maintain any
such Licenses would not have a Material Adverse Effect on the
Company. Section 2.18(b) of the Company Disclosure Letter contains a
true, correct and complete list of all Licenses of the Company and
the School. No application made by the Company or the School for any
License during the last five (5) years has been denied. The Licenses
are in full force and effect, and no proceedings for the suspension
or cancellation of any of them is pending or, to the Company's
knowledge, threatened. The Company has delivered to Purchaser copies
of all such Licenses. Neither the Company nor the School has
received notice that any of the Licenses will not be renewed and, to
the Company's knowledge, there is no basis for nonrenewal of any
License.
(c) For the fiscal year ended June 30, 1999 and as of the date of
this Agreement, the School has no more than ninety percent (90%) of
its revenues derived from the Title IV Programs or pursuant to the
Title IV Programs as determined in accordance with 34 C.F.R. Section
600.5(d). The School has not had more than eighty-five
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percent (85%) of its revenues so derived for any of the last four
(4) fiscal years prior to the fiscal year ended June 30, 1999. For
purposes of this Section 2.18, "revenues" does not include any loans
or scholarships issued by the Company, the School or any of their
affiliates. "TITLE IV PROGRAM" means any program of student
financial assistance administered pursuant to Subchapter IV of the
Higher Education Act of 1965, as amended, 20 U.S.C.A. Section 1070 et
seq. ( "TITLE IV"), and any amendments or successor statutes thereto.
(d) The School has all accreditations required to conduct the
business of the School as presently conducted, is certified by the
Department of Education ( "DOE") as an eligible institution under
Title IV and is a party to, and in compliance with, a valid program
participation agreement with the DOE with respect to the operations
of the School, except where any failure to comply with a valid
program participation agreement could not reasonably be expected to
have Material Adverse Effect on the Company. Without limitation of
the foregoing, the Company has all accreditations required to be
issued by the Accrediting Commission of Career Schools and Colleges
of Technology ( "ACCSCT"), and the California Department of Consumer
Affairs necessary to operate the School as presently operated in
accordance with applicable legal requirements. Additionally, the
School is accredited by the American Culinary Federation Educational
Institute ( "ACFEI"). Except as set forth in Section 2.18(d) of the
Company Disclosure Letter, neither the Company nor the School has
received any notice with respect to any alleged violation of a legal
requirement, rule, regulation or standards of the DOE or other
Governmental/Regulatory Entity, or any applicable Accrediting Body
in respect of the School, including with respect to recruitment,
sales and marketing activities, or the terms of any program
participation agreement to which the School or the Company is or was
a party. Section 2.18(d) of the Company Disclosure Letter contains a
list of any such notice received by the Company and a description of
the dispositions of such notice. Except as set forth in Section
2.18(d) to the Company Disclosure Letter, the Company is not aware
of any investigation, audit or review of the Company's or the
School's student financial aid programs or any review of
accreditation of the School by any Governmental/Regulatory Entity or
Accrediting Body.
2.19 RECRUITMENT; ADMISSIONS PROCEDURES; ATTENDANCE REPORTS .
(a) Section 2.19 of the Company Disclosure Letter contains a complete
list of all policy manuals and other statements of procedures or
instructions relating to (a) recruitment of students for the School,
including procedures for assisting in the application by prospective
students for direct or indirect student financial assistance; (b)
admissions procedures, including any descriptions of procedures for
insuring compliance with legal requirements or Accrediting Body
requirements and standards
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applicable to such procedures; (c) procedures for encouraging and
verifying attendance, minimum required attendance policies, and
other relevant criteria relating to course performance requirements
and completion and (d) procedures for processing, disbursing and
refunding student financial assistance funds (collectively, the
"POLICY GUIDELINES"). The Company has delivered to Parent true,
correct and complete copies of all Policy Guidelines.
(b) The operations of the Company and the School have been
conducted in all material respects in accordance with the Policy
Guidelines and all relevant standards and requirements imposed by
applicable Accrediting Bodies, and other agencies administering any
student financial assistance programs in which the Company or the
School participates, and other applicable legal requirements.
(c) The Company has submitted all reports, audits, and other
information, whether periodic in nature or pursuant to specific
requests, for the Company and the School to all agencies,
Governmental/Regulatory Entities or other entities with which such
filings are required in order to be in compliance with (i) applicable
accreditation standards and requirements, (ii) legal requirements
governing programs pursuant to which the School or its students receive
student financial assistance funding, and (iii) all articulation
agreements between the Company or School and degree granting colleges
and universities in effect as of the date hereof, except where failure
to submit such reports, audits and other information would not have a
Material Adverse Effect on the Company.
(d) All student financial assistance grants and loans have been
calculated and made and all disbursements and record keeping relating
thereto have been completed, in compliance with legal requirements, and
there are no material deficiencies in respect thereto. To the knowledge
of the Company or the School, and except as previously disclosed in
prior audits or reviews by DOE or any Accrediting Body, no student at
the School has been funded prior to the date for which such student was
eligible for such funding or in any amount other than an amount such
student was eligible to receive, and such student records conform in
form and substance to all legal requirements.
2.20 COHORT DEFAULT RATE . Section 2.20 of the Company Disclosure
Letter sets forth the published and draft cohort default rate for the School,
calculated by the DOE and issued to the School pursuant to 30 C.F.R. Section
668.17 or a predecessor regulation, for the federal fiscal years September
30, 1994 through and including September 30, 1997. Such schedule is
materially accurate in all respects. As of the date of this Agreement,
neither the Company nor the School has received any notice from DOE or any
guaranty agency as to the calculation or issuance of a published or draft
cohort default rate for the School for the year ended September 30, 1998. The
School has official cohort default rates of 25.0%, 15.6%,
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2.8%, 12.5% and 28.57% on Federal Perkins Loans for award years, 1995, 1996,
1997, 1998 and 1999, respectively.
2.21 DELIVERY OF DOCUMENTS . The Company has delivered to Parent
true and complete copies of all correspondence (excluding general
correspondence routinely sent to or received from the DOE or any Accrediting
Body) received from or sent by or on behalf of the Company or the School to
the DOE or any Accrediting Body to the extent such correspondence (i) was
sent or received within the past five (5) years or relates to any issue which
remains pending, and (ii) relates to (a) any notice that any accreditation or
License is not in full force and effect or that an event has occurred which
constitutes or, with the giving of notice or the passage of time or both,
would constitute a breach or violation thereunder; (b) any written notice
that the Company or the School have violated or are violating any legal
requirement, regulation, rule, standard or requirement related to the Title
IV Programs, or any standard or requirement of any applicable Accrediting
Body, or any legal requirement, regulation, rule, standard or requirement
related to the maintaining and retaining in full force and effect any
accreditations; (c) any audits, program reviews, investigations or site
visits conducted by the DOE, any Accrediting Body, any guaranty agency, any
other Governmental/Regulatory Entity or any independent auditor reviewing
compliance by the Company or the School with the statutory, regulatory or
other requirements of the Title IV Programs; (d) any written notice of an
intent to limit, suspend, terminate, revoke, cancel, not renew or condition
the accreditation of the Company or the School; (e) any written notice of an
intent or threatened intent to condition the provision of Title IV Program
funds to the Company or the School on the posting of a letter of credit or
other surety in favor of the DOE; (f) any written notice of an intent to
provisionally certify the eligibility of the School to participate in the
Title IV Programs; and (g) the placement or removal of the School on or from
the reimbursement or cash monitoring method of payment under Title IV
Programs.
2.22 STUDENT RECRUITING . Since January 31, 1994, no admissions
representative, agent or any other person or entity engaged, directly or
indirectly, in any student recruiting or admission activities or in making
decisions regarding the awarding of Title IV Program funds for or on behalf
of the Company or the School has been paid, provided or contracted for any
commission, bonus or other incentive payment based directly or indirectly on
success in securing enrollments or financial aid.
2.23 CONTROL MATTERS . Except as set forth in Section 2.23 of the
Company Disclosure Letter, to the Company's knowledge, since July 31, 1994,
no person who exercises substantial control over the Company or the School
(as the term "substantial control" is defined at 34 C.F.R. Section 600.30) is
or has been a principal, affiliate, shareholders or trustee or has held an
ownership interest, whether legal or equitable, in any other institution
(whether or not participating in the Title IV Programs) or any third party
servicer (as that term is defined at 34 C.F.R. Section 668.2). Except as set
forth in Section 2.23 of the Company Disclosure Letter, no
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person who exercises substantial control over the Company or the School (as
the term "substantial control" is defined at 34 C.F.R. Section 600.30) or any
member or members of that person's family, alone or together, exercises, or
since July 1, 1994, exercised substantial control over another institution or
a third-party servicer (prior to or during the period such person exercised
substantial control over the Company or the School) that owes a liability for
a violation of any requirement of the Title IV Programs. To the Company's
knowledge, since July 1, 1994, no person who exercises substantial control
over the Company or the School (as the term "substantial control" is defined
at 34 C.F.R. Section 600.30) has pled guilty to, has pled nolo contendre to,
or has been found guilty of, a crime involving the acquisition, use or
expenditure of funds under the Title IV Programs or has been judicially
determined to have committed fraud involving funds under the Title IV
Programs. Since July 1, 1994, neither the Company nor the School nor any
affiliate of the Company or the School that has the power, by contract or
ownership interest, to direct or cause the direction of the management of
policies of the School, has filed for relief in bankruptcy or has entered
against it an order for relief in bankruptcy. Neither the Company nor the
School employs, and, since July 1, 1994 has employed, any individual or
entity in a capacity that involves the administration or receipt of funds
under the Title IV Programs, or contracted with any institution or
third-party servicer, which has been terminated under the Higher Education
Act for a reason involving the acquisition, use or expenditure of federal,
state or local government funds, or has been convicted of, or has pled nolo
contendre or guilty to, a crime involving the acquisition, use or expenditure
of federal, state or local government funds, or has been administratively or
judicially determined to have committed fraud or any other material violation
of law involving federal, state or local government funds. No institution
(whether or not participating in the Title IV Programs) or any third-party
servicer (as that term is defined at 34 C.F.R. 668.2) is, or since July 1,
1994 has been, administered commonly, jointly or in conjunction with the
Company or the School, and no other institution or organization of any sort
has provided educational services on behalf of the Company or the School.
2.24 FINANCIAL ASSISTANCE PROGRAMS .
(a) Section 2.24 of the Company Disclosure Letter lists each program,
including institutional or private programs, pursuant to which student
financial assistance, grants or loans ( "FINANCIAL ASSISTANCE") are
provided to or on behalf of the School's students.
(b) Section 2.24 of the Company Disclosure Letter lists all
agreements between the Company or the School and the DOE or any
guaranty agency relating to Financial Assistance. Each such
agreement is in full force and effect, is a valid and binding and
enforceable obligation by or against the Company or the School and
the other party or parties thereto and no event has occurred which
constitutes or, with the giving of notice or the passage of time or
both would constitute, a default or breach
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thereunder. The Company has delivered to the Parent true, correct
and complete copies of each contract or agreement listed.
2.25 LITIGATION . Except as set forth in Section 2.25 of the
Company Disclosure Letter, there is no suit, action, arbitration, demand,
claim or proceeding pending, or, to the knowledge of the Company, threatened
against the Company, except for suits, actions, arbitrations, demands, claims
and proceedings which would not be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company; there are no
such suits, actions or proceedings pending or, to the knowledge of the
Company, threatened, against the Company which question the legality or
validity of the Agreement, the Merger and the other transactions contemplated
by this Agreement; nor is there any judgment, decree, injunction, award, rule
or order of any Governmental/Regulatory Entity or arbitrator outstanding
against the Company. The Company has made available to Parent or its counsel
correct and complete copies of all correspondence prepared by Company's
counsel for the Company's auditors in connection with the last three
completed audits of the Company's financial statements and any such
correspondence since the date of the last such audit.
2.26 INSURANCE . Section 2.26 of the Company Disclosure Letter
lists all of the existing insurance policies of the Company and all
outstanding claims against each insurance policy. The Company has not
received notice of cancellation, termination or premium increase with respect
to such insurance policies. The Company maintains in full force and effect
insurance on its assets and its business and operations against loss or
damage, risks, hazards, and liabilities of any kinds on and in the amounts
customarily insured against by corporations engaged in the same or similar
businesses.
2.27 LABOR MATTERS . The Company has complied in all material
respects with all applicable laws, and there is no allegation, charge or
complaint or proceeding pending or, to the Company's knowledge, threatened
against the Company or any of its officers, directors or employees, relating
to the employment of labor, including with respect to employment, equal
employment opportunity, discrimination, harassment, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
other taxes, workers compensation or long term disability. Except as set
forth in Section 2.27 of the Company Disclosure Letter, there has never been,
there is not presently pending or existing, and to the Company's knowledge
there is not threatened, any labor arbitration, or proceeding in respect of
the grievance of any employee, or other labor dispute against or affecting
the Company, or, to the knowledge of the Company, any strike, slowdown,
picketing, work stoppage, organizational activity or application or complaint
filed by an employee or union with the National Labor Relations Board or any
comparable governmental authority. The Company is not party to any collective
bargaining agreement, and no application for certification of a collective
bargaining agent is pending or, to the Company's knowledge, threatened. There
is no lockout of any employees by the Company, and no such action is
contemplated by the Company. Except as set
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forth in Section 2.27 of the Company Disclosure Letter, as of the date
hereof, the Company has not given to or received from any current officer,
key employee or director of the Company written notice of termination of
employment or has the knowledge that any such officer, manager, key employee
or director intends to terminate such employment.
2.28 EMPLOYEE BENEFITS .
(a) Section 2.28 of the Company Disclosure Letter contains a list of
each Company Plan (as hereinafter defined) maintained by the Company.
With respect to each Company Plan, the Company has delivered to Parent
prior to the date hereof, to the extent applicable, a true and correct
copy of (i) such Company Plan and all amendments thereto, (ii) each
trust agreement, insurance contract or administration agreement
relating to such Company Plan, (iii) the most recent summary plan
description for each Company Plan for which a summary plan description
is required, (iv) the most recent annual report (Form 5500) filed with
the IRS, (v) the most recent determination letter, if any, issued by
the IRS with respect to any Company Plan intended to be qualified under
section 401(a) of the Code, (vi) any request for a determination
currently pending before the IRS and (vii) all correspondence with the
IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation relating to any outstanding controversy. Except as could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, each Company Plan complies with
the Employment Retirement Income Security Act of 1974, as amended (
"ERISA"), the Code and all other applicable statutes and governmental
rules and regulations. At no time has the Company or any of its ERISA
Affiliates (as hereinafter defined) been required to contribute to, or
otherwise had any liability with respect to, a plan subject to Title IV
of ERISA or a "MULTIEMPLOYER PLAN" (as defined in Section 4001(a)(3) of
ERISA). All IRS Forms 5500 with respect to the Company Plans have been
(and for 1998 and 1999, will be) timely filed.
(b) There are no actions, suits or claims pending or, to the
knowledge of the Company, threatened (other than routine claims for
benefits) with respect to any Company Plan which could reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. No prohibited transactions described
in Section 406 of ERISA or Section 4975 of the Code have occurred
which could reasonably be expected to result in material liability
to the Company or its subsidiaries. All Company Plans that are
intended to be qualified under Section 401(a) of the Code have been
determined by the IRS to be so qualified, and there is no reason
why, to the Company's knowledge, any Company Plan is not so
qualified in operation. Neither the Company nor any of its ERISA
Affiliates has any liability or obligation under any welfare plan to
provide life insurance or medical benefits after termination of
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employment to any employee or dependent other than as required by
Part 6 of Title I of ERISA or as disclosed in the Company Disclosure
Letter.
(c) As used herein, (i) "COMPANY PLAN" means a "PENSION PLAN" (as
defined in Section 3(2) of ERISA), a "welfare plan" (as defined in
Section 3(1) of ERISA), or any bonus, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, vacation, severance, death benefit,
insurance or other plan, arrangement or understanding, in each case
established, maintained or contributed to by the Company or any of its
ERISA Affiliates or as to which the Company or any of its ERISA
Affiliates or otherwise may have any liability and (ii) with respect to
any person, "ERISA AFFILIATE" means any trade or business (whether or
not incorporated) which is or within the last six years was under
common control or would be or have been considered a single employer
with such person pursuant to Section 414(b), (c), (m) or (o) of the
Code and the regulations promulgated thereunder or pursuant to Section
4001(b) of ERISA and the regulations thereunder.
(d) Section 2.28 of the Company Disclosure Letter contains a list of
all (i) severance and employment agreements with officers and employees
of the Company and each ERISA Affiliate, (ii) severance plans, programs
and policies of the Company with or relating to its employees and (iii)
plans, programs, agreements and other arrangements of the Company with
or relating to its employees which contain change of control or similar
provisions. The Company has provided to Parent a true and complete copy
of each of the foregoing. Except as set forth in Section 2.28(d) of the
Company Disclosure Letter, no such plan, program, agreement or
arrangement will trigger Section 280G of the Code.
(e) The Company has complied with all of its obligations under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ( "COBRA") and
the Health Insurance Portability and Accountability Act of 1996 (
"HIPAA"), and will not incur any liability in connection with benefit
continuation rights under COBRA with respect to its employees or former
employees or any other employees. No Plan is funded through a "welfare
benefit fund" as described in Section 419(e) of the Code.
2.29 ACCREDITATION AND STATE LICENSURE/APPROVAL . Except as set
forth in Section 2.18(a) of the Company Disclosure Letter, to the Company's
knowledge, there exists no fact or circumstance attributable to the Company
or the School which would prevent Parent from obtaining any authorization,
consent or similar approval from the DOE or any other Governmental/Regulatory
Agency or Accrediting Body whose authorization, consent or similar approval
is contemplated in connection with this Agreement, including, without
limitation, any authorization, consent or similar approval which must be
obtained prior to or following the
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Closing from the DOE, the State of California or ACCSCT in order to continue
the operations of the School as presently conducted. The Company has notified
ACCSCT that the School offers unaccredited programs through its College of
Food locations.
2.30 COMPUTER ROLLOUT . The Company has taken no action with
respect to its planned distribution/sale of laptop computers to students at
the School whether related to the School's programs or otherwise (the
"COMPUTER ROLLOUT"), including, without limitation, entering into any
agreement or otherwise making any purchasing commitments.
2.31 RELATIONSHIPS WITH RELATED PERSONS . Except as set forth in
Section 2.31 of the Company Disclosure Letter, there are no, and since
January 1, 1997 have not been any, undischarged contracts or agreements or
other material transactions between the Company, on the one hand, and any
director or executive officer of the Company or any of their respective
Related Persons (as defined below), on the other hand, and no director or
executive officer of the Company or any of their respective Related Persons
have any interest in any of the assets of the Company, other than as a
shareholder. For purposes hereof, the term "RELATED PERSONS" shall mean: (a)
each other member of such individual's Family and (b) any person or entity
that is directly or indirectly controlled by any one or more members of such
individual's Family. For purposes of this definition, the "FAMILY" of an
individual includes (i) such individual, (ii) the individual's spouse,
siblings, or ancestors (iii) any lineal descendant of such individual, or
their siblings, or ancestors or (iv) a trust for the benefit of the foregoing.
2.32 STATE "ANTI-TAKEOVER" STATUTES . The Board of Directors of the
Company has taken all necessary action so that neither Section 1203 of
California Law nor any other "fair price," "control share acquisition"
statute or anti-takeover laws or other similar statute or regulation will
apply to the Merger, this Agreement or the transactions contemplated hereby.
2.33 CHANGE OF CONTROL PAYMENTS . Except as set forth in Section
2.33 of the Company Disclosure Letter, and except as contemplated by this
Agreement, neither the execution and delivery of this Agreement nor the
consummation of the Merger and other transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due
to any director, officer or employee of the Company from the Company, under
any Company Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any Company Plan, (iii) result in the acceleration of
the time of payment or vesting of any such benefits, (iv) create a right to
receive payments upon a subsequent termination of employment or (v) result in
the acceleration of the time of payment of any of the Company's accounts
payable.
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2.34 ENVIRONMENTAL PROTECTION .
(a) Except as set forth on Section 2.34 of the Company Disclosure
Letter, the Company: (i) is in compliance with all applicable
Environmental Laws, except where noncompliance could not reasonably
be expected to have a Material Adverse Effect on the Company; (ii)
has not received any Environmental Claim or any communication
(written or oral), from a governmental authority or third party that
alleges that the Company or any current or former affiliate of the
Company is not in compliance with applicable Environmental Laws;
(iii) has not owned or operated any property that, to the Company's
knowledge, is contaminated with any Hazardous Material which may
reasonably be expected to require remediation under any
Environmental Law; (iv) to the Company's knowledge, is not subject
to liability for any off-site disposal or contamination; and (v) to
the Company's knowledge, is not subject to any other circumstance in
connection with any Environmental Law that could reasonably be
expected to result in any claims, liabilities, costs or restrictions
on the business or the ownership, use or transfer of any property.
(b) For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "ENVIRONMENTAL CLAIM" shall mean any and all
administrative, regulatory or judicial actions, suits,
demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person alleging liability
(including, without limitation, liability for enforcement,
investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources
damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from: (A) the presence
or Environmental Release of any Hazardous Materials at any
parcel of real property; or (B) circumstances forming the
basis of any violation or alleged violation, of any
Environmental Law; or (C) any and all claims by any person
seeking damages, contribution, indemnification, cost,
recovery, compensation or injunctive relief resulting from the
presence or Environmental Release of any Hazardous Materials;
(ii) "ENVIRONMENTAL LAWS" shall mean any federal, state or
local statute, law, rule, ordinance, code, policy, rule of
common law and regulations, as in effect on the date hereof,
relating to pollution or protection of human health (including
those parts of OSHA relating to Hazardous Materials) or the
environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and
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regulations relating to Environmental Releases or threatened
Environmental Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution,
presence, use, treatment, storage, disposal, transport or
handling of Hazardous Materials;
(iii) "ENVIRONMENTAL RELEASE" shall mean any release, spill,
emission, leaking, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the atmosphere, soil,
surface water or groundwater; and
(iv) "HAZARDOUS MATERIALS" shall mean: (A) any petroleum or
petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam
insulation, and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls above
regulated levels and radon gas; and (B) any chemicals,
materials or substances which as of the date hereof are
defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar
import, under any Environmental Law; and (C) any other
chemical, material, substance or waste, exposure to which as
of the date hereof is prohibited, limited or regulated by any
governmental authority.
2.35 VOTE REQUIRED . The affirmative vote of the holders of at
least a majority of the outstanding shares of Company Capital Stock entitled
to vote with respect to the Merger is the only vote of the holders of any
class or series of the Company's stock necessary to approve the Merger and
this Agreement.
2.36 NO PENDING TRANSACTIONS . Except for the Merger and other
transactions contemplated by this Agreement, the Company is not a party to or
bound by or the subject of any agreement, undertaking or commitment with any
person that could result in (i) the sale, merger, consolidation or
recapitalization of the Company, (ii) the sale of all or substantially all of
the assets of the Company, or (iii) a change of control of more than ten
percent (10%) of the outstanding capital stock of the Company.
2.37 YEAR 2000 . Except as set forth in Section 2.37 of the Company
Disclosure Letter, (i) all functions including, without limitation,
date-reliant (which includes year-reliant) functions of the information and
business systems of the Company (collectively, the "SYSTEMS") are capable of
continuing to operate up to, during and after the Year 2000, (ii) neither the
performance nor functionality of the Systems will be affected by any changes
to the field configuration which contains the date information within any
part of the System caused by the advent of the year 2000, and (iii) the
Systems will perform consistent with past
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performance and there shall be no faults in the processing of dates and
date-dependent information or data including, without limitation, in
calculations, comparisons and sequencing of information or data, except, in
each case, such failures to operate or perform that could not reasonably be
expected to have a Material Adverse Effect. Section 2.37 of the Company
Disclosure Letter sets forth, with respect to any exception, the nature of
such exception in detail, including the nature of the problem, the nature of
the steps undertaken and planned, and the Company's good faith estimate of
the cost to correct such problem and its projection of a date for project
completion.
2.38 PROXY STATEMENT . The proxy statement to be sent to the
shareholders of the Company in connection with the meeting of the Company's
shareholders to consider the Merger (the "COMPANY SHAREHOLDERS' MEETING")
(such proxy statement as amended or supplemented is referred to herein as the
"PROXY STATEMENT") shall not, on the date the Proxy Statement is first mailed
to the Company's shareholders, at the time of the Company Shareholders'
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading. The Proxy
Statement will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. If at any time prior
to the Effective Time any event relating to the Company or any of its
affiliates, officers or directors should be discovered by the Company which
should be set forth in a supplement to the Proxy Statement, the Company shall
promptly supplement the Proxy Statement and send such supplement to the
Company's shareholders and Parent. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied
by Parent or Merger Sub in writing specifically for inclusion in the Proxy
Statement.
2.39 BOARD APPROVAL . The Board of Directors of the Company, has,
on or prior to the date hereof, approved this Agreement, the Merger and the
other transactions contemplated hereby.
2.40 FAIRNESS OPINION . The Board of Directors of the Company has
received a written opinion from Sutter Securities Incorporated, dated no
later than the date hereof, that, as of the date of this Agreement, the
Merger Consideration is fair to the Company's shareholders from a financial
point of view and has delivered to Parent a copy of such opinion.
2.41 BROKERS' AND FINDERS' FEES . The Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection
with this Agreement, the Merger or any transaction contemplated hereby,
except for a fee due to Legg Mason Wood Walker Incorporated pursuant to an
agreement, a true, complete and correct copy of which has been provided to
Parent (the
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"ENGAGEMENT LETTER") and for a fee due to Sutter Securities Incorporated in
connection with the delivery of a fairness opinion pursuant to Section 2.40.
2.42 ACCSCT AND DOE MATTERS. Set forth in Section 2.42 of the
Company Disclosure Letter is a true and correct copy of the Company's
calculation of the cash, cash equivalents and the financial responsibility
composite ratio.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 ORGANIZATION OF PARENT/MERGER SUB . Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has the corporate power to carry on its business as now
being conducted, and is duly qualified to do business and in good standing as
a foreign corporation in each jurisdiction in which such qualification is
required by virtue of the nature of activities conducted by it, except to the
extent that the failure to be so qualified and in good standing could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. In this Agreement, the term "MATERIAL ADVERSE
EFFECT" used in reference to the Parent means any event, change,
circumstance, condition or effect which, when considered with all other
events, changes, circumstances, conditions or effects, has, or any
development that would reasonably be expected to have, a material adverse
effect on the results of operations, financial condition, assets,
liabilities, business or prospects of Parent and its subsidiaries, taken as a
whole, other than general changes in economic conditions or the educational
services industry, each considered alone without regard to any other effects,
changes, events, circumstances or conditions, and other than any adverse
change, event or effect that is demonstrated by Parent to be primarily caused
by the pendency of the Merger or the transactions contemplated hereby. Merger
Sub is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the company
power to carry on its business as now being conducted.
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3.2 AUTHORITY; NO CONFLICT .
(a) Parent and Merger Sub have all requisite corporate and company
power and authority, respectively, to enter into this Agreement and to
consummate the Merger and other transactions contemplated hereby. The
execution and delivery of this Agreement by Parent and Merger Sub and
the consummation of the Merger and other transactions contemplated
hereby have been duly authorized by all necessary corporate and company
action on the part of Parent and Merger Sub, respectively. This
Agreement has been duly executed and delivered by Parent and Merger Sub
and, assuming the due authorization, execution and delivery by the
Company, constitutes the valid and binding obligations of Parent and
Merger Sub, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and
general principles of equity.
(b) The execution and delivery of this Agreement by Parent and Merger
Sub does not, and the consummation of the Merger and other transactions
contemplated hereby will not, conflict with, or result in any violation
of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under any (i)
provision of the Certificate of Incorporation or Bylaws of Parent or
the Articles of Organization or Operating Agreement of Merger Sub, (ii)
any mortgage, indenture, lease, contract or other agreement to which
Parent or Merger Sub is a party or by which Parent or Merger Sub or the
assets of Parent or Merger Sub is bound, except for any such conflict,
violation, default, right or loss which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect, or (iii) any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or Merger Sub, or their respective assets, except for any
such conflict, violation, default, right or loss which could not
reasonably be expected to have a Material Adverse Effect on Parent or
Merger Sub.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental/Regulatory Entity is
required by or with respect to Parent and Merger Sub in connection with
the execution and delivery of this Agreement by Parent and Merger Sub
or the consummation by Parent and Merger Sub of the Merger and other
transactions contemplated hereby, except for (i) the filing of a
pre-merger notification report under the HSR Act, (ii) the filing of
the Agreement of Merger with the California Secretary of State and the
Certificate of Merger with the Delaware Secretary of State, (iii) the
filing of a Form 8-K with the SEC, (iv) approval by California
Department of Consumer Affairs and the DOE and (v) such other consents,
authorizations, filings, approvals and registrations which if not
obtained or
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made could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent or materially
impair the ability of Parent or Merger Sub to consummate the Merger
and other transactions contemplated hereby.
3.3 LITIGATION. As of the date hereof, there are no actions,
suits, claims, litigation or proceedings pending or, to the knowledge of
Parent or Merger Sub, threatened, against Parent or its Subsidiaries by any
person which question the legality, validity or consummation of the Merger
and the other transactions contemplated by this Agreement or materially
impair the ability of Parent or Merger Sub to consummate the Merger and the
other transactions contemplated hereby.
3.4 SUFFICIENT FUNDS. Parent has, and will have at the Effective
Time, possession of, or has, and will have at the Effective Time, available
to it under existing lines of credit, sufficient funds to consummate the
Merger and the other transactions contemplated by this Agreement, including
payment of the Merger Consideration and all related costs and expenses and
will cause Merger Sub to have sufficient funds available to consummate the
Merger and the transactions contemplated hereby.
3.5 BOARD APPROVAL . The Board of Directors of Parent and the
Manager of Merger Sub have, as of the date hereof, approved this Agreement
and the Merger.
3.6 BROKERS' AND FINDERS' FEES . Parent has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement, the Merger or any transaction contemplated hereby.
3.7 OPERATIONS OF MERGER SUB . Merger Sub is an indirect,
wholly-owned subsidiary of Parent, was formed solely for the purpose of
engaging in the Merger and other transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations only
as contemplated hereby.
3.8 INFORMATION SUPPLIED . The information with respect to Parent
or Merger Sub that Parent furnishes to the Company in writing for use in the
Proxy Statement will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time any event relating
to the Parent or Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in a supplement to the Proxy Statement, the Parent shall promptly
notify the Company and send all relevant information to the Company.
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3.9 AGREEMENTS WITH SHAREHOLDERS . Parent has provided the Company
with true and complete copies, or otherwise informed the Company with written
summaries, of all agreements, arrangements, contracts, binding commitments or
oral understandings between Parent or Merger Sub and any shareholder of the
Company, as amended to date.
4. CONDUCT OF BUSINESS OF THE COMPANY PRIOR TO THE EFFECTIVE
TIME. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms and
the Effective Time, the Company agrees, except as set forth in Section 4 of
the Company Disclosure Letter or to the extent that Parent shall otherwise
consent in writing, to carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, to
pay timely its debts and Taxes, subject to good faith disputes over such
debts or taxes, and on the same payment terms such debts and taxes have
historically been paid, to collect its receivables in the same manner and on
the same terms such receivables have historically been collected, to timely
pay or perform other material obligations when due, and to use all
commercially reasonable efforts consistent with past practices and policies
to preserve intact the Company's present business organizations, keep
available the services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with the Company, to the end that the
Company's goodwill and ongoing businesses be unimpaired at the Effective
Time. The Company shall promptly notify Parent of any material event or
occurrence not in the ordinary course of business of the Company. Except as
expressly provided for by this Agreement or as set forth on the Company
Disclosure Letter, the Company shall not, prior to the Effective Time or
earlier termination of this Agreement pursuant to its terms, without the
prior written consent of Parent (which consent shall not be unreasonably
withheld or delayed):
(a) Except as required by the Company Plans, accelerate, amend or
change the period of exercisability of options or restricted stock, or
reprice options granted under the Company Plans or authorize cash
payments in exchange for any options granted under any of such plans,
except as contemplated by Section 1.9 of this Agreement;
(b) Enter into any partnership agreements, joint development agreements
or strategic alliance agreements;
(c) Increase the pay or other compensation or grant any severance or
termination pay (i) to any executive officer or director or (ii) to any
other employee except payments made in connection with the termination
of employees who are not executive officers in amounts consistent with
Company's policies and past practices or pursuant to written agreements
in effect, or policies existing, on the date hereof and as disclosed in
Section 2.16 of the Company Disclosure Letter;
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(d) Except as set forth in Section 4(d) of the Company Disclosure
Letter, transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property
or Curricula;
(e) Commence any litigation other than (i) for the routine collection
of bills, or (ii) in such cases where the Company in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of the Company's business, provided
that the Company consults with the Parent prior to the filing of such a
suit (except that the Company shall not require the approval of, and
shall not be required to consult with, Parent with respect to any
claim, suit or proceeding by the Company against Parent or any of its
affiliates);
(f) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of the
Company;
(g) Redeem, repurchase or otherwise acquire, directly or indirectly,
recapitalize or reclassify any shares of its capital stock;
(h) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or
options to acquire, or enter into other agreements or commitments of
any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of Company
Capital Stock pursuant to the exercise of Company stock options
outstanding as of the date of this Agreement;
(i) Cause, permit or propose any amendments to the Company's Articles
or Company Bylaws, or amend any Material Contract;
(j) Except as permitted under Section 5.16 of this Agreement, sell,
lease, license, encumber or otherwise dispose of any of the Company's
properties or assets which are material, individually or in the
aggregate, to the business of the Company, except in the ordinary
course of business consistent with past practice, or liquidate, in
whole or in part;
(k) Incur any indebtedness for borrowed money in excess of $250,000 (in
the aggregate) (other than ordinary course trade payables or pursuant
to existing credit facilities in the ordinary course of business) or
guarantee any such indebtedness or issue
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or sell any debt securities or warrants or rights to acquire debt
securities of the Company or guarantee any debt securities of others;
(l) Adopt or amend any Company Plan or increase the salaries or wage
rates of any of its employees (except for wage increases in the
ordinary course of business and consistent with past practices),
including but not limited to (but without limiting the generality of
the foregoing), the adoption or amendment of any stock purchase or
option plan, the entering into of any employment contract not in the
ordinary course of business which would be a Material Contract pursuant
to Section 2.16 (b) of this Agreement or the payment of any special
bonus or special remuneration to any director or employee, other than
bonuses reflected on the Company Balance Sheet;
(m) Revalue any of the Company's assets, including without limitation
writing down the value of inventory, writing off notes or accounts
receivable other than in the ordinary course of business consistent
with past practice or waiving any right of material value;
(n) Commence any operations in connection with the Company's properties
in New Orleans, Louisiana;
(o) Pay, discharge or satisfy in an amount in excess of $50,000 (in any
one case) or $150,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), including, without limitation, under any employment
contract or with respect to any bonus or special remuneration, other
than the payment, discharge or satisfaction in the ordinary course of
business of liabilities of the type reflected or reserved against in
the Company June 30th Financials (or the notes thereto);
(p) Make or change any material election in respect of Taxes, adopt or
change in any material respect any accounting method in respect of
Taxes, file any amendment to a material Return, enter into any closing
agreement, settle any claim or assessment in respect of Taxes (except
settlements effected solely through payment of immaterial sums of
money), or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(q) Except as permitted under Section 5.16 of this Agreement, enter
into any Material Contract other than in the usual, regular and
ordinary course of business consistent with past practices and
policies;
(r) Amend or terminate any of the Company's insurance policies;
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(s) Except as set forth in Section 4(s) of the Company Disclosure
Letter, make any changes with respect to the tuition, fees, program
duration or Curricula of any of the programs offered by the School,
including, without limitation, implementing any foreign exchange
student programs;
(t) Take any action with respect to the establishment or development of
additional locations offering the School's College of Food programs,
except with respect to the Garden Grove campus;
(u) Take any action with respect to the Computer Rollout;
(v) Hire, fire (other than for cause) or change the responsibilities or
work location of any employee or prospective employee whose annual
compensation is greater than $75,000 and whose employment cannot be
terminated by the Company on thirty days notice without liability; or
(w) Enter into an agreement, agree to pay or cause to be paid
any fees for expenses of, discharge any debts to the Company owing from
or release or discharge any claims of the Company against any of the
individuals listed in Section 4(w) of the Company Disclosure Letter or
such individuals' affiliates, in connection with this Agreement or the
transactions contemplated hereby.
(x) Take, or agree in writing or otherwise to take, any of the
actions described in clauses (a) through (w) above, or any other action
which would cause or would be reasonably likely to cause any of the
conditions to the Merger set forth in Sections 6.1 or 6.3, not to be
satisfied.
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5. ADDITIONAL AGREEMENTS
5.1 COMPANY DISCLOSURE LETTER . The Company has delivered to
Parent the Company Disclosure Letter as provided in Article 2. The Company
Disclosure Letter shall be signed by the Chief Executive Officer and Chief
Financial Officer and Secretary of the Company and shall state that such
Company Disclosure Letter is the Company Disclosure Letter referred to in
this Agreement. The Company Disclosure Letter is deemed to constitute an
integral part of this Agreement and to modify, as specified, the
representations, warranties, covenants or agreements of the Company contained
in this Agreement.
5.2 PROXY STATEMENT . As promptly as practicable after the
execution of this Agreement, the Company shall prepare, and file with the
Securities and Exchange Commission, the Proxy Statement. The Proxy Statement
shall include the fairness opinion of Legg Mason Wood Walker, Incorporated,
referred to in Section 2.41 and shall conform to the requirements of Section
2.39.
5.3 MEETING OF SHAREHOLDERS . Promptly after the date hereof, the
Company shall take all action necessary in accordance with the California Law
and the Company Articles and Company Bylaws to convene the Company
Shareholders' Meeting to be held as promptly as practicable for the purpose
of voting upon approval of the principal terms of this Agreement and the
Merger. The Board of Directors of the Company shall recommend and declare
advisable such approval and the Company shall take all lawful action to
solicit from its shareholders proxies in favor of the approval of the
principal terms of this Agreement and the Merger, and use its best efforts to
obtain, such approval, subject to the fiduciary duties of the Company's
directors under California Law.
5.4 ACCESS TO INFORMATION . The Company shall afford the Parent
and its employees, accountants, legal counsel and other representatives
reasonable access during normal business hours during the period prior to the
Effective Time to all information concerning the business to inspect,
investigate and audit the contracts, operations and business of the Company
including, without limitation, providing financial aid/regulatory
information, providing access to regulatory compliance materials, conducting
a management information systems/Year 2000 audit and providing access to
accounting systems and audit controls. Parent and its representatives will
conduct the inspection and investigation in a reasonable manner during normal
business hours. The Company agrees to use its commercially reasonable efforts
to promptly and completely provide all disclosures requested by Parent or its
representatives. No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
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5.5 NO SOLICITATION .
(a) From and after the date of this Agreement until the Effective Time
or the earlier termination of this Agreement in accordance with its
terms, the Company will not, and will not permit its officers,
directors, employees, investment bankers, attorneys, accountants or
other representatives, agents or Affiliates to, directly or indirectly,
(i) solicit, initiate or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, any Acquisition
Proposal (as defined below), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or
entity in connection with, any Acquisition Proposal or (iii) agree to,
approve, recommend or otherwise endorse or support any Acquisition
Proposal. As used herein, the term "ACQUISITION PROPOSAL" shall mean
any proposal relating to a possible (i) merger, consolidation or
similar transaction involving the Company or any subsidiary of Company,
(ii) sale, lease or other disposition, directly or indirectly, by
merger, consolidation, share exchange or otherwise, of any assets of
Company or any subsidiary of the Company representing, in the
aggregate, 20% or more of the assets of Company on a consolidated
basis, (iii) issuance, sale or other disposition by the Company of
(including by way of merger, consolidation, share exchange or any
similar transaction) securities (or options, rights or warrants to
purchase or securities convertible into, such securities) representing
20% or more of the votes attached to the outstanding securities of
Company, (iv) transaction with the Company in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act), or the right to acquire beneficial ownership,
or any "group" (as such term is defined under the Exchange Act) shall
have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 20% or more of the outstanding shares of
Company Capital Stock, (v) liquidation, dissolution, or other similar
type of transaction with respect to Company or any subsidiary of
Company or (vi) transaction with the Company which is similar in form,
substance or purpose to any of the foregoing transactions, provided,
however, that the term Acquisition Proposal shall not include the
Merger and the transactions contemplated thereby. The Company will and
will cause all its Affiliates to immediately cease any and all existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. For purposes of this
Section 5.5, the term "AFFILIATE" shall mean, in relation to the
Company, any entity directly or indirectly controlling, controlled by
or under common control with the Company; PROVIDED, HOWEVER, that the
term Affiliate shall exclude any of Theodore G. Crocker, Thomas C.
Green or William Demar, or any entity directly or indirectly controlled
by any of the foregoing.
(b) Notwithstanding the provisions of Section 5.5(a) above, if a
corporation, limited liability company, limited liability partnership,
partnership, person or other
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entity or group (a "THIRD PARTY") after the date of this Agreement
submits to the Company's Board of Directors an unsolicited, bona
fide, written Acquisition Proposal, and the Company's Board of
Directors reasonably determines in good faith, after receipt of
written advice from outside legal counsel that the failure to engage
in discussions with the Third Party concerning such Acquisition
Proposal would cause the Company's Board of Directors to breach its
fiduciary duties to the Company and its shareholders, and after
consultation with Sutter Securities Incorporated, or any other
nationally recognized investment bank, then, in such case, (i) the
Company may (x) furnish information about its business, properties
and assets to the Third Party under protection of an appropriate
confidentiality agreement and (y) negotiate and participate in
discussions and negotiations with such Third Party and (ii) if the
Company's Board of Directors determines that such an Acquisition
Proposal is a Superior Proposal (as defined below), the Company's
Board of Directors may (subject to the provisions of this Section
5.5(c)) (x) withdraw or adversely modify its approval or
recommendation of the Merger and recommend such Superior Proposal or
(y) terminate this Agreement, in each case, at any time after the
fifth business day following delivery of written notice to Parent (a
"NOTICE OF SUPERIOR PROPOSAL") advising Parent that the Company's
Board of Directors has received a Superior Proposal and specifying
the material terms and conditions of such Superior Proposal. The
Company may take any of the foregoing actions pursuant to the
preceding sentence if, and only if, an Acquisition Proposal that was
a Superior Proposal continues to be a Superior Proposal in light of
any improved proposal submitted by Parent, considered in good faith
by the Company, prior to the expiration of the five business day
period specified in the preceding sentence. The Company shall
provide Parent with a final written notice, at least twenty-four
(24) hours, before accepting any Superior Proposal. For purposes of
this Agreement, "SUPERIOR PROPOSAL" means any unsolicited, bona
fide, written Acquisition Proposal for consideration consisting of
cash and/or securities, and otherwise on terms which the Company's
Board of Directors determines (based on the written advice of a
financial advisor of nationally recognized reputation, including,
without limitation, Sutter Securities Incorporated) are more
favorable to the Company's shareholders from a financial point of
view than the Merger (or other proposal submitted by Parent as
contemplated above), after consultation with its outside legal
counsel. Nothing contained herein shall prohibit the Company from
taking, and disclosing to its shareholders, a position required by
Rule 14d-9(e) under the Exchange Act prior to the fifth business day
following Parent's receipt of a Notice of Superior Proposal,
provided that the Company does not withdraw or modify its position
with respect to the Merger or approve or recommend an Acquisition
Proposal.
(c) The Company will notify Parent within 24 hours if (i) a bona fide
Acquisition Proposal is made or is modified in any respect (including
the principal terms and conditions of any such Acquisition Proposal or
modification thereto and the
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identity of the offeror) or (ii) the Company furnishes non-public
information to, or enters into discussions or negotiations with
respect to an Acquisition Proposal with, any Third Party.
(d) It is understood and agreed that, without limitation of the
Company's obligations hereunder, any violation of this Section 5.5
by any director, officer, Affiliate, investment bank, financial
advisor, accountant, attorney or other advisor or representative of
the Company, whether or not such person or entity is purporting to
act on behalf of the Company, shall be deemed to be a breach of this
Section 5.5 by the Company. The Company agrees that, as of the date
hereof, it, its Affiliates and their respective directors, officers,
employees, agents and representatives, shall immediately cease and
cause to be terminated any existing activities, discussions and
negotiations with any Third Party (other than Parent and its
representatives) conducted heretofore with respect to any
Acquisition Proposal.
5.6 EXPENSES .
(a) Except as set forth in Section 5.6(b) and Section 5.7, all fees and
expenses incurred in connection with this Agreement, the Merger and any
other transaction contemplated hereby shall be paid by the party
incurring such expenses, whether or not the Merger is consummated.
(b) In connection with any claim, dispute, disagreement or other
conflict involving the enforcement of this Article 5, the parties agree
that the prevailing party shall be reimbursed by the other party for
all reasonable attorneys' fees and costs and expenses associated with
such conflict.
5.7 BREAK-UP FEE .
(a) If this Agreement is terminated pursuant to Section 7.1(b)(ii),
7.1(b)(iii) or 7.1(b)(iv), 7.1(b)(i) as a result of any willful breach
by the Company of any representation, warranty, covenant or agreement
of the Company set forth in this Agreement (a "QUALIFYING SECTION
7.1(b)(i) TERMINATION "), Section 7.1(c)(ii) or Section 7.1(d)(iii) and
Parent is not then in breach of this Agreement (taking into account any
cure periods), then the Company shall (i) on the date specified in the
proviso to this sentence in the case of a termination of this Agreement
pursuant to Section 7.1(d)(iii) or (ii) simultaneously with a
termination of this Agreement in the case of a termination of this
Agreement as a result of a Qualifying Section 7.1(b)(i) Termination or
pursuant to Section 7.1(b)(ii), 7.1(b)(iii) or 7.1(b)(iv) or
7.1(c)(ii), pay to Parent (by wire transfer of immediately available
funds to an account designated by Parent) a break-up fee of (x)
$500,000 plus the reimbursement of all of Parent's
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Expenses, in the event of a Qualifying Section 7.1(b)(i)
Termination, or (y) $1,250,000 plus all of Parent's Expenses, in the
event of a termination pursuant to Section 7.1(b)(ii), 7.1(b)(iii),
7.1(b)(iv), 7.1(c)(ii) or 7.1(d)(iii); provided, however, that the
Company shall not be obligated to pay such fee to the Parent if this
Agreement is terminated pursuant to Section 7.1(d)(iii) unless and
until (I) at the time of the Company Shareholders' Meeting the
Company has received a bona fide Acquisition Proposal or a Third
Party has made or has publicly announced its intention to make a
bona fide Acquisition Proposal and (II) within twelve months after
the termination of this Agreement an Acquisition Proposal is
consummated by the Company with any Third Party.
(a) "EXPENSES" shall mean all of the reasonable out-of-pocket expenses
of Parent, including, but not limited to, attorneys' fees, accounting
fees, filing fees and fees and expenses of financial advisors, in each
case incurred in connection with this Agreement and the Merger,
provided, however, that Parent shall have provided reasonable
supporting documentation (such as invoices and receipts) to the Company
for such Expenses; and provided further, that in no event shall the
aggregate amount of Expenses payable by the Company pursuant to this
Section 5.7 exceed $250,000.
5.8 PUBLIC DISCLOSURE . Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with
a national securities exchange or the Nasdaq National Market (but such party
shall use its reasonable best efforts to consult with the other party as to
all such public announcements).
5.9 AUDITORS' LETTERS . The Company shall use its reasonable
efforts to cause to be delivered to the Company (with a copy to Parent) a
letter of Rooney Ida Nolt & Ahern, independent auditors to the Company, dated
a date within two business days before the date on which the Proxy Statement
is first mailed to the Company stockholders, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with Securities and
Exchange Commission filings similar to the Proxy Statement.
5.10 REGULATORY REQUIREMENTS . The Company will (a) cooperate with
Parent to take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable
efforts, as promptly as practicable to solicit input from
Governmental/Regulatory Entities regarding the process of obtaining
regulatory, Accrediting Body approvals and DOE approvals, obtain all
regulatory, Accrediting Body approvals and DOE approvals, make all filings
with and give all notices to Governmental/Regulatory Entities, and obtain all
licenses required of the Company to
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consummate the Merger and other transactions contemplated hereby, including
without limitation those described in the Company Disclosure Letter, (b)
provide such other information and communications to such
Governmental/Regulatory Entities or other persons as Parent or such
Governmental/Regulatory Entities may request and (c) cooperate with Parent as
promptly as practicable in obtaining all regulatory, Accrediting Body
approvals and DOE approvals, making all filings with and giving all notices
to Governmental/Regulatory Entities and obtaining all licenses required of
Parent to consummate the Merger and other transactions contemplated hereby.
The Company will provide prompt notification to Parent when any such
regulatory, Accrediting Body or DOE approval or license referred to in clause
(a) above is obtained, taken, made or given, as applicable, and will promptly
advise Parent of any communications (and promptly provide copies of any such
communications that are in writing or filings) with any
Governmental/Regulatory Entity regarding the Merger or any of the
transactions contemplated by this Agreement. The Company and Parent will (i)
take all reasonable actions necessary to file as soon as practicable,
notifications under the HSR Act, (ii) comply at the earliest practicable date
with any request for additional information received from the Federal Trade
Commission or Antitrust Division of the Department of Justice pursuant to the
HSR Act, and (iii) request early termination of the applicable waiting period.
5.11 LEGAL REQUIREMENTS . Each of Parent, Merger Sub and the
Company will take all reasonable actions necessary or desirable to comply
promptly with all legal requirements which may be imposed on them with
respect to the consummation of the Merger and other transactions contemplated
by this Agreement (including furnishing all information required under the
HSR Act and in connection with approvals of or filings with any
Governmental/Regulatory Entity, and prompt resolution of any litigation
prompted hereby) and will promptly cooperate with and furnish information to
any party hereto necessary in connection with any such requirements imposed
upon any of them or their respective subsidiaries in connection with the
consummation of the Merger and other transactions contemplated by this
Agreement, and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with,
any Governmental/Regulatory Entity or other public or private third party
required to be obtained or made in connection with the Merger or taking of
any action contemplated by this Agreement. The obligations of Parent under
this Section 5.11 with respect to the HSR Act shall not require Parent to
obtain or attempt to obtain any such waiver, permit, consent, approval or
authorization if obtaining such waiver, permit, consent, approval or
authorization would require disposition of any assets of Parent.
5.12 REASONABLE COMMERCIAL EFFORTS AND FURTHER ASSURANCES . Each of
the parties to this Agreement shall each use its reasonable commercial
efforts to effectuate the Merger and other transactions contemplated hereby
as expeditiously as reasonably practicable and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement (including
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promptly making their respective filings required and the resolution of any
litigation prompted hereby). Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of the Merger and other transactions
contemplated hereby.
5.13 INDEMNIFICATION .
(a) For six years from and after the Effective Time, Parent
shall, and shall cause the Surviving Corporation to, indemnify, defend
and hold harmless (and advance expenses to) all past and present
officers, directors and employees of the Company to the same extent
such persons are indemnified as of the date of this Agreement by the
Company pursuant to any agreements between the Company and any such
person and the Company's Certificate of Incorporation and By-Laws, for
any expenses, liabilities and losses (including reasonable attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred in connection with any claims, action,
suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to acts
or omissions occurring at or prior to the Effective Time (other than
any acts or omission related to violations of Section 4(w)), and shall
obtain, or continue the existing, Director and Officer Insurance for a
period of six years after the Effective Date with substantially the
same coverage as provided on the Effective Time provided, however, that
the Parent and the Surviving Corporation shall not be required to pay
an annual premium in excess of 150% of the aggregate annualized
premiums paid by the Company in 1999 (the "MAXIMUM AMOUNT"); provided,
further, that if the Surviving Corporation is unable to obtain the
insurance required by this Section 5.13 (a) it shall obtain as much
comparable insurance as possible for an annual premium equal to the
Maximum Amount. In the event of any dispute regarding whether a
director, officer or employee has met the standards of conduct set
forth therein, such question shall be conclusively determined by the
opinion of reputable disinterested legal counsel selected by the
Company's Board of Directors. Any heirs or legal representatives
entitled to the benefits of such indemnification shall be deemed
express third party beneficiaries of this Section 5.13.
(b) If Parent, the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and
assigns of Parent or the Surviving Corporation, as the case may be,
shall assume the obligations set forth in this Section 5.13.
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(c) The rights of each indemnified person under this Section
5.13 shall be in addition to any rights such person may have under any
indemnification contract between such indemnified person and the
Company, the Company Articles or Company Bylaws, or under California
Law or any other applicable laws. These rights shall survive
consummation of the Merger and are intended to benefit, and shall be
enforceable by, each indemnified person (and such person's heirs and
legal representatives) as intended third party beneficiaries of this
Section 5.13.
5.14 NOTIFICATION . Between the date of this Agreement and the
Effective Time, each party will promptly notify the other party in writing if
such party becomes aware of any development, fact or condition that causes or
constitutes a breach of any agreement or covenant under this Agreement
applicable to such party or of such party's representations and warranties as
of the date of this Agreement, or if such party becomes aware of the
occurrence after the date of this Agreement of any fact or condition that
would cause or constitute a breach of any such representation or warranty had
such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition.
5.15 COOPERATION REGARDING POST-SIGNING OPERATIONS . After the
execution of this Agreement, the Company shall cooperate with the Parent in
developing post-Closing transition policies with respect to management
information systems, marketing, admissions, personnel, outsourcing,
operations, regulatory matters and accounting, including, without limitation,
meeting regularly (at such times as shall be mutually agreed upon by the
Company and Parent) with on-site transition teams of Parent with respect to
marketing, management information systems, regulatory matters and accounting,
in accordance with Section 5.15 of the Company Disclosure Letter.
5.16 NEW ORLEANS PROJECT . The Company shall not take any action
whatsoever, including, without limitation, preparations for the commencement
of operations, signing contracts, making capital expenditures and hiring
personnel in connection with the Company's properties in New Orleans,
Louisiana (the "NEW ORLEANS Property"), except actions regarding the sale of
the New Orleans Property for not less than $3.1 million, and the Company
shall use its commercially reasonable efforts to complete such sale prior to
the Closing Date; provided any such actions shall be subject to the prior
written approval of Parent, which approval shall not unreasonably be
withheld. The Company shall promptly provide Parent with all material
documents relating to the negotiation and sale of the New Orleans Property.
5.17 TERMINATION OF 401(K) PLAN . Prior to the Closing Date, the Company's Board
of Directors shall adopt a resolution freezing and terminating each Company Plan
(as defined in Section 2.28(c)) which contains a cash or deferred arrangement
subject to Section 401(k) of the Code. As soon as practical after the Closing,
Parent may cause the terminated
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Company Plan to be filed with the Internal Revenue Service for a favorable
determination letter and shall take such other steps as it deems necessary in
its sole discretion with respect to the terminated Company Plan. Parent
agrees that it shall assume and be solely responsible for any obligations
under COBRA (as defined in Section 2.28(e)) associated with applicable
Company Plans.)
5.18 OPTION AGREEMENT . Prior to the Closing Date, Parent shall
have received Option Agreements, in the form attached as EXHIBIT A hereto
from each of Theodore G. Crocker, Thomas C. Green and William DeMar.
5.19 EMPLOYEE MATTERS . Following the Effective Time and until the
third anniversary thereof, Parent shall cause employees of the Company
immediately preceding the Effective Time ( "COMPANY EMPLOYEES") to be covered
under employee benefit plans that are substantially comparable, in the
aggregate, to the employee benefit plans provided by Parent to employees of
its other schools. Parent shall cause service with the Company to be
recognized as services for purposes of all employee benefit plans and
compensation arrangements applicable to Company Employees after the Effective
Time, to the extent such service is credited under comparable plans and
arrangements of the Parent's other schools.
5.20 REAL ESTATE DELIVERIES . The Company shall use commercially
reasonably efforts to deliver to Parent at least ten (10) days prior to the
Closing, the following with respect to each of the Leases: (i) an estoppel,
consent and amendment agreement from each of the landlords, joined by the
tenant thereof, in the form attached hereto as Exhibit B and (ii) a
subordination, nondisturbance and attornment agreement from each mortgagee or
trustee under a deed of trust or underlying or ground lessor in the form
attached hereto as Exhibit C. Additionally, the Company shall deliver to
Parent within 30 days after the date hereof, at no cost to Parent, with
respect to the Owned Real Estate (if such Owned Real Estate is still owned by
the Company at the Closing Date) and the Rental Real Estate (i) an ALTA
survey dated not earlier than one year from the date of this Agreement and
(ii) a fully paid for title insurance commitment from Chicago Title Insurance
Company insuring the Owned Real Estate (if such Owned Real Estate is still
owned by the Company at the Closing Date) and in the amount of its current
market value, and the leasehold estate for each Leased Real Estate in the
amount of $3,000,000 showing no exceptions to title reasonably objected to by
Parent, and including the following endorsements: access, zoning 3.1 issuing
compliance with land use regulations and the continued use for the purpose
use without authorization requirements, and coverage over the general policy
exceptions.
5.21 MARKETING MATTERS . The Company shall maintain its marketing
expenditures to the extent set forth in the Company's marketing budget
attached hereto as Section 5.21 of the Company Disclosure Letter.
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5.22 ADMISSIONS TRAINING . Parent shall provide to the Company, at
no cost, admissions training personnel to train the Company's admission staff
in connection with the Company's admissions policies and procedures, and the
Company agrees that all of its admissions personnel shall participate in such
training; provided, however, that such training shall not interrupt the
operations of the Company
5.23 ACCSCT AND DOE MATTERS . Parent and Merger Sub shall cooperate
with the Company to provide all reasonably requested information and use all
reasonable efforts to obtain ACCSCT and DOE approvals necessary to consummate
the Merger and the renewal of ACCSCT accreditation including, but not limited
to, providing financial assistance to the Company not to exceed $2,500,000 in
the form of a letter of credit or other financial commitment to be posted
after the Effective Time and all financial information, financial statements
or other documentation reasonably necessary to demonstrate to ACCSCT or the
DOE, or otherwise ensure, the Company's post-Closing compliance with
financial stability and responsibility requirements.
5.24 SEVERANCE AGREEMENTS . Parent shall honor, or cause the
Surviving Corporation to honor, all severance agreements and employment
agreements with the Company's directors, officers and employees which are
listed in Section 2.16 of the Company Disclosure Letter (the "SEVERANCE
AGREEMENTS"). Parent acknowledges that the consummation of the Merger
constitutes a "triggering event" for the Severance Agreement with Keith Keogh
and a "sale of the Company" under each of the other Severance Agreements.
Parent agrees to pay, or cause the Surviving Corporation to pay, promptly
following the Effective Time, the specified severance amounts to the
specified persons as set forth on Section 2.16 of the Company Disclosure
Letter if due or payable. Nothing herein is intended to modify or amend the
Severance Agreements other than to specify the time of, and responsibility
for, payment of such severance payments. The Company agrees that such amounts
listed on Section 2.16 of the Company Disclosure Letter are the only payments
due to the specified persons under such Severance Agreements.
6. CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER .
The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction at or prior to the Effective Time
of the following conditions:
(a) SHAREHOLDER APPROVAL. The principal terms of this Agreement and the
Merger shall have been approved and adopted by the requisite vote under
applicable law of the shareholders of the Company.
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(b) PROXY STATEMENT. The Company shall have cleared all of the
Securities and Exchange Commission's comments to the Proxy Statement.
No proceeding preventing distribution of the Proxy Statement or any
part thereof shall have been initiated or threatened in writing by the
SEC, and all requests for additional information on the part of the SEC
shall have been complied with to the reasonable satisfaction of the
parties hereto.
(c) NO INJUNCTIONS. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(d) HSR ACT. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(e) GOVERNMENTAL/REGULATORY CONSENTS. All consents, approvals, orders
or authorizations of, or registrations, declarations or filings with,
any Governmental/Regulatory Entity required by or with respect to the
Company, Parent or any of their respective subsidiaries in connection
with the execution and delivery of this Agreement or the consummation
of the Merger and other transactions contemplated hereby shall have
been obtained or made, except for (i) approval from the DOE and (ii)
such consents, approvals, orders, authorizations, registrations,
declarations or filings the failure to obtain or make could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company or Material Adverse Effect on
the Parent or materially impair the Company's, Parent's or Merger Sub's
ability to consummate the Merger.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY . The
obligations of the Company to consummate and effect this Agreement and the
Merger and other transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the
Company:
(a) REPRESENTATIONS AND WARRANTIES.
(i) The representations and warranties of
Parent set forth in this Agreement that are qualified
by materiality shall have been true and correct in
all respects as of the date of this Agreement and
shall be true and correct in all respects as of the
Closing Date as though made on and as of the Closing
Date (except to the extent such representations and
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warranties expressly speak as of an earlier date),
except for changes contemplated or permitted by this
Agreement;
(ii) The representations and warranties of
Parent that are not qualified by materiality shall
have been true and correct in all respects as of the
date of this Agreement and shall be true and correct
in all material respects as of the Closing Date as
though made on and as of the Closing Date (except to
the extent such representations and warranties
expressly speak as of an earlier date), except for
changes contemplated or permitted by this Agreement;
and
(iii) The Company shall have received a
certificate to the foregoing effect signed on behalf
of Parent by the President or Chief Financial Officer
of Parent.
(a) AGREEMENTS AND COVENANTS. Parent and Merger Sub
shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed
or complied with by them on or prior to the Effective Time, and the
Company shall have received a certificate to the foregoing effect
signed by the President or Chief Financial Officer of Parent.
(a) MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not have occurred any Material Adverse Effect
on Parent.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate and effect this
Agreement and the Merger and other transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) REPRESENTATIONS AND WARRANTIES.
(i) The representations and warranties of the Company set
forth in this Agreement that are qualified by materiality
shall have been true and correct in all respects as of the
date of this Agreement and shall be true and correct in all
respects as of the Closing Date as though made on and as of
the Closing Date (except to the extent such representations
and warranties expressly speak as of an earlier date), except
for changes contemplated or permitted by this Agreement;
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(i) The representations and warranties of the Company that are
not qualified by materiality shall have been true and correct
in all respects as of the date of this Agreement and shall be
true and correct in all material respects as of the Closing
Date as though made on and as of the Closing Date (except to
the extent such representations and warranties expressly speak
as of an earlier date), except for changes contemplated or
permitted by this Agreement; and
(i) Parent and Merger Sub shall have received a certificate to
the foregoing effect signed on behalf of the Company by the
President and Chief Financial Officer of the Company.
(b) AGREEMENT AND COVENANTS. The Company shall have
performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time, and the Parent and
Merger Sub shall have received a certificate to the foregoing effect
signed by the President and Chief Financial Officer of the Company.
(c) THIRD PARTY CONSENTS. Parent shall have received
all written consents, assignments, waivers, authorizations or other
certificates necessary to provide for the continuation in full force
and effect of any and all Material Contracts of the Company and for
the Company to consummate the Merger and other transactions
contemplated hereby, including, without limitation, the approval of
the California Department of Consumer Affairs and any other
applicable California Governmental/Regulatory Entities, except (1)
approval from the DOE and (2) where the failure to receive such
consents, assignments, waivers, authorizations or certificates would
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company.
(d) MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not have occurred any Material Adverse Effect
on the Company.
(e) ACCSCT ACCREDITATION. The School shall have had
the renewal of its accreditation approved by ACCSCT and no "show
cause" order shall be outstanding.
7. TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION . This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
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(b) by Parent if:
(i) there has been a breach of any material representation,
warranty, covenant or agreement contained in this Agreement on
the part of the Company and such breach has not been cured
within twenty (20) days after written notice to the Company
(PROVIDED, that Parent is not in material breach of the terms
of this Agreement; and PROVIDED FURTHER, that no cure period
shall be required for a breach which by its nature cannot be
cured) such that the conditions set forth in Section 6.3(a) or
Section 6.3(b), as the case may be, will not be satisfied;
(ii) the Board of Directors of the Company (A) adversely
amends, withholds or withdraws its recommendation of the
Merger or (B) shall have resolved or publicly announced its
intention to recommend an agreement with respect to an
Acquisition Proposal;
(iii) a tender offer or exchange offer for twenty percent
(20%) or more of the outstanding shares of Company Capital
Stock shall have been commenced or a registration statement
with respect thereto shall have been filed (other than by
Parent of an affiliate thereof) and the Board of Directors
of Company shall, notwithstanding its obligations hereunder,
have (x) recommended that the shareholders of Company tender
their shares in such tender or exchange offer or (y) publicly
announced its intention to take no position with respect to
such tender offer; or
(iv) the Company is in material breach any of the provisions
of Section 5.5;
(c) by the Company:
(i) if there has been a breach of any material representation,
warranty, covenant or agreement contained in this Agreement on
the part of the Parent or Merger Sub and such breach has not
been cured within twenty (20) days after written notice to the
Parent (PROVIDED, that the Company is not in material breach
of the terms of this Agreement; and PROVIDED FURTHER, that no
cure period shall be required for a breach which by its nature
cannot be cured) such that the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, will not be
satisfied; or
(ii) in accordance with Section 5.5(b).
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(d) by any party hereto if:
(i) there shall be a final, non-appealable order of a Federal
or state court in effect preventing consummation of the
Merger;
(i) there shall be any final action taken, or any statute,
rule, regulation or order enacted, promulgated or issued and
deemed applicable to the Merger by any
Governmental/Regulatory Entity which would make consummation
of the Merger illegal or which would prohibit Parent's
ownership or operation of all or a material portion of the
business of the Company, or compel Parent to dispose of or
hold separately all or a material portion of the business
or assets of the Company or Parent as a result of the Merger;
or
(i) the Company's Shareholders do not approve the Merger
at the Company Shareholders' Meeting.
(e) by any party hereto if the Merger shall not have
been consummated by April 26, 2000 (the "Termination Date")
provided, however, that either party may extend the Termination Date
to any day up to, and including, June 30, 2000 in the event that as
of the Termination Date all of the conditions set forth in Section 6
of this Agreement have been satisfied other than approval of the
Merger by (i) the California Department of Consumer Affairs or (ii)
ACCSCT; provided, further, that the right to terminate this
Agreement under this Section 7.1(e) shall not be available (i) to
any party whose willful failure to fulfill any material obligation
under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date or
(ii) to the Company or Parent during a cure period provided to the
Company under Section 7.1(b)(i) or Parent under Section 7.1(c)(i).
7.2 EFFECT OF TERMINATION . In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Merger Sub, the Company or their respective officers, directors, stockholders
or affiliates, except to the extent that such termination results from the
breach by a party hereto of any of its representations, warranties, covenants
or agreements set forth in this Agreement, and, provided that the provisions
of Sections 5.6 and 5.7 and Article 8 of this Agreement shall remain in full
force and effect and survive any termination of this Agreement. The exercise
by either party of a termination right pursuant to Section 7.1 shall not be
deemed a breach of any provision of this Agreement.
7.3 NOTICE OF TERMINATION . Any termination of this Agreement
under Section 7.1 above will be effective immediately upon the delivery of
written notice of the
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terminating party to the other parties hereto upon satisfaction of the
requirements set forth in Section 7.1.
7.4 AMENDMENT . This Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf
of each of the parties hereto.
7.5 EXTENSION; WAIVER . At any time prior to the Effective Time
any party hereto may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto
and (c) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. Failure of any party to
insist on full compliance with each and every representation, warranty,
covenant, condition or term shall not create an estoppel.
8. GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive beyond the Effective Time.
8.2 NOTICES . All communications or notices required or permitted
by this Agreement shall be in writing and shall be deemed to have been given
at the earlier of the date personally delivered or sent by telephonic
facsimile transmission (with a copy via regular mail) or one day after
sending via nationally recognized overnight courier or five days after
deposit in the United States mail, certified or registered mail, postage
prepaid, return receipt requested, and addressed as follows, unless and until
any of such parties notifies the others in accordance with this Section 8.2
of a change of address :
(a) if to Parent or Merger Sub, to:
Career Education Corporation
2800 West Higgins Road
Suite 790
Hoffman Estates, Illinois 60195
Attention: John M. Larson
Todd H. Steele
Telecopy No.: (847) 781-3610
with a copy to:
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Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois
Attention: Lawrence D. Levin, Esq.
David J. Kaufman, Esq.
Telecopy No.: (312) 902-1061
(b) if to the Company, to:
California Culinary Academy
625 Polk Street
San Francisco, California 94102
Attention: Chief Executive Officer
Telecopy No.: (415) 775-5129
with a copy to:
Pillsbury Madison & Sutro LLP
Post Office Box 7880
San Francisco, California 94120
Attention: Blair W. White
Telecopy No.: (415) 983-1200
8.3 INTERPRETATION . When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include", "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity. References in this Agreement to
"knowledge" shall mean the knowledge of the officers and directors of the
Company or Parent, as the case may be.
8.4 COUNTERPARTS . This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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8.5 ENTIRE AGREEMENT . This Agreement and the documents and
instruments and other agreements among the parties hereto as contemplated by
or referred to herein, including the Company Disclosure Letter (a) constitute
the entire agreement among the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, it
being understood that the Confidentiality Agreement shall continue in full
force and effect until the Closing and shall survive any termination of this
Agreement; and (b) are not intended to confer upon any other person any
rights or remedies hereunder, except with respect to Article 1, Section 5.13
and Section 5.24.
8.6 SEVERABILITY . In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
8.7 OTHER REMEDIES . Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
8.8 GOVERNING LAW . This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law thereof. Each of the parties hereto agrees that process may
be served upon them in any manner authorized by the laws of the State of
California for such persons and waives and covenants not to assert or plead
any objection which they might otherwise have to such jurisdiction and such
process.
8.9 RULES OF CONSTRUCTION . The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
8.10 ASSIGNMENT . No party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the parties.
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EXECUTION COPY
8.11 COMPANY DISCLOSURE LETTER . The Company Disclosure Letter is
part of this Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses and the Company Disclosure Letter shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require. The inclusion of any information in the Company Disclosure
Letter shall not be deemed to be an admission or an acknowledgment by the
Company that such information is material to or outside the ordinary course
of business activity of the Company. The specification of any dollar amount
in the representations and warranties set forth in this Agreement shall not
be deemed to constitute an admission by the Company or otherwise imply that
any such amount is material for purposes of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
EXECUTION COPY
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
CAREER EDUCATION CORPORATION CALIFORNIA CULINARY ACADEMY, INC.
By: /s/ Keith Keogh
By: /s/ John M. Larson ------------------------------
------------------------------- Name: Keith Keogh
Name: John M. Larson ----------------------------
----------------------------- Title: President/Chief Executive Officer
Title: CEO --------------------------------
----------------------------
CCA ACQUISITION, LLC
By: /s/ John M. Larson
-------------------------------
Name: John M. Larson
-----------------------------
Title: CEO
----------------------------
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<PAGE>
EXECUTION COPY
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. THE MERGER 1
1.1 The Merger 1
1.2 Effective Time 1
1.3 Effect of the Merger 2
1.4 Name; Certificate of Incorporation; Bylaws 2
1.5 Directors and Officers 2
1.6 Effect on Capital Stock 2
1.7 Dissenters' Rights 3
1.8 Surrender of Certificates 3
1.9 Existing Options 5
1.10 No Further Ownership Rights in Company Capital Stock 5
1.11 Lost, Stolen or Destroyed Certificates 5
1.12 Taking of Necessary Action; Further Action 5
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6
2.1 Organization of the Company 6
2.2 Company Capital Structure 7
2.3 Obligations With Respect to Capital Stock 7
2.4 Voting Debt 7
2.5 Listing 8
2.6 Authority; No Conflicts 8
2.7 SEC Filings; Company Financial Statements 9
2.8 Accounting Record 10
2.9 Absence of Certain Changes or Events 10
2.10 Liabilities 11
2.11 Taxes 11
2.12 Restrictions on Business Activities13
2.13 Absence of Liens and Encumbrances 13
2.14 Real Estate 14
2.15 Intellectual Property and Curricula15
2.16 Agreements, Contracts and Commitments 16
2.17 No Default 17
2.18 Compliance with Laws; Licenses 18
2.19 Recruitment; Admissions Procedures; Attendance Reports 19
2.20 Cohort Default Rate 20
2.21 Delivery of Documents 20
2.22 Student Recruiting 21
2.23 Control Matters 21
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EXECUTION COPY
<S> <C>
2.24 Financial Assistance Programs 22
2.25 Litigation 22
2.26 Insurance 23
2.27 Labor Matters 23
2.28 Employee Benefits 23
2.29 Accreditation and State Licensure/Approval 25
2.30 Computer Rollout 25
2.31 Relationships with Related Persons 25
2.32 State "Anti-Takeover" Statutes 26
2.33 Change of Control Payments26
2.34 Environmental Protection 26
2.35 Vote Required 27
2.36 No Pending Transactions 27
2.37 Year 2000 28
2.38 Proxy Statement 28
2.39 Board Approval 28
2.40 Fairness Opinion 28
2.41 Brokers' and Finders' Fees29
2.42 ACCSCT and DOE Matters. 29
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
29
3.1 Organization of Parent/Merger Sub 29
3.2 Authority; No Conflict 30
3.3 Litigation. 31
3.4 Sufficient Funds. 31
3.5 Board Approval 31
3.6 Brokers' and Finders' Fees31
3.7 Operations of Merger Sub 31
3.8 Information Supplied 31
3.9 Agreements with Shareholders 31
4. CONDUCT OF BUSINESS OF THE COMPANY PRIOR TO THE EFFECTIVE TIME
32
5. ADDITIONAL AGREEMENTS 35
5.1 Company Disclosure Letter 35
5.2 Proxy Statement 35
5.3 Meeting of Shareholders 35
5.4 Access to Information 36
5.5 No Solicitation 36
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EXECUTION COPY
<S> <C>
5.6 Expenses 38
5.7 Break-Up Fee 38
5.8 Public Disclosure 39
5.9 Auditors' Letters 39
5.10 Regulatory Requirements 40
5.11 Legal Requirements 40
5.12 Reasonable Commercial Efforts and Further Assurances 41
5.13 Indemnification 41
5.14 Notification 42
5.15 Cooperation Regarding Post-Signing Operations 42
5.16 New Orleans Project 42
5.17 Termination of 401(k) Plan42
5.18 Option Agreement 43
5.19 Employee Matters 43
5.20 Real Estate Deliveries 43
5.21 Marketing Matters 43
5.22 Admissions Training 43
5.23 ACCSCT and DOE Matters 44
5.24 Severance Agreements 44
6. CONDITIONS 44
6.1 Conditions to Obligations of Each Party to Effect the Merger 44
6.2 Additional Conditions to Obligations of The Company 45
6.3 Additional Conditions to Obligations of Parent and Merger Sub 46
7. TERMINATION, AMENDMENT AND WAIVER 47
7.1 Termination 47
7.2 Effect of Termination 49
7.3 Notice of Termination 49
7.4 Amendment 49
7.5 Extension; Waiver 49
8. GENERAL PROVISIONS 50
8.1 Non-Survival of Representations and Warranties. 50
8.2 Notices 50
8.3 Interpretation 51
8.4 Counterparts 51
8.5 Entire Agreement 51
8.6 Severability 51
8.7 Other Remedies 52
8.8 Governing Law 52
8.9 Rules of Construction 52
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EXECUTION COPY
<S> <C>
8.10 Assignment 52
8.11 Company Disclosure Letter 52
</TABLE>
"1992 Plan" 7
"1997 Plan" 7
"1998 Plan" 7
"Accrediting Body" 8
"ACCSCT" 19
"ACFEI" 19
"Acquisition Proposal" 36, 37
"Affiliate" 37
"Agreement of Merger" 1
"Agreement" 1
"California Law" 1
"Certificate of Merger" 1
"Certificates" 4
"Closing Date" 2
"Closing" 2
"COBRA" 25
"Code" 12
"Company Articles" 2
"Company Balance Sheet." 10
"Company Bylaws" 2
"Company Capital Stock" 2
"Company Disclosure Letter" 6
"Company Employees" 43
"Company Financials" 9
"Company June 30th Financials" 10
"Company Option Plans." 7
"Company Plan" 24
"Company Preferred Stock" 7
"Company SEC Reports." 9
"Company Shareholders' Meeting" 28
"Company" 1
"Computer Rollout" 25
"Curricula" 16
"Delaware Law" 1
"DOE" 19
"Effective Time" 2
"Engagement Letter" 29
"Environmental Claim" 26
"Environmental Laws" 27
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GLOSSARY OF DEFINED TERMS
"Environmental Release" 27
"ERISA Affiliate" 24
"ERISA" 24
"Exchange Act" 9
"Existing Option" 5
"Expenses" 39
"Family" 25
"Financial Assistance" 22
"Governmental/Regulatory Entity" 9
"Hazardous Materials" 27
"HIPAA" 25
"HSR Act" 9
"Intellectual Property" 16
"Leases" 14
"Licenses" 18
"Material Adverse Effect" 6, 29
"Material Contract" 16
"Maximum Amount" 41
"Merger Consideration" 3
"Merger Sub" 1
"Merger" 1
"multiemployer plan" 24
"New Orleans Property" 42
"Notice of Superior Proposal" 37
"Owned Real Estate" 14
"Parent" 1
"Paying Agent" 3
"Payment Fund" 3
"pension plan" 24
"Permitted Liens" 14
"Policy Guidelines" 19
"Proxy Statement" 28
"Qualifying Section 7.1(b)(i) Termination" 38
"Real Estate" 15
"Related Persons" 25
"Rental Real Estate" 14
"Returns" 11
"School" 6
"Securities Act" 9
"Severance Agreements" 44
"Superior Proposal" 37
"Surviving Company." 1
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GLOSSARY OF DEFINED TERMS
"Systems" 28
"Tax Agreement" 11
"Tax" or "Taxes" 11
"Third Party" 37
"Title IV Program" 18
"Title IV" 18
"United States Real Property Holding Corporation" 13
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ANNEX B
EXECUTION COPY
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "AGREEMENT") dated as of December 6, 1999 is by
and between Career Education Corporation, a Delaware corporation (the
"ACQUIROR"), and the other parties signatory hereto (each a "SHAREHOLDER").
RECITALS
Acquiror, CCA Acquisition, LLC, a Delaware limited liability company and an
indirect wholly-owned subsidiary of Acquiror ("ACQUISITION SUB"), and California
Culinary Academy, Inc., a California corporation (the "COMPANY"), are
negotiating an Agreement and Plan of Merger (as such agreement may be executed
and amended from time to time, the "MERGER AGREEMENT"; capitalized terms used
but not defined herein shall have the meanings set forth in the Merger
Agreement), a draft of which has been circulated to the parties, pursuant to
which (and subject to the terms and conditions specified therein) the
Acquisition Sub will be merged with and into the Company (the "MERGER"), whereby
each share of common stock, no par value, of the Company ("COMPANY COMMON
STOCK") issued and outstanding immediately prior to the effective time will be
converted into the right to receive the Merger Consideration, other than
(i) shares of Company Common Stock owned, directly or indirectly, by the Company
or any subsidiary of the Company or by Acquiror and (ii) Dissenting Shares.
As a condition to Acquiror's negotiating and entering into the Merger
Agreement, Acquiror requires that each Shareholder enter into, and each such
Shareholder has agreed to enter into, this Agreement with Acquiror.
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein, the parties hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Each Shareholder
hereby severally and not jointly represents and warrants to Acquiror as follows:
(a) OWNERSHIP OF SHARES. (i) Such Shareholder is either (a) the
record holder or beneficial owner, either alone or with such Shareholder's
spouse, of the number of or (b) trustee of a trust that is the record
holder or beneficial owner of, and whose beneficiaries are the beneficial
owners (such trustee, a "TRUSTEE") of shares of Company Common Stock as is
set forth opposite such Shareholder's name on Schedule I hereto (such
shares shall constitute the "EXISTING SHARES", and together with any shares
of Company Common Stock acquired of record or beneficially by such
Shareholder in any capacity after the date hereof and prior to the
termination hereof, whether upon exercise of options, conversion of
convertible securities, purchase, exchange or otherwise, shall constitute
the "SHARES").
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(ii) On the date hereof, the Existing Shares set forth
opposite such Shareholder's name on Schedule I hereto constitute
all of the outstanding shares of Company Common Stock owned of
record or beneficially by such Shareholder. Such Shareholder
does not have record or beneficial ownership of any Shares not
set forth on Schedule I hereto.
(iii) Such Shareholder has sole power, or shared power with
such Shareholder's spouse, of disposition with respect to all of
the Existing Shares set forth opposite such Shareholder's name on
Schedule I and sole power, or shared power with such
Shareholder's spouse, to demand dissenter's or appraisal rights,
in each case with respect to all of the Existing Shares set forth
opposite such Shareholder's name on Schedule I, with no
restrictions on such rights, subject to applicable federal
securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. Such Shareholder has the legal
capacity, power and authority to enter into and perform all of such
Shareholder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by such Shareholder will not violate any
other agreement to which such Shareholder is a party or by which such
Shareholder is bound including, without limitation, any trust agreement,
voting agreement, Shareholders agreement, voting trust, partnership or
other agreement. This Agreement has been duly and validly executed and
delivered by such Shareholder and constitutes a valid and binding agreement
of such Shareholder, enforceable against such Shareholder in accordance
with its terms. There is no beneficiary of or holder of interest in any
trust of which a Shareholder is Trustee whose consent is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. If such Shareholder is married and such
Shareholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Shareholder's spouse, enforceable against such
person in accordance with its terms.
(c) NO CONFLICTS. Except for filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), if
applicable, and the expiration or termination of any applicable waiting
period thereunder, (A) no filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Shareholder and the
consummation by such Shareholder of the transactions contemplated hereby
and (B) neither the execution and delivery of this Agreement by such
Shareholder nor the consummation by such Shareholder of the transactions
contemplated hereby nor compliance by such Shareholder with any of the
provisions hereof shall (x) conflict with or result in any breach of any
applicable trust, partnership agreement or other agreements or
organizational documents applicable to such Shareholder, (y) result in a
violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
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agreement or other instrument or obligation of any kind to which such
Shareholder is a party or by which such Shareholder or any of such
Shareholder's properties or assets may be bound or (z) violate any order,
writ, injunction, decree, judgment, statute, rule or regulation applicable
to such Shareholder or any of such Shareholder's properties or assets.
(d) LIENS. Such Shareholder's Shares and the certificates
representing such Shares are now and at all times during the term hereof
will be held by such Shareholder, or by a nominee or custodian for the
benefit of such Shareholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder or listed on SCHEDULE 1(D).
(e) BROKERS. No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Shareholder in his or her capacity as such.
(f) ACKNOWLEDGMENT. Such Shareholder understands and acknowledges
that Acquiror is entering into the Merger Agreement in reliance upon such
Shareholder's execution and delivery of this Agreement with Acquiror.
(g) REVIEW OF MERGER AGREEMENT. Such Shareholder (other than Thomas
C. Green) has received and reviewed a copy of the Merger Agreement and the
Company Disclosure Letter delivered therewith and, to the knowledge of such
Shareholder, neither the Merger Agreement or the Company Disclosure Letter
contains any untrue statement of a material fact or omits to state any
material fact required to be state therein or necessary to make the
statements therein not misleading.
2. OPTION GRANTED TO ACQUIROR.
(a) Each Shareholder, severally and not jointly, hereby grants to
Acquiror an irrevocable option to purchase all, but not less than all, of
such Shareholder's Shares at any time prior to the termination of the
Merger Agreement in accordance with its terms, on the terms and subject to
the conditions set forth herein (collectively, with respect to all the
Shareholder's Shares, the "ACQUIROR OPTION"), which Acquiror Option shall
attach to each Shareholder's Shares and be binding upon any person or
entity to which legal or beneficial ownership of such Shares shall pass,
whether by operation of law or otherwise, including without limitation such
Shareholder's heirs, guardians, administrators or successors or as a result
of any divorce.
(b) If Acquiror wishes to exercise the Acquiror Option, Acquiror
shall send a written notice to each Shareholder of its election to exercise
the Acquiror Option, any time prior to the Closing, which exercise shall be
subject to the fulfillment of the conditions specified in Section 2(e)
hereof. The place and date of the closing of the Acquiror Option
("ACQUIROR OPTION CLOSING") shall be the same as the Closing, and the time
of the Acquiror Option Closing shall be immediately prior to the Closing.
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(c) At the Acquiror Option Closing, each Shareholder shall deliver to
Acquiror all of such Shareholder's Shares by delivery of a certificate or
certificates evidencing such Shares, duly endorsed to Acquiror or
accompanied by stock powers duly executed in favor of Acquiror, with all
necessary stock transfer stamps affixed.
(d) At the Acquiror Option Closing, Acquiror shall pay to the
Shareholders, by wire transfer in immediately available funds to the
account of such Shareholders specified in writing no more than one business
day prior to the Acquiror Option Closing, an amount equal to the product of
the Merger Consideration and the number of Shares purchased pursuant to the
exercise of the Acquiror Option.
(e) Each of the following conditions must be satisfied at the time
the Acquiror Option is exercised and at the time of the Acquiror Option
Closing:
(i) no court, arbitrator or governmental body, agency or
official shall have issued any order, decree or ruling (which has
not been stayed or suspended pending appeal) and there shall not
be any effective statute, rule or regulation, restraining,
enjoining or prohibiting the consummation of the purchase and
sale of the Shares pursuant to the exercise of the Acquiror
Option;
(ii) any waiting period applicable to the consummation of
the purchase and sale of the Shares pursuant to the exercise of
the Acquiror Option under the HSR Act shall have expired or been
terminated; and
(iii) all of the conditions set forth in Article 6 of the
Merger Agreement shall have been satisfied or waived.
3. CERTAIN COVENANTS OF SHAREHOLDERS. Except in accordance with the
terms of this Agreement, each Shareholder hereby severally covenants and agrees
as follows:
(a) NO SOLICITATION. Prior to the termination of the Merger
Agreement in accordance with its terms, no Shareholder shall, in its
capacity as such, directly or indirectly (including through advisors,
agents or other intermediaries), solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by
any person or entity (other than Acquiror, Acquisition Sub or any affiliate
thereof) with respect to the Company that constitutes or could reasonably
be expected to lead to an Acquisition Proposal (as defined in the Merger
Agreement). If any Shareholder in its capacity as such receives any such
inquiry or proposal, then such Shareholder shall promptly inform Acquiror
in writing of the terms and conditions, if any, of such inquiry or proposal
and the identity of the person making it. Each Shareholder, in its capacity
as such, will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER, PROXIES AND NONINTERFERENCE; RESTRICTION
ON WITHDRAWAL. Prior to the termination of the Merger Agreement in
accordance with its terms, no Shareholder shall, directly or indirectly:
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(i) except pursuant to the terms of the Merger Agreement and to Acquiror
pursuant to this Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, enforce or permit the execution
of the provisions of any redemption agreement with the Company or enter
into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, or exercise any
discretionary powers to distribute, any or all of such Shareholder's Shares
or any interest therein, including any trust income or principal, except in
each case to a Permitted Transferee who is or agrees in a writing executed
by the Acquiror to become bound by this Agreement; (ii) grant any proxies
or powers of attorney with respect to any Shares, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares;
or (iii) take any action that would make any representation or warranty of
such Shareholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Shareholder from performing such Shareholder's
obligations under this Agreement. For purposes of the Agreement,
"PERMITTED TRANSFEREES" means, with respect to a Shareholder, any of the
following persons: (a) the spouse of such Shareholder, provided that at all
relevant times of determination such Shareholder is not separated or
divorced from, or is not involved in separation or divorce proceedings
with, such spouse; (b) the issue of such Shareholder; (c) any charitable
foundation or similar organization founded by such Shareholder; (d) a trust
of which there are no principal beneficiaries other than (i) such
Shareholder, (ii) such Shareholder's spouse (provided that at all relevant
times of determination such Shareholder is not separated or divorced from,
or is not involved in separation or divorce proceedings with, such spouse),
(iii) the issue of such Shareholder, or (iv) any charitable foundation or
similar organization founded by such Shareholder; (e) the legal
representative of such Shareholder in the event such Shareholder becomes
mentally incompetent; and (f) the beneficiaries under (i) the will of such
Shareholder or the will of such Shareholder's spouse, or (ii) a trust
described in clause (d) above.
(c) WAIVER OF APPRAISAL AND DISSENTER'S RIGHTS. Each Shareholder
hereby waives any rights of appraisal or rights to dissent from the Merger
that such Shareholder may have. Each Trustee represents that no beneficiary
who is a beneficial owner of Shares under any trust has any right of
appraisal or right to dissent from the Merger which has not been so waived.
(d) NO TERMINATION OR CLOSURE OF TRUSTS. Unless, in connection
therewith, the Shares held by any trust which are presently subject to the
terms of this Agreement are transferred upon termination to one or more
Shareholders and remain subject in all respects to the terms of this
Agreement, or other Permitted Transferees who upon receipt of such Shares
become signatories to this Agreement, the Shareholders who are Trustees
shall not take any action to terminate, close or liquidate any such trust
and shall take all steps necessary to maintain the existence thereof at
least until the termination of the Merger Agreement in accordance with its
terms.
(e) VOTING OF COMPANY STOCK. Each Shareholder hereby agrees that,
prior to the termination of the Merger Agreement in accordance with its
terms, at any meeting (whether annual or special and whether or not an
adjourned or postponed
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meeting) of the holders of Company Common Stock, however called, or in
connection with any written consent of the holders of the Company Common
Stock, he will appear at the meeting or otherwise cause the Shares to be
counted as present thereat for purposes of establishing a quorum and vote
or consent (or cause to be voted or consented) the Shares, except as
otherwise agreed to in writing in advance by the Acquiror in its
sole discretion, in favor of any business combination with Acquiror and
against the following actions: (a) any Acquisition Proposal (as defined in
the Merger Agreement) or (b) any other action which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone or
materially adversely affect the transactions contemplated by this Agreement
or the Merger Agreement. Each Shareholder agrees that he will not enter
into any agreement or understanding with any Person the intended or
reasonably anticipated effect of which would be inconsistent with or
violative of any provision contained in this SECTION 3(e).
(f) GRANT OF PROXY; APPOINTMENT OF PROXY. Each Shareholder hereby
revokes any and all previous proxies granted with respect to the Shares.
Prior to the termination of the Merger Agreement in accordance with its
terms, each Shareholder hereby irrevocably grants to, and appoints,
Acquiror, or any nominee of Acquiror, such Shareholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name,
place and stead of such Shareholder, to vote the Existing Shares at every
annual, special, or adjourned meeting, or grant a consent or approval in
respect of the Shares in favor of any business combination proposed by
Acquiror, and against the following actions (a) any Acquisition Proposal
(as defined in the Merger Agreement) or (b) any other action which is
intended, or could reasonably be expected, to impede, interfere with,
delay, postpone or materially adversely affect the transactions
contemplated by this Agreement or the Merger Agreement. Each Shareholder
shall have no claim against such proxy and attorney-in-fact, for any action
taken, decision made or instruction given by such proxy and
attorney-in-fact on accordance with this Agreement or the Merger Agreement.
Such proxy is irrevocable and the appointment is coupled with an interest
in the Shares.
4. FURTHER ASSURANCES. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5. CERTAIN EVENTS. Each Shareholder agrees that this Agreement and the
obligations hereunder shall attach to such Shareholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation such Shareholder's heirs, guardians, administrators or successors or
as a result of any divorce.
6. STOP TRANSFER. Each Shareholder agrees with, and covenants to,
Acquiror that such Shareholder shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Shareholder's Shares, unless such transfer is made in
compliance with this Agreement.
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7. TERMINATION. If the Merger Agreement is signed by December 15, 1999,
then in the event the Merger Agreement is terminated in accordance with its
terms, the obligations set forth in this Agreement shall also terminate. If the
Merger Agreement is not signed by December 15, 1999, then the obligations set
forth in this Agreement will terminate upon the later to occur of:
(a) December 15, 1999; or (b) December 15, 2000, if an Acquisition Proposal is
announced or consummated before December 15, 2000.
8. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, together with the
Merger Agreement (and the Exhibits and Schedule thereto) (i) constitute the
entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof and (ii) shall not be assigned by operation of law or otherwise
without the prior written consent of the other party.
(b) AMENDMENTS. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto; provided that Schedule I may be
supplemented by Acquiror by adding the name and other relevant information
concerning any Shareholder of the Company who is or agrees to be bound by
the terms of this Agreement without the agreement of any other party
hereto, and thereafter such added Shareholder shall be treated as a
"SHAREHOLDER" for all purposes of this Agreement.
(c) NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given; as of the date of
delivery, if delivered personally; upon receipt of confirmation, if
telecopied or upon the next business day when delivered during normal
business hours to an overnight courier service, such as Federal Express, in
each case to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice; unless the
sending party has knowledge that such notice or other communication
hereunder was not received by the intended recipient:
If to the Shareholders:
Theodore G. Crocker
244 Valhalla Drive
Solvang, CA 93463
William G. DeMar
6 Steuban Bay
Alameda, CA 94502
Thomas C. Green
c/o Thomas Green Securities
601 S. Figueroa Street, Suite 2750
Los Angeles, CA 90017
B-7
<PAGE>
with a copy to:
William E. Waterman, Jr.
600 West Ninth Street
Suite 1109
Los Angeles, CA 90015
Fax: 213/891-9335
If to Acquiror:
Career Education Corporation
2800 West Higgins Road, Suite 790
Hoffman Estates, IL 60195
Attn: John M. Larson, President and Chief Executive Officer
Fax: 847/781-3610
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, IL 60661-3693
Attn: Lawrence D. Levin
David J. Kaufman
Fax: 312/577-8641
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(d) GOVERNING LAW. The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the State of
California, without giving effect to the principles of conflict of laws
thereof.
(e) COSTS. The parties will each be solely responsible for and bear
all of its own respective expenses, including, without limitation, expenses
of legal counsel, accountants, and other advisors, incurred at any time in
connection with pursuing or consummating the Agreement and the transactions
contemplated thereby.
(f) ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of
which shall constitute one and the same Agreement.
B-8
<PAGE>
(h) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(i) SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any party or set of circumstances shall, in any
jurisdiction and to any extent, be finally held invalid or unenforceable,
such term or provision shall only be ineffective as to such jurisdiction,
and only to the extent of such invalidity or unenforceability, without
invalidating or rendering unenforceable any other terms or provisions of
this Agreement under any other circumstances, and the parties shall
negotiate in good faith a substitute provision which comes as close as
possible to the invalidated or unenforceable term or provision, and which
puts each party in a position as nearly comparable as possible to the
position it would have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.
(j) DEFINITIONS; CONSTRUCTION. For purposes of this Agreement:
(i) "BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with
respect to any securities shall mean having "BENEFICIAL
OWNERSHIP" of such securities (as determined pursuant to Rule
13d-3 under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same securities by
the same holder, securities Beneficially Owned by a Person shall
include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "GROUP" as described in
Section 13(d)(3) of the Exchange Act.
(ii) "PERSON" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated
organization or other entity.
(iii) In the event of a stock dividend or distribution, or
any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of
shares or the like, the term "SHARES" shall be deemed to refer to
and include the Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all
of the Shares may be changed or exchanged. In addition, in the
event of any change in the Company's capital stock by reason of
stock dividends, stock splits, mergers, consolidations,
recapitalizations, combinations, conversions, exchanges of
shares, extraordinary or liquidating dividends, or other changes
in the corporate or capital structure of the Company which would
have the effect of diluting or changing the Acquiror's rights
hereunder, the number and kind of shares or securities subject to
the Option and the purchase price per Share (but not the total
purchase price) shall be appropriately and equitably adjusted so
that the Acquiror shall receive upon exercise or the Acquiror
Option the number and class of shares or other securities or
property that
B-9
<PAGE>
the Acquiror would have received in respect of the
Shares purchasable upon exercise of the Acquiror Option if the
Acquiror Option had been exercised immediately prior to such
event. Each Shareholder shall take such steps in connection with
such consolidation, merger, liquidation or other such action as
may be necessary to assure that the provisions hereof shall
thereafter apply as nearly as possible to any securities or
property thereafter deliverable upon exercise of the Acquiror
Option.
(k) SHAREHOLDER CAPACITY. Notwithstanding anything herein to the
contrary, no person executing this Agreement who is, or becomes during the
term hereof, a director of the Company makes any agreement or understanding
herein in his or her capacity as such director, and the agreements set
forth herein shall in no way restrict any director in the exercise of his
or her fiduciary duties as a director of the Company. Each Shareholder has
executed this Agreement solely in his or her capacity as the record or
beneficial holder of such Shareholder's Shares or as the trustee of a trust
whose beneficiaries are the beneficial owners of such Shareholder's Shares.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Acquiror and each Shareholder have caused this
Agreement to be duly executed as of the day and year first above written.
/s/ Theodore G. Crocker CAREER EDUCATION CORPORATION
-----------------------
Theodore G. Crocker
/s/ William G. DeMar By: /s/ John M. Larson
----------------------- --------------------------
William G. DeMar Name: John M. Larson
Title: President and Chief Executive
Officer
/s/ Thomas C. Green
-----------------------
Thomas C. Green
B-10
<PAGE>
SCHEDULE I
RECORD HOLDER NUMBER OF SHARES
Theodore G. Crocker 1,199,348
William G. DeMar 150,935
Thomas C. Green 177,127
B-11
<PAGE>
SCHEDULE 1(d)
<TABLE>
<CAPTION>
RECORD HOLDER NUMBER OF ACCOUNT TYPE OF ACCOUNT
SHARES
<S> <C> <C> <C>
Theodore G. Crocker 313,550 Wells Fargo Bank Collateral for lines of credit
(Line of Credit)
403,538 Mid Peninsula Bank Collateral for lines of credit
(Line of Credit)
200,000 First National Bank Collateral for lines of credit
(Line of Credit)
63,550 Co-America Bank Collateral for lines of credit
(Line of Credit)
208,408 Legg Mason General margin account
3,702 Piper Jaffray General margin account
6,600 Sutro Shares unencumbered
TOTAL 1,199,348
</TABLE>
<TABLE>
<CAPTION>
RECORD HOLDER NUMBER OF ACCOUNT TYPE OF ACCOUNT
SHARES
<S> <C> <C> <C>
William DeMar 900 Investec General margin account
100 MDG General margin account
149,935 Legg Mason General margin account
TOTAL 150,935
</TABLE>
<TABLE>
<CAPTION>
RECORD HOLDER NUMBER OF ACCOUNT TYPE OF ACCOUNT
SHARES
<S> <C> <C> <C>
Thomas C. Green 177,127 Thomas Green General margin account
Securities, Inc.
</TABLE>
B-12
<PAGE>
CONSENT OF SPOUSE
The undersigned, __________, does hereby certify that: I am the spouse of
___________; I have carefully read the foregoing Option Agreement (the
"Agreement") to which this consent is attached relating to the granting of an
option with respect to the stock of California Culinary Academy, Inc. (the "CCA
STOCK"). I fully and completely understand its meaning and effect; I fully and
completely consent to and approve the purposes and wisdom of its provisions and
agree to be bound by the terms thereof to the extent that it may affect any
community property that I may have together with my spouse or any separate
property interest that I may have in the CCA Stock; I agree to be bound by the
terms and conditions of said instrument as surviving spouse, heir, devisee or
legatee of my spouse, to the extent that my interest may be affected; and I
acknowledge that the parties to the Agreement to which this consent is attached
are entering into it in reliance on the consent herein given by me. I have been
advised of my right to obtain separate counsel.
Dated: ________________ _____________________________
B-13
<PAGE>
ANNEX C
FORM OF OPINION LETTER
December __, 1999
Board of Directors
California Culinary Academy, Inc.
625 Polk St.
San Francisco, CA 94102
Attention: Keith Keogh, Chief Executive Officer
Dear Sirs:
We understand that California Culinary Academy, Inc. ("California Culinary")
intends to enter into a merger with Career Education Corporation pursuant to
which shareholders of California Culinary will receive $5.25 per share in cash
(the "Transaction").
You have provided us with the Agreement and Plan of Merger among California
Culinary, Career Education Corporation and CCA Acquisition, LLC (the "Merger
Agreement") and with the proxy statement in substantially the form to be sent to
the shareholders of California Culinary (the "Proxy Statement").
You have asked us to render our opinion as to whether the Transaction is fair,
from a financial point of view, to the shareholders of California Culinary.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement and the Merger Agreement;
2. reviewed California Culinary's Annual Report on Form 10-K for the
fiscal year ended June 30, 1999, its Annual Reports to Shareholders
and Annual Reports on Form 10-K for the fiscal years ended June 30,
1997 and 1998, and its Quarterly Report on Form 10-Q for the period
ended September 30, 1999;
3. met with certain members of California Culinary's senior management to
discuss its operations, historical financial statements and future
prospects;
4. visited California Culinary's facilities in San Francisco, California;
5. reviewed certain data with respect to the Transaction prepared by Legg
Mason Wood Walker Incorporated;
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<PAGE>
6. reviewed the historical market prices and trading volume of the common
shares of California Culinary;
7. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
California Culinary;
8. reviewed data with respect to certain acquisitions of companies which
we deemed generally comparable to California Culinary; and
9. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by
California Culinary. We understand that management has not prepared a financial
projection for the current year. We have not assumed any responsibility for the
information provided to us and we have further relied upon the assurances of the
management of California Culinary that it is unaware of any facts that would
make the information or projections provided to us incomplete or misleading. In
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets of California Culinary . Our opinion is necessarily
based on economic, market and other conditions, and the information made
available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the Transaction is fair, from a
financial point of view, to the shareholders of California Culinary.
Very truly yours,
SUTTER SECURITIES INCORPORATED
By: /s/Gil Mathews
------------------------
Senior Managing Director
C-2
<PAGE>
ANNEX D
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
Section 1300. Reorganization or short-form merger; dissenting shares;
corporate purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all the following descriptions:
(1) Which were not immediately prior to there organization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to any
class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on there organization and (A) were not voted in
favor of there organization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph),were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
D-1
<PAGE>
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
Section 1301. Notice to holders of dissenting shares in reorganizations;
demand for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303,1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4)of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Submission of share certificates for endorsement;
uncertified securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands
D-2
<PAGE>
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall
bear a like statement, together with the name of the original dissenting
holder of the shares.
Section 1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within30 days after the amount thereof
has been agreed or within 30days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. Action to determine whether shares are dissenting shares or
fair market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares(Section 152) or notice pursuant
to subdivision (i) of Section1110 was mailed to the shareholder, but not
thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. Report of appraisers; confirmation; determination by court;
judgment; payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
D-3
<PAGE>
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, appraisal exceeds the price offered by the
corporation, the corporation shall pay the costs (including in the shall be
assessed or apportioned as the court considers equitable, but, if the discretion
of the court attorneys' fees, fees of expert witnesses and interest at the legal
rate on judgments from the date of compliance with Sections 1300, 1301 and 1302
if the value awarded by the court for the shares is more than 125 percent of the
price offered by the corporation under subdivision (a) of Section 1301).
Section 1306. Prevention of immediate payment; status as creditors;
interest
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
Section 1307. Dividends on dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. Rights of dissenting shareholders pending valuation;
withdrawal of demand for payment
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is
D-4
<PAGE>
agreed upon or determined. A dissenting shareholder may not withdraw a
demand for payment unless the corporation consents thereto.
Section 1309. Termination of dissenting share and shareholder status
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304,within six months after the date on which notice of the
approval by the outstanding shares or notice pursuant to subdivision (i)of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. Suspension of right to compensation or valuation
proceedings; litigation of shareholders' approval.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. Exempt shares.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
Section 1312. Right of dissenting shareholder to attack, set aside or
rescind merger or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have
any right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted
in favor thereof; but
D-5
<PAGE>
any holder of shares of a class whose terms and provisions specifically set
forth the amount to be paid in respect to them in the event of a
reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization
are approved pursuant to subdivision(b) of Section 1202, is entitled to
payment in accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10days' prior
notice to the corporation and upon a determination by the court that clearly no
other remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and(2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
D-6
